As Filed with the Securities Exchange Commission on , 1997
Registration No. 333-09953
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4
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: As soon as
practicable following the declaration of effectiveness of this registration
statement.
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 |_|.
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
Item Number and Caption Caption in or Part of Prospectus
A.Information About the Transaction
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
and the Exchange Offer;
The Proposed Amendments;
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
and the Exchange Offer;
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
C.Information About the Company Being Acquired
15. Information With Respect to S-3
Companies.................................. Summary; Risk Factors;
The Proposed
Consolidation and the
Exchange Offer; The
Consolidated Partnership;
Financial Statements
16. Information With Respect to S-2 or
S-3 Companies.............................. Summary; The Proposed
Consolidation and the
Exchange Offer; 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 and
the Exchange Offer;
The Consolidated
Partnership;
The Proposed Amendments
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited, or in an Exchange Offer......... Summary; The Proposed
Consolidation and the
Exchange Offer;
The Consolidated
Partnership;
The Proposed Amendments
<PAGE>
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ENEX
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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, 1997
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,
800 Rockmead Drive, Three Kingwood Place, Suite 200, Kingwood, Texas 77339, on
xxxxxxxx xx, 1997 at 2:30 p.m. Houston time (the "Meetings").
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 of the participating Partnerships will dissolve and terminate by
consolidating its assets in a new partnership, ENEX CONSOLIDATED PARTNERS, L.P.
(the "Consolidated Partnership"),
(2) consider and vote upon amendments to their respective Certificates and
Agreements of Limited Partnership in connection with and in furtherance of the
proposed consolidation (as set forth in Appendix D to the accompanying
prospectus/proxy statement), and
(3) transact such other business that may properly come before the Meetings
or any adjournments thereof.
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, 1997 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 and the related amendments 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 AND THE EXCHANGE OFFER--Terms of the
Consolidation--Partnership Voting Requirements and Rights".
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.
By Order of the Board of Directors of
ENEX RESOURCES CORPORATION,
General Partner
Gerald B. Eckley, President
xxxxxxx x, 1997
<PAGE>
SUBJECT TO COMPLETION, DATED , 1997
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ENEX
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PROSPECTUS/PROXY STATEMENT AND EXCHANGE OFFER
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 latter
named partnerships being hereinafter referred to as the "Income and Retirement
Fund Partnerships," and together with the other twenty-five partnerships, 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"). Under the Plan of Consolidation, each Partnership will receive
a number of Units based upon the relative exchange value, as of September 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, as of December 31,
1995, as adjusted by the General Partner for estimated sales of oil and gas
produced during the period of January 1 through September 30, 1996, and for cash
on hand, short term investments, receivables, and prepaids and liabilities of
each Partnership. Special meetings of the Partnerships (the "Meetings") will be
held to consider and vote upon (1) the proposal to adopt and agree to the Plan
of Consolidation and (2) amendments to each Partnership's certificate and
agreement of limited partnership ("Partnership Agreement") which are necessary
to implement the Plan of Consolidation. Each Partnership's approval of the
consolidation proposal and the amendments to its Partnership Agreement 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 AND THE EXCHANGE OFFER--Terms of the
Consolidation--Conditions to the Consolidation and
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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 ,
1997.
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.
<PAGE>
the Exchange Offer" are met or waived, including approval of the Consolidation
and the Partnership Agreement amendments 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 consideration to be received by the Partnerships and the
General Partner (including future compensation)
and the other terms of the Consolidation, including the
consideration and future compensation to be received
by the General Partner, were determined by the General Partner,
which, because it holds differing amounts of
Interests in the various Partnerships and because of its ability
to determine its compensation and the amount it
must pay to limited partners who exercise their dissenters' rights
and all other terms of the Consolidation, faces
a conflict of interest in determining how to allocate costs and
benefits among the Partnerships, and, with respect
to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
The General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to
negotiate the terms of the Consolidation. As a result, limited
partners may receive less consideration than they
might have had an independent representative been appointed or if
their Partnership's assets were sold to an
unaffiliated party in an arms-length transaction.
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 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.
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 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.
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, telephone: (713) 358-8401. In order to ensure timely delivery of
documents, any request should be made by , 1997.
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, as amended, for each of the Partnerships for the year ended December 31,
1995 and their Quarterly Reports on Form 10-QSB, as amended, for the quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996 are incorporated into
this Prospectus/Proxy Statement by reference. A copy of such Annual Report on
Form 10-KSB and such Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1996, each as amended to date, for each Partnership in which a
limited partner hold Interests, accompanies this Prospectus/Proxy Statement. In
addition, all documents filed by the Partnerships pursuant to Sections 13(a), 13
(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus/Proxy Statement 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 , 1997 (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.
--------------------------------------------
<PAGE>
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.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
INFORMATION INCORPORATED BY
<S> <C>
REFERENCE.....................................................2
SUMMARY........................................................4
Introduction..................................................4
Objectives of the Consolidation
and the Exchange Offer.......................................8
Risk Factors..................................................8
Conditions to the Consolidation
and the Exchange Offer.......................................9
Exchange Offer...............................................10
Recommendation of the Board..................................10
Alternatives to Consolidation................................10
Fairness of the Transaction..................................11
Partnership Voting Requirements and Rights...................13
Dissenters' Rights; List of Partners.........................13
Tax Consequences of the Consolidation........................14
Tax Consequences of the Exchange Offer.......................14
Costs of the Consolidation
and the Exchange Offer......................................14
RISK FACTORS..................................................15
The Proposed Consolidation
and the Exchange Offer......................................15
The Consolidated Partnership.................................17
SELECTED FINANCIAL DATA.......................................20
Management's Discussion and Analysis
of Financial Condition and Results of Operations.............28
THE PROPOSED CONSOLIDATION
AND THE EXCHANGE OFFER.......................................31
Partnerships Subject To The Consolidation....................31
The Consolidation Schedule...................................32
Method of Determining Exchange Values........................35
Background of the Consolidation
and the Exchange Offer......................................39
Alternatives to the Consolidation
and the Exchange Offer......................................40
Fairness of the Transaction..................................45
Terms of the Consolidation...................................47
Consequences to the General Partner..........................54
Partner Lists................................................55
THE EXCHANGE OFFER............................................55
THE PROPOSED AMENDMENTS.......................................57
Page
THE CONSOLIDATED PARTNERSHIP..................................58
Proposed Activities..........................................58
Transfer of Units............................................72
Right of Presentment.........................................73
No Assessments...............................................75
Participation in Costs and Revenues..........................75
Compensation.................................................80
Management...................................................81
Conflicts of Interest........................................87
Competition, Markets and Regulation..........................88
Summary of the Articles of Limited Partnership...............89
Applicability of the New Jersey Act..........................92
TAX ASPECTS...................................................93
Federal Income Tax Introduction..............................93
The Proposed Consolidation...................................94
The Exchange Offer...........................................94
Participation in the Consolidated Partnership................95
Other Tax Aspects...........................................100
Possible Changes in Federal Tax Laws and
Regulations................................................100
EMPLOYEE RETIREMENT INCOME
SECURITY ACT................................................100
GENERAL INFORMATION..........................................101
Legal Opinion...............................................101
Experts.....................................................101
ADDITIONAL INFORMATION.......................................102
INDEX TO FINANCIAL STATEMENTS................................103
</TABLE>
LIST OF APPENDICES
Appendix A:...................................Tables
Appendix B:..........Articles of Limited Partnership
Appendix C:....................Plan of Consolidation
Appendix D:......................Proposed Amendments
The statements contained herein that are not historical facts are
forward-looking statements and therefore involve a number of risks and
uncertainties. The actual results of the future events described in such
forward-looking statements in this Prospectus/Proxy Statement, including those
regarding the Partnerships' financial results, levels of oil and gas production
or revenue, capital expenditures and capital resource activities could differ
materially from those estimated, anticipated or projected. Among the factors
that could cause actual results to differ materially are: general economic
conditions, competition, and government regulations, fluctuations in oil and
natural gas prices and the factors set forth in "RISK FACTORS" below, as well as
the risks and uncertainties set forth from time to time in the Partnerships'
other public reports filed with the SEC and incorporated by reference herein.
<PAGE>
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 (named below) 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 and a copy of the Plan of Consolidation is
attached as Appendix C. A proposal to amend each Partnership's Partnership
Agreement to provide for the Consolidation is described in "THE PROPOSED
AMENDMENTS". All of the Partnerships 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 (including
with respect to cash distribution versus cash reinvesting policies). 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 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 Meetings may be adjourned by the General Partner from time to
time.
<TABLE>
<CAPTION>
Table S-1
The Partnerships
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
4
<PAGE>
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>
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*The aggregate amount of limited partners' initial subscriptions divided by
$500.
The address of each Partnership is c/o Enex Resources Corporation, 800
Rockmead Drive, Three Kingwood Place, Suite 200, 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 "THE CONSOLIDATED PARTNERSHIP--Proposed Activities--Description of
Properties" below and 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 and related 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 September 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, as of December 31, 1995, as adjusted
by the General Partner for estimated sales of oil and gas produced during the
period of January 1 through September 30, 1996, and cash on hand, short term
investments, receivables prepaids and liabilities of each Partnership.
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. To determine
such fair market values, Gruy estimated each property's proved oil and gas
reserves, applied certain assumptions regarding price and cost escalations, and
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 September 30, 1996. For additional information see "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER--Method of Determining Exchange
Values". The limited partners of each participating Partnership and the General
Partner will each receive a pro rata share of the Units received by such
Partnership, determined in accordance with the dissolution and termination
provisions of such Partnership's Partnership Agreement, as amended pursuant to
the transactions described herein. See "THE PROPOSED CONSOLIDATION AND THE
EXCHANGE OFFER", "THE PROPOSED AMENDMENTS" and Table S-2 below.
Table S-2 is presented on the basis of an assumed maximum level of
acceptance by all of the Partnerships. Table S-3 is presented on the basis of 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, and which in the aggregate have an exchange value greater than $10
million. The Partnerships included in the assumed minimum acceptance
presentation were Enex Program I Partners, L.P.; Enex Oil and Gas Income Program
II - Series 7, 8, 9, and 10 L.P.s; Enex Oil and Gas Income Program III - Series
1, 2, 3, 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
5
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
TABLE S - 2
EXCHANGE VALUE ATTRIBUTABLE TO GENERAL PARTNER AND LIMITED PARTNER INTERESTS
Attributable to
Limited Partners (1)
----------------------------------------------------
% of total Exchange Units Dissenters'
Exchange Units Units Value per Offered per Value per
Partnership* Value Offered Offered $500 unit $500 unit $500 Interest(2)
<S> <C> <C> <C> <C> <C> <C>
100 $3,667,142 366,714 24.29% $18.94 1.89 $20.91
207 803,040 80,304 5.32% 90.54 9.05 99.04
208 544,096 54,410 3.60% 92.80 9.28 102.65
209 250,493 25,049 1.66% 80.58 8.06 91.66
210 343,114 34,311 2.27% 87.61 8.76 98.69
301 23,409 2,341 0.16% 7.86 0.79 16.66
302 74,636 7,464 0.49% 17.48 1.75 26.26
303 454,036 45,404 3.01% 70.84 7.08 79.73
304 75,211 7,521 0.50% 13.90 1.39 18.17
305 63,479 6,348 0.42% 5.88 0.59 7.73
306 129,478 12,948 0.86% 20.42 2.04 24.07
307 40,167 4,017 0.27% 8.87 0.89 12.42
308 74,969 7,497 0.50% 10.42 1.04 13.10
401 40,684 4,068 0.27% 6.29 0.63 8.19
402 49,543 4,954 0.33% 10.03 1.00 11.79
404 87,565 8,757 0.58% 34.74 3.47 40.74
405 225,899 22,590 1.50% 49.53 4.95 53.83
406 130,653 13,065 0.87% 30.20 3.02 33.16
407 214,947 21,495 1.42% 42.81 4.28 47.39
051 212,562 21,256 1.41% 46.93 4.69 52.00
052 75,567 7,557 0.50% 25.42 2.54 30.94
053 110,125 11,013 0.73% 54.51 5.45 62.18
054 801,670 80,167 5.31% 271.36 27.14 297.91
055 536,230 53,623 3.55% 217.67 21.77 241.52
601 348,661 34,866 2.31% 172.54 17.25 196.00
501 101,279 10,128 0.67% 37.02 3.70 45.04
502 271,980 27,198 1.80% 94.31 9.43 102.90
503 125,891 12,589 0.83% 42.14 4.21 47.20
525 43,919 4,392 0.29% 19.09 1.91 22.23
526 42,246 4,225 0.28% 20.44 2.04 25.50
527 311,482 31,148 2.06% 100.84 10.08 110.69
531 366,426 36,643 2.43% 123.16 12.32 135.57
532 116,705 11,671 0.77% 57.77 5.78 65.39
533 546,700 54,670 3.62% 251.35 25.13 274.26
---------------------------------
Totals $11,304,004 1,130,400 74.88%
=================================
</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.
(2) Calculated as of March 15, 1997. See "THE PROPOSED CONSOLIDATION - Terms
the Consolidation - Dissenters' Rights" for the methodology used to determine
the dissenters' value per $500 Interest.
===============================================================================
6
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
TABLE S - 2
EXCHANGE VALUE ATTRIBUTABLE TO GENERAL PARTNER AND LIMITED PARTNER INTERESTS
Attributable to
General Partner 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>
100 $985,305 98,531 6.53% $4,652,447 465,245 30.82%
207 41,513 4,151 0.28% 844,553 84,455 5.59%
208 83,145 8,315 0.55% 627,241 62,724 4.16%
209 124,110 12,411 0.82% 374,603 37,460 2.48%
210 127,327 12,733 0.84% 470,441 47,044 3.12%
301 258,719 25,247 1.67% 282,128 27,587 1.83%
302 332,207 32,319 2.14% 406,843 39,782 2.64%
303 160,029 14,628 0.97% 614,065 60,032 3.98%
304 175,397 17,333 1.15% 250,608 24,854 1.65%
305 150,475 14,273 0.95% 213,954 20,621 1.37%
306 110,993 10,238 0.68% 240,471 23,186 1.54%
307 128,810 12,273 0.81% 168,977 16,290 1.08%
308 135,765 12,815 0.85% 210,734 20,311 1.35%
401 100,509 9,257 0.61% 141,193 13,325 0.88%
402 56,116 5,021 0.33% 105,659 9,975 0.66%
404 87,979 8,010 0.53% 175,544 16,766 1.11%
405 54,868 3,816 0.25% 280,767 26,406 1.75%
406 45,650 3,405 0.23% 176,303 16,470 1.09%
407 36,937 2,440 0.16% 251,884 23,935 1.59%
051 50,496 2,463 0.16% 263,058 23,719 1.57%
052 107,626 8,931 0.59% 183,193 16,487 1.09%
053 63,369 4,602 0.30% 173,494 15,615 1.03%
054 125,405 3,270 0.22% 927,075 83,437 5.53%
055 85,292 2,527 0.17% 621,522 56,150 3.72%
601 140,168 9,125 0.60% 488,829 43,991 2.91%
501 139,843 13,734 0.91% 241,122 23,861 1.58%
502 19,016 1,598 0.11% 290,996 28,796 1.91%
503 57,631 5,444 0.36% 183,522 18,033 1.19%
525 48,629 4,393 0.29% 92,548 8,785 0.58%
526 77,190 7,271 0.48% 119,436 11,496 0.76%
527 24,972 1,445 0.10% 336,454 32,593 2.16%
531 30,387 1,348 0.09% 396,813 37,991 2.52%
532 58,343 4,790 0.32% 175,048 16,461 1.09%
533 39,054 971 0.06% 585,754 55,641 3.69%
------------------------------- -------------------------------
Totals $4,263,275 379,122 25.12% $15,567,279 1,509,522 100.00%
=============================== ================================
</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.
(2) Calculated as of March 15, 1997. See "THE PROPOSED CONSOLIDATION - Terms
the Consolidation - Dissenters' Rights" for the methodology used to determine
the dissenters' value per $500 Interest.
===============================================================================
6
<PAGE>
===============================================================================
<TABLE>
<CAPTION>
TABLE S - 3
EXCHANGE VALUE ATTRIBUTABLE TO GENERAL PARTNER AND LIMITED PARTNER INTERESTS
Assumed Minimum Acceptance
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>
100 $3,667,142 366,714 35.59% $985,305 98,531 9.56% $4,652,447 465,245 45.15%
207 803,040 80,304 7.79% 41,513 4,151 0.40% 844,553 84,455 8.20%
208 544,096 54,410 5.28% 83,145 8,315 0.81% 627,241 62,724 6.09%
209 250,493 25,049 2.43% 124,110 12,411 1.20% 374,603 37,460 3.64%
210 343,114 34,311 3.33% 127,327 12,733 1.24% 470,441 47,044 4.57%
301 23,409 2,341 0.23% 258,719 25,247 2.45% 282,128 27,587 2.68%
302 74,636 7,464 0.72% 332,207 32,319 3.14% 406,843 39,782 3.86%
304 75,211 7,521 0.73% 175,397 17,333 1.68% 250,608 24,854 2.41%
305 63,479 6,348 0.62% 150,475 14,273 1.39% 213,954 20,621 2.00%
306 129,478 12,948 1.26% 110,993 10,238 0.99% 240,471 23,186 2.25%
307 40,167 4,017 0.39% 128,810 12,273 1.19% 168,977 16,290 1.58%
308 74,969 7,497 0.73% 135,765 12,815 1.24% 210,734 20,311 1.97%
401 40,684 4,068 0.39% 100,509 9,257 0.90% 141,193 13,325 1.29%
402 49,543 4,954 0.48% 56,116 5,021 0.49% 105,659 9,975 0.97%
052 75,567 7,557 0.73% 107,626 8,931 0.87% 183,193 16,487 1.60%
053 110,125 11,013 1.07% 63,369 4,602 0.45% 173,494 15,615 1.52%
501 101,279 10,128 0.98% 139,843 13,734 1.33% 241,122 23,861 2.32%
502 271,980 27,198 2.64% 19,016 1,598 0.16% 290,996 28,796 2.79%
525 43,919 4,392 0.43% 48,629 4,393 0.43% 92,548 8,785 0.85%
526 42,246 4,225 0.41% 77,190 7,271 0.71% 119,436 11,496 1.12%
527 311,482 31,148 3.02% 24,972 1,445 0.14% 336,454 32,593 3.16%
----------------------------- ------------------------- -----------------------------------
Totals $7,136,059 713,606 69.25% $3,291,036 316,887 30.75% $10,427,095 1,030,492 100.00%
================================ ============================= ===================================
</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.
======================================================================
7
<PAGE>
Objectives of the Consolidation and the Exchange Offer
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 and operating expenses of at least $445,000 per
year, and, if all Partnerships participate in the Consolidation, in
excess of $824,000 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer--Fairness of the Transaction" below in this
Summary.
Risk Factors
Before voting on the Consolidation and the proposed Partnership Agreement
amendments, 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 Conflicts of Interest of the General Partner in Determining Consideration.
The consideration to be received by the participating Partnerships in the
Consolidation and the General Partner (including future compensation) and the
other terms of the Plan of Consolidation, including the consideration and future
compensation to be received by the General Partner, were determined by the
General Partner, which has inherent conflicts of interest stemming from its
various revenue interests and ownership percentages in each Partnership and
because of its ability to determine its compensation and the amount it must pay
to limited partners who exercise their dissenters' rights and all other terms of
the Consolidation. These conflicts affect the allocation of costs and benefits
among the Partnerships and, with respect to the total mix of consideration and
future compensation, between the limited partners and the General Partner. The
General Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase limited partnership
Interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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 Risks of Disadvantageous Exchange Values. In approving the Consolidation,
or accepting the Exchange Offer, a limited partner risks that his Partnership's
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. Gruy's valuations are as of December 31,
1995 and values may have changed or may change before the date of the
Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values."
o Conflicts of Interest of the General Partner in the Future Management of
the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
8
<PAGE>
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." Although New Jersey and Texas
state law do not address the issue of whether approval of the Consolidation by
the limited partners may serve to extinguish certain related fiduciary claims
against the General Partner, Delaware courts, which are often looked to for
guidance on undecided corporate issues, have in several cases involving
corporations held that fully informed stockholder approval of a transaction may,
in certain circumstances, serve to extinguish certain related fiduciary claims
against directors.
o Risk of Decreases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, limited
partners of some of the Partnerships will experience a decrease in distributions
over the amounts that would have been sustainable by their Partnerships. See
"RISK FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of
Decreases in Distributions" and Table F.
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 ("UBTI") to tax-exempt limited partners. This is of particular
significance to the limited partners of the Enex Income and Retirement Fund
Partnerships. 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 UBTI
from other sources and the total exceeds $1,000 per year. The General Partner
anticipates that no limited partner will receive more than $1,000 per year of
UBTI from the Consolidated Partnership. See "TAX ASPECTS--Participation in the
Consolidated Partnership--Considerations for Tax-Exempt Limited Partners."
o Risk of Taxable Income in Excess of Cash Distributions. 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 Risk of Dilution of Voting Interest. 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 addition, the
General Partner currently has voting Interests in the Partnerships ranging from
4.05% to 54.10%, but will have a voting interest in the Consolidated Partnership
of 47.08% if all Partnerships participate in the Consolidation (57.40% with the
maximum amount of dissenting Interests), and 57.97% if the minimum number of
Partnerships participate (68.28% with the maximum amount of dissenting
Interests). 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."
o Risk of Decreases in Oil and Gas Prices. 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."
Conditions to the Consolidation and the Exchange Offer
The Consolidation will not take place unless (a) the proposed Consolidation
and the proposed Partnership Agreement amendments are 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; (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; and (d) all necessary governmental and third
party permits, consents and other approvals have been obtained. The
Consolidation will not be deemed approved by a Partnership unless the
Partnership Agreement amendments have been approved by its limited partners and
the Partnership Agreement amendments will not take effect for a Partnership
unless its limited partners approve 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 or will be complied with or obtained. If one or more of
- --------
1By reason of the General Partner's ownership of more than 54% of the
Interests in Enex Program I Partners, L.P., that Partnership's participation in
the Consolidation, with its $4.7 million exchange value, is assured.
9
<PAGE>
the Partnerships that approve the transaction suffer a materially adverse
development, and the withdrawal of such Partnership or Partnerships from the
Consolidation would not have a material adverse effect on the Consolidated
Partnership, the General Partner may, in its sole discretion, either consummate
the Consolidation without including the assets of the Partnership or
Partnerships which suffer a materially adverse development or resolicit the
limited partners of such Partnership or Partnerships and include such
Partnership or Partnerships in the Consolidation if the requisite percentage of
resolicited Partners approve the Consolidation based upon exchange values which
have been revised to give effect to the changed circumstances. If the exchange
value of any Partnership determined at the time of transfer has decreased by
less than 15% from the exchange value set forth herein, such decrease will not
be deemed material. Conversely, any decrease 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 AND THE EXCHANGE OFFER--Terms of the
Consolidation--Conditions to the Consolidation".
Exchange Offer
Any Partnership that does not approve the Plan of Consolidation or the
Partnership Agreement amendments 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 and the Partnership Agreement amendments, 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 AND THE
EXCHANGE OFFER--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 below. 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 Proposed Consolidation and the Exchange Offer--Fairness
of the Transaction"), the General Partner's board of directors unanimously
determined that the Consolidation and related Partnership Agreement amendments
are fair to and in the best interests of the limited partners of each and all of
the Partnerships, regardless of which Partnerships participate in the
Consolidation, and (I) approved the Plan of Consolidation and recommended that
the limited partners vote "FOR" the Consolidation and related Partnership
Agreement amendments 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 involve conflicts of interest. See "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risks of
Disadvantageous Exchange Values" and "--Conflicts of Interest of the General
Partner in Determining Consideration" and "THE PROPOSED CONSOLIDATION AND THE
EXCHANGE OFFER--Method of Determining Exchange Values" and "--Fairness of the
Transaction."
Alternatives to 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 less
than the net present value of the discounted anticipated cash flows of a
property's proved oil and gas reserves. In addition, the General Partner is owed
an aggregate of $1.98 million by the
10
<PAGE>
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 and 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. Table E below sets forth the estimated annual
general and administrative cost savings to be yielded by the Consolidation for
the limited partners of each Partnership, which represents the General Partner's
estimate of the additional value to be received each year by such limited
partners through participation in the Consolidation as compared to the
alternative of continuation. Table E-1 below sets forth a comparison of the
exchange value used in the Consolidation with the value of each Partnership if
it continues to operate as a separate entity ("going concern value"). The
estimates of general and administrative costs savings set forth in Table E
below, in "--Costs of the Consolidation and the Exchange Offer", "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--Alternatives to the Consolidation and the
Exchange Offer--Overhead and Operating Costs" and "--THE EXCHANGE
OFFER--Administrative Efficiencies" constitute forward-looking statements that
involve known and unknown risks and uncertainties which may cause the actual
annual general and administrative cost savings in future periods to differ
materially from such forecasts. These risks include risks generally associated
with the incurrence of general and administrative expenses in connection with
oil and gas production and marketing operations, and are described in detail in
"RISK FACTORS." 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 AND THE EXCHANGE OFFER--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 (I) participation in the Consolidated Partnership, whether by
the participation of a Partnership in the Consolidation or by the participation
of a limited partner through the Exchange Offer, and without regard to the
identity of the other participating Partnerships and limited partners, would be
more beneficial to the limited partners than continuing in their Partnerships,
and (ii) maximum participation in the Consolidation would provide a greater
benefit to limited partners than any smaller partial consolidation, regardless
of the particular combination of Partnerships, in each case 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 AND THE
EXCHANGE OFFER--Background of the Consolidation and the Exchange Offer" 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 which Partnerships participate in the Consolidation
or the manner in which the limited partners participate in the Consolidation,
i.e. through the participation of their Partnership(s) or participation in the
Exchange Offer.
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 Partnerships' properties by Gruy,
an Independent Expert. See "--Risk Factors--Risks of Disadvantageous Exchange
Values" above. The General Partner does not believe that alternative methods of
valuing the Partnership properties would result in valuations of the
Partnerships' properties materially different from those yielded by Gruy's
valuations. Even assuming that alternative valuation methods would yield
valuations materially different from Gruy's valuations, in the General Partner's
experience, oil and gas properties are generally purchased and sold at prices
based on 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
methodology for estimating the realizable value of the Partnership properties
and the fairest basis for determining the number of Units to be distributed in
consideration for the participating Partnerships' assets. In structuring the
Consolidation, the General Partner strove to ensure that the terms and
provisions of the Articles did not materially differ from the terms and
provisions of the Partnership Agreements. See "--Differences in Rights and
Responsibilities" below. The exchange values 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
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on hand, short term investments, receivables and prepaid assets and payables. In
addition, if average oil and gas prices have increased since the date of the
Gruy valuations, the General Partner will make the following adjustment. Once
the limited partners vote on the Consolidation is completed, the General Partner
will recalculate the value of the oil and gas reserves of the Partnerships that
participate in the Consolidation using increased prices for oil and gas and
adjust the Partnership valuations accordingly. The resulting increased
Partnership valuations will be used to determine (and reduce) the number of
Units the General Partner will receive for its exchange of Partnership debt and
to determine an increased cash amount to be paid to dissenters. No adjustment
will be made to the number of Units to be received in exchange for interests in
the participating Partnerships because the General Partner anticipates that any
price changes will, on a comparative basis, have an insignificant effect on the
exchange values of the Partnerships in relation to each other. 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,
consequently, fair to limited partners from both a procedural and substantive
standpoint. See "THE PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER--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
Articles 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."
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. Under their
Partnership Agreements, the limited partners of the four Texas partnerships may
elect additional or successor general partners by a vote of a majority in
interest but have no right to vote on the removal of the General Partner. The
Partnership Agreements of 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 do 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."
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, although the General Partner's voting rights as a
limited partner will be increased as a result of its exchange of indebtedness
for Units(see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER--Method of
Determining Exchange Values--Indebtedness to the General Partner") and to the
extent that it purchases the limited partnership Interests of limited partners
who exercise their dissenters' rights described below under the caption
"--Dissenters' Rights, List of Partners." The General Partner currently has
voting Interests in the Partnerships ranging from 4.05% to 54.10%, but will have
a voting interest in the Consolidated Partnership of 47.08% if all Partnerships
participate in the Consolidation, and 57.40% if all of Partnerships participate
in the Consolidation and the maximum number of limited partners exercise their
dissenters' rights. The limitations on the General Partner's voting rights
described in "THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and other Rights of the Limited Partners" will continue to
apply on a proportional basis under the Articles.
Limited partners 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 (0% or 10%) will be blended
into a single interest in the revenues of the Consolidated Partnership (which is
expected to be 3.03% 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 AND THE EXCHANGE OFFER--Terms of the
Consolidation--Partnership Voting Requirements and Rights". If the required vote
is obtained to approve a Partnership's participation in the Consolidation and
the related Partnership Agreement amendments, the 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
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the Units they receive will be distributed to their partners. See "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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 proposals set forth in the accompany Notice will be entitled to vote
either FOR or AGAINST the Consolidation and the related Partnership Agreement
amendments 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 and the related Partnership
Agreement amendments. See "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Partnership Voting Requirements and Rights"
and Table 2 in Appendix A.
Request for Admission as Limited Partner: Unless otherwise indicated,
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
proposals 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 General Partner. See "THE CONSOLIDATED
PARTNERSHIP--Right of Presentment" and "THE PROPOSED CONSOLIDATION AND THE
EXCHANGE OFFER--Terms of the Consolidation--Partnership Voting Requirements and
Rights".
Partnerships That Do Not Approve the Consolidation or the Partnership
Agreement Amendments : Partnerships whose limited partners do not approve the
Consolidation or the Partnership Agreement amendments 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 the 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 limited partners of his Partnership (regardless of whether
or not he voted in favor of the Plan of Consolidation) and will be entitled to
receive Units of the Consolidated Partnership. See "THE PROPOSED CONSOLIDATION
AND THE EXCHANGE OFFER--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 or abstaining from a Partnership's
participation in the Consolidation and the Partnership Agreement amendments in
the manner indicated thereon. If no instructions are given, such Interests will
be counted as a vote in favor of the Consolidation and the Partnership Agreement
amendments. Because approval of the Consolidation and the Partnership Agreement
amendments 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. 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 Unitholders: 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 to the General Partner for the exchange
value of such Interests in cash if they vote against the Consolidation, their
Partnership does participate in the Consolidation, and they follow certain
specified procedures. If a limited partner perfects his dissenters' rights
pursuant to the terms and conditions set forth below under the caption "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER--Terms of the
Consolidation--Dissenters' Rights," the General Partner will be required to
purchase such limited partner's interests for cash; provided, however, that
these dissenters' rights will not allow dissenting Interest holders to receive
cash for their Interests from any person other than the General Partner or 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. Gruy's valuations are fair market valuations. However,
if average oil and gas prices for the preceding 12 months determined on or about
the twentieth (20th) day prior to the date of the Meetings (the "Dissenters'
Valuation Date"), are greater than those used by Gruy, the General Partner will
reprocess the Gruy valuations
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with the increased prices and base the amounts paid to dissenters on the new
valuations. As of March 15, 1997 average oil and gas prices were approximately
10% greater than those used by Gruy. See "THE PROPOSED CONSOLIDATION AND THE
EXCHANGE OFFER--Terms of the Consolidation--Dissenters' Rights" and Table 19 in
Appendix A for dissenters' valuations per $500 Interest. 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 AND THE EXCHANGE OFFER--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 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 the Exchange Offer" 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 and the Exchange Offer
Except as indicated below, 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 1/2% 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. If the Consolidation is effectuated, but a
Partnership does not participate in the Consolidation it will not bear any of
such costs, rather such Partnership's proportionate share, based on its share of
the aggregate exchange value of the costs of the Consolidation, will be borne by
the General Partner (i.e., they will not be borne by the Consolidated
Partnership). The General Partner estimates, however, that if the Consolidation
is consummated, aggregate savings in reduced direct, administrative and
operating costs will exceed at least $445,000 per year (if the minimum number of
Partnerships participate in the Consolidation) and, if all the Partnerships
participate in the Consolidation, $824,000 per year.
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RISK FACTORS
The Proposed Consolidation and the Exchange Offer
Limited partners should be aware of all of the following:
Conflicts of Interest of the General Partner in Determining Consideration:
The consideration to be received by the participating Partnerships and the
General Partner in the Consolidation and the other terms of the Plan of
Consolidation, including the consideration and future compensation to be
received by the General Partner, were determined by the General Partner, which
has inherent conflicts of interest stemming from the fact that it holds
differing revenue interests and differing percentages of outstanding Interests
in the various Partnerships and because of its ability to determine its
compensation and the amount it must pay to limited partners who exercise their
dissenters' rights and all other terms of the Consolidation. These conflicts
affect the allocation of costs and benefits among the Partnerships and, with
respect to the total mix of consideration and future compensation, between the
limited partners and the General Partner. The General Partner has inherent
conflicts of interest in adopting the methods of determining the exchange values
since it will purchase the limited partnership interests of dissenting limited
partners at the exchange value prices following the Consolidation. Measures
adopted by the General Partner intended to ensure the fairness of the terms of
the Consolidation, including the engagement of Gruy 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 consideration or the terms of the Consolidation, and
there were no "arms length" negotiations to determine the amount of
consideration. The amount of the consideration and 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 or if their Partnership's assets were sold to an unaffiliated party in
an arms-length transaction. See "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--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. 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."
Risks of Disadvantageous Exchange Values: The principal risks a limited
partner takes in approving the Consolidation are two-fold. First, his
Partnership's properties may have oil or gas reserves, or both, that are not now
apparent to Gruy or the General Partner. If that is the case, he will not
receive full credit for those property interests in the Consolidation. 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 for
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 exchange value 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 understate a limited partner's interest in the Consolidated
Partnership in relation to what he could have received under a different
formula. Historical distributions and cash flows of the Partnerships have varied
significantly relative to the Partnerships' appraised net asset values and asset
values are not always indicative of profitability. See the table captioned
"Historical and Pro Forma Per $500 Interest Data" in "SELECTED FINANCIAL DATA"
below. The assumptions that have been made in calculating the exchange values of
Partnership properties may be erroneous. See "THE PROPOSED CONSOLIDATION AND THE
EXCHANGE OFFER--Method of Determining Exchange Values." Gruy's valuations are as
of December 31, 1995 and values may have changed or may change before the date
of the Consolidation.
Conflicts of Interest of the General Partner in the Future Management of the
Consolidated Partnership: Although the Consolidation will not increase the
compensation of the General Partner, its separate interests in each
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 currently 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. The
directors and officers of the General Partner also have fiduciary duties to
manage the General Partner in a manner beneficial to the
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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." Although New Jersey and Texas state law do not
address the issue of whether approval of the Consolidation by the limited
partners may serve to extinguish certain related fiduciary claims against the
General Partner, Delaware courts, which are often looked to for guidance on
undecided corporate issues, have in several cases involving corporations held
that fully informed stockholder approval of a transaction may, in certain
circumstances, serve to extinguish certain related fiduciary claims against
directors.
Risk of Decreases in Distributions: The Consolidation is expected to have an
effect on distributions to the limited partners of participating Partnerships
apart from savings in overhead or borrowing costs. 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 some of the Partnerships will experience a decrease in
distributions over the amounts that would have been sustainable by their
Partnerships. 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."
Risk of Taxable Income in Excess of Cash Distributions: 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 if 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 or loss 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 the Exchange Offer" and "--Participation in the
Consolidated Partnership".
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."
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. 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 are owed by him. See "TAX ASPECTS--Other Tax Aspects".
Risk of Dilution of Voting Interest: 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
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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.
In addition, the General Partner currently has voting Interests in the
Partnerships ranging from 4.05% to 54.10%, but will have a voting Interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation (57.40% if all Partnerships participate and the maximum number of
limited partners exercise their dissenters' rights), and 57.97% if the minimum
number of Partnerships participate (68.28% if the minimum number of Partnerships
participate and the maximum number of limited partners exercise their
dissenters' rights). The General Partner's voting interest may increase further
if it acquires the Interests of dissenters, as described below in "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--Fairness of the Transaction--Differences
in Rights and Responsibilities". 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 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."
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 the NASDAQ National
Market System and, as is true for the Partnerships, there may be no readily
available market for the Units at any time. Purchase offers for Units will be
made by the General Partner within 90 days after the Consolidation transaction
is completed and thereafter no later than April 30 of every year for Units
valued as of December 31, 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." 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."
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."
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
17
<PAGE>
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 Statutory Dissenters' 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, and 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
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 in the Consolidated Partnership and substitute
as a new general partner of the Consolidated Partnership (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 could 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".
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 Articles will be recognized for
federal income tax purposes,
18
<PAGE>
the IRS 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 IRS,
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".
19
<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 nine months ended September 30, 1996 for the combined 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 nine months ended September 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 nine months
ended September 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)
Nine months
ended Year Ended December 31,
-------------------------------------
September 30, 1996 1995 1994
--------------- ---------------- ----------------
<S> <C> <C> <C>
Oil and gas sales $ 8,826 $ 10,117 $ 11,316
Loss from operations $ (509) $ (580) $ (1,534)
Net income (loss) $ (362) $ 113 $ (1,444)
Net increase (decrease) in cash
& cash equivalents $ (152) $ 270 $ 27
Net cash provided by operating activities $ 3,342 $ 3,265 $ 3,677
Distributions $ 1,755 $ 2,011 $ 2,556
Selected balance sheet data as of
end of period:
Oil and gas properties - at cost $ 137,543 $ 146,080 $ 152,026
Accumulated depreciation, depletion and
amortization of oil & gas properties $ 123,702 $ 128,512 $ 131,083
Proved oil reserves - (000's barrels) 1,576 2,244 2,554
Proved gas reserves - (million cubic feet) 10,483 12,198 13,631
Standardized measure of future discounted
net cash flows of proved oil & gas reserves $ 17,740 $ 22,942 $ 22,758
Total assets $ 16,441 $ 20,009 $ 23,168
Total noncurrent liabilities $ 1,279 $ 2,291 $ 2,858
Partner's capital:
Limited Partners $ 12,052 $ 14,320 $ 16,340
General Partner $ 1,816 $ 1,665 $ 1,543
</TABLE>
20
<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 nine months ended September 30, 1996 for the combined Partnerships and
for each individual 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)
----------------------------------- ---------------------------------
Nine months ended Year ended Nine months ended Year ended
September 30, December 31, September 30, December 31,
------------------------ -------------------
1996 1995 1994 1996 1995 1994
---------- ---------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Oil and gas sales $ 8,826 $ 10,117 $ 11,316 $ 5,626 $ 6,368 $ 7,325
Income (loss) from operations $ 1,781 $ (512) $ (582) $ 915 $ (632) $ (773)
Net income (loss) $ 1,931 $ 189 $ (492) $ 1,061 $ 69 $ (675)
Net increase (decrease) in
cash & cash equivalents $ 1,035 $ 1,417 $ (130) $ 676 $ 1,140 $ (217)
Net cash provided by operating activities $ 3,318 $ 3,473 $ 3,677 $ 1,938 $ 2,085 $ 2,022
Distributions $ 1,755 $ 2,011 $ 2,556 $ 1,033 $ 1,177 $ 1,405
Selected balance sheet data as of
end of period:
Oil and gas properties - at cost $13,992 $ 9,472
Accumulated depreciation, depletion and
amortization of oil & gas properties $ - $ -
Proved oil reserves - (000's barrels) 1,576 706
Proved gas reserves - (million cubic feet) 10,483 8,118
Standardized measure of
future discounted net cash
flows of proved oil & gas reserves $17,740 $ 11,338
Total assets $16,365 $ 10,949
Total liabilities $ 798 $ 522
Partner's capital:
Limited Partners $15,567 $ 10,427
General Partner - -
</TABLE>
(1) Assumes participation by all 34 Partnerships.
(2) Assumes participation by those Partnerships that on a combined basis have
the lowest combined net cash flow provided by operating activities for the last
fiscal year of the Partnerships, while satisfying the $10 million exchange value
minimum condition.
21
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
As of September 30, 1996: As of September 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 $160,414 $4,303,260 $234,412 $4,652,447 $234,260 $5,646,949 $256,707
207 48,933 836,413 10,192 844,553 14,100 846,854 79,955
208 18,189 643,043 61,704 627,241 5,249 667,238 128,886
209 11,595 397,605 98,916 374,603 1,913 411,758 137,298
210 12,733 499,474 103,152 470,441 15,342 532,138 166,852
301 5,729 247,666 203,838 282,128 2,760 264,732 261,076
302 11,057 366,963 266,734 406,843 3,617 378,264 342,497
303 15,611 560,589 117,288 614,065 14,036 589,391 176,721
304 2,687 388,257 169,729 250,608 2,935 493,018 189,473
305 (16,072) 226,233 120,714 213,954 14,918 412,998 236,967
306 (19,693) 257,029 49,869 240,471 8,097 534,091 213,894
307 (11,900) 180,595 93,971 168,977 5,232 358,807 198,550
308 (12,491) 213,910 91,038 210,734 5,683 602,842 191,740
401 1,307 40,326 48,011 141,193 - 374,278 139,467
402 4,479 39,880 13,923 105,659 1,514 246,043 84,906
404 5,913 138,937 71,791 175,544 1,268 376,371 88,551
405 42,262 376,964 46,966 280,767 15,692 346,295 66,496
406 5,808 187,888 15,774 176,303 2,172 185,895 56,690
407 3,543 385,686 25,763 251,059 4,834 508,967 27,774
051 11,061 430,980 37,914 258,698 10,314 573,701 50,970
052 1,598 278,207 87,616 183,193 3,225 401,398 115,104
053 1,990 263,231 44,062 173,494 3,127 368,579 71,145
054 105,664 1,066,775 101,288 927,075 95,143 1,136,137 137,399
055 17,307 642,709 31,553 600,198 32,469 620,984 10,264
601 5,415 683,523 102,552 489,227 10,830 981,207 164,859
501 6,500 340,474 125,644 240,986 789 464,811 191,536
502 17,983 353,767 3,492 290,996 4,057 434,164 53,101
503 4,022 196,512 45,602 181,882 4,192 273,055 90,529
525 4,840 73,195 36,010 92,548 3,809 77,995 66,651
526 5,610 85,659 65,043 119,436 3,168 94,224 95,631
527 24,862 391,231 2,662 336,454 15,707 449,762 49,069
531 16,071 514,203 1,958 396,813 14,553 635,397 65,999
532 3,458 251,761 43,651 175,048 4,640 352,423 77,219
533 38,236 577,888 38 585,754 29,668 652,389 64
</TABLE>
* See SUMMARY - Table S-1 for a list of the full names of the Partnerships.
22
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
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.
22
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
As of September 30, 1996: As of September 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 $973,491 $3,095,357 $15.86 $18.94 $973,491 $4,392,700 $22.68
207 37,630 788,591 88.91 90.54 37,630 729,269 82.22
208 26,277 555,062 94.67 92.80 26,277 512,075 87.34
209 28,069 270,620 87.07 80.58 28,069 246,391 79.27
210 27,800 368,522 94.10 87.61 27,800 337,486 86.18
301 50,821 (6,993) (2.34) 7.86 44,257 (40,601) (13.63)
302 59,593 40,636 9.51 17.48 49,377 (13,610) (3.18)
303 38,470 404,831 63.16 70.84 31,982 380,688 59.39
304 14,826 203,702 37.65 13.90 12,558 290,987 53.79
305 38,069 67,450 6.24 5.88 25,083 150,948 13.98
306 66,580 140,580 22.17 20.42 50,243 269,954 42.57
307 38,968 47,656 10.52 8.87 28,161 132,096 29.18
308 51,212 71,660 9.95 10.42 42,765 368,337 51.18
401 46,103 (53,788) (8.31) 6.29 40,861 193,950 29.96
402 37,657 (11,700) (2.36) 10.03 33,396 127,741 25.87
404 8,867 58,279 23.12 34.74 5,998 281,822 111.83
405 33,562 296,436 65.00 49.53 24,057 255,742 56.08
406 18,276 153,838 35.56 30.20 12,065 117,140 27.08
407 24,402 335,521 66.83 42.81 17,211 463,982 92.42
051 24,627 368,439 81.35 46.93 17,854 504,877 111.47
052 5,908 184,683 62.14 25.42 2,622 283,672 95.44
053 5,943 213,226 105.55 54.51 2,441 294,993 146.03
054 28,602 936,885 317.15 271.36 24,011 971,427 328.85
055 25,273 585,883 237.87 217.67 14,702 596,018 241.98
601 19,195 561,776 278.10 172.54 10,012 806,336 399.17
501 11,704 203,126 74.26 37.02 8,874 264,401 96.67
502 12,490 337,785 117.16 94.31 7,771 373,292 129.48
503 8,836 142,074 47.56 42.14 3,376 179,150 59.97
525 7,924 29,261 12.72 19.09 4,332 7,012 3.04
526 7,671 12,945 6.26 20.44 4,145 (5,552) (2.68)
527 11,789 376,780 122.01 100.84 6,832 393,861 127.54
531 11,524 500,721 168.30 123.16 5,887 563,511 189.41
532 4,253 203,857 100.91 57.77 1,233 273,971 135.62
533 9,670 568,180 261.23 251.35 13,016 642,609 295.45
</TABLE>
* See SUMMARY - Table S-1 for a list of the full names of the Partnerships.
23
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
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.
23
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
For the nine months ended September 30, 1996: For the nine months ended September 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 $(219,954) $635,429 $624,180 $3.22 $221,991 $(459,395) - -
207 35,961 148,424 93,054 10.49 9,230 96,508 $47,670 $5.37
208 7,188 89,385 67,338 11.48 (977) 67,410 38,065 6.49
209 7,422 49,629 33,350 10.73 (184) 36,065 18,179 5.84
210 (3,428) 53,937 46,194 11.79 10,690 56,042 22,567 5.76
301 3,651 2,564 - - 2,026 25,991 - -
302 8,928 18,586 - - 3,123 34,317 - -
303 2,105 99,659 72,187 11.26 11,224 81,236 36,340 5.67
304 2,472 8,536 - - 2,134 1,700 6,756 1.24
305 (13,280) 9,428 14,638 1.35 4,486 59,384 40,957 3.79
306 (5,505) (1,641) 12,773 2.01 4,849 (59,081) 42,309 6.67
307 (8,426) (5,476) 8,702 1.92 3,848 39,514 27,296 6.03
308 (2,589) 1,618 16,559 2.30 (10,531) 16,429 16,381 2.27
401 553 (27,565) 8,341 1.28 (1,029) 10,826 8,164 1.26
402 2,849 (19,289) 6,425 1.30 (5,245) 5,092 8,491 1.71
404 2,675 21,172 11,145 4.42 (3,365) 16,955 14,190 5.63
405 20,577 91,546 44,581 9.77 11,880 38,637 25,504 5.59
406 (10,777) 34,105 30,833 7.12 (1,145) 20,338 22,815 5.27
407 (11,837) 71,047 22,215 4.42 (18,753) 18,851 19,664 3.91
051 (15,208) 72,408 33,264 7.34 (19,262) 30,726 16,710 3.68
052 (4,220) 29,635 21,203 7.13 (11,012) 19,997 15,970 5.37
053 (978) 28,787 17,043 8.43 (9,159) 15,790 12,037 5.95
054 72,084 226,024 134,361 45.48 9,099 193,708 144,323 48.85
055 (33,485) 198,533 100,470 40.79 (88,960) 91,020 127,050 51.58
601 2,605 81,904 18,178 8.99 8,864 136,905 28,753 14.23
501 5,867 5,867 - - (11,182) (43,387) 9,118 3.33
502 17,094 17,094 - - (3,620) 1,088 22,236 7.71
503 1,997 357 - - (3,326) 26,928 27,228 9.11
525 3,250 10,120 6,181 2.68 2,084 9,659 6,818 2.96
526 2,877 10,053 6,459 3.12 (2,586) 2,596 4,664 2.25
527 15,858 51,773 31,485 10.19 7,558 39,784 29,004 9.39
531 6,585 56,269 43,473 14.61 4,946 50,835 41,300 13.88
532 (1,208) 15,697 14,683 7.26 2,316 26,280 22,351 11.06
533 16,251 135,770 103,686 47.67 22,069 104,874 74,524 34.26
</TABLE>
* See SUMMARY - Table S-1 for a list of the full names of the Partnerships.
24
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
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> <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 $12.50
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 9.80
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 32.10
</TABLE>
* See SUMMARY - Table S-1 for a list of the full names of the Partnerships.
<PAGE>
24
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
For the nine months ended September 30, 1996: For the nine months ended September 30, 1995
------------------------------------------------- ------------------------------------------------
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 $2,592,951 $140,144 $168,329 $0.86 $2,179,502 $(65,027) $383,144 $1.97
207 320,734 127,330 127,536 14.37 270,054 25,105 24,993 2.81
208 245,525 91,829 91,829 15.66 206,728 13,345 13,233 2.25
209 146,336 47,895 47,895 15.41 123,212 3,612 3,562 1.14
210 184,511 63,678 63,678 16.26 155,356 6,314 6,242 1.59
301 109,200 38,088 38,088 10.51 93,817 7,757 6,996 0.59
302 156,350 58,197 58,197 11.23 134,338 13,830 12,841 1.19
303 254,453 103,173 103,173 13.43 220,016 25,806 25,806 2.10
304 120,899 (69,390) (69,390) (13.47) 114,131 (26,522) (22,538) (4.46)
305 283,979 (104,832) (71,588) (7.76) 274,569 (4,407) (4,407) (1.11)
306 275,128 (162,568) (124,749) (21.72) 270,792 (43,505) (43,505) (7.96)
307 194,884 (108,919) (81,662) (19.99) 191,633 (29,308) (29,308) (7.50)
308 227,086 (262,710) (248,709) (35.81) 236,376 (95,730) (95,706) (13.81)
401 106,690 (213,979) (211,070) (33.39) 142,538 (65,333) (65,333) (10.45)
402 92,253 (106,337) (104,469) (22.04) 114,530 (49,973) (49,973) (10.42)
404 86,919 (209,689) (209,689) (85.30) 73,824 (6,148) (6,148) (3.95)
405 278,477 79,597 79,597 14.34 236,794 (947) (933) (2.07)
406 165,898 56,737 56,737 10.86 140,864 4,772 4,772 (0.45)
407 268,222 (47,981) (46,905) (10.97) 260,088 (18,065) (18,065) (5.38)
051 294,357 (55,072) (54,115) (13.90) 283,782 (12,741) (12,741) (4.86)
052 128,837 (30,863) (30,256) (12.00) 115,018 (34,647) (34,647) (12.94)
053 121,546 (55,124) (55,115) (29.78) 98,726 (24,885) (24,878) (13.93)
054 712,272 140,074 140,074 39.56 660,801 69,203 69,335 16.73
055 394,573 89,759 91,609 28.51 348,440 (13,522) (13,522) (10.37)
601 281,965 (176,023) (178,379) (93.90) 294,037 (14,007) (19,140) (15.01)
501 44,579 (51,372) (51,372) (19.63) 58,276 8,044 45,683 14.02
502 74,017 (19,815) (19,815) (8.56) 64,774 9,804 25,090 6.83
503 82,597 (19,032) (18,823) (8.21) 57,679 (7,634) (7,634) (3.58)
525 44,891 24,597 24,597 9.14 35,628 2,913 2,913 0.07
526 47,642 25,875 25,875 10.74 34,603 7,261 7,261 2.31
527 108,426 34,685 34,685 8.34 78,103 6,093 6,093 (0.01)
531 131,550 9,404 9,404 (0.63) 92,749 (10,566) (10,566) (6.01)
532 61,834 (42,100) (23.13) 36,481 (38,104) (19.83)
533 186,485 95,387 95,387 36.63 139,949 54,401 54,401 20.85
</TABLE>
* See SUMMARY - Table S-1 for a list of the full names of the Partnerships.
25
<PAGE>
<TABLE>
<CAPTION>
ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
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 $(3.04)
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 1.37 119,843 (101,794) (106,785) (36.07)
302 175,023 20,097 19,108 2.66 171,731 (139,040) (145,922) (34.55)
303 286,789 49,900 49,900 5.62 274,500 (28,058) (28,058) (6.39)
304 128,169 (42,149) (38,165) (7.12) 158,248 (23,185) (23,185) (4.84)
305 312,547 (35,655) 12,934 0.27 374,421 (3,705) (3,705) (1.32)
306 319,859 (78,338) (17,602) (4.63) 399,006 (28,734) (28,734) (6.64)
307 226,048 (54,991) (11,608) (4.24) 276,940 (27,650) (27,650) (7.87)
308 274,259 (137,674) (116,827) (16.92) 356,381 (71,790) (71,790) (11.61)
401 177,344 (87,492) (87,492) (14.04) 259,267 (269,757) (269,757) (43.29)
402 140,712 (73,543) (73,543) (15.31) 204,474 (172,819) (172,819) (36.57)
404 94,299 850 850 (1.24) 109,257 (23,991) (23,991) (11.47)
405 315,919 28,487 28,501 3.82 386,691 12,611 11,614 (0.86)
406 186,757 34,038 34,038 5.79 230,182 17,053 16,724 1.15
407 342,367 (58,646) (58,646) (13.94) 369,204 (324,227) (324,227) (66.31)
051 379,825 (49,915) (49,915) (13.74) 399,340 (371,743) (371,743) (83.70)
052 155,386 (75,587) (75,587) (27.11) 183,675 (273,895) (273,895) (93.75)
053 136,151 (28,246) (28,239) (16.18) 150,567 (211,872) (211,872) (106.34)
054 897,673 93,560 93,692 24.29 960,840 117,025 116,052 30.86
055 470,696 37,488 37,598 7.86 498,727 32,739 32,739 3.95
601 367,945 (43,399) (49,317) (30.60) 228,190 (59,927) (56,125) (28.82)
501 74,029 971 38,610 11.26 93,715 (668) (668) (2.09)
502 76,650 (1,168) 14,118 3.08 146,543 46,084 43,024 11.65
503 68,527 (20,427) (20,427) (7.77) 164,542 42,721 45,781 11.39
525 48,447 11,028 11,028 3.28 64,966 (1,870) (1,870) (2.84)
526 47,786 10,584 10,584 3.64 66,213 (2,141) (2,141) (3.19)
527 106,571 3,993 3,993 (1.13) 137,665 (13,101) (13,101) (7.62)
531 126,286 (18,880) (18,880) (9.28) 164,982 (2,848) (2,848) (5.05)
532 51,420 (46,192) (24.14) 76,941 (173,465) (173,465) (87.92)
533 161,018 45,312 45,432 14.79 127,305 1,083 1,083 (4.08)
</TABLE>
* See SUMMARY - Table S-1 for a list of the full names of the Partnerships.
25
<PAGE>
<TABLE>
<CAPTION>
Historical and Pro Forma Per $500 Interest Data
Distributions per $500 Interest
-----------------------------------------------------------------
Book value per $500 Interest at For the nine months ended For the nine months ended
September 30,1996 September 30, 1996 ended September 30, 1995
------------------------------------- -------------------------------------- ----------------------------------
Assumed Assumed Assumed Assumed Assumed Assumed
Maximum Minimum Maximum Minimum Maximum Minimum
Partnership* Historical Acceptance Acceptance Historical Acceptance Acceptance Historical Acceptance Acceptance
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $15.86 $19.53 $19.04 $3.22 $2.05 $1.85 $0.00 $1.22 $0.69
207 88.91 93.38 91.62 10.49 9.86 8.91 5.37 5.86 3.31
208 94.67 95.70 93.90 11.48 10.10 9.13 6.49 6.01 3.39
209 87.07 83.12 81.55 10.73 8.77 7.93 5.84 5.22 2.95
210 94.10 90.36 88.66 11.79 9.54 8.62 5.76 5.67 3.20
301 (2.34) 8.11 7.96 0.00 0.86 0.77 0.00 0.51 0.29
302 9.51 18.03 17.69 0.00 1.90 1.72 0.00 1.13 0.64
303 63.16 73.06 0.00 11.26 7.71 (1) 5.67 4.59 (1)
304 37.65 14.34 14.07 0.00 1.51 1.37 1.24 0.90 0.51
305 6.24 6.06 5.95 1.35 0.64 0.58 3.79 0.38 0.21
306 22.17 21.06 20.66 2.01 2.22 2.01 6.67 1.32 0.75
307 10.52 9.15 8.98 1.92 0.97 0.87 6.03 0.57 0.32
308 9.95 10.74 10.54 2.30 1.13 1.03 2.27 0.67 0.38
401 (8.31) 6.48 6.36 1.28 0.68 0.62 1.26 0.41 0.23
402 (2.36) 10.35 10.15 1.30 1.09 0.99 1.71 0.65 0.37
404 23.12 35.83 0.00 4.42 3.78 (1) 5.63 2.25 (1)
405 65.00 51.09 0.00 9.77 5.39 (1) 5.59 3.21 (1)
406 35.56 31.15 0.00 7.12 3.29 (1) 5.27 1.96 (1)
407 66.83 44.16 0.00 4.42 4.66 (1) 3.91 2.77 (1)
051 81.35 48.40 0.00 7.34 5.11 (1) 3.68 3.04 (1)
052 62.14 26.22 25.73 7.13 2.77 2.50 5.37 1.65 0.93
053 105.55 56.22 55.16 8.43 5.93 5.36 5.95 3.53 1.99
054 317.15 279.87 0.00 45.48 29.54 (1) 48.85 17.57 (1)
055 237.87 224.52 0.00 40.79 23.70 (1) 51.58 14.10 (1)
601 278.10 178.00 0.00 8.99 18.81 (1) 14.23 11.19 (1)
501 74.26 38.19 37.42 0.00 4.03 3.64 3.33 2.39 1.35
502 117.16 97.29 95.46 0.00 10.27 9.28 7.71 6.11 3.45
503 47.56 43.46 0.00 0.00 4.53 (1) 9.11 2.69 (1)
525 12.72 19.69 19.32 2.68 2.08 1.88 2.96 1.24 0.70
526 6.26 21.09 20.69 3.12 2.23 2.01 2.25 1.32 0.75
527 122.01 104.02 102.07 10.19 10.98 9.92 9.39 6.53 3.69
531 168.30 127.02 0.00 14.61 13.41 (1) 13.88 7.98 (1)
532 100.91 59.58 0.00 7.26 6.29 (1) 11.06 3.74 (1)
533 261.23 259.22 0.00 47.67 27.36 (1) 34.26 16.28 (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.
26
<PAGE>
<TABLE>
<CAPTION>
Historical and Pro Forma Per $500 Interest Data
Distributions per $500 Interest
---------------------------------------------------------------------------------------
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 $3.77 $2.37 $2.10 $0.00 $2.91 $2.36
207 6.94 11.41 10.09 12.50 14.00 11.37
208 8.12 11.69 10.34 11.29 14.35 11.65
209 7.12 10.16 8.98 13.73 12.46 10.12
210 7.21 11.04 9.77 12.02 13.55 11.00
301 0.00 0.99 0.88 0.00 1.22 0.99
302 0.00 2.20 1.95 0.00 2.70 2.19
303 7.59 8.93 (1) 9.80 10.95 (1)
304 1.24 1.75 1.55 7.31 2.15 1.75
305 3.79 0.74 0.66 8.07 0.91 0.74
306 6.67 2.57 2.28 15.05 3.16 2.56
307 6.03 1.12 0.99 13.15 1.37 1.11
308 2.27 1.31 1.16 14.52 1.61 1.31
401 1.26 0.79 0.70 17.73 0.97 0.79
402 1.71 1.26 1.12 16.35 1.55 1.26
404 7.31 4.38 (1) 9.45 5.37 (1)
405 7.14 6.24 (1) 14.00 7.66 (1)
406 6.77 3.81 (1) 11.78 4.67 (1)
407 5.54 5.40 (1) 18.27 6.62 (1)
051 3.68 5.91 (1) 16.37 7.26 (1)
052 5.37 3.20 2.83 24.92 3.93 3.19
053 5.95 6.87 6.08 19.33 8.43 6.84
054 62.18 34.20 (1) 42.05 41.96 (1)
055 61.65 27.43 (1) 60.23 33.66 (1)
601 16.80 21.78 (1) 19.37 26.71 (1)
501 3.33 4.66 4.12 24.50 5.72 4.64
502 7.71 11.89 10.52 40.99 14.58 11.84
503 9.11 5.24 (1) 39.76 6.43 (1)
525 2.96 2.41 2.13 12.56 2.95 2.40
526 2.25 2.58 2.28 12.71 3.16 2.57
527 11.95 12.71 11.24 29.54 15.59 12.66
531 16.47 15.52 (1) 38.88 19.04 (1)
532 11.06 7.28 (1) 27.95 8.93 (1)
533 51.38 31.67 (1) 32.10 38.86 (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.
26
<PAGE>
<TABLE>
<CAPTION>
Historical and Pro Forma Per $500 Interest Data
Net Income (Loss) per $500 Interest
------------------------------------------- ----------------------------------------------
For the nine months ended September 30, 1996 For the nine months ended September 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 $0.86 $2.42 $1.94 $1.97 $0.32 $0.17
207 14.37 11.58 (1) 2.81 1.52 0.83
208 15.66 11.87 9.56 2.25 1.56 0.85
209 15.41 10.31 8.30 1.14 1.35 0.74
210 16.26 11.21 (1) 1.59 1.47 0.80
301 10.51 1.01 0.81 0.59 0.13 0.07
302 11.23 2.24 1.80 1.19 0.29 0.16
303 13.43 9.06 (1) 2.10 1.19 (1)
304 (13.47) 1.78 1.43 (4.46) 0.23 0.13
305 (7.76) 0.75 0.61 (1.11) 0.10 0.05
306 (21.72) 2.61 2.10 (7.96) 0.34 0.19
307 (19.99) 1.14 0.91 (7.50) 0.15 0.08
308 (35.81) 1.33 1.07 (13.81) 0.17 0.10
401 (33.39) 0.80 0.65 (10.45) 0.11 0.06
402 (22.04) 1.28 1.03 (10.42) 0.17 0.09
404 (85.30) 4.44 (1) (3.95) 0.58 (1)
405 14.34 6.34 (1) (2.07) 0.83 (1)
406 10.86 3.86 (1) (0.45) 0.51 (1)
407 (10.97) 5.48 (1) (5.38) 0.72 (1)
051 (13.90) 6.00 (1) (4.86) 0.79 (1)
052 (12.00) 3.25 2.62 (12.94) 0.43 0.23
053 (29.78) 6.97 5.62 (13.93) 0.91 0.50
054 39.56 34.71 (1) 16.73 4.55 (1)
055 28.51 27.85 (1) (10.37) 3.65 (1)
601 (93.90) 22.08 (1) (15.01) 2.90 (1)
501 (19.63) 4.74 3.81 14.02 0.62 0.34
502 (8.56) 12.07 9.72 6.83 1.58 0.86
503 (8.21) 5.39 (1) (3.58) 0.71 (1)
525 9.14 2.44 1.97 0.07 0.32 0.17
526 10.74 2.62 2.11 2.31 0.34 0.19
527 8.34 12.90 10.39 (0.01) 1.69 0.92
531 (0.63) 15.75 (1) (6.01) 2.07 (1)
532 (23.13) 7.39 (1) (19.83) 0.97 (1)
533 36.63 32.15 (1) 20.85 4.22 (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.
27
<PAGE>
<TABLE>
<CAPTION>
Historical and Pro Forma Per $500 Interest Data
Net Income (Loss) per $500 Interest
---------------------------------------------------------------
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 $0.10 $(0.23) $3.04 $(0.62) $0.80)
207 7.18 0.48 (1) 1.00 (2.95) (3.86)
208 7.04 0.50 (1.15) 0.11 (3.03) (3.96)
209 5.53 0.43 (1.00) (1.95) (2.63) (3.44)
210 6.50 0.47 (1) (1.36) (2.86) (3.74)
301 1.37 0.04 (0.10) (36.07) (0.26) (0.34)
302 2.66 0.09 (0.22) (34.55) (0.57) (0.75)
303 5.62 0.38 (1) (6.39) (2.31) (1)
304 (7.12) 0.07 (0.17) (4.84) (0.45) (0.59)
305 0.27 0.03 (0.07) (1.32) (0.19) (0.25)
306 (4.63) 0.11 (0.25) (6.64) (0.67) (0.87)
307 (4.24) 0.05 (0.11) (7.87) (0.29) (0.38)
308 (16.92) 0.06 (0.13) (11.61) (0.34) (0.44)
401 (14.04) 0.03 (0.08) (43.29) (0.20) (0.27)
402 (15.31) 0.05 (0.12) (36.57) (0.33) (0.43)
404 (1.24) 0.19 (1) (11.47) (1.13) (1)
405 3.82 0.26 (1) (0.86) (1.62) (1)
406 5.79 0.16 (1) 1.15 (0.98) (1)
407 (13.94) 0.23 (1) (66.31) (1.40) (1)
051 (13.74) 0.25 (1) (83.70) (1.53) (1)
052 (27.11) 0.14 (0.32) (93.75) (0.83) (1.08)
053 (16.18) 0.29 (0.68) (106.34) (1.78) (2.33)
054 24.29 1.45 (1) 30.86 (8.85) (1)
055 7.86 1.16 (1) 3.95 (7.10) (1)
601 (30.60) 0.92 (1) (28.82) (5.63) (1)
501 11.26 0.20 (0.46) (2.09) (1.21) (1.58)
502 3.08 0.50 (1.17) 11.65 (3.08) (4.02)
503 (7.77) 0.22 (1) 11.39 (1.37) (1)
525 3.28 0.10 (0.24) (2.84) (0.62) (0.81)
526 3.64 0.11 (0.25) (3.19) (0.67) (0.87)
527 (1.13) 0.54 (1.25) (7.62) (3.29) (4.30)
531 (9.28) 0.66 (1) (5.05) (4.02) (1)
532 (24.14) 0.31 (1) (87.92) (1.88) (1)
533 14.79 1.34 (1) (4.08) (8.19) (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.
27
<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 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 Partnerships recognized a net loss of $361,516 in the first
nine months of 1996 as compared to net income of $195,218 in the first nine
months of 1995. The net loss in 1996 was primarily due to the recognition of
$2,315,081 in impairments in 1996. Without such impairments the combined
Partnerships would have recorded net income of $1,953,565 for the first nine
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 $8,826,066 in the first nine months of 1996 as
compared to $7,838,208 in the first nine months of 1995. This represents an
increase of $987,858 or 13%. Oil sales increased by $277,091 or 5% from
$5,318,834 in the first nine months of 1995 to $5,595,925 in the first nine
months of 1996. A 19% increase in the average oil sales price increased sales by
$901,163. This increase was partially offset by a 12% decrease in oil
production. Gas sales increased by $710,767 or 5% from $2,519,374 in the first
nine months of 1995 to $3,230,141 in the first nine months of 1996. A 13%
increase in the average gas sales price increased sales by $647,675. This
increase was partially offset by a 7% 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 an
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 $3,097,827 in the first nine months of
1996 as compared to $3,256,878 in the first nine months of 1995. The decrease of
$159,051 or 5% 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 $1,354,650 in the first nine
months of 1996 from $1,420,784 in the first nine months of 1995. The decrease of
$66,134 or 5% 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 represents 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 $2,112,282 in
the first nine months of 1996 as compared to $3,040,411 in the first nine months
of 1995. This represents a decrease of $928,129 or 31%. A 29% decrease in the
depletion rate reduced DD&A by $847,593. The changes in production, noted above,
reduced DD&A by an additional $80,537. 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 an
impairment of property totaling $2,315,081 in the first quarter of 1996.
28
<PAGE>
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 totaling $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 nine months of 1996, the Partnerships recorded gains on sales
of property totaling $141,348. In the first nine months of 1995 gains on sales
of properties totalling $485,795 were recorded. The decrease 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.
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 $8,800 in the first nine months of 1996 from
$19,589 in the first nine months of 1995. This decrease of $10,789 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 $455,583 in the first nine months of 1996 from $422,945 in the first nine
months of 1995. This represents an increase of $32,638 and is consistent with
the increase in oil and gas sales noted above.
Liquidity and Capital Resources: At September 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 increased to $3,342,634 in the first nine
months of 1996 as compared to $1,800,699 in 1995. The increase of $1,541,935 was
primarily due to 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 increased to
$527,944 in the first nine months of 1996 from $355,671 in the first nine months
of 1995. The increase of $172,273 was primarily due to higher property
additions, including improvements in the Concord acquisition, and due to
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
29
<PAGE>
to $1,755,219 in the first nine months of 1996 from $1,068,939 in the first nine
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 appear to be sufficient future revenues to pay all forseeable
obligations and expenses. All of the debt of the Partnerships, except for the
debt payable as trade accounts payable, is payable to the General Partner. The
payable to the General Partner arise from the monthly allocation of general and
administrative expenses by the General Partner in accordance with the
Partnership Agreements. The payables is are collectible upon demand by the
General Partner, however, the payables been classified as current or noncurrent
based upon forecasted production and prices. The General Partner does not intend
to accelerate the repayment of any debt beyond the cash flow provided by
operating activities. The short term liquidity needs of the Consolidated
Partnership will be funded by operating activities. The Consolidated Partnership
does not intend to purchase additional properties or engage in any significant
developmental or exploratory drilling, and as such, has no long-term liquidity
needs.
On a combined basis, the working capital of the Partnerships improved to
$557 at September 30, 1996 from deficits of $1,640,778 at December 31, 1995 and
$3,209,321 at December 31, 1994. This improvement was primarily the result of
the Partnerships paying down debt in 1995 and 1996.
30
<PAGE>
THE PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER
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 $15,567,279 (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").
<TABLE>
<CAPTION>
TABLE A
THE PARTNERSHIPS
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.
31
<PAGE>
The address of each Partnership is c/o Enex Resources Corporation, Three
Kingwood Place, Suite 200, 800 Rockmead, Kingwood, Texas 77339.
The matters to be considered at each Meeting of limited partners are whether
their Partnership should approve and participate in the Consolidation and the
approval of the related Partnership Agreement amendments. 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. There are
certain differences between limited partner voting rights under Texas law and
under New Jersey law. Limited partners in Enex Oil & Gas Income Program II
Partnerships should also see "THE CONSOLIDATED PARTNERSHIP--Applicability of the
New Jersey Act." 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.
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 September 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 his percentage interest as a limited partner in
each Partnership on the record date for the Consolidation. The exchange value of
a limited partner's Interest is the product of his percentage interest and the
exchange value attributable to the limited partners of his Partnership as shown
on Table B. See "--Method of Determining Exchange Values".
32
<PAGE>
<TABLE>
<CAPTION>
TABLE B
CONSOLIDATION SCHEDULE - COMPOSITION OF EXCHANGE VALUES
Fair Market Value Distributions Changes in Exchange Dissenters'
of Proved Oil and Other Assets since Payable to GP Total Value Value
Partnership * Gas Reserves as of Less September 30, since Exchange per $500 per $500
September 30, 1996 Liabilities 1996 September 30, 1996 Value Interest Interest
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 $3,832,253 $820,194 x,xxx,xxx x,xxx,xxx $4,652,447 $18.81 $20.91
207 754,281 90,272 x,xxx,xxx x,xxx,xxx 844,553 90.54 99.04
208 577,413 49,828 x,xxx,xxx x,xxx,xxx 627,241 92.80 102.65
209 344,145 30,458 x,xxx,xxx x,xxx,xxx 374,603 80.60 91.66
210 433,923 36,518 x,xxx,xxx x,xxx,xxx 470,441 87.62 98.69
301 262,041 20,087 x,xxx,xxx x,xxx,xxx 282,128 7.86 16.66
302 375,222 31,621 x,xxx,xxx x,xxx,xxx 406,843 17.48 26.26
303 569,629 44,436 x,xxx,xxx x,xxx,xxx 614,065 70.84 79.73
304 231,217 19,391 x,xxx,xxx x,xxx,xxx 250,608 13.90 18.17
305 200,001 13,953 x,xxx,xxx x,xxx,xxx 213,954 5.88 7.73
306 231,873 8,598 x,xxx,xxx x,xxx,xxx 240,471 20.42 24.07
307 160,888 8,089 x,xxx,xxx x,xxx,xxx 168,977 8.87 12.42
308 193,369 17,365 x,xxx,xxx x,xxx,xxx 210,734 10.42 13.10
401 123,793 17,400 x,xxx,xxx x,xxx,xxx 141,193 6.29 8.19
402 86,915 18,744 x,xxx,xxx x,xxx,xxx 105,659 10.04 11.79
404 151,227 24,317 x,xxx,xxx x,xxx,xxx 175,544 34.75 40.74
405 195,875 84,892 x,xxx,xxx x,xxx,xxx 280,767 49.54 53.83
406 127,714 48,589 x,xxx,xxx x,xxx,xxx 176,303 30.21 33.16
407 229,897 21,987 x,xxx,xxx x,xxx,xxx 251,884 42.82 47.39
051 229,523 33,535 x,xxx,xxx x,xxx,xxx 263,058 46.93 52.00
052 163,992 19,201 x,xxx,xxx x,xxx,xxx 183,193 25.43 30.94
053 154,883 18,611 x,xxx,xxx x,xxx,xxx 173,494 54.52 62.18
054 783,704 143,371 x,xxx,xxx x,xxx,xxx 927,075 271.38 297.91
055 586,585 34,937 x,xxx,xxx x,xxx,xxx 621,522 217.71 241.52
601 472,743 16,086 x,xxx,xxx x,xxx,xxx 488,829 172.80 196.00
501 219,205 21,917 x,xxx,xxx x,xxx,xxx 241,122 36.98 45.04
502 246,956 44,040 x,xxx,xxx x,xxx,xxx 290,996 94.34 102.90
503 150,976 32,546 x,xxx,xxx x,xxx,xxx 183,522 41.60 47.20
525 72,117 20,431 x,xxx,xxx x,xxx,xxx 92,548 19.10 22.23
526 104,531 14,905 x,xxx,xxx x,xxx,xxx 119,436 20.45 25.50
527 303,377 33,077 x,xxx,xxx x,xxx,xxx 336,454 100.87 110.69
531 369,025 27,788 x,xxx,xxx x,xxx,xxx 396,813 123.17 135.57
532 153,973 21,075 x,xxx,xxx x,xxx,xxx 175,048 57.77 65.39
533 498,319 87,435 x,xxx,xxx x,xxx,xxx 585,754 251.36 274.26
================== =========== ============== ============= ================
TOTAL $13,591,585 $1,975,694 $0 $0 $15,567,279
================== =========== ============== ============= ================
</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.
33
<PAGE>
<TABLE>
<CAPTION>
TABLE B
CONSOLIDATION SCHEDULE - COMPOSITION OF EXCHANGE VALUES
Units per Distributions (1)
Partnership * $500 limited per $500 limited
partner Interest partner Interest
----------------- -----------------
<S> <C> <C> <C>
100 1.89 $257.55
207 9.05 307.37
208 9.28 314.39
209 8.36 313.61
210 8.76 303.43
301 0.79 228.27
302 1.75 221.42
303 7.08 272.34
304 1.39 266.65
305 0.59 281.05
306 2.04 305.66
307 0.89 293.95
308 1.04 256.64
401 0.63 217.10
402 1.00 203.79
404 3.47 157.33
405 4.95 155.65
406 3.02 155.07
407 4.28 188.89
051 4.69 173.03
052 2.54 176.80
053 5.45 155.51
054 27.14 284.20
055 25.98 249.88
601 17.25 41.25
501 3.70 311.17
502 8.96 379.34
503 4.21 390.53
525 1.91 147.70
526 2.04 134.90
527 10.08 183.17
531 12.32 204.50
532 5.78 180.94
533 25.13 266.53
TOTAL
</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.
33
<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)
-------------------------------------- ------------------------------------ ---------------------------- -
% of total % of total % of
Exchange Units Units Exchange Units Units Exchange Consolidated
Partnership* Value Offered Offered Value Offered Offered Value Revenues
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $3,667,142 366,714 24.29% $973,491 97,349 6.45% - 0.00%
207 803,040 80,304 5.32% 37,630 3,763 0.25% - 0.00%
208 544,096 54,410 3.60% 26,277 2,628 0.17% - 0.00%
209 250,493 25,049 1.66% 28,069 2,807 0.19% - 0.00%
210 343,114 34,311 2.27% 27,800 2,780 0.18% - 0.00%
301 23,409 2,341 0.16% 50,821 5,082 0.34% $6,254 0.04%
302 74,636 7,464 0.49% 59,593 5,959 0.39% 9,019 0.06%
303 454,036 45,404 3.01% 38,470 3,847 0.25% 13,748 0.09%
304 75,211 7,521 0.50% 14,826 1,483 0.10% 2,070 0.01%
305 63,479 6,348 0.42% 38,069 3,807 0.25% 7,742 0.05%
306 129,478 12,948 0.86% 66,580 6,658 0.44% 8,616 0.06%
307 40,167 4,017 0.27% 38,968 3,897 0.26% 6,081 0.04%
308 74,969 7,497 0.50% 51,212 5,121 0.34% 7,620 0.05%
401 40,684 4,068 0.27% 46,103 4,610 0.31% 7,942 0.05%
402 49,543 4,954 0.33% 37,657 3,766 0.25% 5,911 0.04%
404 87,565 8,757 0.58% 8,867 887 0.06% 7,883 0.05%
405 225,899 22,590 1.50% 33,562 3,356 0.22% 16,705 0.11%
406 130,653 13,065 0.87% 18,276 1,828 0.12% 11,600 0.07%
407 214,947 21,495 1.42% 24,402 2,440 0.16% 12,535 0.08%
051 212,562 21,256 1.41% 24,627 2,463 0.16% 25,869 0.17%
052 75,567 7,557 0.50% 5,908 591 0.04% 18,319 0.12%
053 110,125 11,013 0.73% 5,943 594 0.04% 17,349 0.11%
054 801,670 80,167 5.31% 28,602 2,860 0.19% 92,707 0.60%
055 536,230 53,623 3.55% 25,273 2,527 0.17% 60,019 0.39%
601 348,661 34,866 2.31% 19,195 1,920 0.13% 48,922 0.31%
501 101,279 10,128 0.67% 11,704 1,170 0.08% 2,508 0.02%
502 271,980 27,198 1.80% 12,490 1,249 0.08% 3,040 0.02%
503 125,891 12,589 0.83% 8,836 884 0.06% 3,195 0.02%
525 43,919 4,392 0.29% 7,924 792 0.05% 4,701 0.03%
526 42,246 4,225 0.28% 7,671 767 0.05% 4,480 0.03%
527 311,482 31,148 2.06% 11,789 1,179 0.08% 10,524 0.07%
531 366,426 36,643 2.43% 11,524 1,152 0.08% 16,908 0.11%
532 116,705 11,671 0.77% 4,253 425 0.03% 10,443 0.07%
533 546,700 54,670 3.62% 9,670 967 0.06% 29,346 0.19%
-------------------------------------- ------------------------------------- ----------------------------
Totals $11,304,004 1,130,400 74.88% $1,816,082 181,608 12.03% $472,056 3.03%
====================================== ===================================== ============================
</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 ch 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 we the General Partner any amount and
will have essentially no debt. See "THE PROPOSED CONSOLIDATION-Terms of the
Consolidation".
(4) The General Partner will contribute the amounts owed to it by the Partner-
ships that approve the Consolidation in exchange for additional Unites. As a
result, at its formation tlhe Consolidated Partnership will not owe the General
Partner any amount and iwll have essentially no debt. See "THE PROPOSED
CONSOLIDATION- Terms of the Consolidation".
34
<PAGE>
<TABLE>
<CAPTION>
TABLE C
EXCHANGE VALUE ATTRIBUTABLE TO GENERAL AND LIMITED PARTNER INTERESTS
Attributable to General Partner's
--------------------------------- -------------------------------------------------
Receivable from Partnerships (4) Total Aggregate
---------------------------------- --------------------------------- --------------------------------------
% of total % of total % of total
Exchange Units Units Exchange Units Units Exchange Units Units
Partnership*s Value Offered Offered Value Offered Offered Value Offered Offered
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $11,814 1,181 0.08% $985,305 98,531 6.53% $4,652,447 465,245 30.82%
207 3,883 388 0.03% 41,513 4,151 0.28% 844,553 84,455 5.60%
208 56,868 5,687 0.38% 83,145 8,315 0.55% 627,241 62,724 4.16%
209 96,041 9,604 0.64% 124,110 12,411 0.82% 374,603 37,460 2.48%
210 99,527 9,953 0.66% 127,327 12,733 0.84% 470,441 47,044 3.12%
301 201,644 20,164 1.34% 258,719 25,247 1.67% 282,128 27,587 1.83%
302 263,595 26,360 1.75% 332,207 32,319 2.14% 406,843 39,782 2.64%
303 107,811 10,781 0.71% 160,029 14,628 0.97% 614,065 60,032 3.98%
304 158,501 15,850 1.05% 175,397 17,333 1.15% 250,608 24,854 1.65%
305 104,664 10,466 0.69% 150,475 14,273 0.95% 213,954 20,621 1.37%
306 35,797 3,580 0.24% 110,993 10,238 0.68% 240,471 23,186 1.54%
307 83,761 8,376 0.55% 128,810 12,273 0.81% 168,977 16,290 1.08%
308 76,933 7,693 0.51% 135,765 12,815 0.85% 210,734 20,311 1.35%
401 46,464 4,646 0.31% 100,509 9,257 0.61% 141,193 13,325 0.88%
402 12,548 1,255 0.08% 56,116 5,021 0.33% 105,659 9,975 0.66%
404 71,229 7,123 0.47% 87,979 8,010 0.53% 175,544 16,766 1.11%
405 4,601 460 0.03% 54,868 3,816 0.25% 280,767 26,406 1.75%
406 15,774 1,577 0.10% 45,650 3,405 0.23% 176,303 16,470 1.09%
407 - - 0.00% 36,937 2,440 0.16% 251,884 23,935 1.59%
051 - - 0.00% 50,496 2,463 0.16% 263,058 23,719 1.57%
052 83,399 8,340 0.55% 107,626 8,931 0.59% 183,193 16,487 1.09%
053 40,077 4,008 0.27% 63,369 4,602 0.30% 173,494 15,615 1.03%
054 4,096 410 0.03% 125,405 3,270 0.22% 927,075 83,437 5.53%
055 - - 0.00% 85,292 2,527 0.17% 621,522 56,150 3.72%
601 72,051 7,205 0.48% 140,168 9,125 0.60% 488,829 43,991 2.91%
501 125,631 12,563 0.83% 139,843 13,734 0.91% 241,122 23,861 1.58%
502 3,486 349 0.02% 19,016 1,598 0.11% 290,996 28,796 1.91%
503 45,600 4,560 0.30% 57,631 5,444 0.36% 183,522 18,033 1.19%
525 36,004 3,600 0.24% 48,629 4,393 0.29% 92,548 8,785 0.58%
526 65,039 6,504 0.43% 77,190 7,271 0.48% 119,436 11,496 0.76%
527 2,659 266 0.02% 24,972 1,445 0.10% 336,454 32,593 2.16%
531 1,955 196 0.01% 30,387 1,348 0.09% 396,813 37,991 2.52%
532 43,647 4,365 0.29% 58,343 4,790 0.32% 175,048 16,461 1.09%
533 38 4 0.00% 39,054 971 0.06% 585,754 55,641 3.69%
------------------------------------ ---------------------------- ---------------------------------------
Totals $1,975,137 197,516 13.08% $4,263,275 379,122 25.12% $15,567,279 1,509,522 100.00%
==================================== ============================ =======================================
</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 ch 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 we the General Partner any amount and
will have essentially no debt. See "THE PROPOSED CONSOLIDATION-Terms of the
Consolidation".
(4) The General Partner will contribute the amounts owed to it by the Partner-
ships that approve the Consolidation in exchange for additional Unites. As a
result, at its formation tlhe Consolidated Partnership will not owe the General
Partner any amount and iwll have essentially no debt. See "THE PROPOSED
CONSOLIDATION- Terms of the Consolidation".
34
<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 these estimates appears in
Tables 4 and 5 in Appendix A. 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 3, 6 and 7 in Appendix A.
Included in this information are the reserve valuations of the properties of
each Partnership prepared by Gruy. Gruy has been preparing estimates of 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 and the
Exchange Offer--Risks of Disadvantageous Exchange Values". Exchange values for
the Consolidation were calculated by the General Partner utilizing Gruy's fair
market valuations of the Partnerships' proved oil and gas reserves.
According to Gruy, there are basically two approaches to the estimation of
the fair market value of oil and gas properties; 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. Fair market values
were 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
such revenue by a suitable fraction that accounts for the risk associated with
such an investment. For proved developed non-producing and proved undeveloped
reserves, a suitable risk factor was applied to the present value of the
operating cash income 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. The fair market value method is considered to
more accurately value all types of properties as compared to the net present
value method. The net present value method, where the cash flow stream is
discounted at some rate higher than the weighted cost of capital, tends to
undervalue long- life properties and overvalue short-life properties.
Gruy estimated each Partnership's oil and gas reserves and applied certain
assumptions described below regarding price and cost escalations. Future cash
flow by year was calculated for each property. The future annual cash flows were
then discounted at 10% for time using mid-year discounting. The 10% discount
factor, as used by Gruy, is considered to be the industry standard for valuing
oil and gas properties. Additionally, it is the standard promulgated by the
Securities and Exchange Commission for the valuation of oil and gas reserves
reported on a balance sheet; however, the discount factor may not necessarily
represent fair market value. Following the annual discounting described above, a
risk factor was then applied by Gruy to the total discounted cash flow of each
property. The risk factor was applied for each reserve type and ownership type.
The risk factor is applied by Gruy to the extent it determines appropriate based
on its considerations of the particular location, type of interest, category of
reserves and operational characteristics of such reserves. See attached Table D
for a list of properties, the various risk factors applied to each property, and
the Partnerships which own interests in the properties.
Working Interest and Net Profits Interest Ownership: The risk factors
applied to proved producing reserves ranged from a low of 14.1% to a high of
33.3%. For proved nonproducing reserves, the risk factors ranged from a low of
33.0% to a high of 61.2%. For the undeveloped reserves, the risk factors ranged
from 43.1% to 43.6%.
Overriding Royalty Interest Ownership: The risk factors applied to proved
producing reserves ranged from 20.2% to 50.9%. For proved nonproducing reserves,
the factors ranged from 35.0% to 82.5%.
No fair market value was assigned to the probable category of reserves. The
degree of risk of the reserves being present when combined with the cost to
develop such reserves resulted in Gruy's determination that no fair market value
could be assigned. The following thirteen partnerships have probable reserves:
Enex Program I Partners, L.P., Enex Oil & Gas Income Program III, Series 6,
L.P., Enex Oil & Gas Income Program III, Series 7, L.P., Enex Oil & Gas Income
Program III, Series 8, L.P., Enex Oil & Gas Income Program IV, Series 1, L.P.,
Enex Oil & Gas Income Program IV, Series 2, L.P., Enex Oil & Gas Income Program
IV, Series 5, L.P., Enex Oil & Gas Income Program IV, Series 6, L.P., Enex Oil &
Gas Income Program V, Series 4, L.P., Enex Income and Retirement Fund, Series 2,
L.P., Enex Income and Retirement Fund, Series 3,
35
<PAGE>
L.P., Enex 88-89 Income and Retirement Fund, Series 5, L.P., Enex 88-89 Income
and Retirement Fund, Series 6, L.P. However, the probable reserves are not
material to any of the Partnerships even before risk factors are applied. None
of the Partnerships has possible 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 September 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
previous 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 3.03% 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 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
estimates of future oil and gas prices, operating expenses and capital
investments set forth in the immediately preceding paragraph constitute
forward-looking statements that involve known and unknown risks and
uncertainties which may cause the actual prices and costs in future periods to
differ materially from such forecasts. These risks include risks generally
associated with the oil and gas production and marketing, and are described in
detail in "RISK FACTORS - The Consolidated Partnership."
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
per barrel and $2.05 per thousand cubic feet (mcf), respectively and at
September 30, 1996 the estimated average prices were $24.00 per barrel and $1.75
per mcf. At November 1, 1996 the estimated average prices of oil and gas sold by
the Partnerships were approximately $23.00 per barrel and $2.61 per mcf,
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
September 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 September 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
receivables collectible within one to three months. Other liabilities consist
primarily of 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. The amount owed to the General Partner is payable
upon demand; therefore, the 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 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 $1.98 million. In order to eliminate this
indebtedness and to permit the Consolidated Partnership to operate on an
essentially 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 assets and
allocated to the account of the General Partner. See Table C above and Table 12
in Appendix A. Thus the Units to be received by the General Partner upon
consummation of the Consolidation will include a number of Units attributable to
the canceled 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).
36
<PAGE>
The General Partner will reduce the number of Units it receives for the
canceled indebtedness if average oil and gas prices at the completion of the
Consolidation are greater than those used by Gruy in the December 31, 1995 fair
market valuations.
The General Partner will revalue the Partnerships oil and gas reserves using
the increased prices and will use the new fair market valuations to determine
new exchange values for the participating Partnerships. The new Partnership
exchange values will be used to determine the reduced number of Units the
General Partner will receive as follows. The reduced number of Units will equal
the product of the number of Units the General Partner would have received
without this adjustment multiplied by a fraction of which the numerator is the
aggregate of the September 30, 1996 exchange values for the Partnerships that
participate in the Consolidation and the denominator is the aggregate of the new
Partnership exchange values. For example, if Partnerships with a September 30,
1996 aggregate exchange value of $10 million participate in the Consolidation,
and due to increased oil and gas prices these Partnerships' exchange values
increased by 10% to $11 million, the General Partner would receive 179,560 Units
for its cancellation of the $1.98 million of Partnership indebtedness calculated
as follows:
197,516 Units before ($10 million)
-----------
X = 179,560 Units
Adjustment ($11 million)
In the absence of this exchange of indebtedness for Units, the Consolidated
Partnership would have to assume, if all Partnerships participate in the
Consolidation, $1.98 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
Partnership.
37
<PAGE>
<TABLE>
<CAPTION>
Table D
RISK FACTORS APPLIED TO DISCOUNTED FUTURE NET CASH FLOWS
Type
Property Reserve of Risk
Name Category (1) Interest (2) Factor (3) Partnerships (4)
- ---- ------------ ------------ ---------- ----------------
%
<S> <C> <C>
Dent PDP WI 33.3 100
PDNP WI 50.0 100
PDP RI 26.4 100
Chote PDP WI 33.0 100
Grass Island PDP WI 32.6 100
PDNP WI 49.6
Blackhawk PDP WI 28.5 100
Shell PDP WI 21.3 100
Arnold & Woolf PDP WI 24.6 100
Second Bayou PDP ORRI 20.2 100
PDNP ORRI 82.5
Schlensker PDP WI 27.3 100
Esperance Point PDP ORRI 50.9 100
Lake Cocodrie PDP WI 33.3 100
E. Seven Sisters PDP ORRI 30.0 100
PDNP ORRI 35.0
HNG PDP ORRI 25.3 100
Comite PDP ORRI 33.1 100
Concord PDP WI 30.2 207,208,209,210,301
PDP ORRI 30.0 302,303,404,405,601
PDNP WI 33.0
Larto Lake PDP WI 28.0 303,501
Shana PDP WI 19.5 304,501,502
PDNP WI 44.1
Pecan Island PDP ORRI 29.6 304,501,502,503
PDNP ORRI 50.0
Corkscrew PDP WI 33.3 304,305,306,307,308
Michigan PDP WI 25.9 305,306,307,308,401
Enexco PDP WI 32.5 305,306,307,308
RIC PDP WI 28.3 305,306,307,308
Barnes Estate PDP WI 33.0 306,307,308,401,402
PDNP WI 61.2 502,503
Bagley PDP WI 33.3 402,503
Brighton PDP WI 32.2 401,402
Elmac PDP WI 33.3 404,405,406,407,525
Speary PDP WI 27.3 405,406,525,526
Binger PDP WI 33.0 407,051
FEC PDP WI 14.1 407,051,052,053,531,
532
PDNP WI 59.3
South Midway PDP WI 33.3 054
Charlotte PDP WI 33.3 054,533
Muldoon PDP WI 29.5 055
PUD WI 43.1
McBride PDP WI 32.6 601
PUD WI 43.6
Deal PDP ORRI 33.8 501
Corinne PDP ORRI 25.0 501,502,503
East Cameron PDP ORRI 28.6 502,503
Rigney PDP ORRI 24.5 503
Baywood II PDP ORRI 32.7 525,526,527
Wardner Ranch PDP ORRI 33.5 525,526,527,531
</TABLE>
(1) PDP = Proved developed producing, PDNP = proved developed
non-producing, PUD = proved undeveloped.
(2) WI = Working interest, RI = royalty interest, ORRI = overriding royalty
interest.
(3) Represents the one minus risk factor Gruy applied to the discounted
future net cash flows for each property.
See "Method of Determining Exchange Values".
(4) See Table A for a list of the full names of the Partnerships.
38
<PAGE>
Background of the Consolidation and The Exchange Offer
The amount of capital raised from the limited partners of each
Partnership is set forth on Table 1 in Appendix A. 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 in oil and gas properties
that (i) did not subject those Partnerships to the risks or obligations inherent
in the ownership of working interests, (ii) entitled those 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 Enex Income and Retirement Fund Partnerships.
The primary objectives of the Enex Oil & Gas Income Program
Partnerships were to purchase interests in producing properties that (i)
entitled those 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 against future inflationary increases in oil and gas prices. The
General Partner believes these objectives were met for all of the Enex Oil & Gas
Income Program Partnerships.
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 while during 1986 and 1987, general and
administrative expenses totaled $797,556 and $617,413, respectively. Following
the 1985 consolidation, these expenses declined significantly ($628,074 or 44%
from 1985 to 1986 and $184,413 or 23% from 1986 to 1987) due to efficiencies
gained from consolidating the twelve partnerships into one. The General Partner
estimates that this 1985 consolidation has saved the limited partners of the
Program I partnerships an aggregate amount in excess of $5 million in reduced
administrative costs over the ensuing ten years. See Table E below for the
General Partner's estimate of the annual savings each Partnership's partners may
be expected to see from 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 of
continuing or liquidating the Partnerships, and to 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 Partnerships' 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.
39
<PAGE>
Alternatives to the Consolidation and the Exchange Offer
As discussed in "--Background of the Consolidation and the Exchange
Offer," 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. For the following reasons, the General Partner
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 value of the future cash flows from such properties discounted solely
for the time value of money.
The exchange values assigned to each Partnership 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 estimated sales
of oil and gas produced during the period of January 1 through September 30,
1996, and for cash on hand, short-term investments, receivables, prepaids and
liabilities of each Partnership as shown on its September 30, 1996 balance
sheet. A detailed description of the method used by Gruy to estimate the
exchange 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 in liquidation
would likely include a substantial discount for the risks and uncertainties of
future cash flows, as do the Gruy valuations. Such purchasers, however, would
add further material discounts due to other factors not considered by Gruy.
These other factors include the purchaser's anticipated profit on the purchase,
the large number of properties involved (over 12,000 in 13 states), the very
small working and revenue interests owned by the Partnerships in the properties,
the fact that all but very few of the properties are nonoperated and many third
party purchasers prefer to operate the properties, the additional costs incurred
during the extended amount of time it would take to orderly dispose of such a
large number of properties, the costs of brokers, auction houses, and agents
employed to facilitate the sales of certain properties, and the complexity
involved administratively to transfer large numbers of properties from several
entities to a third party purchaser. Due to the likely magnitude of such
discounts, the General Partner believes that the value of the likely cash flows
from the Partnerships' properties discounted at 10% would materially exceed the
liquidation proceeds of the Partnerships, and thus, that the risks of a
liquidation of any one or more of the Partnerships, i.e., materially reduced
proceeds, outweigh the benefits, i.e., immediate realization of cash proceeds.
The General Partner has recently liquidated three properties for two
partnerships. These properties were sold to unaffiliated third parties for
prices which ranged from 22.1% to 29.6% below Gruy's exchange values.
Accordingly, the consideration to be received by the limited partners in the
Consolidation would likely be greater than the proceeds received if the
Partnerships were dissolved and liquidated.
In addition, the General Partner is owed an aggregate of $1.98 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.
The General Partner further believes that the benefits of the
Consolidation outweigh its risks and costs, and that participation in the
Consolidation will be more beneficial to the limited partners of any one or more
of the Partnerships, regardless of which Partnerships participate in the
Consolidation or the manner in which the limited partners participate in the
Consolidation, i.e through the participation of their Partnership(s) or
participation in the Exchange Offer, than the continuation of the Partnerships.
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 $1,924,000 of administrative costs each year, but that if
only the minimum number of Partnerships participate 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 $704,000 per
year, for an aggregate total of approximately $1,479,000), 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 in "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" below for a breakdown of the estimated administrative costs
of the Consolidated Partnership for its first twelve months of operation.) Thus,
the General Partner estimates that if all the Partnerships participate in the
Consolidation,
40
<PAGE>
aggregate savings in reduced general and administrative costs will exceed
$824,000 per year, and if the minimum number of Partnerships participate, the
aggregate savings will exceed $445,000 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
monetary basis. The annual cost savings (less the costs of the Consolidation)
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. Table E-1 below sets forth a comparison of the
exchange value used in the Consolidation with the value of each Partnership if
it continues to operate as a separate entity ("going concern value"). The going
concern value was calculated for each Partnership by subtracting the incremental
general and administrative costs which would be incurred each year if the
Partnerships continue to operate separately, from the Partnership's exchange
value. These incremental costs were discounted to present value using a 10%
discount rate which is the same rate used by Gruy to discount the Partnerships'
oil and gas reserves. As shown in Table E-1, the consideration received by the
limited partners of each Partnership that participates in the Consolidation is
greater than the value of the Partnership on a going concern basis.
41
<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. $253,985 $200,910
Enex Oil & Gas Income Program II, Series 7, L.P. 46,106 36,471
Enex Oil & Gas Income Program II, Series 8, L.P. 34,242 27,087
Enex Oil & Gas Income Program II, Series 9, L.P. 20,450 16,177
Enex Oil & Gas Income Program II, Series 10, L.P. 25,682 20,315
Enex Oil & Gas Income Program III, Series 1, L.P. 15,060 11,913
Enex Oil & Gas Income Program III, Series 2, L.P. 21,718 17,180
Enex Oil & Gas Income Program III, Series 3, L.P. 32,772 (1)
Enex Oil & Gas Income Program III, Series 4, L.P. 13,568 10,733
Enex Oil & Gas Income Program III, Series 5, L.P. 11,257 8,905
Enex Oil & Gas Income Program III, Series 6, L.P. 12,657 10,012
Enex Oil & Gas Income Program III, Series 7, L.P. 8,893 7,034
Enex Oil & Gas Income Program III, Series 8, L.P. 11,088 8,771
Enex Oil & Gas Income Program IV, Series 1, L.P. 7,274 5,754
Enex Oil & Gas Income Program IV, Series 2, L.P. 5,445 4,308
Enex Oil & Gas Income Program IV, Series 4, L.P. 9,153 (1)
Enex Oil & Gas Income Program IV, Series 5, L.P. 14,416 (1)
Enex Oil & Gas Income Program IV, Series 6, L.P. 8,991 (1)
Enex Oil & Gas Income Program IV, Series 7, L.P. 13,066 (1)
Enex Oil & Gas Income Program V, Series 1, L.P. 12,949 (1)
Enex Oil & Gas Income Program V, Series 2, L.P. 9,001 7,120
Enex Oil & Gas Income Program V, Series 3, L.P. 8,524 6,743
Enex Oil & Gas Income Program V, Series 4, L.P. 45,550 (1)
Enex Oil & Gas Income Program V, Series 5, L.P. 30,653 (1)
Enex Oil & Gas Income Program VI, Series 1, L.P. 24,037 (1)
Enex Oil & Gas Income Retirement Fund, Series 1, L.P. 13,019 10,298
Enex Oil & Gas Income Retirement Fund, Series 2, L.P. 15,720 12,435
Enex Oil & Gas Income Retirement Fund, Series 3, L.P. 9,755 (1)
Enex 88-89 Income & Retirement Fund, Series 5, L.P. 4,796 3,794
Enex 88-89 Income & Retirement Fund, Series 6, L.P. 6,276 4,964
Enex 88-89 Income & Retirement Fund, Series 7, L.P. 17,793 14,075
Enex 90-91 Income & Retirement Fund, Series 1, L.P. 20,740 (1)
Enex 90-91 Income & Retirement Fund, Series 2, L.P. 8,986 (1)
Enex 90-91 Income & Retirement Fund, Series 3, L.P. 30,375 (1)
------------ ----------------
Totals $824,000 $445,000
============ ================
</TABLE>
(1) This Partnership is not included in the minimum participation case.
42
<PAGE>
<TABLE>
<CAPTION>
Table E-1
COMPARISON OF EXCHANGE VALUE
WITH GOING CONCERN VALUE
Partnership Exchange Value (1) Going Concern Value(2)
--------------------------- -------------------------
Per $500 Per $500
Total Interest Total Interest
<S> <C> <C> <C> <C>
Enex Program I Partners, L.P. $3,643,091 $18.81 $3,036,498 $15.68
Enex Oil & Gas Income Program II-7, L.P. 803,040 90.54 636,195 71.73
Enex Oil & Gas Income Program II-8, L.P. 544,096 92.80 430,352 73.40
Enex Oil & Gas Income Program II-9, L.P. 250,493 80.60 198,447 63.85
Enex Oil & Gas Income Program II-10, L.P. 343,114 87.62 271,824 69.41
Enex Oil & Gas Income Program III- Series 1, L.P. 23,409 7.86 19,129 6.43
Enex Oil & Gas Income Program III- Series 2, L.P. 74,636 17.48 60,989 14.28
Enex Oil & Gas Income Program III- Series 3, L.P. 454,036 70.84 372,835 58.17
Enex Oil & Gas Income Program III- Series 4, L.P. 75,211 13.90 58,313 10.78
Enex Oil & Gas Income Program III- Series 5, L.P. 63,479 5.88 54,999 5.09
Enex Oil & Gas Income Program III- Series 6, L.P. 129,478 20.42 111,873 17.65
Enex Oil & Gas Income Program III- Series 7, L.P. 40,167 8.87 34,744 7.68
Enex Oil & Gas Income Program III- Series 8, L.P. 74,969 10.42 63,886 8.88
Enex Oil & Gas Income Program IV- Series 1, L.P. 40,684 6.29 35,553 5.49
Enex Oil & Gas Income Program IV- Series 2, L.P. 49,543 10.04 43,955 8.90
Enex Oil & Gas Income Program IV- Series 4, L.P. 87,565 34.75 69,096 27.42
Enex Oil & Gas Income Program IV- Series 5, L.P. 225,899 49.54 201,480 44.18
Enex Oil & Gas Income Program IV- Series 6, L.P. 130,653 30.21 117,042 27.06
Enex Oil & Gas Income Program IV- Series 7, L.P. 214,947 42.82 184,443 36.74
Enex Oil & Gas Income Program V- Series 1, L.P. 212,562 46.93 184,141 40.66
Enex Oil & Gas Income Program V- Series 2, L.P. 75,567 25.43 65,254 21.96
Enex Oil & Gas Income Program V- Series 3, L.P. 110,125 54.52 93,515 46.29
Enex Oil & Gas Income Program V- Series 4, L.P. 801,670 271.38 646,235 218.77
Enex Oil & Gas Income Program V- Series 5, L.P. 536,230 217.71 461,826 187.51
Enex Oil & Gas Income Program VI- Series 1, L.P. 349,059 172.80 294,889 145.98
Enex Income and Retirement Fund - Series 1, L.P. 101,143 36.98 81,176 29.68
Enex Income and Retirement Fund - Series 2, L.P. 271,980 94.34 213,762 74.15
Enex Income and Retirement Fund - Series 3, L.P. 124,251 41.60 105,281 35.25
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 43,919 19.10 38,924 16.92
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 42,246 20.45 36,979 17.90
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 311,482 100.87 264,539 85.67
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 366,426 123.17 311,009 104.54
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 116,705 57.77 97,623 48.33
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 546,700 251.36 433,582 199.35
</TABLE>
(1.) See "THE PROPOSED CONSOLIDATION - Method of Determining Exchange Values"
for the methodolgy used to determine the exchange value attributable to limited
partners.
(2) Represents the estimated value at September 30, 1996 of each partnership if
it continues to operate its business as a separate business.
43
<PAGE>
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 13 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest."
o Expanded Reserve Base: Currently, the individual Partnerships' oil,
condensate and natural gas liquids reserve base ranges from 3.7 thousand barrels
to 513.5 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 2.2 million barrels of oil,
condensate and natural gas liquids and 12.2 billion cubic feet of gas. This
represents 4.13 million equivalent barrels of oil using a conversion ratio of 6
mcf of gas to 1 barrel of oil. See Tables 6 and 7 in Appendix A. The combined
value of these reserves at January 1, 1996, was estimated to be $23.7 million.
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 in reserve enhancement projects in which, in some cases, the
individual Partnerships would not otherwise be able to participate. Negotiations
on 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
"--Method of Determining Exchange Values--Indebtedness to the General Partner".
o General Partner's Interest at Payout: All but one of the Partnership
Agreements provide that the General Partner's interest will increase 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 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".
o Elimination of Certain 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 risks and
costs of the Consolidation. For a detailed discussion of the risks of the
Consolidation, see "RISK FACTORS--The Proposed Consolidation and the Exchange
Offer" 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 2.5% of the aggregate exchange value in the Consolidated
Partnership if all the Partnerships participate. If a Partnership does not
participate in the Consolidation it will not bear any of such costs. 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 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
44
<PAGE>
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
(I) participation in the Consolidated Partnership, whether by the participation
of a Partnership in the Consolidation or by the participation of a limited
partner through the Exchange Offer, and without regard to the identity of the
other participating Partnerships and limited partners, would be more beneficial
to the limited partners than continuing in their Partnerships, and (ii) maximum
participation in the Consolidation would provide a greater benefit to limited
partners than any smaller partial consolidation, regardless of the particular
combination of Partnerships, in each case 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.
In considering the risks and costs of the Consolidation in comparison
to its anticipated benefits, the General Partner did not compare or consider
individual risks or costs against individual benefits. Rather, the General
Partner considered the totality of the risks and costs of the proposed
Consolidation in light of the totality of its anticipated benefits to the
limited partners. In the judgment of the General Partner, 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, a
consolidation of the Partnerships, regardless of which Partnerships participate
in the Consolidation or the manner in which the limited partners participate in
the Consolidation, i.e through the participation of their Partnership(s) or
participation in the Exchange Offer, would be more beneficial to the
Partnerships and the limited partners than the continuation of such Partnerships
as individual entities.
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 which Partnerships participate in the Consolidation
or the manner in which the limited partners participate in the Consolidation,
i.e. through the participation of their Partnership(s) or participation in the
Exchange Offer, and recommends approval of the Consolidation by each
Partnership.
As described above under the caption "Background of the Consolidation
and the Exchange Offer," 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 Consolidated Partnership's Articles. The
exchange values to be used in connection with Consolidation were based primarily
on 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 based on 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 methodology for estimating 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. 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 Interest upon meeting certain
conditions. See "--Dissenters' Rights" below. These dissenters' rights are not
required under any applicable federal or state law or under any Partnership
Agreement (other than that of Enex Oil & Gas Income Program VI - Series 1,
L.P.). Since, as described above, the exchange values to be used in connection
with such dissenters' rights are based primarily upon Gruy's independent fair
market valuations of the Partnership properties and since the General Partner
will adjust the amounts paid to dissenters upward if average oil and gas prices
at the Dissenters' Valuation Date are greater than those used by Gruy, the
General Partner believes that such dissenters' rights are fair and reasonable to
dissenting limited partners. In addition, if average oil and gas prices have
increased since the date of the Gruy valuations, the General Partner will make
the following adjustment. Once the limited partners vote on the Consolidation is
completed, the General Partner will recalculate the value of the oil and gas
reserves of the Partnerships that participate in the Consolidation using
increased prices for oil and gas and adjust the Partnership valuations
accordingly. The resulting increased Partnership valuations will be used to
determine (and reduce) the number of Units the General Partner will receive for
its exchange of Partnership debt and to determine an increased cash amount to be
paid to dissenters. No adjustment will be made to the number of Units to be
received in exchange for interests in the participating Partnerships because the
General Partner anticipates that any price changes will, on a comparative basis,
have an insignificant effect on the exchange values of the Partnerships in
relation to each other.
Differences in Rights and Responsibilities: As more fully described in "THE
CONSOLIDATED PARTNERSHIP--Proposed Activities" below, the Consolidated
Partnership intends to operate the businesses of the
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participating Partnerships substantially as they have been operated in the past.
As noted above, the General Partner has striven to ensure that the terms and
provisions of the Articles 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 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 provided for in the Articles (see
"THE CONSOLIDATED PARTNERSHIP--Right of Presentment"). 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, the General Partner will submit a proposal to sell all of the
Partnership's properties and to dissolve and liquidate the Partnership to a vote
of the limited partners. 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, the Articles do
give the Consolidated Partnership's limited partners the annual right to present
their Interests for purchase at prices that, in the General Partner's opinion,
will closely approximate the estimated fair market values of Partnership
properties as determined by Gruy (which are intended to be an approximation of
the prices for which Partnership properties could be sold). In the General
Partner's view, the limited partners of those six Partnerships 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.
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 Partnership other than the four
Partnerships formed in Enex Oil & Gas Income Program II (which are Texas limited
partnerships). The only differences in the post-Consolidation voting rights of
the limited partners are the following differences, which are only applicable to
the limited partners in Enex Oil Gas Income Program II: 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. Like the thirty New Jersey Partnerships, the Consolidated
Partnership requires a vote of two-thirds in interest to approve the selection
of an additional or successor general partner but permits the limited partners,
by a 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" and
"--Applicability of the New Jersey Act."
The General Partner's voting rights as a limited partner will be
increased as a result of its exchange of indebtedness for Units (see "--Method
of Determining Exchange Values--Indebtedness to the General Partner"), and to
the extent that it purchases the limited partnership Interests of limited
partners who exercise their dissenters' rights (see "--Terms of the
Consolidation--Dissenters' Rights"). The General Partner currently has voting
Interests in the Partnerships ranging from 4.05% to 54.10%, but will have a
voting interest in the Consolidated Partnership of 47.08% if all Partnerships
participate in the Consolidation, and 57.40% if all Partnerships participate in
the Consolidation and the maximum number of limited partners exercise their
dissenters' rights. Nevertheless, existing limitations on the General Partner's
voting rights will continue to apply on a proportional basis under the Articles
as follows. As indicated in "THE CONSOLIDATED PARTNERSHIP--Summary of the
Articles of Limited Partnership--Voting and Other Rights of the Limited
Partners" below, the General Partner will abstain from voting on any selection
of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
As more fully described in "THE CONSOLIDATED PARTNERSHIP--Participation
in Cost and Revenues," the General Partner's interest in each separate
Partnership's revenues (either 0 or 10%) will be blended into a single interest
in the revenues of the Consolidated Partnership (which is expected to be 3.03%
if all of the Partnerships participate in the Consolidation). 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 Partnerships in whose revenues it owns such an interest. The exchange
value of the General Partner's net revenue sharing percentage will be converted
into a proportionate allocation of Consolidated Partnership new revenues to the
General Partner rather than into Units. Thus, the Consolidation will not
increase the compensation of the General Partner.
Moreover, except for Enex Oil & Gas Income Program VI, 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
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subscriptions to the Partnership, the General Partner's net revenue sharing
percentage will increase to 15%. Although the General Partner's share of
revenues is not likely to experience this increase in the foreseeable future for
all but two Partnerships, the General Partner will forego this potential
increase in its share of net revenues with respect to each participating
Partnership.
Although certain Partnerships (i.e., Income and Retirement Fund
Partnerships) were designed to earn income that would not be characterized as
unrelated business taxable income ("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." Moreover, any
limited partners of an Income and Retirement Fund who have UBTI from other
sources may elect to exercise their dissenters' rights as described under the
caption "THE PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER--Terms of the
Consolidation-- Dissenters' Rights". For the foregoing reasons, as well as the
previously discussed reasons generally applicable to all Partnerships, the
General Partner believes that the Consolidation is fair to the limited partners
of the Income and Retirement Funds.
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 the General Partner strove to ensure that the terms
and provisions of the Articles did not materially differ from the terms and
provisions of the Partnership Agreements and because the exchange values 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, 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 a representative and that the limited
partners would receive no material benefit from a fairness opinion concerning
the Consolidation from an independent third party. As expenses of the
Consolidation, the costs of such a representative and such an opinion would
likely be borne primarily by the Consolidated Partnership in the event of the
consummation of the Consolidation.
Terms of the Consolidation
Partnership Voting Requirements and Rights: Under the Partnership
Agreements, approval of the proposed Consolidation by a Partnership and the
related Partnership Agreement amendments 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 a
limited partner 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 and the related Partnership Agreement amendments 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.
The paragraphs set forth in this box are material only to limited
partners in Enex Oil & Gas Income Program VI - Series 1, L.P.
The Partnership Agreement (the "Program VI-1 Partnership Agreement") of
Enex Oil & Gas Income Program VI Series 1, L.P., ("Program VI-1") 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 partners' 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 (iv) the investment objectives of the Partnership
and the Consolidated Partnership. For the reasons set forth below, the General
Partner believes that the proposed Consolidation does not entail any significant
adverse differences of the types described above and, therefore, that the
Program VI-1 Partnership Agreement provisions do not apply to the Consolidation.
This belief is not based on opinion or advice from counsel.
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Voting Rights.
The Consolidated Partnership Agreement will contain substantially the
same voting provisions as the Program VI-1 Partnership Agreement, with all
limited partner votes concerning the Consolidated Partnership, including removal
of the General Partner, being on a majority-in-interest basis (other than votes
on the admission of additional general partners, which shall be on a
two-thirds-in-interest basis), and the General Partner being required to vote
its general partnership interest in concurrence with the votes of the limited
partners. Thus, in the General Partner's view, although its ownership of Units
in the Consolidated Partnership will be greater than its ownership interest in
all of the Partnerships other than Enex Program I Partners, L.P., the
Consolidation will not effect a significant adverse change in the voting rights
of the Limited Partners of Program VI-1.
Term of Existence.
The termination date of the Consolidated Partnership will be December
31, 2015, which is earlier than the December 31, 2020 termination date of
Program VI-1. The Program VI-1 Partnership Agreement does 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.
While the Consolidated Partnership Agreement will not provide limited partners
with similar dissolution rights, the Consolidated Partnership Agreement will
provide limited partners with more frequent opportunities to cash in their
investment on substantially the same basis as provided in the Program VI-1
Partnership Agreement. All limited partners of the Consolidated Partnership will
be given the opportunity to present their Units to the General Partner for
purchase at the price determined by a presentment formula which will closely
approximate the estimated liquidation values of Partnership properties since the
formula is based upon escalated oil and gas prices, discounted present value of
oil and gas reserves, and an additional discount for risk.
Management Compensation.
The General Partner will receive no fees or increases in compensation
as a result of the Consolidation. The General Partner currently receives no type
of "net asset value" fee or asset acquisition or disposition fee under the
Program VI-1 Partnership Agreement, and will not receive any such fees under the
Consolidated Partnership Agreement. Under the existing Partnership Agreements,
for its management services as general partner, the General Partner currently
receives partnership revenue interests ranging from 0% or 10% and reimbursement
of operating costs and administrative expenses incurred on behalf of the
Partnership. As more fully described in "THE CONSOLIDATED
PARTNERSHIP--Participation in Cost and Revenues", the General Partner's interest
in each separate Partnership's revenues (either 0 to 10%) will be blended into a
single interest in the revenues of the Consolidated Partnership (which is
expected to be 3.03% if all of the Partnerships participate in the
Consolidation). This blended interest will be lower than the General Partner's
interest in Program VI-1's revenues, which is currently 10%. 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 Partnerships in whose revenues it owns such an Interest. The exchange
value of the General Partner's net revenue sharing percentage will be converted
into a proportionate allocation of Consolidated Partnership revenues rather than
into Units. Thus, the Consolidation will not increase the compensation of the
General Partner.
Investment Objectives.
The Consolidated Partnership will continue the businesses of the
participating Partnerships with no significant change in operating policy. The
Consolidated Partnership's principal operations will be the ownership and
operation of existing properties transferred to it by the participating
Partnerships in connection with the Consolidation. Like the original
Partnerships, the Consolidated Partnership will not engage in any exploratory
drilling activities and will only engage in limited development drilling in
order and to the extent necessary to preserve, protect and increase the value of
the transferred properties.
Nevertheless, limited partners of Enex Oil & Gas Income Program VI -
Series 1, L.P. should note that the provisions of the Program VI-1 Partnership
Agreement (which the General Partner believes do not apply to the Consolidation)
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 Agreement, 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
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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 September 30, 1996 and for the value of the Partnership's other assets and
liabilities. At September 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.
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 and Partnership Agreement amendments. 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 September 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 54% 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, a limited partner will be entitled to vote separately For or
Against the Plan of Consolidation and the amendments to the Partnership
Agreements or Abstain from voting. Because approval of the Consolidation and
Partnership Agreement amendments 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 both
proposals. A limited partner who has returned his signed Proxy and Ballot may
thereafter change his vote with respect to the Consolidation and the Partnership
Agreement amendments or his election with respect to the Exchange Offer by
filing (by mail or fax) a revised Proxy and Ballot prior to the Meetings. A
limited partner who wishes to change his vote with respect to the Consolidation
or Partnership Agreement amendments or his election with respect to the Exchange
Offer must send a written request for a new Proxy and Ballot to the Investor
Relations Department of Enex Resources Corporation at 800 Rockmead Drive, Three
Kingwood Place, Suite 200, Kingwood, Texas 77339, and return the new Proxy and
Ballot to the General Partner. A limited partner may change his election with
respect to the Exchange Offer (either to participate or to withdraw) without
changing his vote either for or against the Consolidation or the Partnership
Agreement amendments, and vice versa; provided, however, that only limited
partners who vote for both the Consolidation and the Partnership Agreement
amendments may participate in the Exchange Offer. The Meetings of the limited
partners may be adjourned by the General Partner from time to time.
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 (except for amounts owed to the General
Partner), 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 for their
approval. Following approval of the Plan of Consolidation by the limited
partners of the participating Partnerships, they 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 the Exchange Offer" below and
in the Plan of Consolidation. See "--Partnership Voting Requirements and
Rights", above.
3. All of the assets, subject to the liabilities (except for the
amounts owed to the General Partner), of the Partnerships that approve the Plan
of Consolidation will be conveyed to the Consolidated Partnership in exchange
for Units of limited partnership interest in the Consolidated Partnership at a
ratio of one Unit for each $10 of exchange value. 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".
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5. Upon transfer of their assets to the Consolidated Partnership, the
participating Partnerships will be dissolved and liquidated. Pursuant to such
dissolutions, 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. As such, he will be 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 or the Partnership Agreement amendments is
not approved by the tendering limited partner's Partnership and the tendering
limited partner voted FOR the Plan of Consolidation. One Unit will be offered
for each $10 of exchange value assigned to the Interests. 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 Proposed
Consolidation and the proposed Partnership Agreement amendments are 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; (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 Plan of 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; and
(d) all necessary governmental and third party permits, consents and other
approvals have been obtained. The Consolidation will not be deemed approved by a
Partnership unless the Partnership Agreement amendments have been approved by
its limited partners and the Partnership Agreement amendments will not take
effect for a Partnership unless its limited partners approve the Consolidation.
If one or more of the Partnerships that approve the Plan of
Consolidation suffer a materially adverse development, and the withdrawal of
such Partnership or Partnerships from the Consolidation would not have a
material adverse effect on the Consolidated Partnership, the General Partner
may, in its sole discretion, either consummate the Consolidation without
including the assets of the Partnership or Partnerships which suffer a
materially adverse development or re-solicit the limited partners of such
Partnership or Partnerships and include such Partnership or Partnerships in the
Consolidation if the requisite percentage of resolicited Partners approve the
Plan of Consolidation based upon exchange values which have been revised to give
effect to the changed circumstances. If the exchange value of any Partnership
determined at the time of transfer has decreased by less than 15% from the
exchange value set forth herein, such decrease will not be deemed material.
Conversely, any decrease 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 pending or threatened legal action challenging or seeking to
prevent the consummation of the Consolidation, 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 Plan of 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
- --------
2By reason of the General Partner's ownership of more than 54% of the
Interests in Enex Program I Partners, L.P., that Partnership's participation in
the Consolidation, with its $4.7 million exchange value, is assured.
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the costs incurred in connection with the consummation of the Consolidation.
Such Partnerships' proportionate share of the costs of the Consolidation will be
borne by the General Partner.
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, solicitation 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, except that
the General Partner will bear the portion of the Consolidation costs allocable
to non-participating Partnerships based on their exchange values.
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 both the General Partner and its subsidiary, Enex Securities
Corporation, 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 were required to meet different financial
suitability standards, as set forth in the subscription agreements they signed.
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 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 General Partner (see "THE CONSOLIDATED PARTNERSHIP--Right of Presentment").
Such a Unitholder may find it extremely difficult to terminate his investment in
the Consolidated Partnership if, as expected, 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
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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: (I) 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 or 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 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 at 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 copies of 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 a 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.
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<PAGE>
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. However, if average oil and gas
prices for the preceding 12 months determined on or about the twentieth (20th)
day prior to the date of the Meetings (the "Dissenter's Valuation Date"), are
greater than those used by Gruy, the General Partner will reprocess the Gruy
valuations with the increased prices and base the amounts paid to dissenters on
the new valuations. 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 to receive cash
from the General Partner. It should be noted that these rights will not allow
dissenting Interest holders to receive cash for their Interests from any person
other than the General Partner or 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. As of March 15, 1997
average oil and gas prices were approximately 10% greater than those used by
Gruy. See Table 19 in Appendix A for the dissenters' valuations per $500
Interest for each Partnership calculated as if the Dissenters' Valuation Date
was March 15, 1997, and for the dissenters' valuations per $500 Interest
assuming varying percentage increases in the price of oil and gas at the
Dissenters' Valuation Date. Such increases were based on the historical ranges
of average oil and gas prices over the previous two year period. 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 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. On the Dissenters' Valuation Date, the General Partner will
send a notice to each limited partner of the amount per $500 unit of limited
partnership interest that will be paid to dissenting limited partners of each
Partnership who perfect their dissenters' rights in accordance with the terms
and conditions set forth in this section, together with a new
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Proxy and Ballot for limited partners who wish to change their vote and elect to
exercise these rights. Limited partners wishing to change their vote with
respect to the Consolidation and exercise their dissenter's rights must submit a
Dissenter's Notice and a revised Proxy and Ballot to the General Partner before
the limited partners vote on the Plan of Consolidation at the Meetings. The
address for this purpose is 800 Rockmead Drive, Three Kingwood Place, Suite 200,
Kingwood, Texas 77339.
4. Within thirty (30) days after the effective date of the
Consolidation (the "Effective Date"), 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.
5. 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. 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
Demand 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 Demand 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 Demand should be
executed by all owners. An authorized agent, including one of two or
more joint owners, may execute the Dissenter's Demand 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 Demand, the agent is acting as agent for the owner or
owners of record. 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.
6. 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 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).
The General Partner determined to provide dissenters' rights in order
to give limited partners of participating Partnerships who do not wish to
participate in the Consolidation the opportunity to receive the exchange value
of their interests in cash instead of Units.
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 obligation to
purchase Units upon presentment will be borne by the General Partner, the
General Partner will assume a commitment to purchase Interests pursuant to one
of the Partnership Agreements that is currently borne by the Partnership itself.
In addition, the General Partner will contribute the indebtedness it is owed
by the participating Partnerships in exchange for Units in the Consolidated
Partnership in addition to those it will receive in exchange for the Interests
it owns. As a result of this exchange by the General Partner of the debt owed to
it by the participating Partnerships for equity in the Consolidated Partnership,
the General Partner will (I) lose its right, in the event of a dissolution and
liquidation of the participating Partnerships, to receive up to $1.98 million in
the aggregate from the liquidation proceeds ahead of any distributions being
made to the limited partners and (ii) increase its voting rights in the
Consolidation from 34.07%, without such debt for equity exchange, to 47.1%.
Although the costs of the Consolidation are being apportioned between the
General Partner and the Partnerships in proportion to their respective interests
in the Consolidated Partnerships, the General Partner has agreed to bear all of
the costs of the Consolidation allocable to those Partnerships that do not
approve the Consolidation, and to pay all the costs of the Consolidation in the
event that the Consolidation is not consummated.
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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.
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 or the Partnership Agreement amendments. The accompanying Proxy
and Ballot provides limited partners who vote in favor of the Plan of
Consolidation and the Partnership Agreement amendments the opportunity to elect
to exchange their Interests for Units of the Consolidated Partnership should
their Partnership fail to participate in the Consolidation. The number of Units
subject to the Exchange Offer will depend on the number and identity of the
Partnerships that fail to approve the Consolidation and the number of limited
partners of such Partnerships who vote in favor of the Consolidation and the
Partnership Agreement amendments or the Partnership Agreement amendments. The
maximum number of Units subject to the Exchange Offer is 154,083. (This assumes
that the minimum umber of partnerships, including Program I, approve the
Consolidation, and the maximum number of limited partners of each
non-participating Partnership both vote for the Consolidation and elect to
participate in the Exchange Offer.) A limited partner who wishes to change his
vote with respect to the Consolidation or Partnership Agreement amendments or
his election with respect to the Exchange Offer must send a written request for
a new Proxy and Ballot to the Investor Relations Department of Enex Resources
Corporation at 800 Rockmead Drive, Three Kingwood Place, Suite 200, Kingwood,
Texas 77339, and return the new Proxy and Ballot to the General Partner. A
limited partner may change his election with respect to the Exchange Offer
(either to participate or to withdraw) without changing his vote either for or
against the Consolidation or the Partnership Agreement amendments, and vice
versa; provided, however, that only limited partners who vote for both the
Consolidation and the Partnership Agreement amendments may participate in the
Exchange Offer. 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 above. 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
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<PAGE>
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 $824,000 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. For information on
the total amount of Interests of each Partnership outstanding, see Table S-1
above in the "SUMMARY" section.
For information on the consideration being offered for Partnership Interests
pursuant to the Exchange Offer, including the source and amount of such
consideration, see Table S-2 above in the "SUMMARY" section and "THE PROPOSED
CONSOLIDATION AND EXCHANGE OFFER--Method of Determining Exchange Values."
For information on the identity and background of the directors and officers of
the General Partner, see "THE CONSOLIDATED PARTNERSHIP-- Management." For
information concerning the business of the Consolidated Partnership, see "THE
CONSOLIDATED PARTNERSHIP--Proposed Activities."
Information concerning certain past transactions between the General Partner and
the Partnerships is set forth in Table 17 in Appendix A and is hereby
incorporated by reference to Item 7 - Financial Statements and Supplemental Data
to each Partnership's Annual Report on Form 10-KSB, as amended, for the years
ended December 31, 1995 and 1994 and to Item 1 - Financial Statements of each
Partnership's Quarterly Reports on Form 10-QSB, as amended, for the quarters
ended March 31, 1996, June 30, 1996 and September 30, 1996. During the past
three years, the General Partners has purchased the units of limited partnership
interest in accordance with its annual offer to repurchase such interests, as
required by the agreement of the limited partnership for each of the
Partnerships (the "Partnership Agreements") as set forth in Table 18 to the
Prospectus/Proxy Statement.
The aggregate amount and percentage of Partnership Interests beneficially owned
as of September 30, 1996 by the General Partner, any pension, profit sharing or
similar plan of the General Partner (the Partnerships have no such plans) and,
after reasonable inquiry, each executive officer and director of the General
Partner, each person controlling the General Partner, and each associate or
majority owned subsidiary of the General Partner (the Partnerships have no
subsidiaries) are set forth under the caption "THE CONSOLIDATED
PARTNERSHIP--Management--Security Ownership of Certain Beneficial Owners and
Management" and Table 2 in the Prospectus/Proxy Statement.
Certain financial information with respect to the General Partner appears in
the following documents which have been filed by the General Partner and the
Partnerships under the Exchange Act:
(1) The General Partner's and each Partnership's Annual Report on Form
10-KSB, as amended, for the year ended December 31, 1995.
(2) The General Partner's and each Partnership's Quarterly Reports on Form
10-QSB, as amended, for the quarters ended March 31, 1996, June 30, 1996 and
September 30, 1996.
The information set forth in the following sections contained in the General
Partner's and each Partnership's Annual Report on Form 10-KSB, as amended, are
specifically incorporated herein by references: Item 7-Financial Statements and
Supplementary Data. The following section of the General Partner's and each
Partnership's Quarterly Reports on Form 10- QSB, as amended, for the quarters
ended March 31, 199, June 30, 1996and September 30, 1996 re specifically
incorporated herein by reference: Item 1-Financial Statements (unaudited).
Information where such information may be inspected and copies made is set
forth under the caption "ADDITIONAL INFORMATION" below.
In January of 1996, four limited partnerships of which Enex was the general
partner, Enex Oil & Gas Income Program II-1, L.P., Enex Oil & Gas Income Program
II-2, L.P., Enex Oil & Gas Income Program II-3, L.P., and Enex Oil & Gas Income
Program II-4, L.P., were dissolved, their properties sold, and the proceeds
distributed in accordance with the provisions of their respective Partnership
Agreements. Information with respect to such dissolutions is hereby incorporated
by reference to the Schedules 14A with respect to each such partnership filed on
December 7, 1995 with the Commission. In connection with such dissolutions, the
General Partner purchased the following properties from the following
partnerships for the following amounts:
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<TABLE>
<CAPTION>
Amount Paid
Enex Oil & Gas Income Program
Property Name II-1, L.P. II-2, L.P. II-3, L.P. II-4, L.P.
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
East Seven Sisters $203,881 $212,383 $133,616 $110,411
Comite A $ 53,500 $ 13,910 $ 12,840 $ 9,630
Blair N/A N/A $ 8,200 $ 10,250
</TABLE>
A limited partner who has returned his signed Proxy and Ballot may
thereafter change his election with respect to the Exchange Offer by filing a
revised Proxy and Ballot prior to the Meetings.
The Exchange Offer will expire on , 1997 (60 days from the record date for
the Meetings), and until such date limited partners who elect to participate in
the Exchange Offer may change their election at any time by written notice to
the General Partner at its office at 800 Rockmead Drive, Three Kingwood Place,
Suite 200, Kingwood, Texas 77334, attention Robert E. Densford.
THE PROPOSED AMENDMENTS
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 being proposed. Although these amendments
will be voted on separately, the Consolidation will not be deemed approved by a
Partnership unless the proposed Partnership Agreement amendments have been
approved by its limited partners and, conversely, the Partnership Agreement
amendments will not take effect for a Partnership unless its limited partners
approve the Consolidation. The proposed amendments are required in order to
ensure that the consummation of the Consolidation and the dissolution and
termination of the participating Partnerships following the Consolidation are
not frustrated by the absence of needed provisions in a participating
Partnership's Partnership Agreement. If the Consolidation is abandoned or not
consummated for any reason, the proposed amendments will not go into effect and
the Partnership Agreements will remain unchanged.
The text of the proposed amendments is set forth in full in Appendix D. A
discussion of each proposed amendment and the reasons for its adoption are
presented below.
The first proposed amendment is to the section of each Partnership Agreement
which sets forth the purpose and business of the Partnership. The proposed
amendment provides that, notwithstanding anything to the contrary contained in
the Partnership Agreement, the purpose and business of the Partnership shall be
to transfer its assets and liabilities to the Consolidated Partnership pursuant
to the Plan of Consolidation in exchange for Units in the Consolidated
Partnership, and thereafter to dissolve and terminate. This purpose of this
amendment is to ensure that the consummation of the Consolidation does not
violate the business and purpose provisions of any of the Partnership Agreements
of the participating Partnerships.
The second proposed amendment is to the section of each Partnership
Agreement which sets forth the events causing a dissolution of the Partnership.
The proposed amendment provides that the Partnership shall dissolve on the
effective date of the Consolidation. The purpose of this amendment is to ensure
that upon the consummation of the Consolidation, at which point the
participating Partnerships will have no remaining assets or liabilities, the
participating Partnerships will be dissolved and liquidated.
The third proposed amendment is to the section of each Partnership Agreement
which sets forth the procedures for the liquidation of the Partnership. The
proposed amendment provides that (I) immediately prior to the effective date of
the Consolidation, the General Partner shall make a capital contribution to the
Partnership of all amounts that it is owed by the Partnership and its capital
account shall be adjusted accordingly, (ii) upon the liquidation of the
Partnership pursuant to the Consolidation, the Units received by the Partnership
shall be distributed in kind to the partners in accordance with their capital
accounts, (iii) the General Partner shall have the power to fully implement the
Consolidation and to take all necessary actions in the name of the Partnership
to consummate the Consolidation and dissolution of the Partnership and (iv) if
any of the proposed amendments are inconsistent with any of the other provisions
of the Partnership Agreement, the proposed amendments shall govern, but if the
Consolidation is not consummated for any reason, the proposed amendments shall
be of no force and effect and the Partnership shall not be dissolved. The
purpose of this amendment is to ensure that the terms of the Consolidation, and
in particular the distribution in kind of Units to the partners of each
participating Partnership and the exchange by the General Partner of
indebtedness owed to it by the participating Partnerships for equity in the
Consolidated Partnership, are permitted under and do not contravene the
provisions of each participating Partnership's Partnership Agreement.
The Partnership Agreements each provide 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
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<PAGE>
of the limited partners, determined in accordance with their Sharing Ratios. See
Appendix D, Proposed Amendments to the Partnership Agreements of the
Partnerships. For information concerning limited partners of record entitled to
vote on the amendments, limited partners with Sharing Ratios greater than 5% and
voting procedures, see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Partnership Voting Requirements and Rights."
The General Partner recommends approval of the proposed amendments to the
Partnership Agreements by each Partnership.
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's Articles are essentially the same as 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 practices 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 "SELECTED FINANCIAL DATA-- 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
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<PAGE>
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.
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.
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.
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<PAGE>
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 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 and for the nine months ended
September 30, 1996 is shown in Table 8 in Appendix A. The gross and net
productive acreage, undeveloped acreage and productive oil and gas wells of the
Partnerships, as of December 31, 1995 are shown in Tables 10 and 11 in Appendix
A.
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<PAGE>
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 the
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. 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 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" below.
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 and per mcf of gas, and the average production cost per equivalent barrel of
oil production for each of the participating Partnerships for 1995 and 1994 and
for the nine months ended September 30, 1996 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 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,
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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 below 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"
below.
Personnel Available: At December 31, 1996 the General Partner and its
subsidiaries had 23 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"
below), 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.
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 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 estimated
distributions set forth in Table F below constitute forward-looking statements
that involve known and unknown risks and uncertainties which may cause the
actual distribution in future periods to differ materially from such forecasts.
These risks include risks generally associated with oil and gas production and
marketing, and are described in detail in "RISK FACTORS." 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
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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 each Partnership's inception through September 30, 1996 and for the six
months 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.
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<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 $5.04 $5.03 $3.16
Enex Oil & Gas Income Program II-7, L.P. 12.50 6.94 16.60 24.22 23.82
Enex Oil & Gas Income Program II-8, L.P. 11.29 8.12 16.16 24.83 19.62
Enex Oil & Gas Income Program II-9, L.P. 13.73 7.12 14.65 21.56 14.65
Enex Oil & Gas Income Program II-10, L.P. 12.02 7.21 15.55 23.44 15.56
Enex Oil & Gas Income Program III- Series 1, L.P. - - - 2.10 -
Enex Oil & Gas Income Program III- Series 2, L.P. - - - 4.68 -
Enex Oil & Gas Income Program III- Series 3, L.P. 9.80 7.59 15.28 18.95 13.75
Enex Oil & Gas Income Program III- Series 4, L.P. 7.31 1.24 - 3.72 -
Enex Oil & Gas Income Program III- Series 5, L.P. 8.07 3.79 1.35 1.57 -
Enex Oil & Gas Income Program III- Series 6, L.P. 15.05 6.67 2.01 5.46 1.81
Enex Oil & Gas Income Program III- Series 7, L.P. 13.15 6.03 1.92 2.37 -
Enex Oil & Gas Income Program III- Series 8, L.P. 14.52 2.27 2.30 2.79 -
Enex Oil & Gas Income Program IV- Series 1, L.P. 17.73 1.26 1.28 1.68 0.00
Enex Oil & Gas Income Program IV- Series 2, L.P. 16.35 1.71 1.30 2.68 0.00
Enex Oil & Gas Income Program IV- Series 4, L.P. 9.45 7.31 6.93 9.30 6.24
Enex Oil & Gas Income Program IV- Series 5, L.P. 14.00 7.14 18.02 13.(3) 16.60
Enex Oil & Gas Income Program IV- Series 6, L.P. 11.78 6.77 10.92 8.(3) 9.50
Enex Oil & Gas Income Program IV- Series 7, L.P. 18.27 5.54 6.41 11.(3) 16.18
Enex Oil & Gas Income Program V- Series 1, L.P. 16.37 3.68 11.81 12.(3) 18.00
Enex Oil & Gas Income Program V- Series 2, L.P. 24.92 5.37 9.72 6.80 5.72
Enex Oil & Gas Income Program V- Series 3, L.P. 19.33 5.95 11.03 14.59 9.93
Enex Oil & Gas Income Program V- Series 4, L.P. 42.05 62.18 65.01 72.61 55.58
Enex Oil & Gas Income Program V- Series 5, L.P. 60.23 61.65 51.20 55.(3) 66.35
Enex Oil & Gas Income Program VI- Series 1, L.P. 19.37 16.80 8.99 46.23 45.04
Enex Income and Retirement Fund - Series 1, L.P. 24.50 3.33 3.02 9.89 -
Enex Income and Retirement Fund - Series 2, L.P. 40.99 7.71 7.03 25.24 8.89
Enex Income and Retirement Fund - Series 3, L.P. 39.76 9.11 4.35 11.13 -
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 12.56 2.96 4.46 5.11 -
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 12.71 2.25 5.08 5.47 -
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 29.54 11.95 18.23 26.99 20.47
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 38.88 16.47 22.78 32.95 28.20
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 27.95 11.06 8.64 15.46 7.78
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 32.10 51.38 68.98 67.25 48.05
</TABLE>
See accompanying notes to Table F on following page.
- ------------------------------------------------------------------------------
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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 Gruy and the allocation
of Units shown in Table C-"Exchange Value Attributable to General Partners
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 5, L.P. 4.13 years
Enex Oil & Gas Income Program IV-Series 6, L.P. 4.21 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 5, L.P. 4.56 years
65
<PAGE>
<TABLE>
<CAPTION>
TABLE G - 1
NET REVENUES AND CASH DISTRIBUTIONS TO LIMITED PARTNERS
Cumulative from inception through September 30, 1996
The following tables summarize for each Partnership's operating results through
September 30, 1996 and during the nine months then ended attributable to the
Interests held by limited partners (including the General Partner with respect
to the Interests it owns).
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 $111,317,233 $31,722,749 $11,590,363 $2,166,238 $5,974,061 $59,863,822 $189,162 $60,052,984 $50,111,284
207 5,694,132 1,404,382 634,778 88,299 650 3,566,023 (48,759) 3,517,264 2,769,487
208 3,956,428 1,027,069 554,663 94,028 101 2,280,567 33,317 2,313,884 1,873,341
209 2,105,760 582,019 468,587 85,214 50 969,890 93,652 1,063,542 988,921
210 2,611,103 735,106 493,483 87,486 72 1,294,956 90,809 1,385,765 1,207,010
301 2,534,618 1,231,954 457,212 89,484 36,630 719,338 232,378 951,716 679,569
302 3,610,825 1,768,941 447,868 94,939 48,254 1,250,823 291,567 1,542,390 945,473
303 4,010,963 1,211,652 543,671 90,890 25,679 2,139,071 101,845 2,240,916 1,778,665
304 3,345,330 1,298,934 432,147 65,106 4,834 1,544,309 153,936 1,698,245 1,442,363
305 6,272,668 2,174,117 540,760 109,292 6,632 3,441,867 128,780 3,570,647 3,049,188
306 4,948,008 1,844,982 512,832 102,040 24,360 2,463,794 93,779 2,557,573 1,950,684
307 3,418,896 1,313,537 418,569 86,050 15,578 1,585,162 114,640 1,699,802 1,339,137
308 4,435,418 1,584,121 430,571 113,105 27,852 2,279,769 110,780 2,390,549 1,863,412
401 3,141,276 858,061 372,659 81,270 26,442 1,802,844 75,167 1,878,011 1,413,466
402 2,510,557 709,853 342,804 71,962 23,178 1,362,760 31,461 1,394,221 1,012,546
404 984,042 257,244 279,328 40,063 1,851 405,556 55,779 461,335 399,731
405 2,871,037 1,524,937 274,366 48,055 1,853 1,021,826 (46,729) 975,097 735,591
406 1,776,661 667,810 253,129 30,672 620 824,430 (14,539) 809,891 681,515
407 2,711,022 1,175,150 344,056 41,817 1,804 1,148,195 2,415 1,150,610 954,972
051 2,721,722 1,368,452 300,769 30,613 1,182 1,020,706 (8,908) 1,011,798 795,704
052 1,274,440 457,647 243,381 32,345 2,324 538,743 70,106 608,849 532,975
053 968,248 387,233 210,646 25,739 - 344,630 27,409 372,039 319,351
054 4,168,326 2,792,836 233,182 16,744 1,360 1,124,204 (110,673) 1,013,531 839,521
055 1,917,148 773,605 276,906 12,208 - 854,429 (9,664) 844,765 615,447
601 741,035 398,171 86,575 23,768 11,605 220,916 75,160 296,076 91,265
501 1,180,608 42,092 318,841 60,871 451 758,353 115,418 873,771 851,063
502 1,598,703 73,299 338,756 46,649 2,413 1,137,586 (28,064) 1,109,522 1,093,659
503 1,615,393 68,186 329,172 44,939 1,874 1,171,222 21,890 1,193,112 1,166,521
525 546,124 20,854 175,918 24,125 1,683 323,544 23,497 347,041 345,912
526 469,026 39,870 172,380 23,007 1,164 232,605 57,805 290,410 285,178
527 913,540 99,077 195,458 19,282 1,749 597,974 (18,629) 579,345 577,829
531 981,593 99,488 182,631 27,228 - 672,246 (14,309) 657,937 625,415
532 550,759 1 180,934 20,142 - 349,682 26,825 376,507 368,169
533 866,345 750 164,106 20,751 - 680,738 (77,727) 603,011 579,709
</TABLE>
* See Table A for a list of the full names of the Partnerships.
66
<PAGE>
<TABLE>
<CAPTION>
TABLE G - 2
NET REVENUES AND CASH DISTRIBUTIONS TO LIMITED PARTNERS
From January 1, 1996 through September 30, 1996
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> <C>
100 $2,599,487 $1,163,382 $580,791 $61,376 ($21,649) $815,587 $85,496 $901,083 $624,180
207 320,940 65,185 27,704 2,387 - 225,664 (113,198) 112,466 93,054
208 245,525 49,899 24,042 1,715 - 169,869 (87,669) 82,200 67,338
209 146,336 29,743 19,243 1,140 - 96,210 (54,002) 42,208 33,350
210 184,511 37,499 21,075 1,335 - 124,602 (67,234) 57,368 46,194
301 98,280 20,005 16,148 944 - 61,183 (62,268) (1,085) -
302 140,715 28,643 18,897 1,143 - 92,032 (82,373) 9,659 -
303 229,008 53,244 20,703 1,718 - 153,343 (66,510) 86,833 72,187
304 108,809 60,798 15,129 1,462 - 31,420 (25,357) 6,063 -
305 255,581 146,643 25,571 3,315 (29,920) 109,972 (55,647) 54,325 14,638
306 247,615 135,233 26,748 2,662 (34,037) 117,009 (76,744) 40,265 12,773
307 175,396 96,206 22,271 2,041 (24,531) 79,409 (50,171) 29,238 8,702
308 204,564 112,326 20,074 3,182 (12,414) 81,396 (65,238) 16,158 16,559
401 96,021 37,087 15,374 583 (2,618) 45,595 (71,729) (26,134) 8,341
402 83,028 31,897 13,018 296 (1,681) 39,498 (60,483) (20,985) 6,425
404 78,227 17,825 12,076 915 - 47,411 (31,028) 16,383 11,145
405 250,629 110,328 12,154 614 - 127,533 (62,959) 64,574 44,581
406 149,308 48,559 12,860 205 - 87,684 (47,847) 39,837 30,833
407 241,400 142,992 25,425 401 (968) 73,550 7,943 81,493 22,215
051 264,921 161,394 24,193 468 (861) 79,727 3,735 83,462 33,264
052 115,953 48,686 18,620 436 (546) 48,757 (16,992) 31,765 21,203
053 109,391 45,893 17,677 391 (8) 45,438 (18,419) 27,019 17,043
054 641,045 404,310 27,649 263 - 208,823 (74,462) 134,361 134,361
055 356,781 126,800 37,303 200 - 192,478 25,276 217,754 100,470
601 253,768 129,861 16,090 3,932 2,120 101,765 (56,248) 45,517 18,178
501 40,121 2,004 17,174 (110) - 21,053 (21,052) 1 -
502 66,615 3,917 18,978 (201) - 43,921 (43,921) - -
503 74,337 3,668 19,606 (159) (188) 51,410 (52,841) (1,431) -
525 40,402 953 7,123 322 - 32,004 (25,823) 6,181 6,181
526 42,878 2,301 7,280 310 - 32,987 (26,528) 6,459 6,459
527 97,583 7,311 9,713 239 - 80,320 (48,835) 31,485 31,485
531 118,395 8,029 8,932 (176) - 101,610 (58,137) 43,473 43,473
532 55,651 - 15,578 (174) - 40,247 (27,105) 13,142 14,683
533 167,836 - 26,269 146 - 141,421 (37,735) 103,686 103,686
</TABLE>
* See Table A for a list of the full names of the Partnerships.
67
<PAGE>
<TABLE>
<CAPTION>
TABLE G - 3
NET REVENUES AND CASH DISTRIBUTIONS TO LIMITED PARTNERS
Cumulative from inception through September 30, 1996
Per $500 Limited Partner Interest
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 $575 $164 $60 $11 $31 $309 $1 $310 $259
207 642 158 72 10 0 402 (5) 397 312
208 675 175 95 16 0 389 6 395 320
209 678 187 151 27 0 312 30 342 318
210 667 188 126 22 0 331 23 354 308
301 851 414 154 30 12 242 78 320 228
302 846 414 105 22 11 293 68 361 221
303 626 189 85 14 4 334 16 350 278
304 618 240 80 12 1 286 28 314 267
305 581 201 50 10 1 319 12 331 282
306 780 291 81 16 4 389 15 403 308
307 755 290 92 19 3 350 25 376 296
308 616 220 60 16 4 317 15 332 259
401 485 133 58 13 4 279 12 290 218
402 509 144 69 15 5 276 6 282 205
404 390 102 111 16 1 161 22 183 159
405 630 334 60 11 0 224 (10) 214 161
406 411 154 59 7 0 191 (3) 187 158
407 540 234 69 8 0 229 0 229 190
051 601 302 66 7 0 225 (2) 223 176
052 429 154 82 11 1 181 24 205 179
053 479 192 104 13 0 171 14 184 158
054 1,411 945 79 6 0 381 (37) 343 284
055 778 314 112 5 0 347 (4) 343 250
601 367 197 43 12 6 109 37 147 45
501 432 15 117 22 0 277 42 319 311
502 555 25 118 16 1 395 (10) 385 379
503 541 23 110 15 1 392 7 399 391
525 237 9 76 10 1 141 10 151 150
526 227 19 83 11 1 113 28 141 138
527 296 32 63 6 1 194 (6) 188 187
531 330 33 61 9 0 226 (5) 221 210
532 273 0 90 10 0 173 13 186 182
533 398 0 75 10 0 313 (36) 277 267
</TABLE>
* See Table A for a list of the full names of the Partnerships.
68
<PAGE>
<TABLE>
<CAPTION>
TABLE G - 4
NET REVENUES AND CASH DISTRIBUTIONS TO LIMITED PARTNERS
From January 1, 1996 through September 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> <C>
100 $13 $6 $3 $0 ($0) $4 $0 $5 $3
207 36 7 3 0 0 25 (13) 13 10
208 42 9 4 0 0 29 (15) 14 11
209 47 10 6 0 0 31 (17) 14 11
210 47 10 5 0 0 32 (17) 15 12
301 33 7 5 0 0 21 (21) (0) 0
302 33 7 4 0 0 22 (19) 2 0
303 36 8 3 0 0 24 (10) 14 11
304 20 11 3 0 0 6 (5) 1 0
305 24 14 2 0 (3) 10 (5) 5 1
306 39 21 4 0 (5) 18 (12) 6 2
307 39 21 5 0 (5) 18 (11) 6 2
308 28 16 3 0 (2) 11 (9) 2 2
401 15 6 2 0 (0) 7 (11) (4) 1
402 17 6 3 0 (0) 8 (12) (4) 1
404 31 7 5 0 0 19 (12) 7 4
405 55 24 3 0 0 28 (14) 14 10
406 35 11 3 0 0 20 (11) 9 7
407 48 28 5 0 (0) 15 2 16 4
051 58 36 5 0 (0) 18 1 18 7
052 39 16 6 0 (0) 16 (6) 11 7
053 54 23 9 0 (0) 22 (9) 13 8
054 217 137 9 0 0 71 (25) 45 45
055 145 51 15 0 0 78 10 88 41
601 126 64 8 2 1 50 (28) 23 9
501 15 1 6 (0) 0 8 (8) 0 0
502 23 1 7 (0) 0 15 (15) 0 0
503 25 1 7 (0) (0) 17 (18) (0) 0
525 18 0 3 0 0 14 (11) 3 3
526 21 1 4 0 0 16 (13) 3 3
527 32 2 3 0 0 26 (16) 10 10
531 40 3 3 (0) 0 34 (20) 15 15
532 28 0 8 (0) 0 20 (13) 7 7
533 77 0 12 0 0 65 (17) 48 48
</TABLE>
* See Table A for a list of the full names of the Partnerships.
69
<PAGE>
<TABLE>
<CAPTION>
TABLE H - 1
NET REVENUES AND CASH DISTRIBUTIONS TO GENERAL PARTNER
Cumulative from inception through September 30, 1996
The following tables summarize for each of the partnership's operating
results through September 30, 1996 and during the nine months then ended
attributable to the general partnership interest in such Partnership.
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
207 408,634 115,059 58,302 7,928 (1,044) 228,389 (37,630) 190,759 190,209
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
301 268,988 136,884 50,801 9,943 (14,460) 85,820 (50,821) 34,999 34,973
302 386,096 196,549 49,763 10,549 (161) 129,396 (59,593) 69,803 69,764
303 433,925 134,629 60,408 10,099 316 228,473 (38,470) 190,003 189,895
304 349,095 144,326 48,016 7,234 476 149,043 (14,826) 134,217 134,613
305 652,658 241,568 60,084 12,144 737 338,125 (38,069) 300,056 308,238
306 519,452 204,998 56,981 11,338 2,707 243,428 (66,580) 176,848 186,702
307 367,800 145,948 46,508 9,561 1,731 164,052 (38,968) 125,084 132,133
308 472,905 176,014 47,841 12,567 3,095 233,388 (51,212) 182,176 185,637
401 332,650 95,341 41,407 9,030 2,938 183,934 (46,103) 137,831 138,139
402 269,619 78,872 38,089 7,996 2,575 142,087 (37,657) 104,430 104,630
404 104,304 28,583 31,036 4,452 (1,825) 42,058 (8,867) 33,191 33,105
405 313,750 169,438 30,485 5,340 (139) 108,626 (33,562) 75,064 75,023
406 195,812 74,201 28,125 3,408 69 90,009 (18,276) 71,733 71,737
407 287,123 130,573 38,228 4,646 200 113,476 (24,402) 89,074 89,185
051 294,046 152,050 33,419 3,401 131 105,045 (24,627) 80,418 80,514
052 137,819 50,850 27,042 3,594 258 56,075 (5,908) 50,167 50,225
053 107,471 43,026 23,405 2,860 - 38,180 (5,943) 32,237 32,238
054 459,749 310,315 25,909 1,861 151 121,513 (28,602) 92,911 92,909
055 210,910 85,957 30,767 1,356 - 92,830 (25,273) 67,557 67,558
601 81,322 44,242 9,620 2,641 1,289 23,530 (19,195) 4,335 6,719
501 119,797 4,677 35,427 6,763 4,219 68,711 (11,704) 57,007 65,924
502 165,550 8,144 37,640 5,183 4,314 110,269 (12,490) 97,779 104,541
503 169,484 7,576 36,575 4,993 208 120,132 (8,836) 111,296 111,623
525 54,478 2,317 19,547 2,681 (1,143) 31,076 (7,924) 23,152 23,151
526 46,902 4,430 19,153 2,556 (341) 21,104 (7,671) 13,433 13,434
527 92,735 11,009 21,718 2,142 194 57,672 (11,789) 45,883 45,883
531 105,118 11,054 20,292 3,025 - 70,747 (11,524) 59,223 59,222
532 59,703 0 20,104 2,238 - 37,361 (4,253) 33,108 33,107
533 93,520 83 18,234 2,306 - 72,897 (9,670) 63,227 63,228
</TABLE>
* See Table A for a list of the full names of the Partnerships.
70
<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 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> <C>
100 - - - - - - - - -
207 - - - - - - - - -
208 - - - - - - - - -
209 - - - - - - - - -
210 - - - - - - - - -
301 $10,920 $2,222 $1,794 $105 - $6,799 ($6,799) - -
302 15,635 3,182 2,100 127 - 10,226 (10,224) $2 $2
303 25,445 5,917 2,300 191 - 17,037 (6,314) 10,723 10,723
304 12,090 6,755 1,681 162 - 3,492 (3,491) 1 1
305 28,398 16,294 2,841 368 (3,324) 12,219 (10,592) 1,627 1,627
306 27,513 15,026 2,972 296 (3,782) 13,001 (11,583) 1,418 1,418
307 19,488 10,691 2,475 227 (2,726) 8,821 (7,853) 968 968
308 22,730 12,482 2,230 354 (1,379) 9,043 (7,201) 1,842 1,842
401 10,669 4,122 1,708 65 (291) 5,065 (4,139) 926 926
402 9,225 3,544 1,447 32 (187) 4,389 (3,674) 715 715
404 8,692 1,981 1,342 101 - 5,268 (3,153) 2,115 2,115
405 27,848 12,259 1,350 67 - 14,172 (7,776) 6,396 6,396
406 16,590 5,396 1,429 22 - 9,743 (4,698) 5,045 5,045
407 26,822 15,889 2,825 43 (108) 8,173 (5,706) 2,467 2,467
051 29,436 17,933 2,688 52 (96) 8,859 (3,748) 5,111 5,111
052 12,884 5,410 2,069 49 (61) 5,417 (2,113) 3,304 3,304
053 12,155 5,099 1,964 43 (1) 5,050 (2,304) 2,746 2,746
054 71,227 44,924 3,072 29 - 23,202 (3,623) 19,579 19,579
055 39,642 14,089 4,145 22 - 21,386 (7,120) 14,266 14,266
601 28,197 14,429 1,788 437 236 11,307 (8,445) 2,862 2,862
501 4,458 222 1,908 (12) - 2,340 (2,341) (1) -
502 7,402 436 2,109 (22) - 4,879 (4,878) 1 1
503 8,260 407 2,179 (18) (21) 5,713 (5,714) (1) -
525 4,489 106 792 36 - 3,555 (2,866) 689 689
526 4,764 255 809 34 - 3,666 (2,949) 717 717
527 10,843 812 1,079 27 - 8,925 (4,495) 4,430 4,430
531 13,155 892 993 (20) - 11,290 (5,079) 6,211 6,211
532 6,183 - 1,289 (112) - 5,006 (2,420) 2,586 2,222
533 18,649 - 2,919 16 - 15,714 119 15,833 15,833
</TABLE>
* See Table A for a list of the full names of the Partnerships.
71
<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 AND THE EXCHANGE OFFER--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 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 "--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. 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. There can be no assurance that the Consolidated
Partnership will be able to borrow upon satisfactory terms, however.
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 by
unrelated banks (without reference to the General Partner's financial abilities
or guarantees) 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" below.
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 the
General Partner and may not pledge the Units of any Unitholder or the Interests
of any limited partner without his consent.
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 and "TAX
72
<PAGE>
ASPECTS--Participation in the Consolidated Partnership--Sale of Consolidated
Partnership Units" and "--Tax Consequences to Transferees of Units".) 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 General Partner for purchase
at the times described below and subject to the following conditions and
limitations. The General Partner will not purchase less than all of a limited
partner's Units, but may waive this requirement in the General Partner's sole
discretion.
Within 90 days after the Consolidation transaction is completed and not
later than April 30th of every year thereafter 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 General Partner for purchase (provided, however, that
the initial mailing will be sent to all limited partners). 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.
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
73
<PAGE>
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 value. Furthermore, the sale of Units will be a taxable event, and
gain or loss generally will be recognized for federal income tax purposes.
Although the General Partner's obligation to purchase presented Units
constitutes a binding contractual commitment, the General Partner'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 General Partner 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.
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<PAGE>
Under the Articles, should the obligation of the General Partner 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 General Partner'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 General
Partner, 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 and no Units
presented by limited partners will be accepted for purchase by the General
Partner.
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
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.
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). 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 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.
Deficiency Dates for the other programs are as follows:
Enex Oil & Gas Income Program III May 11, 1998 Enex Oil & Gas Income Program
IV May 16, 2000 Enex Income & Retirement Fund December 31, 1997 Enex 88-89
Income and Retirement Fund February 28, 2000 Enex 90-91 Income and
Retirement Fund October 4, 2001
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 until the Deficiency Dates to be valued in the
same manner as the outstanding Interests in the affected Partnerships. 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 at September 30, 1996 is 472,056 or 3.03%
of the aggregate exchange value of $15,567,279. Table I below shows the exchange
values of the General Partner's percentage shares of Partnership net revenues.
75
<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 (1) Value Share (2)
--------------- ----------------- ---------------- ------------------ ------------
(a) (b) (c) (d=c/a) (e=bxd)
<S> <C> <C> <C> <C> <C> <C>
100 $4,652,447 29.89% - 0.00% 0.00%
207 844,553 5.43% - 0.00% 0.00%
208 627,241 4.03% - 0.00% 0.00%
209 374,603 2.41% - 0.00% 0.00%
210 470,441 3.02% - 0.00% 0.00%
301 282,128 1.81% $6,254 2.22% 0.04%
302 406,843 2.61% 9,019 2.22% 0.06%
303 614,065 3.94% 13,748 2.24% 0.09%
304 250,608 1.61% 2,070 0.83% 0.01%
305 213,954 1.37% 7,742 3.62% 0.05%
306 240,471 1.54% 8,616 3.58% 0.06%
307 168,977 1.09% 6,081 3.60% 0.04%
308 210,734 1.35% 7,620 3.62% 0.05%
401 141,193 0.91% 7,942 5.62% 0.05%
402 105,659 0.68% 5,911 5.59% 0.04%
404 175,544 1.13% 7,883 4.49% 0.05%
405 280,767 1.80% 16,705 5.95% 0.11%
406 176,303 1.13% 11,600 6.58% 0.07%
407 251,884 1.62% 12,535 4.98% 0.08%
051 263,058 1.69% 25,869 9.83% 0.17%
052 183,193 1.18% 18,319 10.00% 0.12%
053 173,494 1.11% 17,349 10.00% 0.11%
054 927,075 5.96% 92,707 10.00% 0.60%
055 621,522 3.99% 60,019 9.66% 0.39%
601 488,829 3.14% 48,922 10.00% 0.31%
501 241,122 1.55% 2,508 1.04% 0.02%
502 290,996 1.87% 3,040 1.04% 0.02%
503 183,522 1.18% 3,195 1.76% 0.02%
525 92,548 0.59% 4,701 5.08% 0.03%
526 119,436 0.77% 4,480 3.75% 0.03%
527 336,454 2.16% 10,524 3.13% 0.07%
531 396,813 2.55% 16,908 4.26% 0.11%
532 175,048 1.12% 10,443 5.97% 0.07%
533 585,754 3.76% 29,346 5.01% 0.19%
=============== ======== =============== ===========
Totals $15,567,279 100% $472,056 3.03%
=============== ======== =============== ===========
</TABLE>
* See Table A for a list of the full names of the Partnerships.
See notes on following page.
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<PAGE>
(1) 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 $472,056 or 3.03% of the aggregate exchange
value of $15,567,279.
(2) Represents the General Partner's revenue share in the Consolidated
partnership.
77
<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 3.03% 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."
All but one of 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 Partner's net revenue sharing percentage will increase to 15%. Although
there is little likelihood of the increase occurring in the foreseeable future
for all but two of the Partnerships, 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' aggregate 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, will be borne by the Consolidated Partnership and
allocated in accordance with the general cost and revenue sharing percentages
described above, except that the General Partner will bear the costs allocable
to non-participating Partnerships. 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 borrowings
(exclusive of interest) assumed by the Consolidated Partnership upon the
acceptance of the assets and liabilities of the participating Partnerships and
borrowings (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.
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.
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<PAGE>
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 below in "--Summary of the Articles of Limited Partnership--Exchange
for Assets".
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 $15,567,279 of exchange value (exclusive of the exchange value attributable
to Interests exchanged for Units pursuant to the Exchange Offer), respectively,
will be as follows:
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<PAGE>
<TABLE>
<CAPTION>
TABLE J
ESTIMATED EXPENSES FOR FIRST 12 MONTHS OF OPERATIONS
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
--------- -----------
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 above.
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 partner 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
80
<PAGE>
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 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. See Section 7.3 of the
Articles.
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 incorporated in Colorado in 1979 and reincorporated
under the laws of the State of Delaware on June 30, 1992. The General Partner
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
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<PAGE>
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.
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
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<PAGE>
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.
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"):
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
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 - $ 20,625
Vice President - 1994 $ 112,000 $ 16,800 - 0 - $ 19,500
Finance, Secretary and 1993 $ 112,000 $ 24,640 10,000 $ 17,000
Treasurer
</TABLE>
- ------------
(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.
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<PAGE>
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 of the General Partner, as of September 30, 1996,
(iii) each of the Named Officers, as of September 30, 1996, and (iv) all of the
General Partner's directors and executive officers as a group, as of September
30, 1996. As of September 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.
<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>
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 numbers of $500 limited partner
Interests in the Partnerships: Enex Program I Partners, L.P.- 4; Enex Oil & Gas
Income Program II-10, L.P.- 4; Enex Income and Retirement Fund-Series 1, L.P.-
4; Enex 90-91 Income and Retirement Fund-Series 2, L.P. - 2; Enex Oil & Gas
Income Program V-Series 3, L.P. - 51; and Enex Oil & Gas Income Program
VI-Series 1, L.P. - 106. Additionally, Mr. Shorney owns 15 $500 limited partner
Interests in Enex Oil & Gas Income Program VI-Series 1, L.P. For additional
information, see Table 2 in Appendix A.
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<PAGE>
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) (the "Act") permits New Jersey limited partnerships to
restrict or expand the liabilities of general partners to their partnerships and
their limited partners in their partnership agreements. In order to induce the
General Partner to manage the business 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" below),
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
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<PAGE>
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 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 own accounts, for other
affiliated oil and gas limited partnerships and with and for third parties. 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 3.03% 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 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.
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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.
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.
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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 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
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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 AND THE EXCHANGE OFFER--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. These Partnership Agreements provide no right to vote
on the removal of the General Partner, however. The Partnership Agreements of
the thirty New Jersey Partnerships, on the other hand, already contain the
voting rights described above. Cancellation of a contract under clause (v) will
not relieve the Consolidated Partnership of liability for damages resulting from
such cancellation.
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 the General Partner receives 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.
Within ninety (90) days following 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.
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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 d 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 General Partner 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 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 will pay all expenses incurred by the Consolidated Partnership but will
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
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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 SEC 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.
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 such
purchase occurs prior to the first determination of a presentment purchase
price, at a price equal to their exchange value, 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
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Revised Limited Partnership Act (the "Texas Act"), under which four of the
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.
TAX ASPECTS
Federal Income Tax Introduction
The following section contains a discussion 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 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 discussion 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 discussion 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.
In the opinion of Satterlee Stephens Burke & Burke LLP, counsel to the
General Partner, the discussion contained in this section expresses the material
federal income tax consequences of the Consolidation applicable to limited
partners in the participating Partnerships and of the Exchange Offer to limited
partners who exchange their interests pursuant to the Exchange Offer. 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
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should be addressed to Robert E. Densford, Vice President-Finance, Secretary &
Treasurer, Enex Resources Corporation, 800 Rockmead, Suite 200, Three Kingwood
Place, Kingwood, Texas 77339.
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 be
characterized for federal income tax purposes as: (1) a contribution by each
participating Partnership of 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 General Partner will not request a ruling from
the IRS. 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.
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 such 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 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 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".
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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: Under Treasury Regulations effective on January 1, 1997,
the Consolidated Partnership will be classified as a partnership for federal
income tax purposes, and not as an association taxable as a corporation.
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 be 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.
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 Consolidated 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" and therefore will not register as
such with the IRS.
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
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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).
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 (other than royalty and interest 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. Royalty or
interest income of the Consolidated Partnership, if any, 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.
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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
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.
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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 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 Consolidated 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"
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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.
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
99
<PAGE>
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). Each tax-exempt entity is allowed an annual $1,000
special deduction 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 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 Taxes: 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, HE
IS URGED TO CONSULT HIS TAX ADVISORS WITH SPECIFIC REFERENCE TO HIS 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
100
<PAGE>
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.
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, LLP, 47 Maple
Street, Summit, New Jersey 07901-2518.
Experts
The balance sheet of Enex Consolidated Partners, L.P. as of July 31, 1996, the
balance sheets of each of the Partnerships as of December 31, 1995 and 1994 and
the related statements of operations, partners' capital and changes in cash
flows for each of the two years in the period ended December 31, 1995, 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
&
101
<PAGE>
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 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 SEC has been omitted
pursuant to rules and regulations of the SEC. 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 may be examined without charge at the public reference facility of the
SEC in Washington, D.C. Electronic registration statements filed through the
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system are publicly
available through the SEC's Web site at http:/www.sec.gov. This Registration
Statement, as well as all amendments thereto and subsequent reports, have been,
and will be, filed through EDGAR.
102
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
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 Nine Months ended September 30, 1996 - Assumed Maximum Acceptance F-4
For the Nine Months ended September 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 Nine Months Ended September 30, 1996 - Assumed Maximum Acceptance F-8
For the Nine Months Ended September 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-16
Enex Consolidated Partner's L.P.
Opinion of Independent Certified Public Accountants . . . . . . . . . . . . . . F-20
Balance Sheet as of September 30, 1996. . . . . . . . . . . . . . . . . . . . F-21
Enex Oil & Gas Income Program and Enex Income and Retirement Fund Limited Partnerships
Opinion of Independent Certified Public Accountants . . . . . . . . . . . . . . F-27
Combined Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28
Combined Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . F-29
Combined Statements of Changes in Partners' Capital . . . . . . . . . . . . . . F-30
Combined Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . F-31
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . F-32
Supplementary Oil and Gas Information . . . . . . . . . . . . . . . . . . . . . F-39
Enex Resources Corporation
Opinion of Independent Certified Public Accountants . . . . . . . . . . . . . . F-42
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . F-43
Notes to Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . F-45
Supplementary Oil and Gas Information . . . . . . . . . . . . . . . . . . . . . F-51
</TABLE>
103
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P. - UNAUDITED PRO FORMA
ENEX OIL AND GAS PROGRAM LIMITED PARTNERSHIPS
The following unaudited pro forma balance sheets, pro forma statements of
operations and pro forma statements of cash flow 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 September 30, 1996
for purposes of the pro forma balance sheets and at January 1, 1995 for purposes
of the pro forma statements of operations and pro forma statements of cash flow.
The combined pro forma financial information has been presented using the
purchase method of accounting; therefore, the combined pro forma financial
statements have been reported based on the Partnerships' exchange values. 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 value greater than $10 million were included in the
presentation.
The unaudited pro forma balance sheets, pro forma statements of operations
and pro forma statements of cash flows 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>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
Assumed Maximum Acceptance Pro forma
(Assumed
ASSETS September 30, Maximum
1996 Adjustments Acceptance)
------------------ -------------------- -----------------
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash & cash equivalents $ 554,721 $ (200,000)(2) 354,721
Accounts receivable - oil & gas sales 1,511,781 1,511,781
Receivable from litigation settlement 280,050 280,050
Other current assets 226,875 226,875
------------------ -------------------- -----------------
Total current assets 2,573,427 (200,000) 2,373,427
------------------ -------------------- -----------------
OIL & GAS PROPERTIES (Successful efforts accounting method) Proved mineral
interests and related
equipment & facilities 137,542,796 (123,951,211)(6) 13,991,585
400,000 (2)
Less accumulated depreciation
and depletion 123,702,014 (123,702,014)(6) 0
------------------ -------------------- -----------------
Property, net 13,840,782 150,803 13,991,585
------------------ -------------------- -----------------
ORGANIZATION COSTS, NET 26,624 (26,624)(6) 0
------------------ -------------------- -----------------
TOTAL $ 16,440,833 $ (75,821) 16,365,012
================== ==================== =================
LIABILITIES AND
PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 597,733 $ 200,000 (2) 797,733
Notes payable to general partner 11,338 (11,338)(3) 0
Payable to general partner 684,790 (684,790)(3) 0
------------------ -------------------- -----------------
Total current liabilities 1,293,861 (496,128) 797,733
------------------ -------------------- -----------------
NONCURRENT LIABLITIES:
Noncurrent portion of payable to
general partner 1,279,009 (1,279,009)(3) 0
------------------ -------------------- -----------------
LIMITED PARTNERS' CAPITAL 12,051,879 3,791,221 (3)
SUBJECT TO REDEMPTION (275,821)(6) 15,567,279 (7)
GENERAL PARTNER'S CAPITAL 1,816,084 (1,816,084)(3) 0
------------------ -------------------- -----------------
TOTAL $ 16,440,833 $ (75,821) 16,365,012
================== ==================== =================
Book Value per $500 L.P. Unit $ 36.37(5) 46.98(5)
================== =================
</TABLE>
See notes to pro forma financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
Assumed Minimum Acceptance Pro forma
(Assumed
ASSETS September 30, Minimum
1996 Adjustments Acceptance)
----------------- -------------------- ------------------
CURRENT ASSETS:
<S> <C> <C> <C> <C>
Cash & cash equivalents $ 280,350 $ (200,000)(2) $ 80,350
Accounts receivable - oil & gas sales 952,625 952,625
Receivable from litigation settlement 280,050 280,050
Other current assets 164,071 164,071
----------------- -------------------- ------------------
Total current assets 1,677,096 (200,000) 1,477,096
----------------- -------------------- ------------------
OIL & GAS PROPERTIES (Successful efforts accounting method) Proved mineral
interests and related
equipment & facilities 117,761,778 (108,689,383)(6) 9,472,395
400,000 (2)
Less accumulated depreciation
and depletion 109,012,456 (109,012,456)(6) 0
----------------- -------------------- ------------------
Property, net 8,749,322 723,073 9,472,395
----------------- -------------------- ------------------
TOTAL $ 10,426,418 $ 523,073 $ 10,949,491
================= ==================== ==================
LIABILITIES AND
PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 322,397 $ 200,000 (2) $ 522,397
Payable to general partner 533,786 (533,786)(3) 0
----------------- -------------------- ------------------
Total current liabilities 856,183 (333,786) 522,397
----------------- -------------------- ------------------
NONCURRENT LIABLITIES:
Noncurrent portion of payable to
general partner 1,074,549 (1,074,549)(3) 0
----------------- -------------------- ------------------
LIMITED PARTNERS' CAPITAL
SUBJECT TO REDEMPTION 6,911,110 3,192,911 (3)
323,073 (6) 10,427,094 (7
GENERAL PARTNER'S CAPITAL 1,584,576 (1,584,576)(3) 0
----------------- -------------------- ------------------
TOTAL $ 10,426,418 $ 523,073 $ 10,949,491
================= ==================== ==================
Book Value per $500 L.P. Unit 25.26(5) $ 38.(5)
================= ==================
</TABLE>
See notes to pro forma financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS For the nine months ended
September 30, 1996 (Assumed Maximum Acceptance)
Pro forma
Historical Adjustments Pro forma
---------------
REVENUES:
<S> <C> <C> <C>
Oil and gas sales $ 8,826,066 $ 8,826,066
------------------ -----------------
EXPENSES:
Depreciation, depletion and amortization 2,112,282 $ 25,224 (6) 2,137,506
Impairment of property 2,315,081 (2,315,081)(6) 0
Lease operating expenses 3,097,827 3,097,827
Production taxes 455,583 455,583
General and administrative:
Allocated from general partner 1,258,496 1,258,496 (4)
Direct expense 96,154 96,154 (4)
------------------ ------------------ -----------------
Total expenses 9,335,423 (2,289,857) 7,045,566
------------------ ------------------ -----------------
INCOME (LOSS) FROM OPERATIONS (509,357) 2,289,857 1,780,500
------------------ ------------------ -----------------
OTHER INCOME (EXPENSE):
Interest income 8,800 8,800
Interest expense (2,307) 2,307 (3) 0
Gain on sale of property 141,348 141,348
------------------ ------------------ -----------------
Other income (expense), net 147,841 2,307 150,148
------------------ ------------------ -----------------
NET INCOME (LOSS) $ (361,516) $ 2,292,164 $ 1,930,648
================== ================== =================
</TABLE>
See notes to pro forma financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS For the nine months ended September
30, 1996 (Assumed Minimum Acceptance)
(UNAUDITED) Pro forma
Historical Adjustments Pro forma
---------------
REVENUES:
<S> <C> <C> <C>
Oil and gas sales $ 5,626,464 $ 5,626,464
--------------------- -----------------
EXPENSES:
Depreciation, depletion and amortization 1,308,886 $ 130,527 (6) 1,439,413
Impairment of property 1,579,403 (1,579,403) (6) 0
Lease operating expenses 1,933,643 1,933,643
Production taxes 278,637 278,637
General and administrative:
Allocated from general partner 972,628 972,628 (4)
Direct expense 86,859 86,859 (4)
--------------------- ----------------- -----------------
Total expenses 6,160,056 (1,448,876) 4,711,180
--------------------- ----------------- -----------------
(LOSS) FROM OPERATIONS (533,592) 1,448,876 915,284
--------------------- ----------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 6,968 6,968
Gain on sale of property 139,137 139,137
--------------------- ----------------- -----------------
Other income (expense), net 146,105 146,105
--------------------- ----------------- -----------------
NET INCOME (LOSS) $ (387,487) $ 1,448,876 $ 1,061,389
===================== ================= =================
</TABLE>
See notes to pro forma financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS For the year ended
December 31, 1995 Assumed Maximum Acceptance
Pro forma
Historical Adjustments Pro forma
---------------
REVENUES:
<S> <C> <C> <C>
Oil and gas sales $ 10,117,119 $ 10,117,119
--------------- -----------------
EXPENSES:
Depreciation, depletion
and amortization $ 3,748,723 $ 40,844 (6) 3,789,567
Lease operating expenses 4,312,449 4,312,449
Production taxes 569,321 569,321
General and administrative:
Allocated from general partner 1,695,475 1,695,475 (4)
Direct expense 370,904 370,904 (4)
--------------- ----------------- -----------------
Total expenses 10,696,872 40,844 10,737,716
--------------- ----------------- -----------------
INCOME (LOSS)
FROM OPERATIONS (579,753) (40,844) (620,597)
--------------- ----------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 41,795 41,795
Interest expense (8,141) 8,141 (3) -
Gain on sale of property 659,326 659,326
--------------- ----------------- -----------------
Other income (expense), net 692,980 8,141 701,121
--------------- ----------------- -----------------
NET INCOME $ 113,227 $ (32,703) $ 80,524
=============== ================= =================
</TABLE>
See notes to pro forma financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the year ended December 31, 1995
(Assumed Minimum Acceptance)
(UNAUDITED)
Pro forma
Historical Adjustments Pro forma
REVENUES:
<S> <C> <C> <C>
Oil and gas sales $ 6,367,598 6,367,598
---------------- -----------------
EXPENSES:
Depreciation, depletion
and amortization 2,379,275 $ 196,631 (6) 2,575,906
Lease operating expenses 2,690,969 2,690,969
Production taxes 331,952 331,952
General and administrative:
Allocated from general partner 1,281,112 1,281,112 (4)
Direct expense 316,208 316,208 (4)
---------------- ------------------ -----------------
Total expenses 6,999,516 196,631 7,196,147
---------------- ------------------ -----------------
INCOME (LOSS)
FROM OPERATIONS (631,918) (196,631) (828,549)
---------------- ------------------ -----------------
OTHER INCOME (EXPENSE):
Interest income 41,292 41,292
Interest expense (2,096) 2,096 (3) 0
Gain on sale of property 659,326 659,326
---------------- ------------------ -----------------
Other income (expense), net 698,522 2,096 700,618
---------------- ------------------ -----------------
NET INCOME (LOSS) $ 66,604 $ (194,535) (127,931)
================ ================== =================
</TABLE>
See notes to pro forma financial statements
F-7
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF CASH FLOWS
For the nine months ended
September 30, 1996
(Assumed Maximum Acceptance) Pro forma
(Assumed
CASH FLOWS FROM Pro forma Maximum
OPERATING ACTIVITIES: Historical Adjustments Acceptance)
------------------ ---------------- ------------------
<S> <C> <C> <C>
Net income (loss) $ (361,516) $ 2,292,164 $ 1,930,648
------------------ ---------------- ------------------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, depletion and amortization 4,427,363 (2,289,857)(6) 2,137,506
Gain on sale of property (141,348) (141,348)
(Increase) in:
Accounts receivable - oil & gas sales (330,732) (330,732)
Other current assets (11,754) (11,754)
Increase (decrease) in:
Accounts payable (265,888) (265,888)
------------------ ---------------- ------------------
Total adjustments 3,677,641 (2,289,857) 1,387,784
------------------ ---------------- ------------------
Net cash provided by operating activities 3,316,125 2,307 3,318,432
------------------ ---------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 289,942 289,942
Property additions - development costs (817,886) (817,886)
------------------ ---------------- ------------------
Net cash (used) by investing activities (527,944) (527,944)
------------------ ---------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of payable to general partner (1,154,241) 1,154,241 (3) 0
Repayment of note payable to general partner (30,922) 30,922 (3) 0
Cash distributions (1,755,219) (1,755,219)
------------------ ---------------- ------------------
Net cash provided (used) by financing activities (2,940,382) 1,185,163 (1,755,219)
------------------ ---------------- ------------------
NET INCREASE (DECREASE) IN CASH (152,201) 1,187,470 1,035,269
CASH AT BEGINNING OF YEAR 706,922 706,922
------------------ ---------------- ------------------
CASH AT END OF PERIOD $ 554,721 $ 1,187,470 $ 1,742,191
================== ================ ==================
Cash paid during the period for interest $ 2,307 $ (2,307) $ -
================== ================ ==================
</TABLE>
See notes to pro forma financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
PRO FORMA COMBINED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1996
(Assumed Minimum Acceptance)
CASH FLOWS FROM Pro forma
OPERATING ACTIVITIES: Historical Adjustments Pro forma
---------------- ------------------ ------------------
<S> <C> <C> <C>
Net income (loss) $ (387,487) $ 1,448,876 $ 1,061,389
---------------- ------------------ ------------------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation, depletion and impairment 2,888,289 (1,448,876)(6) 1,439,413
Gain on sale of property (139,137) (139,137)
(Increase) decrease in:
Accounts receivable - oil & gas sales (220,682) (220,682)
Other current assets 17,663 17,663
(Decrease) in:
Accounts payable (220,555) (220,555)
---------------- ------------------ ------------------
Total adjustments 2,325,578 (1,448,876) 876,702
---------------- ------------------ ------------------
Net cash provided by operating activities 1,938,091 0 1,938,091
---------------- ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 286,298 286,298
Property additions - development costs (514,914) (514,914)
---------------- ------------------ ------------------
Net cash (used) by investing activities (228,616) (228,616)
---------------- ------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of payable to general partner $ (877,529) $ 877,529 (3) 0
Cash distributions (1,033,310) (1,033,310)
---------------- ------------------ ------------------
Net cash provided (used) by financing activities (1,910,839) 877,529 (1,033,310)
---------------- ------------------ ------------------
NET INCREASE (DECREASE) IN CASH (201,364) 877,529 676,165
CASH AT BEGINNING OF YEAR 481,714 481,714
---------------- ------------------ ------------------
CASH AT END OF PERIOD $ 280,350 $ 877,529 $ 1,157,879
================ ================== ==================
Cash paid during the period for interest $ - $ - $ -
================ ================== ==================
</TABLE>
See notes to pro forma financial statements
F-9
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF CASH FLOWS
For the year ended December 31, 1995
(Assumed Maximum Acceptance) Pro forma
before
CASH FLOWS FROM Pro forma Consolidation Consolidation
OPERATING ACTIVITIES: Historical Adjustments Expenses Expenses Pro forma
-------------- ----------- ----------- --------- --------------
<S> <C> <C> <C> <C>
Net income (loss) $ 113,227 (32,703) 80,524 $ 80,524
-------------- ----------- ----------- --------------
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities:
Depreciation, depletion and amortization 3,748,723 40,844 3,789,567 3,789,567
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 in:
Accounts payable 74,268 74,268 200,000 (2) 274,268
-------------- ----------- ----------- --------- --------------
Total adjustments 3,151,988 40,844 3,192,832 200,000 3,392,832
-------------- ----------- ----------- --------- --------------
Net cash provided (used) by operating activities 3,265,215 8,141 3,273,356 200,000 3,473,356
-------------- ----------- ----------- --------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 1,011,465 1,011,465 1,011,465
Consolidation expenses - - (400,000)(2) (400,000)
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 354,834 354,834 (400,000)(2) (45,166)
-------------- ----------- ----------- --------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payable to general partner (1,237,015) 1,237,015 (3) 0 0
Repayment of notes 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 (3,350,345) 1,338,980 (2,011,365) (2,011,365)
-------------- ----------- ----------- --------- --------------
NET INCREASE (DECREASE) IN CASH 269,704 1,347,121 1,616,825 (200,000) 1,416,825
CASH AT BEGINNING OF YEAR 437,218 437,218 437,218
-------------- ----------- ----------- --------- --------------
CASH AT END OF PERIOD $ 706,922 1,347,121 2,054,043 (200,000) $ 1,854,043
============== =========== =========== ========= ==============
Cash paid during the period for interest $ 17,328 (17,328) 0 $ 0
============== =========== =========== ========= ==============
</TABLE>
See notes to pro forma financial statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
PRO FORMA COMBINED STATEMENTS OF CASH FLOWS
For the year ended December 31, 1995
(Assumed Minimum Acceptance) Pro forma
before
CASH FLOWS FROM Pro forma Consolidation Consolidation
OPERATING ACTIVITIES: Historical Adjustments Expenses Expenses Pro forma
------------ ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ 66,604 $ (194,535) $ (127,931) $ (127,931)
------------ ----------- ------------ ------------- -------------
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 2,379,275 196,631 2,575,906 2,575,906
Gain on sale of property (659,326) (659,326) (659,326)
(Increase) decrease in:
Accounts receivable - oil & gas sales 40,625 40,625 40,625
Other current assets (59,871) (59,871) (59,871)
Increase in:
Accounts payable 65,361 65,361 $ 250,000 (2) 315,361
------------ ----------- ------------ ------------- -------------
Total adjustments 1,766,064 196,631 1,962,695 250,000 2,212,695
------------ ----------- ------------ ------------- -------------
Net cash provided (used) by operating activities 1,832,668 2,096 1,834,764 250,000 2,084,764
------------ ----------- ------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 1,011,465 1,011,465 1,011,465
Consolidation expenses (400,000)(2) (400,000)
Property additions - development costs (379,214) (379,214) (379,214)
------------ ----------- ------------ ------------- -------------
Net cash provided (used) by investing activities 632,251 632,251 (400,000) 232,251
------------ ----------- ------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of payable to general partner (917,926) 917,926 (3) 0 0
Repayment of notes payable to general partner (21,694) 21,694 (3) 0 0
Cash distributions (1,176,572) (1,176,572) (1,176,572)
------------ ----------- ------------ ------------- -------------
Net cash provided (used) by financing activities (2,116,192) 939,620 (1,176,572) 0 (1,176,572)
------------ ----------- ------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH 348,727 941,716 1,290,443 (150,000) 1,140,443
CASH AT BEGINNING OF YEAR 132,994 132,994 132,994
------------ ----------- ------------ ------------- -------------
CASH AT END OF PERIOD $ 481,721 $ 941,716 $ 1,423,437 $ (150,000) $ 1,273,437
============ =========== ============ ============= =============
Cash paid during the period for interest $ 6,016 $ (6,016) $ 0 $ - $ 0
============ =========== ============ ============= =============
</TABLE>
See notes to pro forma financial statements
- --------------------------------------------------------------------
F-11
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Basis of Presentation
The pro forma information of Enex Consolidated Partners, L.P. has been
presented using the purchase method of accounting; therefore, the combined
financial statements have been reported based on the Partnerships' exchange
values. The pro forma financial statements were prepared assuming that the
proposed consolidation was consummated at September 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 million. The
partnerships included in the assumed minimum acceptance presentation were Enex
Program I Partners, L.P.; Enex Oil and Gas Income Program II - Series 7, 8 9,
and 10 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 of each partnership.
<TABLE>
<CAPTION>
The number of LP units outstanding for each partnership are:
<S> <C>
Enex Oil & Gas Income Program I, L.P. 193,629
Enex Oil & Gas Income Program II, Series 7, L.P. 8,870
Enex Oil & Gas Income Program II, Series 8, L.P. 5,863
Enex Oil & Gas Income Program II, Series 9, L.P. 3,109
Enex Oil & Gas Income Program II, Series 10, L.P. 3,916
Enex Oil & Gas Income Program III, Series 1, L.P. 2,978
Enex Oil & Gas Income Program III, Series 2, L.P. 4,270
Enex Oil & Gas Income Program III, Series 3, L.P. 6,410
Enex Oil & Gas Income Program III, Series 4, L.P. 5,410
Enex Oil & Gas Income Program III, Series 5, L.P. 10,797
Enex Oil & Gas Income Program III, Series 6, L.P. 6,340
Enex Oil & Gas Income Program III, Series 7, L.P. 4,527
Enex Oil & Gas Income Program III, Series 8, L.P. 7,196
Enex Oil & Gas Income Program IV, Series 1, L.P. 6,472
Enex Oil & Gas Income Program IV, Series 2, L.P. 4,938
Enex Oil & Gas Income Program IV, Series 4, L.P. 2,520
Enex Oil & Gas Income Program IV, Series 5, L.P. 4,561
F-12
<PAGE>
Enex Oil & Gas Income Program IV, Series 6, L.P. 4,326
Enex Oil & Gas Income Program IV, Series 7, L.P. 5,021
Enex Oil & Gas Income Program V, Series 1, L.P. 4,529
Enex Oil & Gas Income Program V, Series 2, L.P. 2,972
Enex Oil & Gas Income Program V, Series 3, L.P. 2,020
Enex Oil & Gas Income Program V, Series 4, L.P. 2,954
Enex Oil & Gas Income Program V, Series 5, L.P. 2,463
Enex Oil & Gas Income Program VI, Series 1, L.P. 2,021
Enex Oil & Gas Income Retirement Fund, Series 1, L.P. 2,736
Enex Oil & Gas Income Retirement Fund, Series 2, L.P. 2,884
Enex Oil & Gas Income Retirement Fund, Series 3, L.P. 2,988
Enex 88-89 Income & Retirement Fund, Series 5, L.P. 2,300
Enex 88-89 Income & Retirement Fund, Series 6, L.P. 2,067
Enex 88-89 Income & Retirement Fund, Series 7, L.P. 3,089
Enex 90-91 Income & Retirement Fund, Series 1, L.P. 2,975
Enex 90-91 Income & Retirement Fund, Series 2, L.P. 2,020
Enex 90-91 Income & Retirement Fund, Series 3, L.P. 2,175
</TABLE>
(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, Administrative and
Operating Costs of $824,000 per year assuming maximum acceptance and $445,000
per year assuming minimum acceptance. See "SUMMARY - Objectives of the
Consolidation".
F-13
<PAGE>
(5) Book Value per $500 Limited Partner Unit.
The book value per $500 limited partner unit may not be meaningful to
an individual limited partner as the relative exchange value assigned to each
partnership in the Consolidation does not equate to the partnership's capital
accounts. The number of $500 limited partner units utilized in calculating the
book values per $500 limited partner unit were 331,346 and 273,596 for the
maximum and minimum scenarios, respectively.
(6) Adjustments from purchase based accounting method.
The purchase method of accounting was utilize to record the pro forma
financial statements. Property was adjusted to the estimated fair value as
determined by H. J. Gruy and Associates, Inc. The pro forma depletion expense
was adjusted accordingly in the pro forma statement of operations.
(7) Right of presentment of limited partner interests.
The consolidated partnership will be required to offer to repurchase the
limited partners' interests in the partnership at annual intervals. The purchase
price is based primarily on reserve reports prepared by independent petroleum
engineers, reduced by a risk factor.
(8) Historical financial statements of Enex Consolidated Partners.
The historical financial statements of Enex Consolidated Partners have not
been presented in the pro forma financial statements as they have been deemed
immaterial.
F-14
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
PRO FORMA 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:
<TABLE>
<CAPTION>
Assumed Maximum Acceptance Assumed Minimum Acceptance
------------------------- ------------------------
1995 1994 1995 1994
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Acquisition of proved mineral interests 79,506 1,064,213 - -
and related equipment and facilities
Development costs 577,125 610,749 379,214 409,706
</TABLE>
Capitalized Costs
The following presents the Company's capitalized costs at December 31
relating to its oil and gas activities:
<TABLE>
<CAPTION>
Assumed Maximum Acceptance Assumed Minimum Acceptance
---------------------------- ----------------------------
1995 1994 1995 1994
------------- ------------- ------------- --------------
Proved mineral interests and related
<S> <C> <C> <C> <C>
equipment and facilities 146,079,503 152,025,931 125,374,929 131,576,323
Accumulated depreciation, depletion,
and amortization 128,511,790 131,082,972 114,107,765 117,976,493
</TABLE>
F-15
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
PRO FORMA SUPPLEMENTARY OIL AND GAS INFORMATION
Proved Oil and Gas Reserve Quantities (Unaudited)
The following tables present an estimate of the Partnerships' pro forma
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 pro forma
supplementary oil and gas information is based upon maximum acceptance and
an assumed minimum acceptance. See Note 1 to the Enex Consolidated
Partners, L.P. financial statements for a list of the partnerships included
in the minimum acceptance case. 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>
ASSUMED MAXIMUM ACCEPTANCE
PROVED DEVELOPED AND
UNDEVELOPED RESERVES: Oil (Bbls) Gas (Mcf)
Balance at January 1, 1994 2,482,171 15,588,276
<S> <C> <C>
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>
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
- ------------------------------------------------------------------------------
F-16
<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 (Mcf)
<S> <C> <C>
Balance at January 1, 1994 1,626,432 12,256,656
Revisions of previous estimates 246,417 (239,523)
Purchases of minerals in place 7,052 9,485
Sales of minerals in place (170) (38,587)
Production (305,939) (1,486,230)
------------- ----------------
Balance at December 31, 1994 1,573,792 10,501,801
Revisions of previous estimates 36,344 448,737
Sales of minerals in place (12,263) (582,769)
Production (268,892) (1,319,195)
------------- ----------------
Balance at December 31, 1995 1,328,981 9,048,574
============= ================
</TABLE>
PROVED DEVELOPED RESERVES:
Balance at December 31, 1994 1,573,183 10,472,394
Balance at December 31, 1995 1,102,987 9,013,158
- ----------------------------------------------------------------------------
F-17
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
PRO FORMA 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 and1994.
<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-18
<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 minimum
acceptance. For the assumed minimum acceptance, 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 value greater than $10 million were included in the presentation.
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Future cash inflows $36,202,369 $39,695,625
Future production and development costs (10,927,434) (13,545,444)
------------- -------------
Future net cash flows 25,274,935 26,150,181
10% annual discount (10,160,168) (10,504,399)
------------- -------------
Standardized measure of future discounted
net cash flows of proved oil and gas reserves $15,114,767 $15,645,782
============= =============
</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 ($3,344,672) ($4,240,001)
Net changes in prices and production costs 1,538,684 (2,427,796)
Purchases of minerals in place - 59,984
Sales of minerals in place (562,656) (44,391)
Revisions of previous quantity estimates 572,482 931,965
Accretion of discount 1,564,578 1,899,981
Changes in production rates (timing) and other (299,431) 466,228
------------- -------------
Changes in standardized measure of
discounted future net cash flows ($531,015) ($3,354,030)
============= =============
</TABLE>
- --------------------------------------------------------------------------
F-19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Enex Consolidated Partners, L.P.
We have audited the accompanying balance sheet of Enex Consolidated Partners,
L.P. (a New Jersey limited partnership) as of September 30, 1996. This financial
statement is the responsibility of the general partner of Enex Consolidated
Partners, L.P. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of Enex Consolidated Partners, L.P. at of September 30,
1996 in accordance with generally accepted accounting principles.
DELOITTE & TOUCHE, LLP
Houston, Texas
September 30, 1996
F-20
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
BALANCE SHEET
September 30, 1996
ASSETS - Cash . . . . . . . . . . . . . . . . . . . . . . .$ 1,000
==============
PARTNERS' CAPITAL:
General partner . . . . . . . . . . . . . . . . . . . . . .$ 900
Limited partner . . . . . . . . . . . . . . . . . . . . . . 100
--------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 1,000
==============
1. Organization
Enex Consolidated Partners, L.P. (the "Consolidated 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
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
F-21
<PAGE>
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
F-22
<PAGE>
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.
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,
F-23
<PAGE>
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 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
F-24
<PAGE>
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.
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
F-25
<PAGE>
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.
F-26
<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 the years then ended. 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 principles 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 the years then ended in conformity with generally accepted
accounting principles applied on a consistent basis.
DELOITTE & TOUCHE, LLP
Houston, Texas
July 31, 1996
F-27
<PAGE>
ENEX OIL & GAS INCOME PROGRAMS AND INCOME AND RETIREMENT FUNDS
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS
September 30, December 31,
-----------------------------
ASSETS 1996 1995 1994
-------------- --------------- -------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C> <C>
Cash & cash equivalents $ 554,721 $ 706,922 437,218
Accounts receivable - oil & gas sales 1,511,781 1,181,049 1,215,661
Receivable from litigation settlement 280,050 280,050 254,589
Other current assets 226,875 215,121 168,832
-------------- --------------- -------------
Total current assets 2,573,427 2,383,142 2,076,300
-------------- --------------- -------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests and related equipment & facilities 137,542,796 146,079,503 152,025,931
Less accumulated depreciation and depletion 123,702,014 128,511,790 131,082,972
-------------- --------------- -------------
Property, net 13,840,782 17,567,713 20,942,959
-------------- --------------- -------------
ORGANIZATION COSTS, NET 26,624 57,763 149,198
-------------- --------------- -------------
TOTAL $ 16,440,833 $ 20,008,618 23,168,457
============== =============== =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 624,242 $ 863,620 789,352
Notes payable to general partner 11,338 42,260 144,214
Payable to general partner 658,281 827,246 1,494,359
-------------- --------------- -------------
Total current liabilities 1,293,861 1,733,126 2,427,925
-------------- --------------- -------------
NONCURRENT PAYABLE TO GENERAL PARTNER 1,279,009 2,290,794 2,857,696
-------------- --------------- -------------
LIMITED PARTNERS' CAPITAL SUBJECT
TO REDEMPTION 12,051,879 14,319,792 16,339,605(10)
GENERAL PARTNER'S CAPITAL 1,816,084 1,664,906 1,543,231
-------------- --------------- -------------
TOTAL $ 16,440,833 $ 20,008,618 23,168,457
============== =============== =============
</TABLE>
See accompanying notes to Combined Financial Statements.
- ----------------------------------------------------------------------------
F-28
<PAGE>
ENEX OIL & GAS INCOME PROGRAMS AND INCOME AND RETIREMENT FUNDS
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, Year Ended December 31,
----------------------------- ------------------------------
1996 1995 1995 1994
------------- ------------- ------------- --------------
(UNAUDITED)
REVENUES:
<S> <C> <C> <C> <C>
Oil and gas sales $ 8,826,066 $ 7,838,208 $ 10,117,119 $ 11,315,601
------------- ------------- ------------- --------------
EXPENSES:
Depreciation, depletion
and amortization 2,112,282 3,040,411 3,748,723 4,955,008
Impairment of property 2,315,081 - - 971,936
Lease operating expenses 3,097,827 3,256,878 4,312,449 4,613,177
Production taxes 455,583 422,945 569,321 627,229
General and administrative:
Allocated from general partner 1,258,496 1,291,147 1,695,475 1,959,667
Direct expense 96,154 129,637 370,904 389,859
Litigation contingency - - - (667,369)
------------- ------------- ------------- --------------
Total expenses 9,335,423 8,141,018 10,696,872 12,849,507
------------- ------------- ------------- --------------
(LOSS) FROM OPERATIONS (509,357) (302,810) (579,753) (1,533,906)
------------- ------------- ------------- --------------
OTHER INCOME (EXPENSE):
Interest income 8,800 19,589 41,795 120,375
Interest expense to a bank - - - (17,727)
Interest expense to general partner (2,307) (7,356) (8,141) (19,505)
Gain on sale of property 141,348 485,795 659,326 6,937
------------- ------------- ------------- --------------
Other income (expense), net 147,841 498,028 692,980 90,080
------------- ------------- ------------- --------------
NET INCOME (LOSS) $ (361,516) $ 195,218 $ 113,227 $ (1,443,826)
============= ============= ============= ==============
</TABLE>
See accompanying notes to Combined Financial Statements.
- -----------------------------------------------------------------------
F-29
<PAGE>
ENEX OIL & GAS INCOME PROGRAMS AND INCOME AND RETIREMENT FUNDS
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE TWO YEARS ENDED DECEMBER 31, 1995 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
- ------------------------------------------------------------------------
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) (1,755,219) (112,215) (1,643,004)
Net Income (Loss) (unaudited) (361,516) 263,393 (624,909)
--------------- ------------- -------------
Balance, September 30, 1996(unaudited)$ 13,867,963 $ 1,816,084 $ 12,051,879 (1)
=============== ============= =============
</TABLE>
(1)Includes 330,278 units purchased by the general partner as a limited partner.
See accompanying notes to Combined Financial Statements.
- --------------------------------------------------------------------------
F-30
<PAGE>
ENEX OIL & GAS INCOME PROGRAMS AND INCOME AND RETIREMENT FUNDS
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM Nine Months Ended September 30, Year Ended December 31,
----------------------------- -----------------------------
OPERATING ACTIVITIES: 1996 1995 1995 1994
------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
Net income (loss) $ (361,516) $ 195,218 $ 113,227 $ (1,443,826)
------------- ------------- ------------- -------------
Adjustments to reconcile net (loss) to net cash provided by operating
activities:
Depreciation, depletion and amortization 4,427,363 3,040,411 3,748,723 5,926,944
Litigation contingency accrual - (25,461) - (758,938)
Gain on sale of property (141,348) (485,795) (659,326) (6,937)
(Increase) decrease in:
Accounts receivable - oil & gas sales (330,732) (34,714) 34,612 112,559
Other current assets (11,754) (822,784) (46,289) 45,256
Increase (decrease) in:
Accounts payable (239,379) (66,176) 74,268 (198,393)
------------- ------------- ------------- -------------
Total adjustments 3,704,150 1,605,481 3,151,988 5,120,491
------------- ------------- ------------- -------------
Net cash provided by
operating activities 3,342,634 1,800,699 3,265,215 3,676,665
------------- ------------- ------------- -------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of property 289,942 816,465 1,011,465 139,043
Property additions - development costs (817,886) (460,794) (577,125) (610,749)
Acquisition of proved oil & gas properties - - (79,506) (1,064,213)
------------- ------------- ------------- -------------
Net cash provided (used)
by investing activities (527,944) 355,671 354,834 (1,535,919)
------------- ------------- ------------- -------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayment of note payable to bank - - - (410,000)
Repayment of payable to general partner (1,180,750) (831,173) (1,237,015) 156,309
Repayment of notes payable
to general partner (30,922) (104,232) (101,965) (226,708)
Proceed's from partners' contributions - - - 1,010,380
Commissions and syndication fees - - - (47,603)
Organization costs - - - (40,415)
Cash distributions (1,755,219) (1,068,939) (2,011,365) (2,556,166)
------------- ------------- ------------- -------------
Net cash (used) by financing activities (2,966,891) (2,004,344) (3,350,345) (2,114,203)
------------- ------------- ------------- -------------
NET INCREASE
(DECREASE) IN CASH (152,201) 152,026 269,704 26,543
CASH AT BEGINNING OF YEAR 706,922 437,218 437,218 410,675
------------- ------------- ------------- -------------
CASH AT END OF PERIOD $ 554,721 $ 589,244 $ 706,922 $ 437,218
============= ============= ============= =============
Cash paid during the period for interest $ 2,307 $ 1,750 $ 17,328 $ 21,985
============= ============= ============= =============
</TABLE>
See accompanying notes to Combined Financial Statements.
- -------------------------------------------------------------------------
F-31
<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 of the Partnerships.
The financial statements of the Partnerships have been presented as a
single entity because of the proposal to consolidate the assets of the thirty
four Partnerships into a single Partnership. 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 8,870
Series 8, L.P. . . . . . . . . . . . . . . . . . . . .October 10, 1985 2,931,653 5,863
Series 9, L.P. . . . . . . . . . . . . . . . . . . . .January 9, 1986 1,554,262 3,109
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 2,978
Series 2, L.P. . . . . . . . . . . . . . . . . . . . .November 20, 1986 2,135,224 4,270
Series 3, L.P. . . . . . . . . . . . . . . . . . . . .February 10, 1987 3,204,790 6,410
Series 4, L.P. . . . . . . . . . . . . . . . . . . . .May 1, 1987 2,704,880 5,410
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 4,527
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 4,938
Series 4, L.P. . . . . . . . . . . . . . . . . . . . .August 15, 1989 1,260,210 2,520
Series 5, L.P. . . . . . . . . . . . . . . . . . . . .November 9, 1989 2,280,449 4,561
Series 6, L.P. . . . . . . . . . . . . . . . . . . . .February 13, 1990 2,162,887 4,326
Series 7, L.P. . . . . . . . . . . . . . . . . . . . .May 16, 1990 2,510,445 5,021
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
Limited
Partners' Number of
Date of Initial $500
Formation Subscriptions Interests
------------------------- ---------------- -------------
Enex Oil & Gas Income Program V -
<S> <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 2,736
Series 2, L.P. . . . . . . . . . . . . . . . . . . . .September 15, 1987 1,441,909 2,884
Series 3, L.P. . . . . . . . . . . . . . . . . . . . .December 30, 1987 1,493,792 2,988
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 2,067
Series 7, L.P. . . . . . . . . . . . . . . . . . . . .February 28, 1990 1,544,485 3,089
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 2,021
</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-33
<PAGE>
The historical net income (loss) per $500 unit for each of the Partnerships
were as follows:
<TABLE>
<CAPTION>
NET INCOME (LOSS) PER $500 UNIT
For the Nine Months ended For the Year ended
September 30, December 31,
1996 1995 1995 1994
<S> <C> <C> <C> <C>
Enex Program I Partners, L.P. $ 0.86 $ 1.97 $ 1.28 $ (3.04)
Enex Oil & Gas Income Program II -
Series 7, L.P. . . . . . . . . . . . . . .14.37. 2.81 7.18 1.00
Series 8, L.P. . . . . . . . . . . . . . .15.66. 2.25 7.04 0.11
Series 9, L.P. . . . . . . . . . . . . . .15.41. 1.14 5.53 (1.95)
Series 10, L.P. . . . . . . . . . . . . . 16.26 1.59 6.50 (1.36)
Enex Oil & Gas Income Program III -
Series 1, L.P. . . . . . . . . . . . . . .10.51. 0.59 1.37 (36.07)
Series 2, L.P. . . . . . . . . . . . . . .11.23. 1.19 2.66 (34.55)
Series 3, L.P. . . . . . . . . . . . . . .13.43. 2.10 5.62 (6.39)
Series 4, L.P. . . . . . . . . . . . . . .(13.47) (4.46) (7.12) (4.84)
Series 5, L.P. . . . . . . . . . . . . . .(7.76) (1.11) 0.27 (1.32)
Series 6, L.P. . . . . . . . . . . . . . .(21.72) (7.96) (4.63) (6.64)
Series 7, L.P. . . . . . . . . . . . . . .(19.99) (7.50) (4.24) (7.87)
Series 8, L.P. . . . . . . . . . . . . . .(35.81) (13.81) (16.92) (11.61)
Enex Oil & Gas Income Program IV -
Series 1, L.P. . . . . . . . . . . . . . .(33.39) (10.45) (14.04) (43.29)
Series 2, L.P. . . . . . . . . . . . . . .(22.04) (10.42) (15.31) (36.57)
Series 4, L.P. . . . . . . . . . . . . . .(85.30) (3.95) (1.24) (11.47)
Series 5, L.P. . . . . . . . . . . . . . .14.34. (2.07) 3.82 (0.86)
Series 6, L.P. . . . . . . . . . . . . . .10.86. (0.45) 5.79 1.15
Series 7, L.P. . . . . . . . . . . . . . .(10.97) (5.38) (13.94) (66.31)
Enex Oil & Gas Income Program V -
Series 1, L.P. . . . . . . . . . . . . . .(13.90) (4.86) (13.74) (83.70)
Series 2, L.P. . . . . . . . . . . . . . .(12.00) (12.94) (27.11) (93.75)
Series 3, L.P. . . . . . . . . . . . . . .(29.78) (13.93) (16.18) (106.34)
Series 4, L.P. . . . . . . . . . . . . . .39.56. 16.73 24.29 30.86
Series 5, L.P. . . . . . . . . . . . . . .28.51. (10.37) 7.86 3.95
Enex Income and Retirement Fund -
Series 1, L.P. . . . . . . . . . . . . . .(19.63) 14.02 11.26 (2.09)
Series 2, L.P. . . . . . . . . . . . . . .(8.50) 6.83 3.08 11.65
Series 3, L.P. . . . . . . . . . . . . . .(8.21) (3.58) (7.77) 11.39
Enex 88-89 Income and Retirement Fund
Series 5, L.P. . . . . . . . . . . . . . .9.14 . 0.07 3.28 (2.84)
Series 6, L.P. . . . . . . . . . . . . . .10.74. 2.31 3.64 (3.19)
Series 7, L.P. . . . . . . . . . . . . . .8.34 . (0.01) (1.13) (7.92)
F-34
<PAGE>
Enex 90-91 Income and Retirement Fund
Series 1, L.P. . . . . . . . . . . . . . .(0.63) (6.01) (9.28) (5.05)
Series 2, L.P. . . . . . . . . . . . . . .(23.13) (19.83) (24.14) (87.92)
Series 3, L.P. . . . . . . . . . . . . . .36.63. 20.85 14.79 (4.08)
Enex Oil & Gas Income Program VI -
Series 1, L.P. . . . . . . . . . . . .(93.90) (15.01) (30.60) (28.82)
</TABLE>
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 indicate 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. 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.
4. 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.
5. 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.
F-35
<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-36
<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 work over 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 work over
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 General 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. Prior to the adoption of
this Statement, impairments were assessed on an aggregate, company-wide 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
changes in the overall market for the sale of oil and gas and due to significant
changes in the projected production from certain of the Company's oil and gas
properties.
F-37
<PAGE>
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 Retirement 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.
10. Right of presentment of limited partner interests.
The consolidated partnership will be required to offer to repurchase the
limited partners interests in the partnership at annual intervals. The purchase
price is based primarily on reserve reports prepared by independent petroleum
engineers, reduced by a risk factor.
11. Unaudited Financial Information
The financial information as of September 30, 1996 and for the nine month
periods ended September 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-38
<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 $ 79,506 $ 1,064,213
and related equipment and facilities
Development costs $ 577,125 $ 610,749
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-39
<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>
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>
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
- -------------------------------------------------------------------------
F-40
<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.
<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-41
<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 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 consolidated balance sheet presents 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.
As discussed in Note 10, the accompanying consolidated finanical statements as
of and for the years ended December 31, 1995 and 1994 have been restated.
DELOITTE & TOUCHE, LLP
Houston, Texas
March 18, 1996
(February 22, 1997 as to Note 10)
F-42
<PAGE>
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, DECEMBER 31,
ASSETS 1996 1995
--------------------- -------------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and certificates of deposit $ 1,504,859 $ 806,196
Accounts receivable:
Managed limited partnerships 605,049 756,741
Oil and gas sales 1,010,585 862,529
Joint owner 257,689 325,816
Receivable from property sales - 123,202
Notes receivable from managed limited
partnerships 10,578 16,902
Federal income tax receivable 83,398 98,614
Deferred tax asset - current portion 108,325 112,174
Prepaid expenses & other current assets 481,090 697,664
--------------- --------------
Total current assets 4,250,153 4,000,786
--------------- --------------
PROPERTY:
Oil & gas properties (Successful efforts
accounting method) Proved mineral
interests and related equipment & facilities:
Direct ownership 6,983,907 8,134,074
Derived from investment in managed
limited partnerships 8,780,952 10,729,113
Furniture, fixtures and other (at cost) 343,758 341,507
--------------- --------------
Total property 16,108,617 19,204,694
--------------- --------------
Less accumulated depreciation,
depletion and amortization 7,444,705 7,250,769
--------------- --------------
Property, net 8,663,912 11,953,925
--------------- --------------
OTHER ASSETS:
Receivables from managed limited
partnerships for start-up costs 1,291,225 2,171,636
Deferred tax asset 614,205 536,256
Other accounts receivable 41,335 156,252
Deferred organization expenses and other 5,254 8,233
--------------- --------------
Total other assets 1,952,019 2,872,377
--------------- --------------
TOTAL $ 14,866,084 $ 18,827,088
=============== ==============
</TABLE>
See accompanying notes to consolidated balance sheets.
- ----------------------------------------------------------------------
F-43
<PAGE>
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
----------------- -------------
(Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 440,438 $ 853,944
Current portion of long-term debt - 850,000
--------------- ---------------
Total current liabilities 440,438 1,703,944
--------------- ---------------
COMMITMENTS AND
CONTINGENT LIABILITIES - -
--------------- ---------------
TOTAL LIABILITIES 448,438 1,703,944
--------------- -------------
MINORITY INTEREST 1,411,167 1,660,932
--------------- -------------
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;
1,665,359 shares issued at September 30, 1996 and
1,642,859 shares issued at December 31, 1995 83,268 82,143
Additional paid-in capital 10,104,700 9,944,967
Retained earnings 4,406,076 7,041,773
Less cost of treasury stock;
1,665,359 shares issued at September 30, 1996 and
315,136 shares at December 31, 1995 (1,579,565) (1,606,671)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 13,014,479 15,462,212
--------------- ---------------
TOTAL $ 14,866,084 $ 18,827,088
=============== ===============
</TABLE>
See accompanying notes to consolidated balance sheets.
- ------------------------------------------------------------------------------
F-44
<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 September 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 September 30, 1996 was $140
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, Gulf-Tex Maintenance Corporation and Enex Program I
Partners, L.P.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. The Company uses pro rata consolidation for those partnership in which
it owns less than a 50% interest and fully consolidates Enex Program I Partners,
L.P. in which it owns greater than a 50% interest. The equity of minority
partners' in Enex Program I Partners, L.P. is shown in the consolidated balance
as "minority interest". 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.
F-45
<PAGE>
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.
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
September 30, 1996 and for the nine month periods ended September 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, if the
consolidation transaction is consummated, the Company will forego this five
percent increase in its share of participating Partnerships' revenues. 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 acquired by the limited partnership. The resulting note is subject to a
formal agreement with terms as discussed in Note 4, 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
F-46
<PAGE>
plus three-quarters of one percent (3/4%) or at an average rate
of 9.60% during the third quarter of 1995, and 9.00% during the first five
months of 1996 and 9.50% during the first nine months of 1995. Principal
payments of $84,000 were made on the debt in the third quarter of 1995. 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 9.49% and
9.66% in the first nine months of 1996 and 1995, respectively. Principal
payments of $15,895 and $10,999 were received in the first nine 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
September 30, 1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
--------------------- -----------------
<S> <C> <C>
Difference between tax and book net property basis $ 396,117 $ 4,613
Difference between basis in managed limited
partnerships for financial reporting purposes and
income tax purposes 4,284,695 3,796,403
Intangible drilling costs which remain capitalized for financial reporting
purposes which were deducted for
federal income tax purposes (170,198) (74,483)
Net operating loss carry forward
(expires 2009-2010) 567,745 478,565
Timing difference from lawsuit contingency (50,683) (50,683)
-
------------- -------------
Gross deferred tax asset 5,027,676 4,154,415
Valuation allowance (4,305,146) (3,505,985)
------------- -------------
Net deferred tax asset recognized $ 722,530 $ 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 increased by $799,161 in the first
nine months of 1996 and decreased by $697,269 in 1995.
F-47
<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 nine months ended September 30, 1996.
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended December 31,
September 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>
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
--------
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.
F-48
<PAGE>
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 September 30,
1996 and December 31, 1995 was $280,050.
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 nine months of 1996 and the year ended December 31,
1995, 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.
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-49
<PAGE>
10. RESTATEMENT
In connection with a review by the Staff of the Securities and Exchange
Commission ("Staff") of the Company's filing on Form 10-K for the year ended
December 31, 1995, the Company had discussions with the Staff regarding whether
its investment in one majority owned partnership should be accounted for on the
pro rata consolidation method or the full consolidation method. The Company owns
a 53% interest in one partnership, Enex Program I Partners L.P. The Company's
ownership percentage in its other 40 publicly offered limited partnerships is
below 50%. The Company has historically used the pro rata consolidation method
for all investments in limited partnerships, regardless of ownership percentage,
since as research indicated it is was industry practice to do so. The Staff
concluded, however, it was not industry practice and that other accounting
literature, which requires full consolidation of majority-owned partnerships,
took precedence over industry practice. was proper and the use of pro rata
consolidation for an over 50% interest in a limited partnership was an error in
the application of an accounting principle.
Accordingly, the Company has restated its consolidated financial statements to
fully consolidate its interest in Enex Program I Partners, L.P. for the periods
in which it owned a majority interest, namely the period from December 1, 1994
to September 30, 1996. The change to the full consolidation method causes a
change in the presentation of most of the previously reported amounts in the
consolidated financial statements of the Company for the periods mentioned, but
it does not cause any difference in the historically reported amounts of net
income, earnings per share or stockholders' equity.
The effects of the restatement on the balance sheets are summarized as follows:
<TABLE>
<CAPTION>
Consolidated Balance Sheets
For the years ended December 31,
1995 1994
As As
Previously As Previously As
Reported Restated Reported Restated
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Current Assets $ 4,740,779 $ 4,000,786 $ 4,376,649 $ 3,834,596
Property - Net 9,580,418 11,953,925 10,032,184 12,338,465
Total Assets 17,037,322 18,827,088 17,230,644 19,235,937
Current Liabilities 1,575,110 1,703,944 2,043,132 2,124,874
Long-term Debt - - 974,000 974,000
Total Liabilities 1,575,110 1,703,944 3,017,132 3,098,874
Minority Interests - 1,660,932 - 1,923,551
Stockholders Equity 15,462,212 15,462,212 14,213,512 14,213,512
</TABLE>
F-50
<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 . . . $18,863,187
Accumulated depreciation, depletion and amortization . . . . . . . $6,967,242
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.
Oil Natural Gas
------------ -------------
(Barrels) (Mcf)
PROVED DEVELOPED AND UNDEVELOPED RESERVES
January 1, 1995 1,089,187 12,446,039
Revisions of previous estimates . . . . . . (6,586) 711,925
Purchases of minerals in place . . . . . . 31,887 727,929
Sales of minerals in place . . . . . . . . (6,841) (643,277)
Production . . . . . . . . . . . . . . . . (200,778) (1,671,517)
------------ -------------
December 31, 1995 906,869 11,571,099
============ =============
Minority Interest in Developed and Undeveloped Reserves 84,895 2,373,524
============ ============
PROVED DEVELOPED RESERVES:
January 1, 1995 995,637 12,290,064
============ =============
December 31, 1995 808,829 11,407,758
============ =============
Minority Interest in Developed Reserves 84,895 2,373,524
============ =============
F-51
<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 $ 39,963,675
Future production and development costs (15,363,195)
-------------------
Future net cash flows before income taxes 24,600,006
10% annual discount (9,421,006)
Future income taxes, net of 10% annual
discount -
-------------------
Standardized measure of discounted future net
cash flows of proved oil and gas reserves $ 15,179,474
===================
Minority Interest in standardized measure of
future discounted net cash flows of
proved oil and gas reserves $ 2,783,461
===================
</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 293,892 barrels. The
discounted future net cash flows (net of estimated future income taxes) relating
to these facilities are estimated to be approximately
$795,818. The minority interest in this future production is 137,456 barrels
and $372,212 of the discounted future net cash flows.
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-52
<PAGE>
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 September 30,1996
<S> <C> <C> <C>
Enex Program I Partners, L.P. 100 New Jersey $96,814,500 4,631
Enex Oil & Gas Income Program II-7, L.P. 207 Texas $4,434,757 431
Enex Oil & Gas Income Program II-8, L.P. 208 Texas $2,931,653 1,201
Enex Oil & Gas Income Program II-9, L.P. 209 Texas $1,554,262 1,130
Enex Oil & Gas Income Program II-10, L.P. 210 Texas $1,958,206 1,261
Enex Oil & Gas Income Program III- Series 1, L.P. 301 New Jersey $1,488,778 872
Enex Oil & Gas Income Program III- Series 2, L.P. 302 New Jersey $2,135,224 1,088
Enex Oil & Gas Income Program III- Series 3, L.P. 303 New Jersey $3,204,790 1,086
Enex Oil & Gas Income Program III- Series 4, L.P. 304 New Jersey $2,704,880 375
Enex Oil & Gas Income Program III- Series 5, L.P. 305 New Jersey $5,398,602 1,648
Enex Oil & Gas Income Program III- Series 6, L.P. 306 New Jersey $3,170,003 1,367
Enex Oil & Gas Income Program III- Series 7, L.P. 307 New Jersey $2,263,383 1,292
Enex Oil & Gas Income Program III- Series 8, L.P. 308 New Jersey $3,598,188 1,456
Enex Oil & Gas Income Program IV- Series 1, L.P. 401 New Jersey $3,236,182 1,280
Enex Oil & Gas Income Program IV- Series 2, L.P. 402 New Jersey $2,468,972 1,309
Enex Oil & Gas Income Program IV- Series 4, L.P. 404 New Jersey $1,260,210 406
Enex Oil & Gas Income Program IV- Series 5, L.P. 405 New Jersey $2,280,449 777
Enex Oil & Gas Income Program IV- Series 6, L.P. 406 New Jersey $2,162,887 686
Enex Oil & Gas Income Program IV- Series 7, L.P. 407 New Jersey $2,510,445 770
Enex Oil & Gas Income Program V- Series 1, L.P. 051 New Jersey $2,264,552 422
Enex Oil & Gas Income Program V- Series 2, L.P. 052 New Jersey $1,486,190 544
Enex Oil & Gas Income Program V- Series 3, L.P. 053 New Jersey $1,010,101 672
Enex Oil & Gas Income Program V- Series 4, L.P. 054 New Jersey $1,477,116 348
Enex Oil & Gas Income Program V- Series 5, L.P. 055 New Jersey $1,231,732 498
Enex Oil & Gas Income Program VI- Series 1, L.P. 601 New Jersey $1,010,380 399
Enex Income and Retirement Fund - Series 1, L.P. 501 New Jersey $1,367,780 183
Enex Income and Retirement Fund - Series 2, L.P. 502 New Jersey $1,441,909 142
Enex Income and Retirement Fund - Series 3, L.P. 503 New Jersey $1,493,792 138
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 525 New Jersey $1,150,169 202
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 526 New Jersey $1,033,402 195
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 527 New Jersey $1,544,485 243
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 531 New Jersey $1,487,600 273
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 532 New Jersey $1,010,101 213
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 533 New Jersey $1,087,546 225
</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 September 30, 1996 Owned by Affiliates(1) of the
Partnership General Partner General Partner
(%) (%)
<S> <C> <C>
Enex Program I Partners, L.P. 54.4102 0.0022
Enex Oil & Gas Income Program II-7, L.P. 25.3837 -
Enex Oil & Gas Income Program II-8, L.P. 31.0198 -
Enex Oil & Gas Income Program II-9, L.P. 29.1091 -
Enex Oil & Gas Income Program II-10, L.P. 24.6633 0.1111
Enex Oil & Gas Income Program III- Series 1, L.P. 19.3101 -
Enex Oil & Gas Income Program III- Series 2, L.P. 20.8989 -
Enex Oil & Gas Income Program III- Series 3, L.P. 20.4949 -
Enex Oil & Gas Income Program III- Series 4, L.P. 18.5368 -
Enex Oil & Gas Income Program III- Series 5, L.P. 18.9388 -
Enex Oil & Gas Income Program III- Series 6, L.P. 18.8091 -
Enex Oil & Gas Income Program III- Series 7, L.P. 18.5045 -
Enex Oil & Gas Income Program III- Series 8, L.P. 18.7864 -
Enex Oil & Gas Income Program IV- Series 1, L.P. 16.5553 -
Enex Oil & Gas Income Program IV- Series 2, L.P. 15.1201 -
Enex Oil & Gas Income Program IV- Series 4, L.P. 11.6836 -
Enex Oil & Gas Income Program IV- Series 5, L.P. 11.0747 -
Enex Oil & Gas Income Program IV- Series 6, L.P. 7.4027 -
Enex Oil & Gas Income Program IV- Series 7, L.P. 13.0856 -
Enex Oil & Gas Income Program V- Series 1, L.P. 12.0439 -
Enex Oil & Gas Income Program V- Series 2, L.P. 6.6003 -
Enex Oil & Gas Income Program V- Series 3, L.P. 20.7116 2.7231
Enex Oil & Gas Income Program V- Series 4, L.P. 11.8893 -
Enex Oil & Gas Income Program V- Series 5, L.P. 5.3119 -
Enex Oil & Gas Income Program VI- Series 1, L.P. 23.9544 6.2839
Enex Income and Retirement Fund - Series 1, L.P. 12.7561 0.1623
Enex Income and Retirement Fund - Series 2, L.P. 34.4612 -
Enex Income and Retirement Fund - Series 3, L.P. 16.3618 -
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 5.7215 -
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 12.7781 -
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 10.1336 -
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 17.0386 -
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 15.0169 0.1083
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 4.0525 -
</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>
<CAPTION>
TABLE 4
ESTIMATED FUTURE NET REVENUES AND PRESENT VALUE OF
FUTURE NET REVENUES TO LIMITED PARTNERS AS OF DECEMBER 31, 1995
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 (3) 2.24
305 432,737 40 432,737 40 330,920 31 330,920 31 12.84 (3) 1.99
306 542,442 86 542,442 86 415,387 66 415,387 66 14.07 (3) 2.03
307 370,395 82 370,395 82 283,617 63 283,617 63 14.09 (3) 2.03
308 491,283 68 491,283 68 382,177 53 382,177 53 12.38 (3) 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 production, 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 Exchange Commission.
(2) Estimated future net revenues disconted at 10% per year.
(3) 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 (3) 2.24
305 48,081 48,081 36,768 36,768 12.84 (3) 1.99
306 60,271 60,271 46,154 46,154 14.07 (3) 2.03
307 41,155 41,155 31,513 31,513 14.09 (3) 2.03
308 54,587 54,587 42,464 42,464 12.38 (3) 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 production, 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 Exchange Commission.
(2) Estimated future net revenues discounted at 10% per year.
(3) 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 NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
OIL (Bbls) GAS (Mcf)
For the Nine For the Nine
Part- For the Year Ended Months Ended For the year ended Months Ended
ship* 1994 1995 September 30, 1996 1994 1995 September 30, 1996
<C> <C> <C> <C> <C> <C> <C>
100 111,318 96,456 64,882 956,219 936,419 689,150
207 18,876 19,711 14,203 22,710 26,849 21,834
208 14,453 15,089 10,872 17,389 20,553 16,714
209 8,612 8,993 6,480 10,362 12,250 9,961
210 10,863 11,339 8,170 13,069 15,445 12,561
301 7,401 6,848 4,670 7,888 9,327 7,585
302 10,609 9,805 6,686 11,302 13,356 10,861
303 14,363 15,399 10,944 17,038 20,143 16,380
304 8,246 6,545 5,053 14,419 5,502 7,497
305 25,352 19,400 15,792 38,971 32,430 22,051
306 20,880 16,363 12,591 76,433 58,340 38,806
307 15,033 11,815 9,112 49,066 38,306 25,420
308 16,625 12,792 10,555 81,701 57,504 37,983
401 6,130 4,946 1,810 87,908 57,674 36,376
402 5,015 3,927 1,641 66,587 44,640 28,790
404 4,909 5,036 3,355 16,193 10,013 8,162
405 10,003 10,095 5,429 75,058 59,073 44,371
406 7,748 7,305 4,308 56,385 44,890 34,342
407 14,426 13,267 9,580 99,209 100,732 56,046
051 12,494 11,222 8,142 84,952 81,273 45,793
052 6,821 6,058 4,457 47,741 40,544 23,146
053 6,431 5,701 4,209 32,908 31,502 21,795
054 27,533 25,492 18,579 65,918 72,377 48,905
055 32,021 27,711 19,707 - - -
601(1) 13,563 21,075 13,030 5,904 22,210 17,926
501 3,935 3,988 1,794 27,575 19,630 12,750
502 1,500 2,249 1,073 56,019 34,625 27,570
503 1,448 915 815 67,094 44,632 34,020
525 2,952 2,419 1,690 28,017 22,485 16,950
526 2,093 1,810 1,209 30,065 24,478 18,690
527 2,794 2,638 2,050 57,479 49,000 39,354
531 4,004 3,751 2,938 69,549 59,836 47,830
532 6,039 5,409 4,047 31,863 30,502 27,103
533 33,561 30,330 22,270 - - -
</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 9
AVERAGE SALES PRICES AND PRODUCTION COSTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Average Oil Sales Price (per bbl) Average Gas Sales Price (per mcf) Average Production Cost(per BOE)(1)
------------------------------------ ---------------------------------- ------------------------------------
For the year ended For the Nine For the year ended For the Nine For the year ended For the Nine
Part- December 31, Months Ended December 31, Months Ended For December 31, Months Ended
ner- -------------------- ---------------- -------------------
ship* 1994 1995 September 30, September 30, September 30,
1996 1994 1995 1996 1994 1995 1996
-------- ----------- ------------- ------- ------- ------------- --------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $14.73 $16.24 $19.39 $2.01 $1.71 $2.32 $4.24 $5.04 $3.61
207 15.22 15.67 19.67 1.76 1.60 2.15 4.38 4.91 3.53
208 15.21 15.67 19.67 1.76 1.60 2.15 4.38 4.91 3.53
209 15.22 15.67 19.67 1.76 1.60 2.15 4.27 4.91 3.53
210 15.22 15.67 19.67 1.76 1.60 2.15 4.38 4.91 3.53
301 14.31 15.67 20.34 1.77 1.60 2.15 9.36 5.75 3.61
302 14.31 15.67 20.34 1.76 1.60 2.15 9.34 5.75 3.61
303(2) 17.02 16.53 20.45 1.77 1.60 2.15 5.51 5.67 4.20
304(2) 14.18 17.65 18.48 2.86 2.30 3.66 8.41 13.16 10.71
305 11.97 13.42 14.93 1.82 1.61 2.18 6.53 8.41 8.36
306 12.43 13.95 15.46 1.83 1.57 2.07 5.99 7.70 7.88
307 12.45 13.98 15.52 1.83 1.59 2.10 6.12 7.77 8.00
308 10.96 12.52 13.68 2.13 1.99 2.17 6.20 7.83 7.30
401 15.52 16.75 19.56 1.87 1.64 1.96 5.55 6.80 5.23
402 15.71 16.99 19.40 1.89 1.66 2.09 5.76 7.42 5.50
404 15.09 14.72 19.86 2.17 2.01 2.60 4.19 4.59 4.12
405(2) 16.25 16.18 23.10 2.98 2.58 3.46 8.87 9.07 9.54
406 15.12 14.68 20.14 2.00 1.77 2.30 5.02 5.28 5.37
407 15.12 16.32 19.82 1.52 1.25 1.40 7.35 6.18 8.44
051(2) 17.04 20.61 22.83 2.20 1.83 2.38 10.10 8.66 11.48
052 14.78 16.03 19.04 1.74 1.44 1.90 6.09 5.59 6.59
053 14.78 16.03 19.04 1.69 1.42 1.90 6.43 5.44 6.59
054(2) 30.22 30.56 32.27 1.95 1.64 2.30 17.20 16.57 16.80
055 15.57 16.99 20.02 - - - 6.28 7.70 7.14
601 16.52 16.45 20.03 0.70 0.96 1.31 10.38 8.12 8.05
501(3) 9.38 9.03 9.32 2.05 2.01 2.18 0.42 0.37 0.56
502(3) 10.32 8.88 10.88 2.33 1.64 2.26 0.56 0.62 0.76
503(3) 13.16 14.70 16.33 2.16 1.23 2.04 0.47 0.61 0.62
525(3) 11.73 11.43 14.20 1.08 0.92 1.23 0.29 0.38 0.23
526(3) 11.40 10.24 13.57 1.40 1.20 1.68 0.74 0.99 0.59
527 11.85 12.18 10.87 1.81 1.52 2.10 1.31 1.74 0.94
531(3) 11.54 11.15 11.78 1.70 1.41 1.98 1.12 1.50 0.81
532(3) 11.12 8.30 13.33 0.30 0.21 0.37 - - -
533(3) 3.79 5.31 8.37 - - - - - -
</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 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 per equivalent barrel 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 partnership 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 12
Calculation of Exchange Value
As of September 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of
Oil & Gas Reserves (1) PARTNERSHIP *
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Property Name: 100 207 208 209 210 301 302
Dent $183,451
Choate 502,357
Grass Island 49,769
Blackhawk 4,393
Shell 153,965
Arnold & Woolf 94,945
Second Bayou 357,121
Schlensker 148,093
Esperance Point 8,712
Lake Cocodrie 185,126
East Seven Sisters 700,643
HNG 1,439,880
Comite 3,798
Concord $754,281 $577,413 $344,145 $433,923 $262,041 $375,222
----------- ---------- ---------- ----------- ----------- ---------- -----------
Subtotal - Property 3,832,253 754,281 577,413 344,145 433,923 262,041 375,222
Cash & cash equivalents(2) 160,414 48,933 18,189 11,595 12,733 5,729 11,057
Accounts receivable (2) 468,733 45,423 34,771 20,724 26,129 15,780 22,595
Other current assets (2) 413,645 2,225 1,704 1,014 1,281 772 1,108
----------- ---------- ---------- ----------- ----------- ---------- -----------
Subtotal - assets 4,875,045 850,862 632,077 377,478 474,066 284,322 409,982
Less:
Liabilities to third parties (2)222,598 6,309 4,836 2,875 3,625 2,194 3,139
----------- ---------- ---------- ----------- ----------- ---------- -----------
Partnership Exchange Value 4,652,447 844,553 627,241 374,603 470,441 282,128 406,843
Less:
Liability to General Partner(2) 11,814 3,883 56,868 96,041 99,527 201,644 263,595
GP's Capital Balance (2) 973,491 37,630 26,277 28,069 27,800 50,821 59,593
Attributable to GP's
revenue interest (3) - - - - - 6,254 9,019
----------- ---------- ---------- ----------- ----------- ---------- -----------
Exchange value attributable
to Limited Partners 3,667,142 803,040 554,096 250,493 343,114 23,409 74,636
=========== ========== ========== =========== =========== ========== ===========
Exchange value per $500
Interests $18.94 $90.54 $92.80 $80.58 $87.61 $7.86 $17.48
=========== ========== ========== =========== =========== ========== ===========
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(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) Per the Partnership's unaudited September 30,1996 balance sheets.
(3) Calculated in accordance with the existing Partnership Agreements, whereby
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 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. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" and Table I.
A-13
<PAGE>
TABLE 12
Calculation of Exchange Value
As of September 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of
Oil & Gas Reserves (1) PARTNERSHIP *
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Property Name: 303 304 305 306 307 308 401
Concord $566,902
Larto Lake 3,727
Shana $16,457
Pecan Island 188,207
Corkscrew 26,553 $79,656 $55,758 $39,828 $63,726
Michigan 16,466 12,666 11,512 14,566 $10,519
Enexco 6,246 7,809 5,577 2,676
RIC 97,633 122,042 87,172 41,844
Barnes Estate 33,598 16,799 70,557 87,359
Brighton 25,915
----------- ---------- --------- ---------- --------- --------- --------
Subtotal - Property 569,629 231,217 200,001 231,873 160,888 193,369 123,793
Cash & cash equivalents (2) 21,311 2,687 - - - - 1,307
Accounts receivable (2) 34,021 23,588 42,419 38,873 27,709 40,851 16,343
Other current assets (2) 2,562 4,344 3,656 3,490 2,490 3,110 1,297
----------- ---------- --------- ---------- --------- --------- --------
Subtotal - assets 627,523 261,836 246,076 274,236 191,087 237,330 142,740
Less:
Liabilities to third parties(2) 12,356 11,228 32,122 33,765 22,110 26,596 1,547
----------- ---------- --------- ---------- --------- --------- --------
Partnership Exchange Value 615,167 250,608 213,954 240,471 168,977 210,734 141,193
Less:
Liability to General Partner(2) 126,212 158,501 104,664 35,797 83,761 76,933 46,464
GP's Capital Balance (2) 36,164 14,826 38,069 66,580 38,968 51,212 46,103
Attributable to GP's
revenue interest (3) 19,185 2,070 7,742 8,616 6,081 7,620 7,942
----------- ---------- --------- ---------- --------- --------- --------
Exchange value attributable
to Limited Partners 433,606 75,211 63,479 129,478 40,167 74,969 40,684
=========== ========== ========= ========== ========= ========= ========
Exchange value per $500
Interests $67.65 $13.90 $5.88 $20.42 $8.87 $10.42 $6.29
=========== ========== ========= ========== ========= ========= ========
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(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) Per the Partnership's unaudited September 30,1996 balance sheets.
(3) Calculated in accordance with the existing Partnership Agreements, whereby
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 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. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" and Table I.
A-14
<PAGE>
TABLE 12
Calculation of Exchange Value
As of September 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of
Oil & Gas Reserves (1) PARTNERSHIP *
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Property Name: 402 404 405 406 407 051 052
Barnes Estate $67,199
Bagley 8,055
Brighton 11,661
Concord $128,142 $61,002
El Mac 23,085 30,187 $53,667 $7,203
Speary 104,686 74,047
Binger 40,478 $21,797
FEC 182,216 207,726 $163,992
----------- --------- --------- ---------- --------- ---------- ----------
Subtotal - Property 86,915 151,227 195,875 127,714 229,897 229,523 163,992
Cash & cash equivalents (2) 4,479 5,913 42,262 5,808 3,543 11,061 1,598
Accounts receivable (2) 15,111 12,904 64,214 29,440 40,490 56,202 20,043
Other current assets (2) 529 6,062 20,781 13,341 3,717 4,186 1,777
----------- --------- --------- ---------- --------- ---------- ----------
Subtotal - assets 107,034 176,106 323,132 176,303 277,647 300,972 187,410
Less:
Liabilities to third parties(2) 1,375 562 42,365 - 25,763 37,914 4,217
----------- --------- --------- ---------- --------- ---------- ----------
Partnership Exchange Value 105,659 175,544 280,767 176,303 251,884 263,058 183,193
Less:
Liability to General Partner(2) 12,548 71,229 4,601 15,774 - - 83,399
GP's Capital Balance (2) 37,657 8,867 33,562 18,276 24,402 24,627 5,908
Attributable to GP's
revenue interest (3) 5,911 7,883 16,705 11,600 12,535 25,869 18,319
----------- --------- --------- ---------- --------- ---------- ----------
Exchange value attributable
to Limited Partners 49,543 87,565 225,899 130,653 214,947 212,562 75,567
=========== ========= ========= ========== ========= ========== ==========
Exchange value per $500
Interests $10.03 $34.74 $49.53 $30.20 $42.81 $46.93 $25.42
=========== ========= ========= ========== ========= ========== ==========
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(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) Per the Partnership's unaudited September 30,1996 balance sheets.
(3) Calculated in accordance with the existing Partnership Agreements, whereby
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 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. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" and Table I.
A-15
<PAGE>
TABLE 12
Calculation of Exchange Value
As of September 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of
Oil & Gas Reserves (1) PARTNERSHIP *
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Property Name: 053 054 055 601 501 502 503
FEC $154,883
South Midway $397,907
Charlotte 385,797
Muldoon $586,850
Concord $334,554
McBride 138,189
Larto Lake $11,180
Deal 81,213
Shana 32,914 $32,914
Pecan Island 89,151 158,492 $59,433
Corinne 4,747 16,619 17,212
East Cameron 22,132 22,132
Barnes Estate 16,799 43,678
Rigney 4,294
Bagley 4,227
----------- ---------- ---------- --------- -------- --------- ---------
Subtotal - Property 154,883 783,704 586,585 472,743 219,205 246,956 150,976
Cash & cash equivalents (2) 1,990 105,664 17,307 5,415 6,500 17,983 4,022
Accounts receivable (2) 18,927 124,698 46,336 41,172 15,430 26,063 28,526
Other current assets (2) 1,679 10,201 2,847 - - - -
----------- ---------- ---------- --------- -------- --------- ---------
Subtotal - assets 177,479 1,024,267 653,075 519,330 241,135 291,002 183,524
Less:
Liabilities to third parties (2) 3,985 97,192 31,553 30,501 13 6 2
----------- ---------- ---------- --------- -------- --------- ---------
Partnership Exchange Value 173,494 927,075 621,522 488,829 241,122 290,996 183,522
Less:
Liability to General Partner (2) 40,077 4,096 - 72,051 125,631 3,486 45,600
GP's Capital Balance (2) 5,943 28,602 25,273 19,195 11,704 12,490 8,836
Attributable to GP's
revenue interest (3) 17,349 92,707 60,019 48,922 2,508 3,040 3,195
----------- ---------- ---------- --------- -------- --------- ---------
Exchange value attributable
to Limited Partners 110,125 801,670 536,230 348,661 101,279 271,980 125,891
=========== ========== ========== ========= ======== ========= =========
Exchange value per $500
Interests $54.51 $271.36 $217.67 $172.54 $37.02 $94.31 $42.14
=========== ========== ========== ========= ======== ========= =========
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(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) Per the Partnership's unaudited September 30,1996 balance sheets.
(3) Calculated in accordance with the existing Partnership Agreements, whereby
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 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. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" and Table I.
A-16
<PAGE>
TABLE 12
Calculation of Exchange Value
As of September 30, 1996
<TABLE>
<CAPTION>
Fair Market Value of
Oil & Gas Reserves (1) PARTNERSHIP *
<S> <C> <C> <C> <C> <C> <C>
Property Name: 525 526 527 531 532 533
----------------------------------------------------------------
El Mac $14,204
Speary 30,639 $20,428
Baywood II 780 834 $585
Wardner Ranch 26,494 83,269 302,792 $344,425
FEC 24,600 $153,973
Charlotte $498,319
----------- ---------- -------- --------- -------- ---------
Subtotal - Property 72,117 104,531 303,377 369,025 153,973 498,319
Cash & cash equivalents (2) 4,840 5,610 24,862 16,071 3,458 38,236
Accounts receivable (2) 15,597 9,299 8,218 11,720 17,621 49,199
Other current assets (2) - - - - - -
----------- ---------- -------- --------- -------- ---------
Subtotal - assets 92,554 119,440 336,457 396,816 175,052 585,754
Less:
Liabilities to third parties(2) 6 4 3 3 4 -
----------- ---------- -------- --------- -------- ---------
Partnership Exchange Value 92,548 119,436 336,454 396,813 175,048 585,754
Less:
Liability to General Partner (2) 36,004 65,039 2,659 1,955 43,647 38
GP's Capital Balance (2) 7,924 7,671 11,789 11,524 4,253 9,670
Attributable to GP's
revenue interest (3) 4,701 4,480 10,524 16,908 10,443 29,346
----------- ---------- -------- --------- -------- ---------
Exchange value attributable
to Limited Partners 43,919 42,246 311,482 366,426 116,705 546,700
=========== ========== ======== ========= ======== =========
Exchange value per $500
Interests $19.09 $20.44 $100.84 $123.16 $57.77 $251.35
=========== ========== ======== ========= ======== =========
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(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) Per the Partnership's unaudited September 30,1996 balance sheets.
(3) Calculated in accordance with the existing Partnership Agreements, whereby
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 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. See "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues" and Table I.
A-17
<PAGE>
TABLE 13
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
For the nine
months ended
September 30, For the Year Ended December 31,
Partnership* 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 (74) (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 $20.78
Enex Oil & Gas Income Program II-7, L.P. 41.96 77.26
Enex Oil & Gas Income Program II-8, L.P. 36.95 70.92
Enex Oil & Gas Income Program II-9, L.P. 21.08 58.79
Enex Oil & Gas Income Program II-10, L.P. 26.51 64.39
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 49.00
Enex Oil & Gas Income Program III- Series 4, L.P. 3.44 -
Enex Oil & Gas Income Program III- Series 5, L.P. 8.84 5.48
Enex Oil & Gas Income Program III- Series 6, L.P. 18.03 19.97
Enex Oil & Gas Income Program III- Series 7, L.P. 8.45 9.54
Enex Oil & Gas Income Program III- Series 8, L.P. 19.16 10.87
Enex Oil & Gas Income Program IV- Series 1, L.P. 6.84 5.91
Enex Oil & Gas Income Program IV- Series 2, L.P. 9.12 8.55
Enex Oil & Gas Income Program IV- Series 4, L.P. 18.85 23.40
Enex Oil & Gas Income Program IV- Series 5, L.P. 23.66 39.87
Enex Oil & Gas Income Program IV- Series 6, L.P. 8.02 24.41
Enex Oil & Gas Income Program IV- Series 7, L.P. 32.20 48.69
Enex Oil & Gas Income Program V- Series 1, L.P. 41.81 51.58
Enex Oil & Gas Income Program V- Series 2, L.P. 23.05 25.57
Enex Oil & Gas Income Program V- Series 3, L.P. 45.11 53.25
Enex Oil & Gas Income Program V- Series 4, L.P. 181.08 242.51
Enex Oil & Gas Income Program V- Series 5, L.P. 162.11 217.92
Enex Oil & Gas Income Program VI- Series 1, L.P. 176.58 174.49
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 16.70
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 4.03 17.34
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 66.07 84.67
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 81.95 102.80
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 41.31 50.15
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 208.32 196.54
</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>
<TABLE>
<CAPTION>
Property Detail by Partnership
Partnership Property Oil, Bbls Gas, Mcf Undiscounted $ Discounted $
100 Dent
<S> <C> <C> <C> <C>
PDP 4,177 235,430 $438,443 $293,636
PDNP 166 103,593 $205,485 $73,117
Choate
PDP 362,687 13,092 $1,365,724 $865,019
Grass Island
PDP 5,945 $52,898 $48,991
PDNP 16,454 0 $172,371 $97,945
Blackhawk
PDP 6,871 $19,280 $18,171
Shell
PDP 58,171 13,339 $366,986 $292,382
Arnold & Woolf
PDP 16,950 130,837 $244,358 $172,467
PDNP 8,760 13,738 2,435
Second Bayou
PDP 1,506 288,795 $621,156 $469,659
PDNP 3,783 559,653 $1,883,190 $416,042
Schlensker
PDP 167 230,216 $339,059 $261,378
Esperance Point
PDP 1,889 $30,897 $27,515
Lake Cocodrie
PDP 41,033 $472,254 $336,226
E. Seven Sisters
PDP 0 519,205 $899,051 $465,561
PDNP 815,933 $1,654,599 $629,281
HNG
PDP 942 1,918,926 $4,149,777 $2,210,054
PDNP 2,587 5,048 3,381
Comite
PDP 141 10,863 $9,333 $7,803
207 Concord
PDP 124,649 156,593 $2,211,478 $1,275,891
PDNP 7,398 $12,022 $8,798
208 Concord
PDP 95,421 119,874 $1,692,917 $976,712
PDNP 5,663 $9,203 $6,735
209 Concord
PDP 56,872 71,447 $1,009,001 $582,133
PDNP 3,376 $5,485 $4,014
210 Concord
PDP 71,708 90,085 $1,272,219 $733,994
PDNP 4,256 $6,916 $5,061
301 Concord
PDP 43,304 54,401 $768,281 $443,252
PDNP 2,570 $4,176 $3,056
</TABLE>
See Table 1 for a list of the full name of the partnership.
A-21
<PAGE>
<TABLE>
<CAPTION>
Partnership Property Oil, Bbls Gas, Mcf Undiscounted $ Discounted $
302 Concord
<S> <C> <C> <C> <C>
PDP 62,008 77,898 $1,100,115 $634,700
PDNP 3,680 $5,980 $4,376
303 Concord
PDP 93,519 117,485 $1,659,171 $957,242
PDNP 5,551 $9,019 $6,600
Larto Lake
PDP 962 $9,335 $8,209
304 Shana
PDP 2,139 5,603 $27,840 $23,593
PDNP 605 0 $9,609 $6,502
Pecan Island
PDP 32 3,237 $6,856 $5,934
PDNP 6,975 366,852 $1,258,094 $370,610
Corkscrew
PDP 16,996 0 $63,905 $48,250
305 Corkscrew
PDP 50,987 0 $191,716 $144,749
Michigan
PDP 3,199 8,514 $39,502 $32,119
Enexco
PDP 85 16,765 $16,029 $13,683
RIC
PDP 21,141 68,145 $246,854 $173,670
306 Corkscrew
PDP 35,691 0 $134,201 $101,324
Michigan
PDP 2,461 6,549 $30,386 $24,707
Enexco
PDP 106 20,956 $20,036 $17,104
RIC
PDP 26,426 85,181 $308,567 $217,088
Barnes Estate
PDP 156 38,128 $51,749 $42,529
PDNP 227 29,200 $48,458 $32,843
307 Corkscrew
PDP 25,493 0 $95,858 $72,375
Michigan
PDP 2,237 5,953 $27,619 $22,457
Enexco
PDP 76 14,969 $14,312 $12,217
RIC
PDP 18,876 60,844 $220,405 $155,063
Barnes Estate
PDP 78 19,064 $25,874 $21,265
PDNP 113 14,600 $24,229 $16,421
</TABLE>
See Table 1 for a list of the full name of the partnership.
A-22
<PAGE>
<TABLE>
<CAPTION>
Partnership Property Oil, Bbls Gas, Mcf Undiscounted $ Discounted $
308 Corkscrew
<S> <C> <C> <C> <C>
PDP 40,789 0 $153,373 $115,799
Michigan
PDP 2,830 7,532 $34,944 $28,413
Enexco
PDP 36 7,185 $6,870 $5,864
RIC
PDP 9,060 29,205 $105,794 $74,430
Barnes Estate
PDP 328 80,069 $108,673 $89,312
PDNP 476 61,320 $101,762 $68,969
401 Michigan
PDP 2,044 5,440 $25,239 $20,522
Barnes Estate
PDP 407 99,133 $134,547 $110,576
PDNP 589 75,920 $125,991 $85,391
Brighton
PDP 4,350 0 $62,688 $50,149
402 Barnes Estate
PDP 313 76,256 $103,498 $85,059
PDNP 453 58,400 $96,916 $65,685
Bagley
PDP 2,065 5,059 $23,878 $21,609
Brighton
PDP 1,957 0 $28,209 $22,567
404 Concord
PDP 21,176 26,603 $375,704 $216,759
PDNP 1,257 $2,042 $1,495
Elmac
PDP 3,599 7,759 $59,099 $43,914
405 Concord
PDP 10,081 12,664 $178,853 $103,187
PDNP 598 $972 $712
Elmac
PDP 4,706 10,147 $77,282 $57,425
Speary
PDP 11,849 202,649 $244,809 $197,397
406 Elmac
PDP 8,367 18,040 $137,402 $102,098
Speary
PDP 8,381 143,337 $173,158 $139,622
</TABLE>
See Table 1 for a list of the full name of the partnership.
A-23
<PAGE>
<TABLE>
<CAPTION>
Partnership Property Oil, Bbls Gas, Mcf Undiscounted $ Discounted $
407 Elmac
<S> <C> <C> <C> <C>
PDP 1,123 2,421 $18,441 $13,703
Binger
PDP 31,242 212,315 $109,520 $79,390
FEC
PDP 15,233 204,681 $336,659 $262,715
PDNP 645 99,614 $177,885 60,517
051 Binger
PDP 16,823 114,324 $58,973 $42,749
FEC
PDP 17,366 233,337 $383,791 $299,495
PDNP 735 113,560 202,789 68,990
052 FEC
PDP 13,710 184,213 $302,993 $236,443
PDNP 580 89,652 160,097 54,466
053 FEC
PDP 12,948 173,979 $286,160 $223,308
PDNP 548 84,672 151,203 51,440
054 South Midway
PDP 12,879 595,570 $1,252,311 $683,075
PDNP 3,455 53,618 204,267 11,966
Charolotte
PDP 170,670 0 $1,105,805 $644,936
055 Muldoon
PDP 103,397 0 $1,291,212 $956,061
PUD 14,625 0 $161,852 $110,651
601 Concord
PDP 55,287 69,455 $980,879 $565,909
PDNP 3,281 $5,332 $3,902
McBride
PDP 93,372 0 $584,388 $474,949
PUD 19,802 0 $153,601 $93,293
501 Larto Lake
PDP 2,887 0 $28,006 $24,629
Shana
PDP 4,279 11,206 $55,679 $47,186
PDNP 1,211 0 $19,218 $13,003
Pecan Island
PDP 15 1,533 $3,247 $2,811
PDNP 173,772 $595,939 $175,552
Deal
PDP 279 121,384 $325,835 $136,335
Corinne
PDP 0 7,190 $10,820 $8,176
502 Shana
PDP 4,279 11,206 $55,679 $47,186
PDNP 1,211 0 $19,218 $13,003
Pecan Island
PDP 27 2,726 $5,773 $4,997
PDNP 308,928 $1,059,447 $312,093
Barnes Estate
PDP 78 19,064 $25,874 $21,265
PDNP 14,600 $24,229 $16,421
Corinne
PDP 0 25,165 $37,869 $28,616
East Cameron
PDP 218 24,884 $51,328 $43,412
</TABLE>
See Table 1 for a list of the full name of the partnership.
A-24
<PAGE>
<TABLE>
<CAPTION>
Partnership Property Oil, Bbls Gas, Mcf Undiscounted $ Discounted $
503 Pecan Island
<S> <C> <C> <C> <C>
PDP 10 1,022 $2,165 $1,874
PDNP 115,848 $397,293 $117,035
Barnes Estate
PDP 203 49,567 $67,274 $55,288
PDNP 37,960 $62,995 $42,695
Bagley
PDP 1,084 2,656 $12,536 $11,345
Corinne
PDP 0 26,063 $39,222 $29,638
East Cameron
PDP 218 24,884 $51,328 $43,412
Rigney
PDP 467 428 $9,808 $7,288
525 Elmac
PDP 2,214 4,775 $36,366 $27,022
Speary
PDP 3,468 59,312 $71,652 $57,775
Baywood II
PDP 83 777 $2,441 $2,248
Wardner Ranch
PDP 324 31,920 $93,578 $45,280
526 Speary
PDP 2,312 39,541 $47,768 $38,516
Baywood II
PDP 89 833 $2,616 $2,408
Wardner Ranch
PDP 1,020 100,320 $294,101 $142,309
527 Baywood II
PDP 63 583 $1,831 $1,686
Wardner Ranch
PDP 3,708 364,799 $1,069,459 $517,487
531 FEC
PDP 2,056 27,632 $45,449 $35,466
PDNP 87 13,448 24,015 8,170
Wardner Ranch
PDP 4,218 414,959 $1,216,509 $588,641
532 FEC
PDP 12,872 172,956 $284,477 $221,994
PDNP 545 84,174 150,313 51,137
533 Charolotte
PDP 220,448 0 $1,428,331 $833,042
</TABLE>
Table 1 for a list of the full name of the partnership.
A-25
<PAGE>
(1) See Table 1 for a list of the full name of the Partnership.
(2) See "The proposed Consolidation - Method of determining Exchange Value"
for a discussion of the factors and methodology used to determine the
exchange values.
(3) Represents the undiscounted future net revenues of oil & gas reserves
computed by Gruy and used in its fair market valuations.
(4) Represents the future net revenues oil and gas reserve discounted at 10%
computed by Gruy and used in its fair market valuations.
A-26
<PAGE>
TABLE 17
ALLOCATED G&A EXPENSES
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
------------------------
Partnership 1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Enex Program I Partners, L.P. $580,791 $766,060 $862,364
Enex Oil & Gas Income Program II-7, L.P. 27,704 29,430 35,086
Enex Oil & Gas Income Program II-8, L.P. 24,042 25,183 28,915
Enex Oil & Gas Income Program II-9, L.P. 19,243 18,704 20,761
Enex Oil & Gas Income Program II-10, L.P. 21,075 21,179 23,897
Enex Oil & Gas Income Program III- Series 1, L.P. 16,148 16,938 18,816
Enex Oil & Gas Income Program III- Series 2, L.P. 18,897 20,649 23,458
Enex Oil & Gas Income Program III- Series 3, L.P. 20,703 32,263 38,047
Enex Oil & Gas Income Program III- Series 4, L.P. 15,129 24,736 28,539
Enex Oil & Gas Income Program III- Series 5, L.P. 25,571 38,835 46,296
Enex Oil & Gas Income Program III- Series 6, L.P. 26,748 40,423 48,249
Enex Oil & Gas Income Program III- Series 7, L.P. 22,271 34,385 40,737
Enex Oil & Gas Income Program III- Series 8, L.P. 20,074 31,567 37,002
Enex Oil & Gas Income Program IV- Series 1, L.P. 15,374 20,738 24,853
Enex Oil & Gas Income Program IV- Series 2, L.P. 13,018 17,560 20,858
Enex Oil & Gas Income Program IV- Series 4, L.P. 12,076 16,284 19,208
Enex Oil & Gas Income Program IV- Series 5, L.P. 12,154 16,483 19,427
Enex Oil & Gas Income Program IV- Series 6, L.P. 12,860 16,306 17,256
Enex Oil & Gas Income Program IV- Series 7, L.P. 25,425 34,303 41,867
Enex Oil & Gas Income Program V- Series 1, L.P. 24,193 33,731 45,603
Enex Oil & Gas Income Program V- Series 2, L.P. 18,620 26,203 36,095
Enex Oil & Gas Income Program V- Series 3, L.P. 17,677 24,932 34,531
Enex Oil & Gas Income Program V- Series 4, L.P. 27,649 50,107 38,360
Enex Oil & Gas Income Program V- Series 5, L.P. 37,303 66,957 56,286
Enex Oil & Gas Income Program VI- Series 1, L.P. 16,090 21,338 52,890
Enex Income and Retirement Fund - Series 1, L.P. 17,174 24,601 30,608
Enex Income and Retirement Fund - Series 2, L.P. 18,978 27,037 33,690
Enex Income and Retirement Fund - Series 3, L.P. 19,606 27,885 34,731
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 7,123 9,047 9,733
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 7,280 9,315 9,992
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 9,713 11,536 10,776
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 8,932 12,551 18,022
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 14,020 21,513 29,721
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 26,269 25,359 19,714
</TABLE>
A-27
<PAGE>
<TABLE>
<CAPTION>
Table 18
Enex Oil & Gas Income Program I Partners, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- ------------ --------------
<S> <C> <C> <C> <C>
March 31, 1994 4,268.92 $ 154,652.88 $ 36.23
June 30, 1994 7382.54 $ 263,201.48 $ 35.65
September 30, 1994 742.00 $ 27,201.55 $ 36.66
December 31, 1994 8,605.56 $ 304,963.47 $ 35.44
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 1,038.64 $ 27,165.02 $ 26.15
September 30, 1995 326.28 $ 7,846.83 $ 24.05
December 31, 1995 401.77 $ 8,396.88 $ 20.90
March 31, 1996 75.96 $ 1,618.99 $ 21.31
June 30, 1996 1,436.81 $ 30,758.45 $ 21.41
September 30, 1996 837.55 $ 17,889.19 $ 21.36
December 31, 1996 289.84 $ 5,922.24 $ 20.43
Enex Oil and Gas Income Program II, Series 7, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- -------------------------------------- --------------
March 31, 1994 251.65 $ 11,792.62 $ 46.86
June 30, 1994 550.60 $ 25,956.16 $ 47.14
September 30, 1994 20.00 $ 859.17 $ 42.96
December 31, 1994 376.33 $ 15,411.21 $ 40.95
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 99.70 $ 4,798.44 $ 48.13
September 30, 1995 64.40 $ 3,149.36 $ 48.90
December 31, 1995 4.00 $ 199.23 $ 49.81
March 31, 1996 20.00 $ 881.12 $ 44.06
June 30, 1996 74.00 $ 6,125.42 $ 82.78
September 30, 1996 94.80 $ 7,592.09 $ 80.09
December 31, 1996 40.00 $ 3,131.88 $ 78.30
Enex Oil and Gas Income Program II, Series 8, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- --------------------------------------- --------------
March 31, 1994 127.35 $ 5,247.68 $ 41.21
June 30, 1994 299.74 $ 12,190.95 $ 40.67
September 30, 1994 2.90 $ 120.79 $ 41.65
December 31, 1994 223.95 $ 7,685.50 $ 34.32
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 111.22 $ 4,946.48 $ 44.47
September 30, 1995 54.45 $ 2,340.74 $ 42.99
December 31, 1995 5.26 $ 230.52 $ 43.83
March 31, 1996 6.44 $ 259.15 $ 40.24
June 30, 1996 133.64 $ 10,347.19 $ 77.43
September 30, 1996 55.99 $ 4,335.05 $ 77.43
December 31, 1996 10.92 $ 796.83 $ 72.97
A-28
<PAGE>
Table 18 (cont'd)
Enex Oil and Gas Income Program II, Series 9, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 16.07 $ 508.95 $ 31.67
June 30, 1994 106.96 $ 2,879.17 $ 26.92
September 30, 1994 2.50 $ 66.31 $ 26.52
December 31, 1994 51.22 $ 1,010.05 $ 19.72
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 7.66 $ 210.10 $ 27.43
September 30, 1995 97.81 $ 2,619.94 $ 26.79
December 31, 1995 9.27 $ 239.75 $ 25.86
March 31, 1996 2.58 $ 63.63 $ 24.66
June 30, 1996 41.07 $ 2,724.68 $ 66.34
September 30, 1996 53.47 $ 3,318.06 $ 62.05
December 31, 1996 1.03 $ 63.82 $ 61.96
Enex Oil and Gas Income Program II, Series 10, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 26.98 $ 1,070.27 $ 39.67
June 30, 1994 84.08 $ 2,532.63 $ 30.12
September 30, 1994 3.72 $ 108.33 $ 29.12
December 31, 1994 94.43 $ 2,170.92 $ 22.99
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 24.88 $ 764.27 $ 30.72
September 30, 1995 11.14 $ 372.82 $ 33.47
December 31, 1995 25.45 $ 776.60 $ 30.51
March 31, 1996 3.42 $ 104.52 $ 30.56
June 30, 1996 78.27 $ 5,593.97 $ 71.47
September 30, 1996 49.15 $ 3,422.78 $ 69.64
December 31, 1996 20.70 $ 1,312.17 $ 63.39
Enex Oil & Gas Income Program III Series 1, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 10.37 $ 11.96 $ 1.15
June 30, 1994 39.88 $ 0.00 $ 0.00
September 30, 1994 1.08 $ 0.00 $ 0.00
December 31, 1994 132.19 $ 0.00 $ 0.00
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 1.23 $ 0.00 $ 0.00
September 30, 1995 8.89 $ 0.00 $ 0.00
December 31, 1995 2.04 $ 0.00 $ 0.00
March 31, 1996 1.21 $ 0.00 $ 0.00
June 30, 1996 13.40 $ 68.13 $ 5.08
September 30, 1996 53.93 $ 250.21 $ 4.64
A-29
<PAGE>
Table 18 (cont'd)
December 31, 1996 1.02 $ 0.00 $ 0.00
Enex Oil and Gas Income Program III, Series 2, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ------------------------------ -------- --------------
March 31, 1994 10.22 $ 29.45 $ 2.88
June 30, 1994 131.42 $ 0.00 $ 0.00
September 30, 1994 1.72 $ 0.00 $ 0.00
December 31, 1994 151.00 $ 0.00 $ 0.00
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 64.49 $ 0.00 $ 0.00
September 30, 1995 34.18 $ 0.00 $ 0.00
December 31, 1995 1.97 $ 0.00 $ 0.00
March 31, 1996 1.34 $ 0.00 $ 0.00
June 30, 1996 72.35 $ 1,040.69 $ 14.38
September 30, 1996 44.58 $ 630.36 $ 14.14
December 31, 1996 27.41 $ 141.01 $ 5.14
Enex Oil and Gas Income Program III, Series 3, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 70.97 $ 2,312.05 $ 32.58
June 30, 1994 231.14 $ 7,399.00 $ 32.01
September 30, 1994 1.30 $ 42.84 $ 32.95
December 31, 1994 152.65 $ 4,061.63 $ 26.61
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 42.14 $ 1,276.38 $ 30.29
September 30, 1995 28.47 $ 868.25 $ 30.50
December 31, 1995 22.15 $ 612.25 $ 27.64
March 31, 1996 21.09 $ 546.73 $ 25.92
June 30, 1996 236.54 $ 15,450.49 $ 65.32
September 30, 1996 99.48 $ 5,381.07 $ 54.09
December 31, 1996 1.38 $ 74.99 $ 54.34
Enex Oil & Gas Income Program III Series 4, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 91.00 $ 2,488.76 $ 27.35
June 30, 1994 258.79 $ 6,963.34 $ 26.91
September 30, 1994 7.64 $ 212.18 $ 27.77
December 31, 1994 71.01 $ 1,668.06 $ 23.49
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 10.00 $ 34.30 $ 3.43
September 30, 1995 12.00 $ 41.16 $ 3.43
December 31, 1995 20.00 $ 68.60 $ 3.43
March 31, 1996 0 $ 0.00 $ 0.00
A-30
<PAGE>
Table 18 (cont'd)
June 30, 1996 256.38 $ 3,412.14 $ 13.31
September 30, 1996 65.00 $ 465.82 $ 7.17
December 31, 1996 0 $ 0.00 $ 0.00
Enex Oil & Gas Income Program III Series 5, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 77.52 $ 775.66 $ 10.01
June 30, 1994 326.50 $ 2,135.12 $ 6.54
September 30, 1994 45.55 $ 222.27 $ 4.88
December 31, 1994 194.90 $ 407.71 $ 2.09
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 63.16 $ 588.97 $ 9.33
September 30, 1995 41.07 $ 391.66 $ 9.54
December 31, 1995 55.66 $ 564.66 $ 10.14
March 31, 1996 21.00 $ 197.25 $ 9.39
June 30, 1996 123.32 $ 1,156.47 $ 9.38
September 30, 1996 83.24 $ 718.85 $ 8.64
December 31, 1996 18.11 $ 107.97 $ 5.96
Enex Oil and Gas Income Program III, Series 6, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 26.27 $ 850.04 $ 32.36
June 30, 1994 246.60 $ 7,277.62 $ 29.51
September 30, 1994 20.97 $ 583.98 $ 27.85
December 31, 1994 137.33 $ 3,005.15 $ 21.88
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 36.27 $ 735.63 $ 20.28
September 30, 1995 31.14 $ 621.75 $ 19.97
December 31, 1995 42.66 $ 819.90 $ 19.22
March 31, 1996 5.28 $ 102.79 $ 19.47
June 30, 1996 142.41 $ 3,849.02 $ 27.03
September 30, 1996 69.40 $ 1,866.69 $ 26.90
December 31, 1996 56.64 $ 1,160.92 $ 20.50
Enex Oil and Gas Income Program III, Series 7, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 31.92 $ 587.57 $ 18.41
June 30, 1994 149.72 $ 2,600.52 $ 17.37
September 30, 1994 21.59 $ 346.02 $ 16.03
December 31, 1994 17.04 $ 192.46 $ 11.29
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 1.68 $ 19.35 $ 11.52
September 30, 1995 9.28 $ 102.03 $ 10.99
December 31, 1995 12.15 $ 117.07 $ 9.64
A-31
<PAGE>
Table 18 (cont'd)
March 31, 1996 .90 $ 9.19 $ 10.21
June 30, 1996 77.04 $ 1,252.84 $ 16.26
September 30, 1996 40.67 $ 651.99 $ 16.03
December 31, 1996 2.29 $ 24.68 $ 10.78
Enex Oil and Gas Income Program III, Series 8, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 84.21 $ 3,381.67 $ 40.16
June 30, 1994 257.86 $ 10,295.83 $ 39.93
September 30, 1994 51.89 $ 1,999.30 $ 38.53
December 31, 1994 198.27 $ 6,634.69 $ 33.46
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 33.41 $ 638.04 $ 19.10
September 30, 1995 5.66 $ 116.20 $ 20.53
December 31, 1995 79.49 $ 1,517.01 $ 19.08
March 31, 1996 21.19 $ 405.15 $ 19.12
June 30, 1996 138.10 $ 2,341.17 $ 16.95
September 30, 1996 90.18 $ 1,413.27 $ 15.67
December 31, 1996 2.32 $ 28.05 $ 12.09
Enex Oil and Gas Income Program IV, Series 1, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 23.66 $ 1,358.45 $ 57.42
June 30, 1994 96.16 $ 5,292.83 $ 55.04
September 30, 1994 1.02 $ 54.44 $ 53.37
December 31, 1994 435.43 $ 20,127.15 $ 46.22
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 1.57 $ 11.48 $ 7.31
September 30, 1995 5.46 $ 39.11 $ 7.16
December 31, 1995 26.00 $ 177.70 $ 6.83
March 31, 1996 1.06 $ 7.79 $ 7.35
June 30, 1996 84.06 $ 973.07 $ 11.58
September 30, 1996 47.40 $ 438.52 $ 9.25
December 31, 1996 40.93 $ 256.22 $ 6.26
Enex Oil & Gas Income Program IV Series 2, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 21.09 $ 1,164.31 $ 55.21
June 30, 1994 145.69 $ 8,032.26 $ 55.13
September 30, 1994 7.45 $ 393.15 $ 52.77
December 31, 1994 173.89 $ 8,144.78 $ 46.84
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 41.35 $ 374.93 $ 9.07
September 30, 1995 7.98 $ 74.25 $ 9.30
A-32
<PAGE>
Table 18 (cont'd)
December 31, 1995 2.88 $ 28.03 $ 9.73
March 31, 1996 5.01 $ 46.01 $ 9.18
June 30, 1996 76.36 $ 969.74 $ 12.70
September 30, 1996 24.37 $ 310.02 $ 12.72
December 31, 1996 4.22 $ 37.57 $ 8.90
Enex Oil and Gas Income Program IV, Series 4, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ------------------------------- -------- --------------
March 31, 1994 71.22 $ 2,299.67 $ 32.29
June 30, 1994 48.71 $ 1,599.65 $ 32.84
September 30, 1994 .26 $ 9.71 $ 37.35
December 31, 1994 27.53 $ 754.66 $ 27.41
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 .39 $ 9.63 $ 24.69
September 30, 1995 2.46 $ 60.72 $ 24.68
December 31, 1995 1.73 $ 37.95 $ 21.94
March 31, 1996 .45 $ 9.95 $ 22.11
June 30, 1996 21.83 $ 722.05 $ 33.08
September 30, 1996 8.03 $ 261.99 $ 32.63
December 31, 1996 0 $ 0.00 $ 0.00
Enex Oil and Gas Income Program IV, Series 5, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 60.39 $ 1,979.54 $ 32.78
June 30, 1994 110.06 $ 3,550.48 $ 32.26
September 30, 1994 .33 $ 7.79 $ 23.61
December 31, 1994 20.92 $ 525.27 $ 25.11
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 1.20 $ 37.65 $ 31.38
September 30, 1995 3.19 $ 100.23 $ 31.42
December 31, 1995 .94 $ 25.61 $ 27.24
March 31, 1996 21.47 $ 551.94 $ 25.71
June 30, 1996 20.21 $ 1,086.02 $ 53.74
September 30, 1996 78.78 $ 2,228.23 $ 28.28
December 31, 1996 0 $ 0.00 $ 0.00
Enex Oil & Gas Income Program IV Series 6, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 2.56 $ 36.83 $ 14.39
June 30, 1994 85.37 $ 1,135.03 $ 13.30
September 30, 1994 .22 $ 4.40 $ 20.00
December 31, 1994 10.43 $ 68.92 $ 6.61
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 1.82 $ 26.21 $ 14.40
A-33
<PAGE>
Table 18 (cont'd)
September 30, 1995 2.54 $ 36.05 $ 14.19
December 31, 1995 1.88 $ 22.67 $ 12.06
March 31, 1996 .33 $ 3.50 $ 10.61
June 30, 1996 8.72 $ 301.12 $ 34.53
September 30, 1996 8.86 $ 293.45 $ 33.12
December 31, 1996 0 $ 0.00 $ 0.00
Enex Oil & Gas Income Program IV Series 7, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 45.90 $ 4,003.56 $ 87.22
June 30, 1994 166.42 $ 14,285.94 $ 85.84
September 30, 1994 .36 $ 29.20 $ 81.11
December 31, 1994 76.79 $ 6,005.34 $ 78.20
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 51.18 $ 1,982.60 $ 38.74
September 30, 1995 2.70 $ 112.02 $ 41.49
December 31, 1995 81.75 $ 3,025.85 $ 37.01
March 31, 1996 1.37 $ 50.06 $ 36.54
June 30, 1996 7.58 $ 452.00 $ 59.63
September 30, 1996 19.19 $ 1,089.14 $ 56.76
December 31, 1996 .32 $ 16.73 $ 52.28
Enex Oil and Gas Income Program V, Series 1, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 1.94 $ 216.86 $ 111.78
June 30, 1994 10.17 $ 1,077.96 $ 105.99
September 30, 1994 0 $ 0.00 $ 0.00
December 31, 1994 296.80 $ 28,762.89 $ 96.91
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 0 $ 0.00 $ 0.00
September 30, 1995 38.02 $ 1,693.44 $ 44.54
December 31, 1995 7.46 $ 333.84 $ 44.75
March 31, 1996 1.14 $ 52.41 $ 45.97
June 30, 1996 29.44 $ 1,817.51 $ 61.74
September 30, 1996 9.05 $ 520.94 $ 57.56
December 31, 1996 0 $ 0.00 $ 0.00
Enex Oil and Gas Income Program V, Series 2, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 2.13 $ 235.16 $ 110.40
June 30, 1994 14.59 $ 1,616.58 $ 110.80
September 30, 1994 0 $ 0.00 $ 0.00
December 31, 1994 10.49 $ 1,032.81 $ 98.46
March 31, 1995 0 $ 0.00 $ 0.00
A-34
<PAGE>
Table 18 (cont'd)
June 30, 1995 1.06 $ 30.47 $ 28.75
September 30, 1995 2.84 $ 80.92 $ 28.49
December 31, 1995 11.20 $ 287.86 $ 25.70
March 31, 1996 .92 $ 24.16 $ 26.26
June 30, 1996 17.16 $ 618.87 $ 36.06
September 30, 1996 22.11 $ 776.41 $ 35.12
December 31, 1996 0 $ 0.00 $ 0.00
Enex Oil and Gas Income Program V, Series 3, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 24.84 $ 3,161.28 $ 127.27
June 30, 1994 17.59 $ 2,505.26 $ 142.43
September 30, 1994 0 $ 0.00 $ 0.00
December 31, 1994 12.81 $ 1,702.29 $ 132.89
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 1.20 $ 62.21 $ 51.84
September 30, 1995 5.13 $ 265.58 $ 51.77
December 31, 1995 2.01 $ 101.08 $ 50.29
March 31, 1996 1.14 $ 55.72 $ 48.88
June 30, 1996 11.72 $ 807.44 $ 68.89
September 30, 1996 9.82 $ 636.90 $ 64.86
December 31, 1996 0 $ 0.00 $ 0.00
Enex Oil and Gas Income Program V, Series 4 L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 10.31 $ 3,680.90 $ 357.02
June 30, 1994 3.82 $ 866.79 $ 226.91
September 30, 1994 70.67 $ 14,149.45 $ 200.22
December 31, 1994 2.42 $ 485.39 $ 200.57
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 .33 $ 83.76 $ 253.82
September 30, 1995 41.63 $ 9,207.61 $ 221.18
December 31, 1995 5.35 $ 1,132.43 $ 211.67
March 31, 1996 .40 $ 86.42 $ 216.05
June 30, 1996 28.16 $ 8,250.32 $ 292.98
September 30, 1996 62.75 $ 15,779.69 $ 251.47
December 31, 1996 0 $ 0.00 $ 0.00
Enex Oil & Gas Income Program V Series 5, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 4.38 $ 925.30 $ 211.26
June 30, 1994 10.60 $ 2,102.81 $ 198.38
September 30, 1994 1.25 $ 228.92 $ 183.14
December 31, 1994 5.81 $ 947.87 $ 163.14
A-35
<PAGE>
Table 18 (cont'd)
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 .99 $ 225.72 $ 228.00
September 30, 1995 1.04 $ 232.28 $ 223.25
December 31, 1995 .67 $ 137.76 $ 205.61
March 31, 1996 .42 $ 195.96 $ 466.57
June 30, 1996 8.24 $ 2,297.83 $ 278.86
September 30, 1996 18.83 $ 4,949.74 $ 262.86
December 31, 1996 0 $ 0.00 $ 0.00
Enex Oil and Gas Income Program VI, Series 1, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 0 $ 0.00 $ 0.00
June 30, 1994 4.82 $ 2,183.13 $ 452.93
September 30, 1994 2.13 $ 933.88 $ 438.44
December 31, 1994 9.39 $ 4,105.11 $ 437.18
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 .31 $ 57.65 $ 185.97
September 30, 1995 0 $ 0.00 $ 0.00
December 31, 1995 1.83 $ 335.55 $ 183.36
March 31, 1996 3.41 $ 622.51 $ 182.55
June 30, 1996 12.05 $ 2,538.39 $ 210.65
September 30, 1996 8.47 $ 1,684.66 $ 198.90
December 31, 1996 .31 $ 56.14 $ 181.10
Enex Income and Retirement Fund, Series 1, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 30.00 $ 1,561.57 $ 52.05
June 30, 1994 64.00 $ 3,314.19 $ 51.78
September 30, 1994 0 $ 0.00 $ 0.00
December 31, 1994 12.00 $ 2,226.00 $ 185.50
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 0 $ 0.00 $ 0.00
September 30, 1995 0 $ 0.00 $ 0.00
December 31, 1995 40.00 $ 0.00 $ 0.00
March 31, 1996 5.00 $ 0.00 $ 0.00
June 30, 1996 79.00 $ 3,495.03 $ 44.24
September 30, 1996 10.00 $ 262.44 $ 26.24
December 31, 1996 9.06 $ 239.56 $ 26.44
Enex Income and Retirement Fund Series 2, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 170.00 $ 22,157.91 $ 130.34
June 30, 1994 56.00 $ 7,868.15 $ 140.50
September 30, 1994 0 $ 0.00 $ 0.00
A-36
<PAGE>
Table 18 (cont'd)
December 31, 1994 90.00 $ 10,643.42 $ 118.26
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 28.00 $ 1,381.64 $ 49.34
September 30, 1995 200.00 $ 9,868.76 $ 49.34
December 31, 1995 0 $ 0.00 $ 0.00
March 31, 1996 0 $ 0.00 $ 0.00
June 30, 1996 85.60 $ 7,725.68 $ 90.25
September 30, 1996 129.35 $ 11,674.61 $ 90.26
December 31, 1996 10.00 $ 656.77 $ 65.68
Enex Income and Retirement Fund Series 3, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 27.17 $ 2,710.22 $ 99.75
June 30, 1994 177.29 $ 17,618.03 $ 99.37
September 30, 1994 0 $ 0.00 $ 0.00
December 31, 1994 88.00 $ 6923.61 $ 78.68
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 0 $ 0.00 $ 0.00
September 30, 1995 0 $ 0.00 $ 0.00
December 31, 1995 43.55 $ 981.98 $ 22.55
March 31, 1996 .12 $ 2.93 $ 24.42
June 30, 1996 34.24 $ 1,478.41 $ 43.18
September 30, 1996 20.24 $ 871.15 $ 43.04
December 31, 1996 16.12 $ 502.38 $ 31.17
Enex 88-89 Income and Retirement Fund , Series 5, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 0 $ 0.00 $ 0.00
June 30, 1994 20.71 $ 244.81 $ 11.82
September 30, 1994 0 $ 0.00 $ 0.00
December 31, 1994 25.00 $ 476.81 $ 19.07
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 0 $ 0.00 $ 0.00
September 30, 1995 0 $ 0.00 $ 0.00
December 31, 1995 0 $ 0.00 $ 0.00
March 31, 1996 .47 $ 1.60 $ 3.40
June 30, 1996 1.34 $ 33.97 $ 25.35
September 30, 1996 27.26 $ 616.83 $ 22.63
December 31, 1996 0 $ 0.00 $ 0.00
Enex 88-89 Income and Retirement Fund, Series 6, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 60.00 $ 1,276.01 $ 21.27
June 30, 1994 6.33 $ 136.83 $ 21.62
A-37
<PAGE>
Table 18 (cont'd)
September 30, 1994 0 $ 0.00 $ 0.00
December 31, 1994 16.00 $ 221.67 $ 13.85
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 0 $ 0.00 $ 0.00
September 30, 1995 5.22 $ 21.05 $ 4.03
December 31, 1995 0 $ 0.00 $ 0.00
March 31, 1996 42.97 $ 172.68 $ 4.02
June 30, 1996 77.37 $ 2,067.73 $ 26.73
September 30, 1996 17.30 $ 460.84 $ 26.64
December 31, 1996 0 $ 0.00 $ 0.00
Enex 88-89 Income and Retirement Fund, Series 7, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 0 $ 0.00 $ 0.00
June 30, 1994 183.85 $ 19,470.89 $ 105.91
September 30, 1994 0 $ 0.00 $ 0.00
December 31, 1994 6.11 $ 551.68 $ 90.29
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 10.00 $ 782.81 $ 78.28
September 30, 1995 .15 $ 12.51 $ 83.40
December 31, 1995 40.00 $ 2,883.37 $ 72.08
March 31, 1996 .40 $ 30.36 $ 75.90
June 30, 1996 5.34 $ 556.01 $ 104.12
September 30, 1996 15.25 $ 1,539.43 $ 100.95
December 31, 1996 11.00 $ 951.04 $ 86.46
Enex 90-91 Income and Retirement Fund, Series 1, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 35.00 $ 4,900.21 $ 140.01
June 30, 1994 126.80 $ 17,780.57 $ 140.23
September 30, 1994 0 $ 0.00 $ 0.00
December 31, 1994 100.00 $ 11,933.30 $ 119.33
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 42.00 $ 3,986.72 $ 94.92
September 30, 1995 .19 $ 19.92 $ 104.84
December 31, 1995 20.00 $ 1,797.50 $ 89.88
March 31, 1996 .52 $ 48.31 $ 92.90
June 30, 1996 12.70 $ 1,597.99 $ 125.83
September 30, 1996 12.48 $ 1,555.15 $ 124.61
December 31, 1996 90.00 $ 9,481.61 $ 105.35
Enex 90-91 Income and Retirement Fund Series 2, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 0 $ 0.00 $ 0.00
A-38
<PAGE>
Table 18 (cont'd)
June 30, 1994 22.29 $ 3,067.02 $ 137.60
September 30, 1994 0 $ 0.00 $ 0.00
December 31, 1994 .40 $ 52.75 $ 131.88
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 0 $ 0.00 $ 0.00
September 30, 1995 5.24 $ 240.48 $ 45.89
December 31, 1995 0 $ 0.00 $ 0.00
March 31, 1996 0 $ 0.00 $ 0.00
June 30, 1996 2.76 $ 179.20 $ 64.93
September 30, 1996 2.91 $ 181.13 $ 62.24
December 31, 1996 .30 $ 16.52 $ 55.07
Enex 90-91 Income and Retirement Fund, Series 3, L.P.
Units of Aggregate
Limited Partnership Amount Purchase
Quarter Ending Interests Paid Price/Unit (1)
-------------- ----------------------- -------- --------------
March 31, 1994 0 $ 0.00 $ 0.00
June 30, 1994 7.54 $ 1,029.19 $ 136.50
September 30, 1994 0 $ 0.00 $ 0.00
December 31, 1994 4.31 $ 503.75 $ 116.88
March 31, 1995 0 $ 0.00 $ 0.00
June 30, 1995 0 $ 0.00 $ 0.00
September 30, 1995 .19 $ 49.85 $ 262.37
December 31, 1995 20.00 $ 4,558.92 $ 227.95
March 31, 1996 0 $ 0.00 $ 0.00
June 30, 1996 1.35 $ 358.23 $ 265.36
September 30, 1996 1.95 $ 501.93 $ 257.40
December 31, 1996 30.00 $ 5,773.92 $ 192.46
</TABLE>
(1) All purchases during a given quarter were at the same price per unit.
A-39
<PAGE>
<TABLE>
<CAPTION>
TABLE 19
Dissenters' Valuations per $500 Interest
If Oil and Gas Prices Increase by:
----------------------------------
Partnership 10% (1)(2) 20% (1) 30% (1)
<S> <C> <C> <C>
Enex Program I Partners, L.P. $20.91 $22.89 $24.87
Enex Oil & Gas Income Program II-7, L.P. 99.04 107.55 116.05
Enex Oil & Gas Income Program II-8, L.P. 102.65 112.49 122.34
Enex Oil & Gas Income Program II-9, L.P. 91.66 102.74 113.81
Enex Oil & Gas Income Program II-10, L.P. 98.69 109.77 120.86
Enex Oil & Gas Income Program III- Series 1, L.P. 16.66 25.46 34.26
Enex Oil & Gas Income Program III- Series 2, L.P. 26.26 35.05 43.84
Enex Oil & Gas Income Program III- Series 3, L.P. 79.73 88.61 97.50
Enex Oil & Gas Income Program III- Series 4, L.P. 18.17 22.45 26.72
Enex Oil & Gas Income Program III- Series 5, L.P. 7.73 9.58 11.43
Enex Oil & Gas Income Program III- Series 6, L.P. 24.07 27.73 31.39
Enex Oil & Gas Income Program III- Series 7, L.P. 12.42 15.98 19.53
Enex Oil & Gas Income Program III- Series 8, L.P. 13.10 15.79 18.47
Enex Oil & Gas Income Program IV- Series 1, L.P. 8.19 10.11 12.02
Enex Oil & Gas Income Program IV- Series 2, L.P. 11.79 13.55 15.31
Enex Oil & Gas Income Program IV- Series 4, L.P. 40.74 46.75 52.75
Enex Oil & Gas Income Program IV- Series 5, L.P. 53.83 58.13 62.42
Enex Oil & Gas Income Program IV- Series 6, L.P. 33.16 36.11 39.06
Enex Oil & Gas Income Program IV- Series 7, L.P. 47.39 51.97 56.55
Enex Oil & Gas Income Program V- Series 1, L.P. 52.00 57.06 62.13
Enex Oil & Gas Income Program V- Series 2, L.P. 30.94 36.46 41.97
Enex Oil & Gas Income Program V- Series 3, L.P. 62.18 69.85 77.51
Enex Oil & Gas Income Program V- Series 4, L.P. 297.91 324.44 350.97
Enex Oil & Gas Income Program V- Series 5, L.P. 241.52 265.34 289.16
Enex Oil & Gas Income Program VI- Series 1, L.P. 196.00 219.41 242.81
Enex Income and Retirement Fund - Series 1, L.P. 45.04 53.06 61.07
Enex Income and Retirement Fund - Series 2, L.P. 102.90 111.47 120.03
Enex Income and Retirement Fund - Series 3, L.P. 47.20 52.25 57.30
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 22.23 25.36 28.50
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 25.50 30.56 35.62
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 110.69 120.51 130.34
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 135.57 147.97 160.38
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 65.39 73.01 80.64
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 274.26 297.17 320.08
</TABLE>
1) Represents the percentage increase from the prices used by H.J. Gruy and
Associates. See "The Proposed Consolidation - Method of Determining
Exchange Values". The percentage increases were based on historical ranges
of oil and gas prices over the previous two year period.
2) Dissenters' value as of on March 15, 1997.
A-40
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-35
ARTICLE 11-- Dissolution, Liquidation and Termination of the Partnership............. B-38
ARTICLE 12-- Right of the General Partner to Conduct Similar Operations.............. B-41
ARTICLE 13-- Amendments.............................................................. B-41
ARTICLE 14-- Miscellaneous Provisions................................................ B-43
</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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"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.
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<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 produced by
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<PAGE>
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 developed producing reserves, which are expected to be produced from one
or more existing completion zones now open for
94917_1
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<PAGE>
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.
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
94917_1
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<PAGE>
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, however, be mortgaged,
encumbered or assigned to secure payment of loans used to purchase property
94917_1
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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 may 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 the operation of a limited partnership in all other jurisdictions where
the Partnership shall conduct business.
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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 3.03% to the General Partner and 96.97%
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 canceled 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
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to be allocated so much more of each of those items as will cause it to be
allocated at all times 1% of 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; expenditures
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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
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compensation for services, and, as a result of such determination, is required
to recognize 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.
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(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
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, within
90 days after the completion of the Consolidation and within 120 days after the
end of each calendar year thereafter, the General Partner will evaluate Units as
of the preceding December 31 and mail a notice setting forth a purchase price
for the Units, 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 General Partner for purchase
provided, however, that the initial mailing will be sent to all Limited
Partners. 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. 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 General Partner 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 General Partner 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:
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(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;
(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 General Partner'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 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
General Partner, 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 General Partner'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
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Partnership or is reflected in an agreement between the Internal Revenue Service
and the Partnership, 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.
(c) The General Partner will furnish the Unitholders with, and
concurrently therewith file with the Office of the Commissioner of Corporations
of the State of California, annual and semi-annual reports meeting the
requirements of Section 260.140.128.3 of Title 10 of the California Code of
Regulations.
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
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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 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
FOR CALIFORNIA INVESTORS ONLY: "IT IS UNLAWFUL TO CONSUMMATE A SALE
OR TRANSFER OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE
ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE
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COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS
PERMITTED IN THE COMMISSIONER'S RULES."
(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 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
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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.
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
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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.
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 ; (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
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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.
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 interests 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, such purchase occurs prior to the
first determination of a purchase price pursuant to Article 6, at a price equal
to the "exchange value" of such Units in the Consolidation, 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
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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) 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 participation 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
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or such affiliate is engaged, independently of the Partnership and as an
ordinary and 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
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proceeding was brought shall determine upon application that despite
the adjudication of 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 substitution as
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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 of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
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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
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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;
(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
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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 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.
94917_1
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(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 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 canceled and the
assets of the Partnership have been distributed as provided in Section 11.2.
94917_1
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(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.
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.
94917_1
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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.
94917_1
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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.
94917_1
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<PAGE>
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.
94917_1
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<PAGE>
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.
94917_1
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<PAGE>
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
94917_1
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<PAGE>
OATHS AND ACKNOWLEDGMENTS
}
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:
94917_1
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<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:
94917_1
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<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 Table A in the Prospectus/Proxy
Statement under "THE PROPOSED CONSOLIDATION - 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 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 approve both the Consolidation and the related
Partnership Agreement amendments.
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 the 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 B - 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 (i) to each limited partner of each of
the Participating Partnerships (including the General Partner with
respect to its ownership of Interests) of a number of Units equal to
such limited partner's ratable share of the Units received by such
Partnership of which he is a limited partner in exchange for such
limited partner's Interests in such Participating Partnership and
(ii) to the General Partner of a number of Units equal to the number
of Units received by each Participating Partnership in exchange for
the cancellation of such Participating Partnership's indebtedness to
the General Partner, as described in the Prospectus/Proxy Statement
under "THE PROPOSED CONSOLIDATION--Method of Determining Exchange
Values--Indebtedness to the General 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.
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<PAGE>
The General Partner, upon the adoption of this Plan, subject to its
fiduciary duty and obligations 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 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.
180356_1
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<PAGE>
EXHIBIT I to APPENDIX C
CONSOLIDATION AGREEMENT
THIS AGREEMENT dated as of , 1997 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
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 , 1997 (the "Prospectus/Proxy
Statement").
The General Partner has submitted to the limited partners of each of
the Participating Partnerships for their approval a proposal to adopt the Plan
of Consolidation (the "Plan") to which this Agreement is annexed as an Exhibit
and a proposal to amend their certificates and agreements of limited
partnership, as set forth in Appendix D to the Prospectus/Proxy Statement (the
"Amendments").
Pursuant to the Plan, which, together with the Amendments, 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
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
180356_1
C-I-1
<PAGE>
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 Consolidated
Partnership's costs and revenues 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
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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 Consolidation may demand cash in
lieu of Units in an amount equal to the exchange value of such limited partner's
Interests (subject to adjustment as described in the Prospectus/Proxy Statement
under "THE PROPOSED CONSOLIDATION--Terms of the Consolidation--Dissenters'
Rights") pursuant to the following terms and conditions. Failure to take any
action required below will result in a termination or waiver of a limited
partner's 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 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.
3. On or about the twentieth (20th) day prior to the date of
the Meetings, the General Partner will adjust the amounts to be paid
to dissenting limited partners and send a notice to each limited
partner of the amount per $500 limited partnership interest that
will be paid to dissenting limited partners of each Partnership who
perfect their dissenter's rights in accordance with the terms and
conditions set forth in this section, together with a new Proxy and
Ballot for limited partners who wish to change their vote and elect
to exercise these rights. Limited partners wishing to change their
vote with respect to the Consolidation and exercise their
dissenter's rights must submit a Dissenter's Notice and a revised
Proxy and Ballot to the General Partner before the limited partners
vote on the Plan of Consolidation at the Meetings. The address for
this purpose is 800 Rockmead Drive, Three Kingwood Place, Kingwood,
Texas 77339.
4. Within thirty (30) days after the effective date of the
Consolidation (the "Effective Date"), 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.
5. 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. 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
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ACTION TO PERFECT THEIR DISSENTERS' RIGHTS WITHIN THE TIME PERIODS
PROVIDED FOR ABOVE.
6. 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 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).
The General Partner determined to provide dissenters' rights in
order to give limited partners of participating Partnerships who do not wish to
participate in the Consolidation the opportunity to receive the exchange value
of their interests in cash instead of Units.
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
September 30, 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 nine month periods ended September 30,
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
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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 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.
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 and the proposed amendments to
each Partnership's certificate and agreement of limited partnership
described in Appendix D to the Prospectus/Proxy Statement are
approved by limited partners of 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 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; and
e. 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 one or more of the Partnerships that approve the Consolidation
suffer a materially adverse development, 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 suffer a materially
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adverse development 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 have been revised to give effect to the changed
circumstances. If the exchange value of any Partnership determined at the time
of transfer has decreased by less than 15% from the exchange value set forth
herein, such decrease will not be deemed material. Conversely, any decrease 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 impracticable or inadvisable by
pending or threatened legal action challenging or seeking to prevent the
consummation of the Consolidation, 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
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 designated by the General Partner. 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.
180356_1
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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:
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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:
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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:
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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:
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EXHIBIT I-A to APPENDIX C
ASSUMPTION AND INDEMNIFICATION AGREEMENT
THIS AGREEMENT dated as of , 1997, 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
, 1997 (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:
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ENEX PROGRAM I PARTNERS, L.P. ENEX OIL & GAS INCOME PROGRAM II-7, L.P.
By: ENEX RESOURCES CORPORATION By: EX 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:
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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:
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<PAGE>
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 AND GAS INCOME PROGRAM V - ENEX OIL AND 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:
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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:
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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 "THE PROPOSED CONSOLIDATION--Partnerships Subject to the
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 ,
1997 (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 [2.3 or 2.4 (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 C in 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
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.
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(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.
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ENEX OIL & GAS INCOME PROGRAM V - Series 1, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS AND EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and
the General Partner (including future compensation) 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 and
because of its ability to determine its compensation and
the amount it must pay to limited partners who exercise
their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining
how to allocate costs and benefits among the Partnerships,
and, with respect to the total mix of consideration and
future compensation, between the limited partners and the
General Partner.
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 General Partner has not retained unaffiliated
representatives to act on the limited partners' behalf to
negotiate the terms of the Consolidation. As a result,
limited partners may receive less consideration than they
might have had an independent representative been
appointed or if their Partnership's assets were sold to an
unaffiliated party in an arms-length transaction.
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.
o 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.
o The Articles governing the Consolidated Partnership do not
require that during the sixth year after commencement of
operations and at least every two years thereafter, the
General Partner will submit
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a proposal to sell all of the Partnership's properties and
to dissolve and liquidate to a vote of the limited
partners.
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflict of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future
Management of the Consolidated Partnership. The General Partner's interest in
each separate Partnership's revenues, if any, 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. 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
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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. Delaware courts,
which are often looked to for guidance on undecided corporate issues, have in
several cases involving corporations held that fully informed stockholder
approval of a transaction may, in certain circumstances, serve to extinguish
certain related fiduciary claims against directors.
Risks of Decreases in Distributions. Although the General
Partner's cash distribution policies will not change following the
Consolidation, the General Partner estimates that the limited partners of the
Subject Partnership will have distributions of approximately $12.30 per $500
Interest in the next four quarters after the Consolidation if the maximum number
of Partnerships participate and $11.19 per $500 Interest if the minimum number
of Partnerships participate versus $18.00 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The minimum number of
Partnerships include the Subject Partnership and 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. See Tables F, G-1 and G-2 in the
Prospectus/Proxy Statement. Distributions were estimated for the next four
quarters upon Consolidation by aggregating the future net revenues estimated by
Gruy for all of the Partnerships which participate. Estimated general and
administrative costs were subtracted from this amount and the net amount was
allocated to the Subject Partnership based upon its pro rata share of the
aggregate exchange value. Distributions in the absence of the Consolidation were
estimated for the next four quarters by subtracting estimated general and
administrative costs and debt repayment from Gruy's estimate of the Subject
Partnership's future net revenues. 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
longer-lived properties with greater cumulative cash flow and distributions than
the Subject Partnership would have if it does not participate in the
Consolidation.
Risk of Taxable Income In Excess of Cash Distributions.
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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 87.96% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own 1.24% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and 1.78%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (12.044% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
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Changes From Partnership Agreement. While the Partnership
Agreement of the Subject Partnership requires that during the sixth year after
commencement of operations and at least every two years thereafter, the General
Partner will submit a proposal to sell all of the Subject Partnership's
properties and to dissolve and liquidate to a vote of the limited partners, the
Articles governing the Consolidated Partnership provide a right of presentment
instead of such requirement. See "Differences in Rights and Responsibilities,"
below.
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $41,453 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 by $12,949
($0 if the minimum number of partnerships participate) per year as a result of
simplified managerial and administrative requirements. The Subject Partnership's
share of the costs of the Consolidation will be approximately $6,095.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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
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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.
Elimination of Certain 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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The
General Partner considered the alternatives of liquidating the Subject
Partnership and continuing the Subject Partnership, 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
Subject 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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $12,949 if all of the Partnerships participate ($0 if only the minimum number
of Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation. The estimates of general and administrative costs savings set
forth in Table E and elsewhere in the Prospectus/Proxy Statement constitute
forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($212,562) with the Subject
Partnership's going concern value ($184,141). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern basis. The
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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 (i)
participation in the Consolidated Partnership, whether by the participation of a
Partnership in the Consolidation or by the participation of a limited partner
through the Exchange Offer, and without regard to the identity of the other
participating Partnerships and limited partners, would be more beneficial to the
limited partners than continuing in their Partnerships, and (ii) maximum
participation in the Consolidation would provide 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 AND THE EXCHANGE
OFFER--Background of the Consolidation and the Exchange Offer" and "--Fairness
of the Transaction" in the Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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 Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 12.04% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership
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whose Partnership Agreement contained a similar restriction (i.e., the
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
the Subject Partnership, but only to the extent such Interests were acquired
within two years from the date of the Subject Partnership's commencement of
operations. The same restriction applies in the case of the other Partnerships
formed in Enex Oil & Gas Income Programs V and VI and in Enex 90-91 Income and
Retirement Fund. The General Partner holds Interests with respect to which its
voting rights are restricted in this way totaling 12.0439% of the Subject
Partnership's outstanding Interests. In total, the General Partner owns 1.85% of
such outstanding Interests.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $25,869 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Subject
Partnership and the other Partnerships formed in Enex Oil & Gas Income Program V
equal to twice) their subscriptions to the Partnership, the General Partner's
net revenue sharing percentage will increase to 15%. Although the General
Partner's share of revenues is not likely to experience this increase in the
foreseeable future, the General Partner will forego this potential increase in
its share of net revenues with respect to each participating Partnership. See
"THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
The Partnership Agreement of the Subject Partnership provides that during the
sixth year after the commencement of operations and at least every two years
thereafter, the General Partner will submit a proposal to sell all of the
Subject Partnership's properties and to dissolve and liquidate to a vote of the
limited partners. 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, the Articles do
give the Consolidated Partnership's limited partners the annual right to present
their Interests for purchase at prices that, in the General Partner's opinion,
will closely approximate the estimated fair market values of Partnership
properties as determined by Gruy (which are intended to be an approximation of
the prices for which Partnership properties could be sold). In the General
Partner's view, the limited partners of the Subject Partnership 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
the Subject Partnership. See "THE CONSOLIDATED PARTNERSHIP--Right of
Presentment" in the Prospectus/Proxy Statement.
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
7
<PAGE>
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 September 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 $21,797
FEC 207,726
------------
Subtotal - Property 229,523
Cash & cash equivalents 11,061
Accounts receivable 56,202
Other current assets 4,186
------------
Subtotal - assets 300,972
Less:
Liabilities to third parties 37,914
------------
Partnership Exchange Value 263,058 23,718
Less:
Liability to General Partner - -
General Partner Capital Balance 24,627 2,463
Attributable to GP's revenue interest (2) 25,869
------------ ------------------
Exchange value attributable
to Limited Partners $212,562 21,256
============ ==================
Exchange value per $500
Interest $46.93 4.69
============ ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.57%
==================
</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 1, L.P.
---------------------------------------------------------------
HISTORICAL Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $26,881 $37,479 $50,670 $46,554
Net debt repaid to GP - 68,520 (27,838) 7,992
Cash distributions paid to GP as GP 5,111 1,858 8,238 21,138
Cash distributions paid to GP as LP 3,803 1,710 2,579 5,392
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $13,681 $19,265 $29,734 $24,472
Cash distributions paid to GP as GP (1) 7,123 6,035 4,660 6,684
Cash distributions paid to GP as LP (2) 13,564 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $33,264 $16,710 $74,158 $190,292 $236,671 $235,700
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $53,370 $53,936
Cash Distributions (5) $39,168 $44,924
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would have
been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and
the General Partner (including future compensation) 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 and
because of its ability to determine its compensation and
the amount it must pay to limited partners who exercise
their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining
how to allocate costs and benefits among the Partnerships,
and, with respect to the total mix of consideration and
future compensation, between the limited partners and the
General Partner.
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 General Partner has not retained unaffiliated
representatives to act on the limited partners' behalf to
negotiate the terms of the Consolidation. As a result,
limited partners may receive less consideration than they
might have had an independent representative been
appointed or if their Partnership's assets were sold to an
unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated
Partnership's operations will be subject to
conflicts of interest.
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.
o The Articles governing the Consolidated Partnership do not
require that during the sixth year after commencement of
operations and at least every two years thereafter, the
General Partner will submit
1
<PAGE>
a proposal to sell all of the Partnership's properties
and to dissolve and liquidate to a vote of the limited
partners.
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future
Management of the Consolidated Partnership. The General Partner's interest in
each separate Partnership's revenues, if any, 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. 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
2
<PAGE>
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. Delaware courts,
which are often looked to for guidance on undecided corporate issues, have in
several cases involving corporations held that fully informed stockholder
approval of a transaction may, in certain circumstances, serve to extinguish
certain related fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions.
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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 93.40% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .47% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .68%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (6.60% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. 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 the Partnership's property
holdings in the larger Consolidated Partnership may reduce the possibility for
extraordinary increases in value in the Subject Partnership. 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 participate in the Consolidation and
upon participation in the Exchange Offer by limited partners.
Changes From Partnership Agreement. While the Partnership
Agreement of the Subject Partnership requires that during the sixth year after
commencement of operations and at least every two years thereafter, the General
Partner will submit a proposal to sell all of the Subject Partnership's
properties and to dissolve and liquidate to a vote
3
<PAGE>
of the limited partners, the Articles governing the Consolidated Partnership
provide a right of presentment instead of such requirement. See "Differences in
Rights and Responsibilities," below.
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $33,391 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 by $9,001
($7,210 if the minimum number of partnerships participate) per year as a result
of simplified managerial and administrative requirements. The Subject
Partnership's share of the costs of the Consolidation will be approximately
$4,236.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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
4
<PAGE>
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 September 30, 1996 the Subject
Partnership owed the General Partner $83,399. If the Subject Partnership
participates in the Consolidation, the General Partner will contribute this
receivable for Units in the Consolidated Partnership. The General Partner will
be doing the same thing for every participating Partnership that is indebted to
the General Partner. 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 AND THE EXCHANGE OFFER--Method of Determining Exchange
Values--Indebtedness to the General Partner" in the Prospectus/Proxy Statement,
and each limited partner will receive a smaller proportionate interest in the
Consolidated Partnership than such partner would have received in the
Consolidation absent such conversion of debt for Units by the General Partner.
Elimination of Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $6.80 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$5.96 per $500 Interest if the minimum number of Partnerships participate versus
$5.72 per $500 Interest if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The
General Partner considered the alternatives of liquidating the Subject
Partnership and continuing the Subject Partnership, 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
Subject 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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than
5
<PAGE>
the net present value of the discounted anticipated cash flows of a property's
proved oil and gas reserves. In addition, the General Partner is owed $83,399 by
the Subject Partnership. In a liquidation, 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 Subject Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $9,001 if all of the Partnerships participate ($7,120 if only the minimum
number of Partnerships participate), which represents the General Partner's
estimate of the additional value to be received each year by the limited
partners through participation in the Consolidation as compared to the
alternative of continuation. The estimates of general and administrative costs
savings set forth in Table E and elsewhere in the Prospectus/Proxy Statement
constitute forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($75,567) with the Subject
Partnership's going concern value ($65,254). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on estimates of the discounted present value of the subject oil and gas
6
<PAGE>
reserves. Thus, in the General Partner's view, the Gruy estimated fair market
valuations, as compared to other valuation methods, represent the best
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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 Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 6.60% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the Subject Partnership, but only to
the extent such Interests were acquired within two years from the date of the
Subject Partnership's commencement of operations. The same restriction applies
in the case of the other Partnerships formed in Enex Oil & Gas Income Programs V
and VI and in Enex 90-91 Income and Retirement Fund. The General Partner holds
Interests with respect to which its voting rights are restricted in this way
totaling 6.6003% of the Subject Partnership's outstanding Interests. In total,
the General Partner owns 1.85% of such outstanding Interests.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $18,319 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% to the Unitholders
(including the General Partner with respect to the Units it owns). See "THE
CONSOLIDATED
7
<PAGE>
PARTNERSHIP--Participation in Costs and Revenues--General Cost and Revenue
Sharing Percentages" in the Prospectus/Proxy Statement.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Subject
Partnership and the other Partnerships formed in Enex Oil & Gas Income Program V
equal to twice) their subscriptions to the Partnership, the General Partner's
net revenue sharing percentage will increase to 15%. Although the General
Partner's share of revenues is not likely to experience this increase in the
foreseeable future, the General Partner will forego this potential increase in
its share of net revenues with respect to each participating Partnership. See
"THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
The Partnership Agreement of the Subject Partnership provides that during the
sixth year after the commencement of operations and at least every two years
thereafter, the General Partner will submit a proposal to sell all of the
Subject Partnership's properties and to dissolve and liquidate to a vote of the
limited partners. 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, the Articles do
give the Consolidated Partnership's limited partners the annual right to present
their Interests for purchase at prices that, in the General Partner's opinion,
will closely approximate the estimated fair market values of Partnership
properties as determined by Gruy (which are intended to be an approximation of
the prices for which Partnership properties could be sold). In the General
Partner's view, the limited partners of the Subject Partnership 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
the Subject Partnership. See "THE CONSOLIDATED PARTNERSHIP--Right of
Presentment" in the Prospectus/Proxy Statement.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 September 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 $163,992
Cash & cash equivalents 1,598
Accounts receivable 20,043
Other current assets 1,777
------------
Subtotal - assets 187,410
Less:
Liabilities to third parties 4,217
------------
Partnership Exchange Value 183,193 16,487
Less:
Liability to General Partner 83,399 8,340
General Partner Capital Balance 5,908 591
Attributable to GP's revenue interest (2) 18,319
------------ ------------------
Exchange value attributable
to Limited Partners $75,567 7,557
============ ==================
Exchange value per $500
Interest $25.42 2.54
============ ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.09%
==================
</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 Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $20,689 $29,114 $40,106 $43,069
Net debt repaid to GP 15,400 22,113 (34,110) (13,505)
Cash distributions paid to GP as GP 3,304 1,064 6,664 14,404
Cash distributions paid to GP as LP 1,209 758 3,047 4,333
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $10,530 $14,965 $23,535 $22,640
Cash distributions paid to GP as GP (1) 4,939 4,315 3,360 4,819
Cash distributions paid to GP as LP (2) 25,426 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $15,970 $15,970 $74,079 $130,754 $155,427 $135,542
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $36,948 $38,820
Cash Distributions (5) $13,964 $15,448
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would have
been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 1996 exchange values do not necessarily correspond with the
relative exchange values which would have been in effect at an earlier
date.
ENEX OIL & GAS INCOME PROGRAM V - Series 3, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS AND EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and
the General Partner (including future compensation) 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 and
because of its ability to determine its compensation and
the amount it must pay to limited partners who exercise
their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining
how to allocate costs and benefits among the Partnerships,
and, with respect to the total mix of consideration and
future compensation, between the limited partners and the
General Partner.
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 General Partner has not retained unaffiliated
representatives to act on the limited partners' behalf to
negotiate the terms of the Consolidation. As a result,
limited partners may receive less consideration than they
might have had an independent representative been
appointed or if their Partnership's assets were sold to an
unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated
Partnership's operations will be subject to
conflicts of interest.
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.
o The Articles governing the Consolidated Partnership do not
require that during the sixth year after commencement of
operations and at least every two years thereafter, the
General Partner will submit
1
<PAGE>
a proposal to sell all of the Partnership's properties
` and to dissolve and liquidate to a vote of the limited
partners.
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future
Management of the Consolidated Partnership. The General Partner's interest in
each separate Partnership's revenues, if any, 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. 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
2
<PAGE>
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. Delaware courts,
which are often looked to for guidance on undecided corporate issues, have in
several cases involving corporations held that fully informed stockholder
approval of a transaction may, in certain circumstances, serve to extinguish
certain related fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions.
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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 79.29% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .58% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .85%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (20.71% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. 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 the Partnership's property
holdings in the larger Consolidated Partnership may reduce the possibility for
extraordinary increases in value in the Subject Partnership. 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 participate in the Consolidation and
upon participation in the Exchange Offer by limited partners.
Changes From Partnership Agreement.. While the Partnership
Agreement of the Subject Partnership requires that during the sixth year after
commencement of operations and at least every two years thereafter, the General
Partner will submit a proposal to sell all of the Subject Partnership's
properties and to dissolve and liquidate to a vote
3
<PAGE>
of the limited partners, the Articles governing the Consolidated Partnership
provide a right of presentment instead of such requirement. See "Differences in
Rights and Responsibilities," below.
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $32,197 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 by $8,524
($6,743 if the minimum number of partnerships participate) per year as a result
of simplified managerial and administrative requirements. The Subject
Partnership's share of the costs of the Consolidation will be approximately
$4,012.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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
4
<PAGE>
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 September 30, 1996 the Partnership
owed the General Partner $40,077. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method of Determining Exchange Values--Indebtedness to the
General Partner" in the Prospectus/Proxy Statement, and each limited partner
will receive a smaller proportionate interest in the Consolidated Partnership
than such partner would have received in the Consolidation absent such
conversion of debt for Units by the General Partner.
Elimination of Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $14.59 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $12.86 per $500 Interest if the minimum number of Partnerships
participate versus $9.93 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The
General Partner considered the alternatives of liquidating the Subject
Partnership and continuing the Subject Partnership, 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
Subject 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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than
5
<PAGE>
the net present value of the discounted anticipated cash flows of a property's
proved oil and gas reserves. In addition, the General Partner is owed $40,077 by
the Subject Partnership. In a liquidation, 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 Subject Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $8,524 if all of the Partnerships participate ($6,743 if only the minimum
number of Partnerships participate), which represents the General Partner's
estimate of the additional value to be received each year by the limited
partners through participation in the Consolidation as compared to the
alternative of continuation. The estimates of general and administrative costs
savings set forth in Table E and elsewhere in the Prospectus/Proxy Statement
constitute forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($110,125) with the Subject
Partnership's going concern value ($93,515). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on estimates of the discounted present value of the subject oil and gas
6
<PAGE>
reserves. Thus, in the General Partner's view, the Gruy estimated fair market
valuations, as compared to other valuation methods, represent the best
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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 Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 20.71% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the Subject Partnership, but only to
the extent such Interests were acquired within two years from the date of the
Subject Partnership's commencement of operations. The same restriction applies
in the case of the other Partnerships formed in Enex Oil & Gas Income Programs V
and VI and in Enex 90-91 Income and Retirement Fund. The General Partner holds
Interests with respect to which its voting rights are restricted in this way
totaling 20.7116% of the Subject Partnership's outstanding Interests. In total,
the General Partner owns 1.85% of such outstanding Interests.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $17,349 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% to the Unitholders
(including the General Partner with respect to the Units it owns). See "THE
CONSOLIDATED
7
<PAGE>
PARTNERSHIP--Participation in Costs and Revenues--General Cost and Revenue
Sharing Percentages" in the Prospectus/Proxy Statement.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Subject
Partnership and the other Partnerships formed in Enex Oil & Gas Income Program V
equal to twice) their subscriptions to the Partnership, the General Partner's
net revenue sharing percentage will increase to 15%. Although the General
Partner's share of revenues is not likely to experience this increase in the
foreseeable future, the General Partner will forego this potential increase in
its share of net revenues with respect to each participating Partnership. See
"THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
The Partnership Agreement of the Subject Partnership provides that during the
sixth year after the commencement of operations and at least every two years
thereafter, the General Partner will submit a proposal to sell all of the
Subject Partnership's properties and to dissolve and liquidate to a vote of the
limited partners. 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, the Articles do
give the Consolidated Partnership's limited partners the annual right to present
their Interests for purchase at prices that, in the General Partner's opinion,
will closely approximate the estimated fair market values of Partnership
properties as determined by Gruy (which are intended to be an approximation of
the prices for which Partnership properties could be sold). In the General
Partner's view, the limited partners of the Subject Partnership 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
the Subject Partnership. See "THE CONSOLIDATED PARTNERSHIP--Right of
Presentment" in the Prospectus/Proxy Statement.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 September 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 $154,883
Cash & cash equivalents 1,990
Accounts receivable 18,927
Other current assets 1,679
--------------
Subtotal - assets 177,479
Less:
Liabilities to third parties 3,985
--------------
Partnership Exchange Value 173,494 15,615
Less:
Liability to General Partner 40,077 4,008
General Partner Capital Balance 5,943 594
Attributable to GP's revenue interest (2) 17,349
-------------- ------------------
Exchange value attributable
to Limited Partners $110,125 11,013
============== ==================
Exchange value per $500
Interest $54.51 5.45
============== ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.03%
==================
</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 Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $19,641 $27,702 $38,368 $42,504
Net debt repaid to GP 13,993 20,998 (22,210) (14,770)
Cash distributions paid to GP as GP 2,746 1,337 3,139 9,134
Cash distributions paid to GP as LP 3,389 2,313 6,939 14,471
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $9,997 $14,239 $22,515 $22,343
Cash distributions paid to GP as GP (1) 4,676 4,110 3,173 4,551
Cash distributions paid to GP as LP (2) 18,558 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $17,043 $12,037 $39,064 $93,547 $104,181 $53,479
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $34,895 $36,759
Cash Distributions (5) $20,467 $22,643
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would have
been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and
the General Partner (including future compensation) 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 and
because of its ability to determine its compensation and
the amount it must pay to limited partners who exercise
their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining
how to allocate costs and benefits among the Partnerships,
and, with respect to the total mix of consideration and
future compensation, between the limited partners and the
General Partner.
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 General Partner has not retained unaffiliated
representatives to act on the limited partners' behalf to
negotiate the terms of the Consolidation. As a result,
limited partners may receive less consideration than they
might have had an independent representative been
appointed or if their Partnership's assets were sold to an
unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated
Partnership's operations will be subject to
conflicts of interest.
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.
o The Articles governing the Consolidated Partnership do not
require that during the sixth year after commencement of
operations and at least every two years thereafter, the
General Partner will submit
1
<PAGE>
a proposal to sell all of the Partnership's properties
and to dissolve and liquidate to a vote of the limited
partners.
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future
Management of the Consolidated Partnership. The General Partner's interest in
each separate Partnership's revenues, if any, 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. 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
2
<PAGE>
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. Delaware courts,
which are often looked to for guidance on undecided corporate issues, have in
several cases involving corporations held that fully informed stockholder
approval of a transaction may, in certain circumstances, serve to extinguish
certain related fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions.
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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 88.11% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own 4.68% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and 6.41%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (11.89% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. 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 the Partnership's property
holdings in the larger Consolidated Partnership may reduce the possibility for
extraordinary increases in value in the Subject Partnership. 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 participate in the Consolidation and
upon participation in the Exchange Offer by limited partners.
Changes From Partnership Agreement. While the Partnership
Agreement of the Subject Partnership requires that during the sixth year after
commencement of operations and at least every two years thereafter, the General
Partner will submit a proposal to sell all of the Subject Partnership's
properties and to dissolve and liquidate to a vote
3
<PAGE>
of the limited partners, the Articles governing the Consolidated Partnership
provide a right of presentment instead of such requirement. See "Differences in
Rights and Responsibilities," below.
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $50,193 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 by $45,550
($0 if the minimum number of partnerships participate) per year as a result of
simplified managerial and administrative requirements. The Subject Partnership's
share of the costs of the Consolidation will be approximately $21,439.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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
4
<PAGE>
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 September 30, 1996 the Partnership
owed the General Partner $4,096. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method of Determining Exchange Values--Indebtedness to the
General Partner" in the Prospectus/Proxy Statement, and each limited partner
will receive a smaller proportionate interest in the Consolidated Partnership
than such partner would have received in the Consolidation absent such
conversion of debt for Units by the General Partner.
Elimination of Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $72.61 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $63.73 per $500 Interest if the minimum number of Partnerships
participate versus $55.58 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The
General Partner considered the alternatives of liquidating the Subject
Partnership and continuing the Subject Partnership, 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
Subject 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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than
5
<PAGE>
the net present value of the discounted anticipated cash flows of a property's
proved oil and gas reserves. In addition, the General Partner is owed $4,096 by
the Subject Partnership. In a liquidation, 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 Subject Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $45,550 if all of the Partnerships participate ($0 if only the minimum number
of Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation. The estimates of general and administrative costs savings set
forth in Table E and elsewhere in the Prospectus/Proxy Statement constitute
forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($801,670) with the Subject
Partnership's going concern value ($646,235). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "--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 based on estimates of the discounted present value
of the subject oil and gas reserves. Thus, in the General Partner's view, the
Gruy estimated
6
<PAGE>
fair market valuations, as compared to other valuation methods, represent the
best methodology for estimating 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 did not materially differ from the terms and
provisions of the Partnership Agreements. See "Differences in Rights and
Responsibilities" below.
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 Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "--Terms of the Consolidation--Dissenters' Rights"
in the Prospectus/Proxy Statement). The General Partner currently has an 11.88%
voting Interest in the Subject Partnership, but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.40% if all Partnerships participate in the Consolidation
and the maximum number of limited partners exercise their dissenters' rights.
Nevertheless, existing limitations on the General Partner's voting rights will
continue to apply on a proportional basis under the Articles as follows: As
indicated in "THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the Subject Partnership, but only to
the extent such Interests were acquired within two years from the date of the
Subject Partnership's commencement of operations. The same restriction applies
in the case of the other Partnerships formed in Enex Oil & Gas Income Programs V
and VI and in Enex 90-91 Income and Retirement Fund. The General Partner holds
Interests with respect to which its voting rights are restricted in this way
totaling 11.8893% of the Subject Partnership's outstanding Interests. In total,
the General Partner owns 1.85% of such outstanding Interests.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $92,707 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
7
<PAGE>
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Subject
8
<PAGE>
Partnership and the other Partnerships formed in Enex Oil & Gas Income Program V
equal to twice) their subscriptions to the Partnership, the General Partner's
net revenue sharing percentage will increase to 15%. Although the General
Partner's share of revenues is not likely to experience this increase in the
foreseeable future, the General Partner will forego this potential increase in
its share of net revenues with respect to each participating Partnership. See
"THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
The Partnership Agreement of the Subject Partnership provides that during the
sixth year after the commencement of operations and at least every two years
thereafter, the General Partner will submit a proposal to sell all of the
Subject Partnership's properties and to dissolve and liquidate to a vote of the
limited partners. 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, the Articles do
give the Consolidated Partnership's limited partners the annual right to present
their Interests for purchase at prices that, in the General Partner's opinion,
will closely approximate the estimated fair market values of Partnership
properties as determined by Gruy (which are intended to be an approximation of
the prices for which Partnership properties could be sold). In the General
Partner's view, the limited partners of the Subject Partnership 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
the Subject Partnership. See "THE CONSOLIDATED PARTNERSHIP--Right of
Presentment" in the Prospectus/Proxy Statement.
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 V - Series 4, L.P.
Calculation of Exchange Value
As of September 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 $397,907
Charlotte 385,797
------------
Sub-total - Property 783,704
Cash & cash equivalents 105,664
Accounts receivable 124,698
Other current assets 10,201
------------
Subtotal - assets 1,024,267
Less:
Liabilities to third parties 97,192
------------
Partnership Exchange Value 927,075 83,438
Less:
Liability to General Partner 4,096 410
General Partner Capital Balance 28,602 2,860
Attributable to GP's revenue interest (2) 92,707
------------ ----------------
Exchange value attributable
to Limited Partners $801,670 80,167
============ ================
Exchange value per $500
Interest $271.36 27.14
============ ================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 5.53%
================
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $30,721 $55,674 $42,622 $50,211
Net debt repaid to GP 1,748 6,390 (7,675) (93,658)
Cash distributions paid to GP as GP 19,579 20,410 13,806 27,816
Cash distributions paid to GP as LP 12,266 13,798 7,185 5,630
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $15,636 $28,617 $25,011 $26,394
Cash distributions paid to GP as GP (1) 24,998 19,670 15,188 21,783
Cash distributions paid to GP as LP (2) 34,523 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $134,361 $183,690 $124,233 $250,338 $141,578 $5,321
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $187,138 $176,239
Cash Distributions (5) $147,948 $169,162
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would have
been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and
the General Partner (including future compensation) 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 and
because of its ability to determine its compensation and
the amount it must pay to limited partners who exercise
their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining
how to allocate costs and benefits among the Partnerships,
and, with respect to the total mix of consideration and
future compensation, between the limited partners and the
General Partner.
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 General Partner has not retained unaffiliated
representatives to act on the limited partners' behalf to
negotiate the terms of the Consolidation. As a result,
limited partners may receive less consideration than they
might have had an independent representative been
appointed or if their Partnership's assets were sold to an
unaffiliated party in an arms-length transaction.
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.
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.
o The Articles governing the Consolidated Partnership do not
require that during the sixth year after commencement of
operations and at least every two years thereafter, the
General Partner will submit
1
<PAGE>
a proposal to sell all of the Partnership's properties
and to dissolve and liquidate to a vote of the limited
partners.
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflict of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future
Management of the Consolidated Partnership. The General Partner's interest in
each separate Partnership's revenues, if any, 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. 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
2
<PAGE>
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. Delaware courts,
which are often looked to for guidance on undecided corporate issues, have in
several cases involving corporations held that fully informed stockholder
approval of a transaction may, in certain circumstances, serve to extinguish
certain related fiduciary claims against directors.
Risk of Decreases in Distributions. Although the General
Partner's cash distribution policies will not change following the
Consolidation, the General Partner estimates that the limited partners of the
Subject Partnership will have distributions of approximately $55.93 per $500
Interest in the next four quarters after the Consolidation if the maximum number
of Partnerships participate and $52.77 per $500 Interest if the minimum number
of Partnerships participate versus $66.35 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The minimum number of
Partnerships include the Subject Partnership and 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. See Tables F, G-1 and G-2 in the
Prospectus/Proxy Statement. Distributions were estimated for the next four
quarters upon Consolidation by aggregating the future net revenues estimated by
Gruy for all of the Partnerships which participate. Estimated general and
administrative costs were subtracted from this amount and the net amount was
allocated to the Subject Partnership based upon its pro rata share of the
aggregate exchange value. Distributions in the absence of the Consolidation were
estimated for the next four quarters by subtracting estimated general and
administrative costs and debt repayment from Gruy's estimate of the Subject
Partnership's future net revenues. 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.
Risk of Taxable Income in Excess of Cash Distributions.
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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 94.69% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own 3.36% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and 4.70%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (5.31% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
3
<PAGE>
Changes From Partnership Agreement. While the Partnership
Agreement of the Subject Partnership requires that during the sixth year after
commencement of operations and at least every two years thereafter, the General
Partner will submit a proposal to sell all of the Subject Partnership's
properties and to dissolve and liquidate to a vote of the limited partners, the
Articles governing the Consolidated Partnership provide a right of presentment
instead of such requirement. See "Differences in Rights and Responsibilities,"
below.
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $67,581 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 by $30,653
($0 if the minimum number of partnerships participate)per year as a result of
simplified managerial and administrative requirements. The Subject Partnership's
share of the costs of the Consolidation will be approximately $14,428.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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
4
<PAGE>
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.
Elimination of Certain 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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The
General Partner considered the alternatives of liquidating the Subject
Partnership and continuing the Subject Partnership, 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
Subject 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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $30,653 if all of the Partnerships participate ($0 if only the minimum number
of Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation. The estimates of general and administrative costs savings set
forth in Table E and elsewhere in the Prospectus/Proxy Statement constitute
forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($212,562) with the Subject
Partnership's going concern value ($461,826). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern basis. The
5
<PAGE>
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 (i)
participation in the Consolidated Partnership, whether by the participation of a
Partnership in the Consolidation or by the participation of a limited partner
through the Exchange Offer, and without regard to the identity of the other
participating Partnerships and limited partners, would be more beneficial to the
limited partners than continuing in their Partnerships, and (ii) maximum
participation in the Consolidation would provide 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 AND THE EXCHANGE
OFFER--Background of the Consolidation and the Exchange Offer" and "--Fairness
of the Transaction" in the Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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 Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 5.31% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership
6
<PAGE>
whose Partnership Agreement contained a similar restriction (i.e., the
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
the Subject Partnership, but only to the extent such Interests were acquired
within two years from the date of the Subject Partnership's commencement of
operations. The same restriction applies in the case of the other Partnerships
formed in Enex Oil & Gas Income Programs V and VI and in Enex 90-91 Income and
Retirement Fund. The General Partner holds Interests with respect to which its
voting rights are restricted in this way totaling 5.3119% of the Subject
Partnership's outstanding Interests. In total, the General Partner owns 1.85% of
such outstanding Interests.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $60,019 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Subject
Partnership and the other Partnerships formed in Enex Oil & Gas Income Program V
equal to twice) their subscriptions to the Partnership, the General Partner's
net revenue sharing percentage will increase to 15%. Although the General
Partner's share of revenues is not likely to experience this increase in the
foreseeable future, the General Partner will forego this potential increase in
its share of net revenues with respect to each participating Partnership. See
"THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
The Partnership Agreement of the Subject Partnership provides that during the
sixth year after the commencement of operations and at least every two years
thereafter, the General Partner will submit a proposal to sell all of the
Subject Partnership's properties and to dissolve and liquidate to a vote of the
limited partners. 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, the Articles do
give the Consolidated Partnership's limited partners the annual right to present
their Interests for purchase at prices that, in the General Partner's opinion,
will closely approximate the estimated fair market values of Partnership
properties as determined by Gruy (which are intended to be an approximation of
the prices for which Partnership properties could be sold). In the General
Partner's view, the limited partners of the Subject Partnership 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
the Subject Partnership. See "THE CONSOLIDATED PARTNERSHIP--Right of
Presentment" in the Prospectus/Proxy Statement.
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
7
<PAGE>
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
8
<PAGE>
Consolidation will provide the limited partners with the benefits summarized
under the caption "SUMMARY--Objectives of the Consolidation and the Exchange
Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 V - Series 5, L.P.
Calculation of Exchange Value
As of September 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 $586,585
Cash & cash equivalents 17,307
Accounts receivable 46,336
Other current assets 2,847
------------
Subtotal - assets 653,075
Less:
Liabilities to third parties 31,553
------------
Partnership Exchange Value 621,522 56,150
Less:
Liability to General Partner - -
General Partner Capital Balance 25,273 2,527
Attributable to GP's revenue interest (2) 60,019
------------ ------------------
Exchange value attributable
to Limited Partners $536,230 53,623
============ ==================
Exchange value per $500
Interest $217.67 21.77
============ ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 3.72%
==================
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $41,448 $74,397 $62,540 $65,836
Net debt repaid to GP 31,309 6,111 (13,463) (68,658)
Cash distributions paid to GP as GP 14,266 16,874 16,485 19,933
Cash distributions paid to GP as LP 4,548 6,172 5,341 5,083
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $21,095 $38,241 $36,699 $34,608
Cash distributions paid to GP as GP (1) 17,481 15,801 12,200 17,498
Cash distributions paid to GP as LP (2) 9,363 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $100,470 $151,850 $148,364 $195,317 $19,446 $5,321
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $130,688 $141,541
Cash Distributions (5) $101,155 $114,389
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would have
been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 1996 exchange values do not necessarily correspond with the
relative exchange values which would have been in effect at an earlier
date.
<PAGE>
ENEX PROGRAM I PARTNERS, L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS AND EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
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 level that their Partnerships
could have maintained, although most will experience an increase.
o 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
in the Consolidation by the Partnerships and in the Exchange Offer
by individual limited partners.
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Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Consideration Determined byConflicts of Interest of the General Partner
in Determining Consideration. The consideration to be received by the
Partnerships in the Consolidation and the General Partner (including future
compensation) 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 revenue interests and ownership percentages in each Partnership and
because of its ability to determine its compensation and the amount it must pay
to limited partners who exercise their dissenters' rights and all other terms of
the Consolidation. These conflicts affect the allocation of costs and benefits
among the Partnerships and, with respect to the total mix of consideration and
future compensation, between the limited partners and the General Partner. The
General Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks in Determiningof Disadvantageous Exchange Values. In approving
the Consolidation, or accepting the Exchange Offer, a limited partner risks that
his Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks in Determiningof Disadvantageous
Exchange Values" in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
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of Interest" in the Prospectus/Proxy Statement. Delaware courts, which are
often looked to for guidance on undecided corporate issues, have in several
cases involving corporations held that fully informed stockholder approval
of a transaction may, in certain circumstances, serve to extinguish certain
related fiduciary claims against directors.
Changes in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $5.03 per $500 Interest in the next four quarters
after the Consolidation versus $2.38 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. See Tables F, G-1 and G-2
in the Prospectus/Proxy Statement. Distributions were estimated for the next
four quarters upon Consolidation by aggregating the future net revenues
estimated by Gruy for all of the Partnerships which participate. Estimated
general and administrative costs were subtracted from this amount and the net
amount was allocated to the Subject Partnership based upon its pro rata share of
the aggregate exchange value. Distributions in the absence of the Consolidation
were estimated for the next four quarters by subtracting estimated general and
administrative costs and debt repayment from Gruy's estimate of the Subject
Partnership's future net revenues. 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
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation.
Tax RisksRisk of Taxable Income In Excess of Cash Distributions.
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" in the Prospectus/Proxy
Statement.
Consequences of Larger EntityRisk of Dilution of Voting Interest.
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. The limited partners of the
Subject Partnership (excluding the General Partner) currently own 45.90 % of the
outstanding voting Interests of the Subject Partnership. Based on the exchange
values to be used in the Consolidation, the limited partners of the Subject
Partnership (excluding the General Partner) will own 11.15% of the voting Units
of the Consolidated Partnership if all the Partnerships participate in the
Consolidation, and 16.33% of the voting Units if the minimum number of
Partnerships participate in the Consolidation, including the Subject
Partnership. In addition, the General Partner currently has voting Interests in
the Partnerships ranging from 4.05% to 54.10% (54.10% in the Subject
Partnership), but will have a voting interest in the Consolidated Partnership of
47.08% if all Partnerships participate in the Consolidation, and 57.97% if the
minimum number of Partnerships participate. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement. The General
Partner's voting interest may increase further as described below in
"Differences in Rights and Responsibilities". Also, the pooling of the
Partnership's property holdings in the larger Consolidated Partnership may
reduce the possibility for extraordinary increases in value in the Subject
Partnership. 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 participate in the
Consolidation and upon participation in the Exchange Offer by limited partners.
Volatility of Oil and Gas MarketsRisk of Decreases in Oil and Gas
Prices. 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.
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The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $759,164 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 by $253,985 ($200,910 if
the minimum number of partnerships participate) per year as a result of
simplified managerial and administrative requirements. The Subject Partnership's
share of the costs of the Consolidation will be approximately $119,544.
Diversification of Interests: The Subject Partnership now holds
interests in 13 acquisitions and in 131 oil and 526 gas wells. In addition, the
Subject Partnership owns interests in two gas plants. 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Consequences of
Larger EntityRisk of Dilution of Voting Interest" in the Prospectus/Proxy
Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 in
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations on 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 September 30, 1996 the Subject Partnership
owed the General Partner $11,814. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method
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of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
ChangesIncreases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $5.03 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$4.46 per $500 Interest if the minimum number of Partnerships participate versus
$2.38 per $500 Interest if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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 properties with greater
cumulative cash flow and distributions than the Subject Partnership would have
if it does not participate in the Consolidation.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
Partnership's 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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $11,814 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as a separate entity.
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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 $445,000 per
year, and up to $824,000 per year if all Partnerships participate. As Table E in
the Prospectus/Proxy Statement shows, the estimated annual general and
administrative cost savings to be yielded by the Consolidation for the limited
partners of the Subject Partnership is $253,985 if all the Partnerships
participate ($200,910 if only the minimum number of Partnerships participate)
which represents the General Partner's estimate of the additional value to be
received each year by the limited partners through participation in the
Consolidation as compared to the alternative of continuation. The estimates of
general and administrative costs savings set forth in Table E and elsewhere in
the Prospectus/Proxy Statement constitute forward-looking statements that
involve known and unknown risks and uncertainties which may cause actual cost
savings to differ materially from such forecasts. These risks include risks
generally associated with the incurrence of general and administrative expenses
in connection with oil and gas production and marketing operations, and are
described in detail in "RISK FACTORS" in the Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($3,643,091) with the Subject
Partnership's going concern value ($3,036,498). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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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
Articles 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.
Although tThe General Partner's voting rights as a limited partner will be
increased as a result of its exchange of indebtedness for Units (see "--Method
of Determining Exchange Values--Indebtedness to the General Partner", and to the
extent that it purchases the limited partnership Interests of limited partners
who exercise their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE
EXCHANGE OFFER--Terms of the Consolidation--Dissenters' Rights" in the
Prospectus/Proxy Statement). The General Partner currently has a 54.41% voting
Interest in the Subject Partnership , but will have a voting interest in the
Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.40% if all Partnerships participate in the Consolidation
and the maximum number of limited partners exercise their dissenters' rights.
Nevertheless, existing limitations on the General Partner's voting rights will
continue to apply on a proportional basis under the Articles as follows: As
indicated in "THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
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 have 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
3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
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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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 30, 1996
(Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
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TABLE A
Enex Program I Partners, L.P.
Calculation of Exchange Value
As of September 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 $183,451
Choate 502,357
Grass Island 49,769
Blackhawk 4,393
Shell 153,965
Arnold & Woolf 94,945
Second Bayou 357,121
Schlensker 148,093
Esperance Point 8,712
Lake Cocodrie 185,126
East Seven Sisters 700,643
HNG 1,439,880
Comite 3,798
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Subtotal - Property 3,832,253
Cash & cash equivalents 160,414
Accounts receivable 468,733
Other current assets 413,645
-------------
Subtotal - assets 4,875,045
Less:
Liabilities to third parties 222,598
-------------
Partnership Exchange Value 4,652,447 465,245
Less:
Liability to General Partner 11,814 1,181
General Partner Capital Balance 997,542 99,754
Attributable to GP's revenue interest (2) -
------------- ----------------
Exchange value attributable
to Limited Partners $3,643,091 364,309
============= ================
Exchange value per $500
Interest $18.81 1.88
============= ================
Percentage of total units in the
Consolidated Partnership allocated to
this Partnership 30.82%
================
</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.
10
<PAGE>
<TABLE>
<CAPTION>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX PROGRAM I PARTNERS, L.P.
--------------------------------------------------------------
HISTORICAL Nine Months Year Ended
Ended December 31,
----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $580,791 $766,060 $905,091 $691,946
Net debt repaid to GP 15,171 58,342 (13,246) (41,718)
Cash distributions paid to GP as GP - - - -
Cash distributions paid to GP as LP 334,917 388,080 - -
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $295,587 $393,756 $531,107 $363,727
Cash distributions paid to GP as GP (1) - - - -
Cash distributions paid to GP as LP (2) 817,976 678,175 523,632 751,005
</TABLE>
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE C
Summary of Cash Distributions paid to Limited Partners ENEX
PROGRAM I PARTNERS, L.P.
Nine Months
HISTORICAL Ended Year Ended December 31,
----------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C>
Cash Distributions (3) $624,180 $730,913 - - - -
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
Cash Distributions (4) $1,274,215 $1,055,719
Cash Distributions (5) $680,778 $753,154
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would have
been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
. 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 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
in the Consolidation by the Partnerships and in the Exchange Offer
by individual limited partners.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Consideration Determined byConflicts of Interest of the General Partner
in Determining Consideration. The consideration to be received by the
Partnerships in the Consolidation and the General Partner (including future
compensation) 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 revenue interests and ownership percentages in each Partnership and
because of its ability to determine its compensation and the amount it must pay
to limited partners who exercise their dissenters' rights and all other terms of
the Consolidation. These conflicts affect the allocation of costs and benefits
among the Partnerships and, with respect to the total mix of consideration and
future compensation, between the limited partners and the General Partner. The
General Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks in Determiningof Disadvantageous Exchange Values. In approving
the Consolidation, or accepting the Exchange Offer, a limited partner risks that
his Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks in Determiningof Disadvantageous
Exchange Values" in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Changes in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $24.22 per $500 Interest in the next four
quarters after the Consolidation versus $23.82 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. See Tables F, G-1 and G-2
in the Prospectus/Proxy Statement. Distributions were estimated for the next
four quarters upon Consolidation by aggregating the future net revenues
estimated by Gruy for all of the Partnerships which participate. Estimated
general and administrative costs were subtracted from this amount and the net
amount was allocated to the Subject Partnership based upon its pro rata share of
the aggregate exchange value. Distributions in the absence of the Consolidation
were estimated for the next four quarters by subtracting estimated general and
administrative costs and debt repayment from Gruy's estimate of the Subject
Partnership's future net revenues. 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
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 F, G-1 and G-2 in the Prospectus/Proxy Statement.
Tax RisksRisk of Taxable Income In Excess of Cash Disributions.
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" in the Prospectus/Proxy
Statement.
Consequences of Larger EntityRisk of Dilution of Voting Interest.
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. The limited partners of the
Subject Partnership (excluding the General Partner) currently own 74.62% of the
outstanding voting Interests of the Subject Partnership. Based on the exchange
values to be used in the Consolidation, the limited partners of the Subject
Partnership (excluding the General Partner) will own 3.97% of the voting Units
of the Consolidated Partnership if all the Partnerships participate in the
Consolidation, and 5.81% of the voting Units if the minimum number of
Partnerships participate in the Consolidation, including the Subject
Partnership. In addition, the General Partner currently has voting Interests in
the Partnerships ranging from 4.05% to 54.10% (25.38% in the Subject
Partnership), but will have a voting interest in the Consolidated Partnership of
47.08% if all Partnerships participate in the Consolidation , and 57.97% if the
minimum number of Partnerships participate. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement. The General
Partner's voting interest may increase further as described below in
"Diffferences in Rights and Responsibilities". Also, the pooling of the
Partnership's property holdings in the larger Consolidated Partnership may
reduce the possibility for extraordinary increases in value in the Subject
Partnership. 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 participate in the
Consolidation and upon participation in the Exchange Offer by limited partners.
Volatility of Oil and Gas MarketsRisk of Decreases in Oil and Gas
Prices. 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>
The objectives of the Consolidation, which are summarized below, are
described in more detail in the Prospectus/Proxy Statement under the captions
"THE PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $57,925 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 by $46,106 ($36,471 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $21,701.
Diversification of 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, 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Consequences of
Larger EntityRisks of Dilution of Voting Interest" in the Prospectus/Proxy
Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $3,883. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method of
4
<PAGE>
Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
ChangesIncreases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $24.22 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $21.32 per $500 Interest if the minimum number of Partnerships
participate versus $23.82 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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 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 F, G-1
and G-2 in the Prospectus/Proxy Statement.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $3,883 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity.
5
<PAGE>
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 $445,000 per
year, and up to $824,000 per year if all Partnerships participate. As Table E in
the Prospectus/Proxy Statement shows, the estimated annual general and
administrative cost savings to be yielded by the Consolidation for the limited
partners of the Subject Partnership is $46,106 if all of the Partnerships
participate ($36,471 if only the minimum number of Partnerships participate),
which represents the General Partner's estimate of the additional value to be
received each year by the limited partners through participation in the
Consolidation as compared to the alternative of continuation. The estimates of
general and administrative costs savings set forth in Table E and elsewhere in
the Prospectus/Proxy Statement constitute forward-looking statements that
involve known and unknown risks and uncertainties which may cause actual cost
savings to differ materially from such forecasts. These risks include risks
generally associated with the incurrence of general and administrative expenses
in connection with oil and gas production and marketing operations, and are
described in detail in "RISK FACTORS" in the Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($803,040) with the Subject
Partnership's going concern value ($636,195). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
6
<PAGE>
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
Articles 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.
Under its Partnership Agreement, the limited partners of the Subject Partnership
may elect additional or successor general partners by a vote of a majority in
interest but have no right to vote on the removal of the General Partner. The
Articles of the Consolidated Partnership require a vote of two-thirds in
interest to approve the selection of an additional or successor general partner
but do 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" and
"--Applicability of the New Jersey Act."
Although tThe General Partner's voting rights as a limited partner will be
increased as a result of its exchange of indebtedness for Units (see "--Method
of Determining Exchange Values--Indebtedness to the General Partner"), and to
the extent that it purchases the limited partnership Interests of limited
partners who exercise their dissenters' rights (see "THE PROPOSED
CONSOLIDATION--Terms of the Consolidation--Dissenters' Rights" in the
Prospectus/Proxy Statement). The General Partner currently has a 25.38% voting
Interest in the Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.4% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
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 have 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
3.03% to the General Partner and 96.97% 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.
7
<PAGE>
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is
8
<PAGE>
not likely to experience this increase in the foreseeable future, the General
Partner will forego this potential increase in its share of net revenues with
respect to each participating Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 September 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 $754,281
Cash on Hand 48,933
Accounts Receivable 45,423
Other current assets 2,225
---------------
Fair Market Value of Assets 850,862
Less:
Liabilities to third parties 6,309
---------------
Partnership Exchange Value 844,553 84,455
Less:
Liability to General Partner 3,883 388
General Partner Capital Balance 37,630 3,763
Attributable to GP's revenue interest (2) -
--------------- --------------
Exchange value attributable
to Limited Partners $803,040 80,304
=============== ==============
Exchange value per $500
Interest $90.54 9.05
=============== ==============
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 5.60%
==============
</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.
12
<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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30,1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $27,704 $29,430 $35,086 $23,717
Net debt repaid to GP 49,214 97,935 33,092 90,659
Cash distributions paid to GP as GP - - - 8,524
Cash distributions paid to GP as LP 22,259 13,732 16,456 9,277
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $14,100 $15,128 $20,589 $12,468
Cash distributions paid to GP as GP (1) - - - -
Cash distributions paid to GP as LP (2) 66,978 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $93,054 $61,555 $110,944 $162,375 $191,302 $267,389
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $189,532 $186,545
Cash Distributions (5) $149,010 $164,852
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would have
been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
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 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
in the Consolidation by the Partnerships and in the Exchange Offer
by individual limited partners.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Consideration Determined byConflicts of Interest of the General Partner
in Determining Consideration. The consideration to be received by the
Partnerships in the Consolidation and the General Partner (including future
compensation) 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 revenue interests and ownership percentages in each Partnership and
because of its ability to determine its compensation and the amount it must pay
to limited partners who exercise their dissenters' rights and all other terms of
the Consolidation. These conflicts affect the allocation of costs and benefits
among the Partnerships and, with respect to the total mix of consideration and
future compensation, between the limited partners and the General Partner. The
General Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks in Determiningof Disadvantageous Exchange Values. In approving
the Consolidation, or accepting the Exchange Offer, a limited partner risks that
his Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks in Determiningof Disadvantageous
Exchange Values" in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Changes in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $24.83 per $500 Interest in the next four
quarters after the Consolidation versus $19.62 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. See Tables F, G-1 and G-2
in the Prospectus/Proxy Statement. Distributions were estimated for the next
four quarters upon Consolidation by aggregating the future net revenues
estimated by Gruy for all of the Partnerships which participate. Estimated
general and administrative costs were subtracted from this amount and the net
amount was allocated to the Subject Partnership based upon its pro rata share of
the aggregate exchange value. Distributions in the absence of the Consolidation
were estimated for the next four quarters by subtracting estimated general and
administrative costs and debt repayment from Gruy's estimate of the Subject
Partnership's future net revenues. 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.
Tax RisksRisk of Taxable Income In Excess of Cash Distributions.
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" in the Prospectus/Proxy
Statement.
Consequences of Larger EntityRisk of Dilution of Voting Interest.
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. The limited partners of the
Subject Partnership (excluding the General Partner) currently own 68.98% of the
outstanding voting Interests of the Subject Partnership. Based on the exchange
values to be used in the Consolidation, the limited partners of the Subject
Partnership (excluding the General Partner) will own 2.49% of the voting Units
of the Consolidated Partnership if all the Partnerships participate in the
Consolidation, and 3.64% of the voting Units if the minimum number of
Partnerships participate in the Consolidation, including the Subject
Partnership. In addition, the General Partner currently has voting Interests in
the Partnerships ranging from 4.05% to 54.10% (31.02% in the Subject
Partnership), but will have a voting interest in the Consolidated Partnership of
47.08% if all Partnerships participate in the Consolidation , and 57.97% if the
minimum number of Partnerships participate. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement. The General
Partner's voting interest may increase further as described below in
"Differences in Rights and Responsibilities". Also, the pooling of the
Partnership's property holdings in the larger Consolidated Partnership may
reduce the possibility for extraordinary increases in value in the Subject
Partnership. 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 participate in the
Consolidation and upon participation in the Exchange Offer by limited partners.
Volatility of Oil and Gas MarketsRisk of Decreases in Oil and Gas
Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $37,174 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 by $34,242 ($27,087 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $16,117.
Diversification of 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, 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Consequences of
Larger EntityRisk of Dilution of Voting Interest" in the Prospectus/Proxy
Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $56,868. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner wil be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method
4
<PAGE>
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
ChangesIncreases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $24.83 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $21.86 per $500 Interest if the minimum number of Partnerships
participate versus $19.62 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnerships would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $56,868 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity.
5
<PAGE>
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 $445,000 per
year, and up to $824,000 per year if all Partnerships participate. As Table E in
the Prospectus/Proxy Statement shows, the estimated annual general and
administrative cost savings to be yielded by the Consolidation for the limited
partners of the Subject Partnership is $34,242 if all of the Partnerships
participate ($27,087 if only the minimum number of Partnerships participate),
which represents the General Partner's estimate of the additional value to be
received each year by the limited partners through participation in the
Consolidation as compared to the alternative of continuation. The estimates of
general and administrative costs savings set forth in Table E and elsewhere in
the Prospectus/Proxy Statement constitute forward-looking statements that
involve known and unknown risks and uncertainties which may cause actual cost
savings to differ materially from such forecasts. These risks include risks
generally associated with the incurrence of general and administrative expenses
in connection with oil and gas production and marketing operations, and are
described in detail in "RISK FACTORS" in the Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($544,096) with the Subject
Partnership's going concern value ($430,352). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
6
<PAGE>
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
Articles 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.
Under its Partnership Agreement, the limited partners of the Subject Partnership
may elect additional or successor general partners by a vote of a majority in
interest but have no right to vote on the removal of the General Partner. The
Articles of the Consolidated Partnership require a vote of two-thirds in
interest to approve the selection of an additional or successor general partner
but do 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" and
"--Applicability of the New Jersey Act."
Although tThe General Partner's voting rights as a limited partner will be
increased as a result of its exchange of indebtedness for Units (see "--Method
of Determining Exchange Values--Indebtedness to the General Partner"), and to
the extent that it purchases the limited partnership Interests of limited
partners who exercise their dissenters' rights (see "THE PROPOSED CONSOLIDATION
AND THE EXCHANGE OFFER--Terms of the Consolidation--Dissenters' Rights" in the
Prospectus/Proxy Statement). The General Partner currently has a 31.02% voting
Interest in the Subject Partnership, but will have a voting interest in the
Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.40% if all Partnerships participate in the Consolidation
and the maximum number of limited partners exercise their dissenters' rights.
Nevertheless, existing limitations on the General Partner's voting rights will
continue to apply on a proportional basis under the Articles as follows: As
indicated in "THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
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 have 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
3.03% to the General Partner and 96.97% 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.
7
<PAGE>
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenue" in the Prospectus/Proxy Statement.
8
<PAGE>
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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-8, L.P.
Calculation of Exchange Value
As of September 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 $577,413
Cash & cash equivalents 18,189
Accounts receivable 34,771
Other current assets 1,704
-----------
Subtotal - assets 632,077
Less:
Liabilities to third parties 4,836
-----------
Partnership Exchange Value 627,241 62,724
Less:
Liability to General Partner 56,868 5,687
General Partner Capital Balance 26,277 2,628
Attributable to GP's revenue interest(2) -
----------- ------------------
Exchange value attributable
to Limited Partners $544,096 54,410
=========== ==================
Exchange value per $500
Interest $92.80 9.28
=========== ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 4.16%
==================
</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.
11
<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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $24,042 $25,183 $28,915 $21,691
Net debt repaid to GP 57,713 67,769 30,083 85,606
Cash distributions paid to GP as GP - - - 6,049
Cash distributions paid to GP as LP 19,682 12,396 13,069 12,722
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $12,236 $12,945 $16,968 $11,403
Cash distributions paid to GP as GP (1) - - - -
Cash distributions paid to GP as LP (2) 68,277 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $67,338 $47,631 $66,212 $110,436 $135,536 $196,808
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $140,952 $142,571
Cash Distributions (5) $100,998 $111,735
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would have
been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction..
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 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
in the Consolidation by the Partnerships and in the Exchange Offer
by individual limited partners.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Risks in Determiningof Disadvantageous Exchange Values. In approving
the Consolidation, or accepting the Exchange Offer, a limited partner risks that
his Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks in Determiningof Disadvantageous
Exchange Values" in the accompanying Prospectus/Proxy Statement.
Consideration Determined byConflicts of Interest of the General Partner
in Determining Consideration. The consideration to be received by the
Partnerships in the Consolidation and the General Partner (including future
compensation) 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 revenue interests and ownership percentages in each Partnership and
because of its ability to determine its compensation and the amount it must pay
to limited partners who exercise their dissenters' rights and all other terms of
the Consolidation. These conflicts affect the allocation of costs and benefits
among the Partnerships and, with respect to the total mix of consideration and
future compensation, between the limited partners and the General Partner. The
General Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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 in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Changes in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $21.56 per $500 Interest in the next four
quarters after the Consolidation versus $14.65 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. See Tables F, G-1 and G-2
in the Prospectus/Proxy Statement. Distributions were estimated for the next
four quarters upon Consolidation by aggregating the future net revenues
estimated by Gruy for all of the Partnerships which participate. Estimated
general and administrative costs were subtracted from this amount and the net
amount was allocated to the Subject Partnership based upon its pro rata share of
the aggregate exchange value. Distributions in the absence of the Consolidation
were estimated for the next four quarters by subtracting estimated general and
administrative costs and debt repayment from Gruy's estimate of the Subject
Partnership's future net revenues. 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 F, G-1 and G-2 in the Prospectus/Proxy Statement.
Tax RisksRisk of Taxable Income In Excess of Cash Distributions.
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" in the Prospectus/Proxy
Statement.
Consequences of Larger EntityRisk of Dilution of Voting Interest.
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. The limited partners of the
Subject Partnership (excluding the General Partner) currently own 70.89% of the
outstanding voting Interests of the Subject Partnership. Based on the exchange
values to be used in the Consolidation, the limited partners of the Subject
Partnership (excluding the General Partner) will own 1.18% of the voting Units
of the Consolidated Partnership if all the Partnerships participate in the
Consolidation, and 1.72% of the voting Units if the minimum number of
Partnerships participate in the Consolidation, including the Subject
Partnership. In addition, the General Partner currently has voting Interests in
the Partnerships ranging from 4.05 % to 54.10% (29.11% in the Subject
Partnership), but will have a voting interest in the Consolidated Partnership of
47.08% if all Partnerships participate in the Consolidation, and 57.97% if the
minimum number of Partnerships participate. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement. The General
Partner's voting interest may increase further as described below in "Rights and
Responsibilities". Also, the pooling of the Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the Subject Partnership. 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 participate in the Consolidation and upon participation in
the Exchange Offer by limited partners.
Volatility of Oil and Gas MarketsRisk of Decreases in Oil and Gas
Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $30,157 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 by $20,450 ($16,177 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $9,625.
Diversification of 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, 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Consequences of
Larger EntityRisk of Dilution of Voting Interest" in the Prospectus/Proxy
Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $96,041. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method
4
<PAGE>
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
ChangesIncreases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $21.56 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $18.97 per $500 Interest if the minimum number of Partnerships
participate versus $14.65 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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 F, G-1
and G-2 in the Prospectus/Proxy Statement.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $96,041 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity.
5
<PAGE>
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 $445,000 per
year, and up to $824,000 per year if all Partnerships participate. As Table E in
the Prospectus/Proxy Statement shows, the estimated annual general and
administrative cost savings to be yielded by the Consolidation for the limited
partners of the Subject Partnership is $20,450 if all of the Partnerships
participate ($16,177 if only the minimum number of Partnerships participate),
which represents the General Partner's estimate of the additional value to be
received each year by the limited partners through participation in the
Consolidation as compared to the alternative of continuation. The estimates of
general and administrative costs savings set forth in Table E and elsewhere in
the Prospectus/Proxy Statement constitute forward-looking statements that
involve known and unknown risks and uncertainties which may cause actual cost
savings to differ materially from such forecasts. These risks include risks
generally associated with the incurrence of general and administrative expenses
in connection with oil and gas production and marketing operations, and are
described in detail in "RISK FACTORS" in the Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($250,493) with the Subject
Partnership's going concern value ($198,447). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
6
<PAGE>
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
Articles 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.
Under its Partnership Agreement, the limited partners of the Subject Partnership
may elect additional or successor general partners by a vote of a majority in
interest but have no right to vote on the removal of the General Partner. The
Articles of the Consolidated Partnership require a vote of two-thirds in
interest to approve the selection of an additional or successor general partner
but do 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" and
"--Applicability of the New Jersey Act."
Although tThe General Partner's voting rights as a limited partner will be
increased as a result of its exchange of indebtedness for Units (see "--Method
of Determining Exchange Values--Indebtedness to the General Partner") and to the
extent that it purchases the limited partnership Interests of limited partners
who exercise their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE
EXCHANGE OFFER--Terms of the Consolidation--Dissenters' Rights" in the
Prospectus/Proxy Statement). The General Partner currently has a 29.11% voting
Interest in the Subject Partnership, but will have a voting interest in the
Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.40% if all Partnerships participate in the Consolidation
and the maximum number of limited partners exercise their dissenters' rights.
Nevertheless, existing limitations on the General Partner's voting rights will
continue to apply on a proportional basis under the Articles as follows: As
indicated in "THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
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 have 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
3.03% to the General Partner and 96.97% 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.
7
<PAGE>
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 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 $344,145
Cash & cash equivalents 11,595
Accounts receivable 20,724
Other current assets 1,014
-------------
Subtotal - assets 377,478
Less:
Liabilities to third parties 2,875
-------------
Partnership Exchange Value 374,603 37,460
Less:
Liability to General Partner 96,041 9,604
General Partner Capital Balance 28,069 2,807
Attributable to GP's revenue interest (2) -
------------- -----------------
Exchange value attributable
to Limited Partners $250,493 25,049
============= =================
Exchange value per $500
Interest $80.58 8.06
============= =================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 2.48%
=================
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $19,243 $18,704 $20,761 $19,005
Net debt repaid to GP 31,052 40,508 15,755 43,965
Cash distributions paid to GP as GP - - - 2,903
Cash distributions paid to GP as LP 8,932 5,296 8,385 8,634
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $9,794 $9,614 $12,183 $9,991
Cash distributions paid to GP as GP (1) - - - -
Cash distributions paid to GP as LP (2) 53,180 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $33,350 $22,141 $42,686 $57,849 $80,899 $109,242
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $84,160 $85,199
Cash Distributions (5) $46,482 $51,424
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would have
been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction..
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 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
in the Consolidation by the Partnerships and in the Exchange Offer
by individual limited partners.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Consideration Determined byConflicts of Interest of the General Partner
in Determining Consideration. The consideration to be received by the
Partnerships in the Consolidation and the General Partner (including future
compensation) 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 revenue interests and ownership percentages in each Partnership and
because of its ability to determine its compensation and the amount it must pay
to limited partners who exercise their dissenters' rights and all other terms of
the Consolidation. These conflicts affect the allocation of costs and benefits
among the Partnerships and, with respect to the total mix of consideration and
future compensation, between the limited partners and the General Partner. The
General Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction ,
and the limited partners may receive less consideration than they might have had
an independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks in Determiningof Disadvantageous Exchange Values. In approving
the Consolidation, or accepting the Exchange Offer, a limited partner risks that
his Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks in Determiningof Disadvantageous
Exchange Values" in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Changes in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $23.44 per $500 Interest in the next four
quarters after the Consolidation versus $15.56 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. See Tables F, G-1 and G-2
in the Prospectus/Proxy Statement. Distributions were estimated for the next
four quarters upon Consolidation by aggregating the future net revenues
estimated by Gruy for all of the Partnerships which participate. Estimated
general and administrative costs were subtracted from this amount and the net
amount was allocated to the Subject Partnership based upon its pro rata share of
the aggregate exchange value. Distributions in the absence of the Consolidation
were estimated for the next four quarters by subtracting estimated general and
administrative costs and debt repayment from Gruy's estimate of the Subject
Partnership's future net revenues. 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.
Tax RisksRisk of Taxable Income In Excess of Cash Distributions.
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" in the Prospectus/Proxy
Statement.
Consequences of Larger EntityRisk of Dilution of Voting Interest.
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. The limited partners of the
Subject Partnership (excluding the General Partner) currently own 75.34% of the
outstanding voting Interests of the Subject Partnership. Based on the exchange
values to be used in the Consolidation, the limited partners of the Subject
Partnership (excluding the General Partner) will own 1.71% of the voting Units
of the Consolidated Partnership if all the Partnerships participate in the
Consolidation, and 2.51% of the voting Units if the minimum number of
Partnerships participate in the Consolidation, including the Subject
Partnership. In addition, the General Partner currently has voting Interests in
the Partnerships ranging from 4.05% to 54.10% (24.66% in the Subject
Partnership), but will have a voting interest in the Consolidated Partnership of
47.08 % if all Partnerships participate in the Consolidation, and 57.97% if the
minimum number of Partnerships participate. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement. The General
Partner's voting interest may increase further as described below in "Rights and
Responsibilities". Also, the pooling of the Partnership's property holdings in
the larger Consolidated Partnership may reduce the possibility for extraordinary
increases in value in the Subject Partnership. 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 participate in the Consolidation and upon participation in
the Exchange Offer by limited partners.
Volatility of Oil and Gas MarketsRisk of Decreases in Oil and Gas
Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $33,139 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 by $25,682 ($20,315 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $12,088.
Diversification of 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, 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Consequences of
Larger EntityRisk of Dilution of Voting Interest" in the Prospectus/Proxy
Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $99,527. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method
4
<PAGE>
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
ChangesIncreases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $23.44 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $14.07 per $500 Interest if the minimum number of Partnerships
participate versus $15.56 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $99,527 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity.
5
<PAGE>
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 $445,000 per
year, and up to $824,000 per year if all Partnerships participate. As Table E in
the Prospectus/Proxy Statement shows, the estimated annual general and
administrative cost savings to be yielded by the Consolidation for the limited
partners of the Subject Partnership is $25,682 if all of the Partnerships
participate ($20,315 if only the minimum number of Partnerships participate),
which represents the General Partner's estimate of the additional value to be
received each year by the limited partners through participation in the
Consolidation as compared to the alternative of continuation. The estimates of
general and administrative costs savings set forth in Table E and elsewhere in
the Prospectus/Proxy Statement constitute forward-looking statements that
involve known and unknown risks and uncertainties which may cause actual cost
savings to differ materially from such forecasts. These risks include risks
generally associated with the incurrence of general and administrative expenses
in connection with oil and gas production and marketing operations, and are
described in detail in "RISK FACTORS" in the Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($343,114) with the Subject
Partnership's going concern value ($271,824). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
6
<PAGE>
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
Articles 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.
Under its Partnership Agreement, the limited partners of the Subject Partnership
may elect additional or successor general partners by a vote of a majority in
interest but have no right to vote on the removal of the General Partner. The
Articles of the Consolidated Partnership require a vote of two-thirds in
interest to approve the selection of an additional or successor general partner
but do 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" and
"--Applicability of the New Jersey Act."
Although tThe General Partner's voting rights as a limited partner will be
increased as a result of its exchange of indebtedness for Units (see "--Method
of Determining Exchange Values--Indebtedness to the General Partner"), and to
the extent that it purchases the limited partnership Interests of limited
partners who exercise their dissenters' rights (see "THE PROPOSED CONSOLIDATION
AND THE EXCHANGE OFFER--Terms of the Consolidation--Dissenters' Rights" in the
Prospectus/Proxy Statement). The General Partner currently has a 24.66% voting
Interest in the Subject Partnership, but will have a voting interest in the
Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.40% if all Partnerships participate in the Consolidation
and the maximum number of limited partners exercise their dissenters' rights.
Nevertheless, existing limitations on the General Partner's voting rights will
continue to apply on a proportional basis under the Articles as follows: As
indicated in "THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
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 have 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
3.03% to the General Partner and 96.97% 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.
7
<PAGE>
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
8
<PAGE>
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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-10, L.P.
Calculation of Exchange Value
As of September 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 $433,923
Cash & cash equivalents 12,733
Accounts receivable 26,129
Other current assets 1,281
----------
Subtotal - assets 474,066
Less:
Liabilities to third parties 3,625
----------
Partnership Exchange Value 470,441 47,044
Less:
Liability to General Partner 99,527 9,953
General Partner Capital Balance 27,800 2,780
Attributable to GP's revenue interest (2) -
---------- ------------------
Exchange value attributable
to Limited Partners $343,114 34,311
========== ==================
Exchange value per $500
Interest $87.61 8.76
========== ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 3.12%
==================
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $21,075 $21,179 $23,897 $20,037
Net debt repaid to GP 52,322 45,945 23,321 64,832
Cash distributions paid to GP as GP - - - 3,879
Cash distributions paid to GP as LP 10,373 5,691 7,824 9,103
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $10,726 $10,887 $14,023 $10,533
Cash distributions paid to GP as GP (1) - - - -
Cash distributions paid to GP as LP (2) 57,212 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $46,194 $28,251 $47,085 $77,035 $105,007 $138,686
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $105,714 $107,530
Cash Distributions (5) $43,421 $48,038
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would have
been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
o 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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
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. Delaware courts, which are often looked to for
guidance on undecided corporate issues, have in several cases involving
corporations held that fully informed stockholder approval of a transaction may,
in certain circumstances, serve to extinguish certain related fiduciary claims
against directors.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 80.69% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .13% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .18%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (19.31% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Risk of Decreases in Oil and Gas Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $27,839 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 by $15,060 ($11,913 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $7,089.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $201,644. If the Subject Partnership participates in
the Consolidation, the General Partner will contribute this receivable for Units
in the Consolidated Partnership. The General Partner will be doing the same
thing for every participating Partnership that is indebted to the General
Partner. 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 AND
THE EXCHANGE OFFER--Method
4
<PAGE>
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $2.10 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$1.87 per $500 Interest if the minimum number of Partnerships participate versus
no distributions if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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 longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. As Table D in the Prospectus/Proxy Statement shows, per $500
limited partner Interest, (i) the Subject 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)
is $7.86 and (ii) Gruy's estimates of the net present value of the cumulative
discounted future net revenues for the Consolidated Partnership allocated to the
Subject Partnership based upon its pro rata share of the total exchange value is
$11.58. The difference represents the General Partner's estimate of the
additional value, per $500 limited partner Interests, to be recovered by the
Subject 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 $201,644 by the Subject Partnership. In a liquidation,
the General Partner would be paid
5
<PAGE>
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 Subject Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $15,060 if all of the Partnerships participate ($11.913 if only the minimum
number of Partnerships participate), which represents the General Partner's
estimate of the additional value to be received each year by the limited
partners through participation in the Consolidation as compared to the
alternative of continuation. The estimates of general and administrative costs
savings set forth in Table E and elsewhere in the Prospectus/Proxy Statement
constitute forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($23,409) with the Subject
Partnership's going concern value ($19,129). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
6
<PAGE>
valuation methods, represent the best methodology for estimating 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 did not materially differ from the terms
and provisions of the Partnership Agreements. See "Differences in Rights and
Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION--Terms of the
Consolidation--Dissenters' Rights" in the Prospectus/Proxy Statement). The
General Partner currently has a 19.31% voting Interest in the Subject
Partnership, but will have a voting interest in the Consolidated Partnership of
47.08% if all Partnerships participate in the Consolidation, and 57.40% if all
Partnerships participate in the Consolidation and the maximum number of limited
partners exercise their dissenters' rights. Nevertheless, existing limitations
on the General Partner's voting rights will continue to apply on a proportional
basis under the Articles as follows: As indicated in "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of the Limited Partners" in the Prospectus/Proxy Statement, the General
Partner will abstain from voting on any selection of an additional or successor
general partner, 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 those Units it holds as a limited partner that it
receives in the Consolidation for Interests in a participating Partnership whose
Partnership Agreement contained a similar restriction (i.e., the 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 the
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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $6,254 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
7
<PAGE>
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General
8
<PAGE>
Partner's net revenue sharing percentage will increase to 15%. Although the
General Partner's share of revenues is not likely to experience this increase in
the foreseeable future, the General Partner will forego this potential increase
in its share of net revenues with respect to each participating Partnership. See
"THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 III - Series 1, L.P.
Calculation of Exchange Value
As of September 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 $262,041
Cash & cash equivalents 5,729
Accounts receivable 15,780
Other current assets 772
---------
Subtotal - assets 284,322
Less:
Liabilities to third parties 2,194
---------
Partnership Exchange Value 282,128 27,587
Less:
Liability to General Partner 201,644 20,164
General Partner Capital Balance 50,821 5,082
Attributable to GP's revenue interest (2) 6,254
--------- ------------------
Exchange value attributable
to Limited Partners $23,409 2,341
========= ==================
Exchange value per $500
Interest $7.86 0.79
========= ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.83%
==================
</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 Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $17,942 $18,820 $20,907 $19,451
Net debt repaid to GP 52,508 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 Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $9,132 $9,674 $12,269 $10,225
Cash distributions paid to GP as GP (1) 1,687 1,580 1,220 1,750
Cash distributions paid to GP as LP (2) 69,325 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C>
Cash Distributions (3) - - - $13,420 $15,730 $67,795
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $52,508 $62,525
Cash Distributions (5) $4,400 $4,867
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transactions,
and the limited partners may receive less consideration than they might have had
an independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 79.10% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .39% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .57 %
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (20.90% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. .
Risk of Decreases in Oil and Gas Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $32,770 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 by $21,718 ($17,180 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $10,222.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $263,595. If the Subject Partnership participates in
the Consolidation, the General Partner will contribute this receivable for Units
in the Consolidated Partnership. The General Partner will be doing the same
thing for every participating Partnership that is indebted to the General
Partner. 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
4
<PAGE>
Values--Indebtedness to the General Partner" in the Prospectus/Proxy Statement,
and each limited partner will receive a smaller proportionate interest in the
Consolidated Partnership than such partner would have received in the
Consolidation absent such conversion of debt for Units by the General Partner.
Elimination of Certain 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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION", should also be considered by the limited partners of the Subject
Partnership.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $4.68 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$4.09 per $500 Interest if the minimum number of Partnerships participate versus
no distributions if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $263,595 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity.
5
<PAGE>
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 $445,000 per
year, and up to $824,000 per year if all Partnerships participate. As Table E in
the Prospectus/Proxy Statement shows, the estimated annual general and
administrative cost savings to be yielded by the Consolidation for the limited
partners of the Subject Partnership is $21,718 if all of the Partnerships
participate ($17,180 if only the minimum number of Partnerships participate),
which represents the General Partner's estimate of the additional value to be
received each year by the limited partners through participation in the
Consolidation as compared to the alternative of continuation. The estimates of
general and administrative costs savings set forth in Table E and elsewhere in
the Prospectus/Proxy Statement constitute forward-looking statements that
involve known and unknown risks and uncertainties which may cause actual cost
savings to differ materially from such forecasts. These risks include risks
generally associated with the incurrence of general and administrative expenses
in connection with oil and gas production and marketing operations, and are
described in detail in "RISK FACTORS" in the Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($74,636) with the Subject
Partnership's going concern value ($60,989). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 of the Consolidation" and
"--Fairness of the Transaction" in the Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "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 based on 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 methodology for estimating 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 did not
materially differ from the terms and provisions of the Partnership Agreements.
See "Differences in Rights and Responsibilities" below.
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
6
<PAGE>
General Partner has striven to ensure that the terms and provisions of the
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION--Terms of the
Consolidation--Dissenters' Rights" in the Prospectus/Proxy Statement). The
General Partner currently has a 20.90% voting Interest in the Subject
Partnership, but will have a voting interest in the Consolidated Partnership of
47.08% if all Partnerships participate in the Consolidation, and 57.40% if all
Partnerships participate in the Consolidation and the maximum number of limited
partners exercise their dissenters' rights. Nevertheless, existing limitations
on the General Partner's voting rights will continue to apply on a proportional
basis under the Articles as follows: As indicated in "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of the Limited Partners" in the Prospectus/Proxy Statement, the General
Partner will abstain from voting on any selection of an additional or successor
general partner, 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 those Units it holds as a limited partner that it
receives in the Consolidation for Interests in a participating Partnership whose
Partnership Agreement contained a similar restriction (i.e., the 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 the
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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $9,019 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
7
<PAGE>
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 September 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 $375,222
Cash & cash equivalents 11,057
Accounts receivable 22,595
Other current assets 1,108
-----------
Subtotal - assets 409,982
Less:
Liabilities to third parties 3,139
-----------
Partnership Exchange Value 406,843 39,782
Less:
Liability to General Partner 263,595 26,360
General Partner Capital Balance 59,593 5,959
Attributable to GP's revenue interest (2) 9,019
----------- ------------------
Exchange value attributable
to Limited Partners $74,636 7,464
=========== ==================
Exchange value per $500
Interest $17.48 1.75
=========== ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 2.64%
==================
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $20,997 $22,943 $26,065 $21,140
Net debt repaid to GP 67,191 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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $10,687 $11,793 $15,295 $11,113
Cash distributions paid to GP as GP (1) 2,433 2,501 1,931 2,769
Cash distributions paid to GP as LP (2) 91,402 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
--------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C>
Cash Distributions (3) - - - $19,240 $25,820 $98,295
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $67,191 $89,322
Cash Distributions (5) $13,772 $15,237
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 79.51% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own 2.39% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and 3.38%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (20.49% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement. .
Risk of Decreases in Oil and Gas Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $41,768 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 by $32,772 ($0 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $15,425.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $107,811. If the Subject Partnership participates in
the Consolidation, the General Partner will contribute this receivable for Units
in the Consolidated Partnership. The General Partner will be doing the same
thing for every participating Partnership that is indebted to the General
Partner. 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 AND
THE EXCHANGE OFFER--Method
4
<PAGE>
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $18.95 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $16.83 per $500 Interest if the minimum number of Partnerships
participate versus $13.75 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $107,811 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity.
5
<PAGE>
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 $445,000 per
year, and up to $824,000 per year if all Partnerships participate. As Table E in
the Prospectus/Proxy Statement
6
<PAGE>
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $32,772 if all of the Partnerships participate ($0 if only the minimum number
of Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation. The estimates of general and administrative costs savings set
forth in Table E and elsewhere in the Prospectus/Proxy Statement constitute
forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($454,036) with the Subject
Partnership's going concern value ($372,835). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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
Articles 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.
7
<PAGE>
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 20.49% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $13,748 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
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
8
<PAGE>
such limitation on reimbursements to the General Partner. See "THE CONSOLIDATED
PARTNERSHIP--Compensation--Direct and Administrative Costs."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 III - Series 3, L.P.
Calculation of Exchange Value
As of September 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 $565,902
Larto Lake 3,727
---------------
Subtotal - Property 569,629
Cash & cash equivalents 15,611
Accounts receivable 36,633
Other current assets 1,669
---------------
Subtotal - assets 623,542
Less:
Liabilities to third parties 9,477
---------------
Partnership Exchange Value 614,065 60,031
Less:
Liability to General Partner 107,811 10,781
General Partner Capital Balance 38,470 3,847
Attributable to GP's revenue interest (2) 13,748
--------------- ------------------
Exchange value attributable
to Limited Partners $454,036 45,404
=============== ==================
Exchange value per $500
Interest $70.84 7.08
=============== ==================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 3.98%
==================
</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 3, L.P.
---------------------------------------------------------------
HISTORICAL Six Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $23,003 $35,848 $42,274 $39,589
Net debt repaid to GP 46,285 51,669 19,243 54,011
Cash distributions paid to GP as GP 10,723 5,408 6,981 14,078
Cash distributions paid to GP as LP 12,536 6,841 6,334 5,900
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Six Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $11,708 $18,426 $24,807 $20,811
Cash distributions paid to GP as GP (1) 3,709 4,042 3,121 4,477
Cash distributions paid to GP as LP (2) 64,606 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,
--------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $72,187 $48,695 $62,865 $126,771 $142,600 $225,565
</TABLE>
<TABLE>
<CAPTION>
Six Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $134,794 $137,075
Cash Distributions (5) $84,543 $93,428
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
of Interest" in the Prospectus/Proxy Statement. Delaware courts, which are often
looked to for guidance on undecided corporate issues, have in several cases
involving corporations held that fully informed stockholder approval of a
transaction may, in certain circumstances, serve to extinguish certain related
fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 81.46% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .41% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .59%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (18.54% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Rights and Responsibilities". Also, the pooling
of the Partnership's property holdings in the larger Consolidated Partnership
may reduce the possibility for extraordinary increases in value in the Subject
Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues" in the Prospectus/Proxy Statement.
Risk of Decreases in Oil and Gas Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION" and "THE EXCHANGE OFFER".
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 $29,057 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 by $13,568 ($10,733 if the
minimum number of partnerships participate)per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $6,386.
Diversification of Property Interests: The Subject Partnership now
holds interests in three acquisitions 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $158,501. If the Subject Partnership participates in
the Consolidation, the General Partner will contribute this receivable for Units
in the Consolidated Partnership. The General Partner will be doing the same
thing for every participating Partnership that is indebted to the General
Partner. 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
4
<PAGE>
Values--Indebtedness to the General Partner" in the Prospectus/Proxy Statement,
and each limited partner will receive a smaller proportionate interest in the
Consolidated Partnership than such partner would have received in the
Consolidation absent such conversion of debt for Units by the General Partner.
Elimination of Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $3.72 per $500 Interest in the next four quarters
after the Consolidation versus no distributions if the Subject Partnership does
not participate in the Consolidation. See Tables F, G-1 and G-2 in the
Prospectus/Proxy Statement. Distributions were estimated for the next four
quarters upon Consolidation by aggregating the future net revenues estimated by
Gruy for all of the Partnerships which participate. Estimated general and
administrative costs were subtracted from this amount and the net amount was
allocated to the Subject Partnership based upon its pro rata share of the
aggregate exchange value. Distributions in the absence of the Consolidation were
estimated for the next four quarters by subtracting estimated general and
administrative costs and debt repayment from Gruy's estimate of the Subject
Partnership's future net revenues. 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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION", should also be considered by the limited partners of the Subject
Partnership.
Alternatives to the Consolidation: The General Partner considered the
alternatives of liquidating the Subject Partnership and continuing the Subject
Partnership, 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 Subject 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 the Subject
Partnership would likely result in lower cash value to the limited partners than
would a continuation of the Subject Partnership, on either a combined or
separate basis. This is because third party purchasers of oil and gas properties
typically pay less than the net present value of the discounted anticipated cash
flows of a property's proved oil and gas reserves. In addition, the General
Partner is owed $158,501 by the Subject Partnership. In a liquidation, 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 Subject Partnership for Units of the
Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited
5
<PAGE>
partners of the Subject Partnership is $13,568 if all of the Partnerships
participate ($10,733 if only the minimum number of Partnerships participate),
which represents the General Partner's estimate of the additional value to be
received each year by the limited partners through participation in the
Consolidation as compared to the alternative of continuation. The estimates of
general and administrative costs savings set forth in Table E and elsewhere in
the Prospectus/Proxy Statement constitute forward-looking statements that
involve known and unknown risks and uncertainties which may cause actual cost
savings to differ materially from such forecasts. These risks include risks
generally associated with the incurrence of general and administrative expenses
in connection with oil and gas production and marketing operations, and are
described in detail in "RISK FACTORS" in the Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($75,211) with the Subject
Partnership's going concern value ($58,313). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 of the Consolidation" and
"--Fairness of the Transaction" in the Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "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 based on 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 methodology for estimating 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 did not
materially differ from the terms and provisions of the Partnership Agreements.
See "Differences in Rights and Responsibilities" below.
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
Articles 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.
6
<PAGE>
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION--Terms of the
Consolidation--Dissenters' Rights" in the Prospectus/Proxy Statement. The
General Partner currently has an 18.54% voting Interest in the Subject
Partnership, but will have a voting interest in the Consolidated Partnership of
47.08% if all Partnerships participate in the Consolidation, and 57.40% if all
Partnerships participate in the Consolidation and the maximum number of limited
partners exercise their dissenters' rights. Nevertheless, existing limitations
on the General Partner's voting rights will continue to apply on a proportional
basis under the Articles as follows: As indicated in "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of the Limited Partners" in the Prospectus/Proxy Statement, the General
Partner will abstain from voting on any selection of an additional or successor
general partner, 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 those Units it holds as a limited partner that it
receives in the Consolidation for Interests in a participating Partnership whose
Partnership Agreement contained a similar restriction (i.e., the 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 the
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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $2,070 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
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
7
<PAGE>
such limitation on reimbursements to the General Partner. See "THE CONSOLIDATED
PARTNERSHIP--Compensation--Direct and Administrative Costs."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 September 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 $16,457
Pecan Island 188,207
Corkscrew 26,553
--------
Subtotal - Property 231,217
Cash & cash equivalents 2,687
Accounts receivable 23,588
Other current assets 4,344
--------
Subtotal - assets 261,836
Less:
Liabilities to third parties 11,228
--------
Partnership Exchange Value 250,608 24,854
Less:
Liability to General Partner 158,501 15,850
General Partner Capital Balance 14,826 1,483
Attributable to GP's revenue interest (2) 2,070
-------- -------
Exchange value attributable
to Limited Partners $75,211 7,521
======== =======
Exchange value per $500
Interest $13.90 1.39
======== =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.65%
=======
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $16,810 $27,484 $31,710 $36,063
Net debt repaid to GP 4,170 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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $8,556 $14,127 $18,608 $18,957
Cash distributions paid to GP as GP (1) 555 476 367 527
Cash distributions paid to GP as LP (2) 50,532 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 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>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $55,765 $49,470
Cash Distributions (5) $13,964 $15,448
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantaeous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 81.06% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .34% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .50%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (18.94% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Risk of Decreases in Oil and Gas Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $53,473 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 by $11,257 ($8,905 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $5,299.
Diversification of Property Interests: The Subject Partnership now
holds interests in four acquisitions 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $104,664. If the Subject Partnership participates in
the Consolidation, the General Partner will contribute this receivable for Units
in the Consolidated Partnership. The General Partner will be doing the same
thing for every participating Partnership that is indebted to the General
Partner. 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 AND
THE EXCHANGE OFFER--Method
4
<PAGE>
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $1.57 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$1.39 per $500 Interest if the minimum number of Partnerships participate versus
no distributions if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION", should also be considered by the limited partners of the Subject
Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $104,664 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity.
5
<PAGE>
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 $445,000 per
year, and up to $824,000 per year if all Partnerships participate. As Table E in
the Prospectus/Proxy Statement
6
<PAGE>
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $11,257 if all of the Partnerships participate ($8,905 if only the minimum
number of Partnerships participate), which represents the General Partner's
estimate of the additional value to be received each year by the limited
partners through participation in the Consolidation as compared to the
alternative of continuation. The estimates of general and administrative costs
savings set forth in Table E and elsewhere in the Prospectus/Proxy Statement
constitute forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($63,479) with the Subject
Partnership's going concern value ($54,999). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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
Articles 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.
7
<PAGE>
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement. The General Partner currently has an 18.94% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $7,742 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
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
8
<PAGE>
such limitation on reimbursements to the General Partner. See "THE CONSOLIDATED
PARTNERSHIP--Compensation--Direct and Administrative Costs."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 III - Series 5, L.P.
Calculation of Exchange Value
As of September 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 $79,656
Michigan 16,466
Enexco 6,246
RIC 97,633
---------
Subtotal - Property 200,001
Cash & cash equivalents -
Accounts receivable 42,419
Other current assets 3,656
---------
Subtotal - assets 246,076
Less:
Liabilities to third parties 32,122
---------
Partnership Exchange Value 213,954 20,621
Less:
Liability to General Partner 104,664 10,466
General Partner Capital Balance 38,069 3,807
Attributable to GP's revenue interest (2) 7,742
--------- --------
Exchange value attributable
to Limited Partners $ 63,479 6,348
========= ========
Exchange value per $500
Interest $5.88 0.59
========= ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.37%
========
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $28,412 $43,150 $51,440 $42,562
Net debt repaid to GP 62,469 62,092 (38,250) (3,578)
Cash distributions paid to GP as GP 1,627 4,552 9,691 15,521
Cash distributions paid to GP as LP 2,746 6,294 10,942 9,445
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $14,460 $22,180 $30,185 $22,374
Cash distributions paid to GP as GP (1) 2,136 2,525 1,950 2,797
Cash distributions paid to GP as LP (2) 41,999 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
--------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $14,638 $40,957 $87,202 $139,691 $259,582 $512,310
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $47,212 $53,936
Cash Distributions (5) $11,860 $13,120
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 81.19% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .70% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and 1.02%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (18.81% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Risk of Decreases in Oil and Gas Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $58,164 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 by $12,657 ($10,012 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $5,957.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $35,797. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method
4
<PAGE>
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $5.46 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$4.82 per $500 Interest if the minimum number of Partnerships participate versus
$1.81 per $500 Interest if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $35,797 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity.
5
<PAGE>
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 $445,000 per
year, and up to $824,000 per year if all Partnerships participate. As Table E in
the Prospectus/Proxy Statement
6
<PAGE>
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $12,657 if all of the Partnerships participate ($10,012 if only the minimum
number of Partnerships participate), which represents the General Partner's
estimate of the additional value to be received each year by the limited
partners through participation in the Consolidation as compared to the
alternative of continuation. The estimates of general and administrative costs
savings set forth in Table E and elsewhere in the Prospectus/Proxy Statement
constitute forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($129,478) with the Subject
Partnership's going concern value ($111,873). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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
Articles 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.
7
<PAGE>
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has an 18.81% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $8,616 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
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
8
<PAGE>
such limitation on reimbursements to the General Partner. See "THE CONSOLIDATED
PARTNERSHIP--Compensation--Direct and Administrative Costs."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 III - Series 6, L.P.
Calculation of Exchange Value
As of September 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 $55,758
Michigan 12,666
Enexco 7,809
RIC 122,042
Barnes Estate 33,598
---------
Subtotal - Property 231,873
Cash & cash equivalents -
Accounts receivable 38,873
Other current assets 3,490
---------
Subtotal - assets 274,236
Less:
Liabilities to third parties 33,765
---------
Partnership Exchange Value 240,471 23,186
Less:
Liability to General Partner 35,797 3,580
General Partner Capital Balance 66,580 6,658
Attributable to GP's revenue interest (2) 8,616
--------- -------
Exchange value attributable
to Limited Partners $129,478 12,948
========= =======
Exchange value per $500
Interest $20.42 2.04
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.54%
=======
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $29,720 $44,914 $53,610 $43,269
Net debt repaid to GP 88,585 79,619 (3,967) (5,626)
Cash distributions paid to GP as GP 1,418 4,697 10,598 13,018
Cash distributions paid to GP as LP 2,395 5,840 9,650 6,070
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $15,126 $23,086 $31,459 $22,745
Cash distributions paid to GP as GP (1) 2,374 2,831 2,186 3,135
Cash distributions paid to GP as LP (2) 34,761 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $12,773 $42,309 $95,464 $117,256 $184,250 $357,481
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $53,028 $60,120
Cash Distributions (5) $24,102 $26,664
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consolidation. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageious Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 81.50% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .22% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .32%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (18.50% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation. See "THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of
Limited Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Risk of Decreases in Oil and Gas Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $11,871 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 by $8,893 per year as a
result of simplified managerial and administrative requirements. The Subject
Partnership's share of the costs of the Consolidation will be approximately
$4,186.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $83,761. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method
4
<PAGE>
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $2.37 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$2.09 per $500 Interest if the minimum number of Partnerships participate versus
no distributions if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $83,761 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity.
5
<PAGE>
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 $445,000 per
year, and up to $824,000 per year if all Partnerships participate. As Table E in
the Prospectus/Proxy Statement
6
<PAGE>
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $8,893 if all of the Partnerships participate ($7,034 if only the minimum
number of Partnerships participate), which represents the General Partner's
estimate of the additional value to be received each year by the limited
partners through participation in the Consolidation as compared to the
alternative of continuation. The estimates of general and administrative costs
savings set forth in Table E and elsewhere in the Prospectus/Proxy Statement
constitute forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($40,167) with the Subject
Partnership's going concern value ($34,744). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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
Articles 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.
7
<PAGE>
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has an 18.50% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $6,081 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
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
8
<PAGE>
such limitation on reimbursements to the General Partner. See "THE CONSOLIDATED
PARTNERSHIP--Compensation--Direct and Administrative Costs."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 III - Series 7, L.P.
Calculation of Exchange Value
As of September 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 $39,828
Michigan 11,512
Enexco 5,577
RIC 87,172
Barnes Estate 16,799
--------
Subtotal - Property 160,888
Cash & cash equivalents -
Accounts receivable 27,709
Other current assets 2,490
--------
Subtotal - assets 191,087
Less:
Liabilities to third parties 22,110
--------
Partnership Exchange Value 168,977 16,290
Less:
Liability to General Partner 83,761 8,376
General Partner Capital Balance 38,968 3,897
Attributable to GP's revenue interest (2) 6,081
-------- --------
Exchange value attributable
to Limited Partners $40,167 4,017
======== ========
Exchange value per $500
Interest $ 8.87 0.89
======== ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.08%
========
</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 A
Enex Oil & Gas Income Program III - Series 7, L.P.
Calculation of Exchange Value
As of September 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 $39,828
Michigan 11,512
Enexco 5,577
RIC 87,172
Barnes Estate 16,799
--------
Subtotal - Property 160,888
Cash & cash equivalents -
Accounts receivable 27,709
Other current assets 2,490
--------
Subtotal - assets 191,087
Less:
Liabilities to third parties 22,110
--------
Partnership Exchange Value 168,977 16,290
Less:
Liability to General Partner 83,761 8,376
General Partner Capital Balance 38,968 3,897
Attributable to GP's revenue interest (2) 6,081
-------- --------
Exchange value attributable
to Limited Partners $40,167 4,017
======== ========
Exchange value per $500
Interest $ 8.87 0.89
======== ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.08%
========
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $24,746 $38,206 $45,263 $40,536
Net debt repaid to GP 57,495 47,384 (12,845) (2,119)
Cash distributions paid to GP as GP 968 3,035 6,619 8,519
Cash distributions paid to GP as LP 1,605 4,204 8,064 6,606
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $12,595 $19,638 $26,561 $21,309
Cash distributions paid to GP as GP (1) 1,674 2,003 1,547 2,218
Cash distributions paid to GP as LP (2) 35,295 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $8,702 $27,296 $59,549 $76,660 $130,701 $34,191
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $37,290 $49,003
Cash Distributions (5) $7,460 $8,253
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 81.21% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .40% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .59%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (18.79% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Risk of Decreases in Oil and Gas Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $49,015 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 by $11,088 ($8,771 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $5,219.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $76,933. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method
4
<PAGE>
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $2.79 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$2.46 per $500 Interest if the minimum number of Partnerships participate versus
no distributions if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $83,761 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity.
5
<PAGE>
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 $445,000 per
year, and up to $824,000 per year if all Partnerships participate. As Table E in
the Prospectus/Proxy Statement
6
<PAGE>
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $11,088 if all of the Partnerships participate ($8,771 if only the minimum
number of Partnerships participate), which represents the General Partner's
estimate of the additional value to be received each year by the limited
partners through participation in the Consolidation as compared to the
alternative of continuation. The estimates of general and administrative costs
savings set forth in Table E and elsewhere in the Prospectus/Proxy Statement
constitute forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($74,969) with the Subject
Partnership's going concern value ($63,886). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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
Articles 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.
7
<PAGE>
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has an 18.79% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $7,620 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
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
8
<PAGE>
such limitation on reimbursements to the General Partner. See "THE CONSOLIDATED
PARTNERSHIP--Compensation--Direct and Administrative Costs."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 III - Series 8, L.P.
Calculation of Exchange Value
As of September 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 $63,726
Michigan 14,566
Enexco 2,676
RIC 41,844
Barnes Estate 70,557
--------
Sub-total - Property 193,369
Cash & cash equivalents -
Accounts receivable 40,851
Other current assets 3,110
--------
Subtotal - assets 237,330
Less:
Liabilities to third parties 26,596
--------
Partnership Exchange Value 210,734 20,311
Less:
Liability to General Partner 76,933 7,693
General Partner Capital Balance 51,212 5,121
Attributable to GP's revenue interest (2) 7,620
-------- -------
Exchange value attributable
to Limited Partners $74,969 7,497
======== =======
Exchange value per $500
Interest $10.42 1.04
======== =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.35%
=======
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $22,304 $35,074 $41,113 $39,164
Net debt repaid to GP 73,236 40,248 (7,471) (1,217)
Cash distributions paid to GP as GP 1,842 1,820 11,607 9,421
Cash distributions paid to GP as LP 3,057 2,237 9,252 3,787
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $11,352 $18,029 $24,126 $20,587
Cash distributions paid to GP as GP (1) 2,081 2,611 2,016 2,891
Cash distributions paid to GP as LP (2) 38,514 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $16,559 $16,381 $104,534 $84,836 $152,700 $348,314
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $46,185 $54,280
Cash Distributions (5) $13,964 $15,448
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
o 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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 83.44% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .22% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .33%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (16.55% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Risk of Decreases in Oil and Gas Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $38,498 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 by $7,274 ($5,754 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $3,424.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $46,464. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method
4
<PAGE>
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $1.68 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$1.46 per $500 Interest if the minimum number of Partnerships participate versus
no distributions if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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 longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $46,464 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
5
<PAGE>
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $7,274 if all of the Partnerships participate ($5,754 if only the minimum
number of Partnerships participate), which represents the General Partner's
estimate of the additional value to be received each year by the limited
partners through participation in the Consolidation as compared to the
alternative of continuation. The estimates of general and administrative costs
savings set forth in Table E and elsewhere in the Prospectus/Proxy Statement
constitute forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($40,684) with the Subject
Partnership's going concern value ($35,553). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
6
<PAGE>
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 16.56% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights provided for in the
Subject Partnership's Partnership Agreement will continue to apply on a
proportional basis under the Articles as follows: As indicated in "THE
CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting
and Other Rights of the Limited Partners" in the Prospectus/Proxy Statement, the
General Partner will abstain from voting on any selection of an additional or
successor general partner, 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 those Units it holds as a limited partner
that it receives in the Consolidation for Interests in the Subject Partnership
and the other Partnerships formed in Enex Oil & Gas Income Program IV and Enex
88-89 Income and Retirement Fund. The General Partner holds Interests with
respect to which its voting rights are restricted in this way totaling 16.5553%
of the Subject Partnership's outstanding Interests. In total, the General
Partner owns 0.84% of such outstanding Interests. The General Partner will also
abstain from voting on any matter those Units it receives in the Consolidation
in exchange for Interests in the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $7,942 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is
7
<PAGE>
not likely to experience this increase in the foreseeable future, the General
Partner will forego this potential increase
8
<PAGE>
in its share of net revenues with respect to each participating Partnership. See
"THE CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 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 $10,519
Barnes Estate 87,359
Brighton 25,915
---------
Sub-total - Property 123,793
Cash & cash equivalents 1,307
Accounts receivable 16,343
Other current assets 1,297
---------
Subtotal - assets 142,740
Less:
Liabilities to third parties 1,547
---------
Partnership Exchange Value 141,193 13,326
Less:
Liability to General Partner 46,464 4,646
General Partner Capital Balance 46,103 4,610
Attributable to GP's revenue interest (2) 7,942
--------- --------
Exchange value attributable
to Limited Partners $40,684 4,068
========= ========
Exchange value per $500
Interest $6.29 0.63
========= ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 0.88%
========
</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.
<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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $17,082 $23,042 $27,614 $32,760
Net debt repaid to GP 72,331 17,761 3,554 (3,738)
Cash distributions paid to GP as GP 926 906 12,738 13,623
Cash distributions paid to GP as LP 1,364 140 7,610 6,104
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $8,694 $11,844 $16,204 $17,221
Cash distributions paid to GP as GP (1) 2,145 2,348 1,813 2,600
Cash distributions paid to GP as LP (2) 26,787 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
--------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $8,341 $8,164 $114,758 $122,737 $56,403 $281,854
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $29,764 $34,354
Cash Distributions (5) $7,460 $8,253
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 84.88% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .28% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .41%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (15.12% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Risk of Decreases in Oil and Gas Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $32,063 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 by $5,445 ($4,308 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $2,563.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $12,548. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method
4
<PAGE>
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $2.68 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$2.36 per $500 Interest if the minimum number of Partnerships participate versus
no distributions if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $12,548 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity.
5
<PAGE>
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 $445,000 per
year, and up to $824,000 per year if all Partnerships participate. As Table E in
the Prospectus/Proxy Statement
6
<PAGE>
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $5,445 if all of the Partnerships participate ($4,308 if only the minimum
number of Partnerships participate), which represents the General Partner's
estimate of the additional value to be received each year by the limited
partners through participation in the Consolidation as compared to the
alternative of continuation. The estimates of general and administrative costs
savings set forth in Table E and elsewhere in the Prospectus/Proxy Statement
constitute forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($49,543) with the Subject
Partnership's going concern value ($43,955). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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
Articles 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.
7
<PAGE>
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 15.12% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights provided for in the
Subject Partnership's Partnership Agreement will continue to apply on a
proportional basis under the Articles as follows: As indicated in "THE
CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting
and Other Rights of the Limited Partners" in the Prospectus/Proxy Statement, the
General Partner will abstain from voting on any selection of an additional or
successor general partner, 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 those Units it holds as a limited partner
that it receives in the Consolidation for Interests in the Subject Partnership
and the other Partnerships formed in Enex Oil & Gas Income Program IV and Enex
88-89 Income and Retirement Fund. The General Partner holds Interests with
respect to which its voting rights are restricted in this way totaling 15.1201%
of the Subject Partnership's outstanding Interests. In total, the General
Partner owns 0.84% of such outstanding Interests. The General Partner will also
abstain from voting on any matter those Units it receives in the Consolidation
in exchange for Interests in the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $5,911 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
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
8
<PAGE>
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 IV - Series 2, L.P.
Calculation of Exchange Value
As of September 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 $67,199
Bagley 8,055
Brighton 11,661
--------
Subtotal - Property 86,915
Cash & cash equivalents 4,479
Accounts receivable 15,111
Other current assets 529
--------
Subtotal - assets 107,034
Less:
Liabilities to third parties 1,375
--------
Partnership Exchange Value 105,659 9,975
Less:
Liability to General Partner 12,548 1,255
General Partner Capital Balance 37,657 3,766
Attributable to GP's revenue interest (2) 5,911
-------- -------
Exchange value attributable
to Limited Partners $49,543 4,954
======== =======
Exchange value per $500
Interest $10.03 1.00
======== =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 0.66%
========
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $14,465 $19,511 $23,176 $31,299
Net debt repaid to GP 56,996 10,976 (2,873) 5,456
Cash distributions paid to GP as GP 715 944 8,964 8,002
Cash distributions paid to GP as LP 968 1,009 5,873 3,143
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $7,362 $10,029 $13,600 $16,453
Cash distributions paid to GP as GP (1) 1,589 1,765 1,363 1,955
Cash distributions paid to GP as LP (2) 15,557 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
---------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $6,425 $8,491 $80,751 $72,079 $76,447 $219,580
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $22,237 $25,766
Cash Distributions (5) $9,182 $10,158
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 88.32% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .51% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .74%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (11.68% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Risk of Decreases in Oil and Gas Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $23,534 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 by $9,153 ($0 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $4,308.
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 approxi mately 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $71,229. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method
4
<PAGE>
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $9.30 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$8.13 per $500 Interest if the minimum number of Partnerships participate versus
$6.24 per $500 Interest if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $71,229 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity.
5
<PAGE>
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 $445,000 per
year, and up to $824,000 per year if all Partnerships participate. As Table E in
the Prospectus/Proxy Statement
6
<PAGE>
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $9,153 if all of the Partnerships participate ($0 if only the minimum number
of Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation. The estimates of general and administrative costs savings set
forth in Table E and elsewhere in the Prospectus/Proxy Statement constitute
forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($87,565) with the Subject
Partnership's going concern value ($69,096). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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
Articles 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.
7
<PAGE>
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has an 11.68% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights provided for in the
Subject Partnership's Partnership Agreement will continue to apply on a
proportional basis under the Articles as follows: As indicated in "THE
CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting
and Other Rights of the Limited Partners" in the Prospectus/Proxy Statement, the
General Partner will abstain from voting on any selection of an additional or
successor general partner, 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 those Units it holds as a limited partner
that it receives in the Consolidation for Interests in the Subject Partnership
and the other Partnerships formed in Enex Oil & Gas Income Program IV and Enex
88-89 Income and Retirement Fund. The General Partner holds Interests with
respect to which its voting rights are restricted in this way totaling 11.6836%
of the Subject Partnership's outstanding Interests. In total, the General
Partner owns 0.84% of such outstanding Interests. The General Partner will also
abstain from voting on any matter those Units it receives in the Consolidation
in exchange for Interests in the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $7,883 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
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
8
<PAGE>
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 IV - Series 4, L.P.
Calculation of Exchange Value
As of September 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 $128,142
El Mac 23,085
---------
Subtotal - Property 151,227
Cash & cash equivalents 5,913
Accounts receivable 12,904
Other current assets 6,062
---------
Subtotal - assets 176,106
Less:
Liabilities to third parties 562
---------
Partnership Exchange Value 175,544 16,767
Less:
Liability to General Partner 71,229 7,123
General Partner Capital Balance 8,867 887
Attributable to GP's revenue interest (2) 7,883
--------- -------
Exchange value attributable
to Limited Partners $87,565 8,757
========= =======
Exchange value per $500
Interest $34.74 3.47
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.11%
=======
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $13,418 $18,093 $21,342 $30,687
Net debt repaid to GP 13,959 18,801 9,549 7,495
Cash distributions paid to GP as GP 2,115 2,049 2,649 4,307
Cash distributions paid to GP as LP 1,205 1,900 1,958 1,534
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $6,829 $9,300 $12,524 $16,131
Cash distributions paid to GP as GP (1) 2,128 1,943 1,500 2,151
Cash distributions paid to GP as LP (2) 24,366 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $11,145 $18,440 $23,837 $38,786 $49,171 $107,405
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $37,632 $37,103
Cash Distributions (5) $16,206 $18,315
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
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.
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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and Exchange Offer--Risks of Disadvantageous Exchange Values" in
the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
of Interest" in the Prospectus/Proxy Statement. Delaware courts, which are often
looked to for guidance on undecided corporate issues, have in several cases
involving corporations held that fully informed stockholder approval of a
transaction may, in certain circumstances, serve to extinguish certain related
fiduciary claims against directors.
Risk of Decreases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $13.25 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $11.71 per $500 Interest if the minimum number of Partnerships
participate versus $16.60 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 88.93% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own 1.33% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and 1.91%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (11.07% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Risk of Decreases in Oil and Gas Prices. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected
3
<PAGE>
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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION" and "THE EXCHANGE OFFER".
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 $25,078 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 by $14,416 ($0 if the
minimum number of partnerships participate) er year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $6,785.
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 approxi mately 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $4,601. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method of
5
<PAGE>
Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership; on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $4,601 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $14,416 if all of the Partnerships participate ($0 if only the minimum number
of Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation. The estimates of general and administrative costs savings set
forth in Table E and elsewhere in the Prospectus/Proxy Statement constitute
forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($225,899) with the Subject
Partnership's going concern value ($201,480). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern basis. The General Partner
determined that, assuming that the minimum participation threshold of the
Consolidation were met,
6
<PAGE>
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 (i) participation in the Consolidated Partnership,
whether by the participation of a Partnership in the Consolidation or by the
participation of a limited partner through the Exchange Offer, and without
regard to the identity of the other participating Partnerships and limited
partners, would be more beneficial to the limited partners than continuing in
their Partnerships, and (ii) maximum participation in the Consolidation would
provide 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 AND THE EXCHANGE OFFER--Background of the Consolidation
and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has an 11.07% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights provided for in the
Subject Partnership's Partnership Agreement will continue to apply on a
proportional basis under the Articles as follows: As indicated in "THE
CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting
and Other Rights of the Limited Partners" in the Prospectus/Proxy Statement, the
General Partner will abstain from voting on any selection of an additional or
successor general partner, 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 those Units it holds as a limited partner
that it receives in the Consolidation for Interests in the Subject Partnership
and the other Partnerships formed in Enex
7
<PAGE>
Oil & Gas Income Program IV and Enex 88-89 Income and Retirement Fund. The
General Partner holds Interests with respect to which its voting rights are
restricted in this way totaling 11.0747% of the Subject Partnership's
outstanding Interests. In total, the General Partner owns 0.84% of such
outstanding Interests. The General Partner will also abstain from voting on any
matter those Units it receives in the Consolidation in exchange for Interests in
the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $16,705 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner.
8
<PAGE>
If all of the Partnerships participate in the Consolidation, the Consolidated
Partnership's net revenues will be allocated 3.03% to the General Partner and
96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 IV - Series 4, L.P.
Calculation of Exchange Value
As of September 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 $128,142
El Mac 23,085
---------
Subtotal - Property 151,227
Cash & cash equivalents 5,913
Accounts receivable 12,904
Other current assets 6,062
---------
Subtotal - assets 176,106
Less:
Liabilities to third parties 562
---------
Partnership Exchange Value 175,544 16,767
Less:
Liability to General Partner 71,229 7,123
General Partner Capital Balance 8,867 887
Attributable to GP's revenue interest (2) 7,883
--------- -------
Exchange value attributable
to Limited Partners $87,565 8,757
========= =======
Exchange value per $500
Interest $34.74 3.47
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.11%
=======
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $13,504 $18,314 $21,586 $30,782
Net debt repaid to GP 16,732 52,122 96,772 (77,718)
Cash distributions paid to GP as GP 6,396 3,621 7,097 8,474
Cash distributions paid to GP as LP 4,639 2,973 5,022 2,884
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $6,873 $9,414 $12,667 $16,181
Cash distributions paid to GP as GP (1) 4,502 3,588 2,770 3,973
Cash distributions paid to GP as LP (2) 17,037 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $44,581 $32,572 $63,874 $76,249 $127,865 $204,710
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $59,186 $51,532
Cash Distributions (5) $42,157 $47,719
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
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.
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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest" in the Prospectus/Proxy Statement. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Risk of Decreases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $8.08 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$7.13 per $500 Interest if the minimum number of Partnerships participate versus
$9.50 per $500 Interest if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 92.60% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .80% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and 1.16%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (7.40% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
Risk of Decreases in Oil and Gas Prices. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected
3
<PAGE>
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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $21,672 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 by $8,991 ($0 if the
minimum number of partnerships participate)per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $4,232.
Diversification of Property Interests: The Subject Partnership now
holds interests in two acquisitions and in seven oil and one gas well. 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $15,774. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method
5
<PAGE>
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
Elimination of Certain 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.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $8,991 if all of the Partnerships participate ($0 if only the minimum number
of Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation. The estimates of general and administrative costs savings set
forth in Table E and elsewhere in the Prospectus/Proxy Statement constitute
forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($130,653) with the Subject
Partnership's going concern value ($117,042). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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
6
<PAGE>
more, but less than all of the Partnerships, than it would from participating in
the proposed Consolidation. The General Partner determined that (i)
participation in the Consolidated Partnership, whether by the participation of a
Partnership in the Consolidation or by the participation of a limited partner
through the Exchange Offer, and without regard to the identity of the other
participating Partnerships and limited partners, would be more beneficial to the
limited partners than continuing in their Partnerships, and (ii) maximum
participation in the Consolidation would provide 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 AND THE EXCHANGE
OFFER--Background of the Consolidation and the Exchange Offer" and "--Fairness
of the Transaction" in the Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 7.40% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights provided for in the
Subject Partnership's Partnership Agreement will continue to apply on a
proportional basis under the Articles as follows: As indicated in "THE
CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting
and Other Rights of the Limited Partners" in the Prospectus/Proxy Statement, the
General Partner will abstain from voting on any selection of an additional or
successor general partner, 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 those Units it holds as a limited partner
that it receives in the Consolidation for Interests in the Subject Partnership
and the other Partnerships formed in Enex Oil & Gas Income Program IV and Enex
88-89 Income and Retirement Fund. The General Partner holds Interests
7
<PAGE>
with respect to which its voting rights are restricted in this way totaling
7.4027% of the Subject Partnership's outstanding Interests. In total, the
General Partner owns 0.84% of such outstanding Interests. The General Partner
will also abstain from voting on any matter those Units it receives in the
Consolidation in exchange for Interests in the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $11,600 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
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."
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
and the Exchange Offer" 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.
8
<PAGE>
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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 IV - Series 6, L.P.
Calculation of Exchange Value
As of September 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 $53,667
Speary 74,047
---------
Subtotal - Property 127,714
Cash & cash equivalents 5,808
Accounts receivable 29,440
Other current assets 13,341
---------
Subtotal - assets 176,303
Less:
Liabilities to third parties -
---------
Partnership Exchange Value 176,303 16,470
Less:
Liability to General Partner 15,774 1,577
General Partner Capital Balance 18,276 1,828
Attributable to GP's revenue interest (2) 11,600
--------- -------
Exchange value attributable
to Limited Partners $130,653 13,065
========= =======
Exchange value per $500
Interest $30.20 3.02
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.09%
========
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $14,289 $18,118 $19,173 $29,980
Net debt repaid to GP 38,560 42,009 52,967 (38,006)
Cash distributions paid to GP as GP 5,045 3,255 5,659 6,607
Cash distributions paid to GP as LP 2,190 2,010 3,172 3,180
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $7,273 $9,313 $11,251 $15,760
Cash distributions paid to GP as GP (1) 3,124 2,710 2,092 3,001
Cash distributions paid to GP as LP (2) 11,788 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $30,833 $29,309 $50,967 $75,593 $130,407 $217,980
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $36,948 $35,385
Cash Distributions (5) $24,743 $27,727
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
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.
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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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. 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
2
<PAGE>
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. Delaware courts, which are often looked to for
guidance on undecided corporate issues, have in several cases involving
corporations held that fully informed stockholder approval of a transaction may,
in certain circumstances, serve to extinguish certain related fiduciary claims
against directors.
Risk of Decreases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $11.41 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $10.20 per $500 Interest if the minimum number of Partnerships
participate versus $16.18 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 86.91% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own 1.24% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and 1.78%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (13.09% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
3
<PAGE>
Risk of Decreases in Oil and Gas Prices. 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>
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $43,748 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 by $13,066 ($0 if the
minimum number of partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $6,150.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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.
Elimination of Certain 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>
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $455,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $13,066 if all of the Partnerships participate ($0 if only the minimum number
of Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation. The estimates of general and administrative costs savings set
forth in Table E and elsewhere in the Prospectus/Proxy Statement constitute
forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($214,947) with the Subject
Partnership's going concern value ($184,443). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the consideration to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (i) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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
6
<PAGE>
CONSOLIDATION AND THE EXCHANGE OFFER--Background of the Consolidation and the
Exchange Offer" and "--Fairness of the Transaction" in the Prospectus/Proxy
Statement.
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 the Partnerships, regardless of which Partnerships
participate in 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 "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 13.09% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights provided for in the
Subject Partnership's Partnership Agreement will continue to apply on a
proportional basis under the Articles as follows: As indicated in "THE
CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting
and Other Rights of the Limited Partners" in the Prospectus/Proxy Statement, the
General Partner will abstain from voting on any selection of an additional or
successor general partner, 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 those Units it holds as a limited partner
that it receives in the Consolidation for Interests in the Subject Partnership
and the other Partnerships formed in Enex Oil & Gas Income Program IV and Enex
88-89 Income and Retirement Fund. The General Partner holds Interests with
respect to which its voting rights are restricted in this way totaling 13.0856%
of the Subject Partnership's outstanding Interests. In total, the General
Partner owns 0.84% of such outstanding Interests. The General Partner will also
abstain from voting on any matter those Units it receives in the Consolidation
in exchange for Interests in the 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.
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
7
<PAGE>
allocated 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $12,535 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership. See "THE CONSOLIDATED PARTNERSHIP--Participation in
Costs and Revenues" in the Prospectus/Proxy Statement.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 30, 1996
(Table C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
8
<PAGE>
9
<PAGE>
TABLE A
Enex Oil & Gas Income Program IV - Series 7, L.P.
Calculation of Exchange Value
As of September 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 $7,203
Binger 40,478
FEC 182,216
----------
Subtotal - Property 229,897
Cash & cash equivalents 3,543
Accounts receivable 40,490
Other current assets 3,717
----------
Subtotal - assets 277,647
Less:
Liabilities to third parties 25,763
----------
Partnership Exchange Value 251,884 23,934
Less:
Liability to General Partner - -
General Partner Capital Balance 24,402 2,440
Attributable to GP's revenue interest (2) 12,535
---------- -------
Exchange value attributable
to Limited Partners $214,947 21,495
========== =======
Exchange value per $500
Interest $42.81 4.28
========== =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.59%
========
</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 IV - SERIES 7, L.P.
--------------------------------------------------------------
HISTORICAL Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $28,250 $38,114 $46,519 $38,977
Net debt repaid to GP 3,231 72,178 (24,872) 21,057
Cash distributions paid to GP as GP 2,467 3,093 10,188 21,057
Cash distributions paid to GP as LP 2,812 3,025 6,087 7,036
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $14,378 $19,591 $27,298 $20,489
Cash distributions paid to GP as GP (1) 3,514 3,147 2,430 3,485
Cash distributions paid to GP as LP (2) 14,480 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
----------------------------------------------------------------------------
September 30,1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $22,215 $27,856 $91,744 $189,652 $263,988 $285,856
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $55,422 $52,219
Cash Distributions (5) $39,257 $45,691
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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 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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values."
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's 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. 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."
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 ("UBTI"). 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 Table F in the Prospectus/Proxy
Statement), 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. Moreover, any limited partners of the Subject Partnership who have
UBTI from other sources may elect to exercise their dissenters' rights as
described under the caption "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 87.24% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .59% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .86%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (12.76% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of partnerships particiate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners." The General Partner's
voting interest may increase further as described below in "Differences in
Rights and Responsibilities". Also, the pooling of the Partnership's property
holdings in the larger Consolidated Partnership may reduce the possibility for
extraordinary increases in value in the Subject Partnerships. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues."
3
<PAGE>
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $29,479 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 by $13,019 ($10,298 if the
minimum number of Partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $6,131.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Partnership had 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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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
4
<PAGE>
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 September 30, 1996 the Subject Partnership
owed the General Partner $125,631. If the Subject Partnership participates in
the Consolidation, the General Partner will contribute this receivable 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 AND THE EXCHANGE OFFER--Method of Determining Exchange
Values--Indebtedness to the General Partner" in the Prospectus/Proxy Statement,
and each limited partner will receive a smaller proportionate interest in the
Consolidated Partnership than such partner would have received in the
Consolidation absent such conversion of debt for Units by the General Partner.
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 Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $9.89 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$8.70 per $500 Interest if the minimum number of Partnerships participate versus
no distributions if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net
revenues.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 longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, but determined that the Consolidation
5
<PAGE>
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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $125,631 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $13,019 if all Partnerships participate (10,298 if only the minimum number of
Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($101,143) with the Subject
Partnership's going concern value ($81,176). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the considerations to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 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.
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 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 AND THE EXCHANGE OFFER--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. In structuring the Consolidation, the General Partner
strove
6
<PAGE>
to ensure that the terms and provisions of the Articles did not materially
differ from the terms and provisions of the Partnership Agreements. See
"Differences in Rights and Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 12.76% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $2,508 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General
7
<PAGE>
Partner's net revenue sharing percentage will increase to 15%. Although the
General Partner's share of revenues is not likely to experience this increase in
the foreseeable future, the General Partner will forego this potential increase
in its share of net revenues with respect to each participating Partnership.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 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 $11,180
Deal 81,213
Shana 32,914
Pecan Island 89,151
Corinne 4,747
---------
Subtotal - Property 219,205
Cash & cash equivalents 6,500
Accounts receivable 15,430
Other current assets -
---------
Subtotal - assets 241,135
Less:
Liabilities to third parties 13
---------
Partnership Exchange Value 241,122 23,861
Less:
Liability to General Partner 125,631 12,563
General Partner Capital Balance 11,704 1,170
Attributable to GP's revenue interest (2) 2,508
--------- --------
Exchange value attributable
to Limited Partners $101,279 10,128
========= ========
Exchange value per $500
Interest $37.02 3.70
========= ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.58%
========
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $19,082 $27,335 $34,009 $29,733
Net debt repaid to GP 12,963 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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $ 9,712 $14,051 $19,957 $15,630
Cash distributions paid to GP as GP (1) 674 742 573 822
Cash distributions paid to GP as LP (2) 40,602 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
----------------------------------------------------------------------------
September 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>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $53,370 $52,562
Cash Distributions (5) $18,746 $20,739
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
DATED , 1997
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.
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
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
o The General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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 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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXHCHANGE OFFER --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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values."
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest."
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 ("UBTI"). 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 Table F in the Prospectus/Proxy
Statement), 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. Moreover, any limited partners of the Subject Partnership who have
UBTI from other sources may elect to exercise their dissenters' rights as
described under the caption "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 65.54% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own 1.18% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .1.73%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (34.46% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners." The General Partner's
voting interest may increase
3
<PAGE>
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnerships. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues."
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $32,776 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 by $15,720 ($12,435 if the
minimum number of Partnerships participate per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $7,399.
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 approxi mately 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 7 in Appendix A to the
Prospectus/Proxy Statement.
4
<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 September 30, 1996 the Subject Partnership
owed the General Partner $3,486. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable 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 AND THE EXCHANGE OFFER--Method of Determining Exchange
Values--Indebtedness to the General Partner" in the Prospectus/Proxy Statement,
and each limited partner will receive a smaller proportionate interest in the
Consolidated Partnership than such partner would have received in the
Consolidation absent such conversion of debt for Units by the General Partner.
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 Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $25.24 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $22.22 per $500 Interest if the minimum number of Partnerships
participate versus $8.89 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net
revenues.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 longer- lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation.
5
<PAGE>
Alternatives to the Consolidation and the exchange offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $3,486 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $15,720 if all the Partnerships participate ($12,435 if only the minimum
number of Partnerships particiate), which represents the General Partner's
estimate of the additional value to be received each year by the limited
partners through participation in the Consolidation as compared to the
alternative of continuation. 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 compared the
Subject Partnership's exchane value used in the Consolidation ($271,980) with
the Subject Partnership's going concern value ($213,762). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the considerations to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on the going concern 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 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.
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 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 AND THE EXCHANGE OFFER--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
6
<PAGE>
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 did not materially differ from the terms and
provisions of the Partnership Agreements. See "Differences in Rights and
Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 34.46% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $3,040 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
7
<PAGE>
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 Income and Retirement Fund - Series 2, L.P.
Calculation of Exchange Value
As of September 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 $32,914
Pecan Island 158,492
Corinne 16,619
East Cameron 22,132
Barnes Estate 16,799
---------
Subtotal - Property 246,956
Cash & cash equivalents 17,983
Accounts receivable 26,063
Other current assets -
---------
Subtotal - assets 291,002
Less:
Liabilities to third parties 6
---------
Partnership Exchange Value 290,996 28,795
Less:
Liability to General Partner 3,486 349
General Partner Capital Balance 12,490 1,249
Attributable to GP's revenue interest (2) 3,040
--------- -------
Exchange value attributable
to Limited Partners $271,980 27,198
========= =======
Exchange value per $500
Interest $94.34 9.43
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.91%
=======
</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 Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $21,087 $30,041 $37,433 $30,861
Net debt repaid to GP 17,362 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 Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $10,732 $15,442 $21,966 $16,223
Cash distributions paid to GP as GP (1) 818 841 650 932
Cash distributions paid to GP as LP (2) 29,837 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------
September 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>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $64,318 $59,433
Cash Distributions (5) $50,499 $55,868
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
DATED , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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 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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values."
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest."
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 ("UBTI"). 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 Table F in the Prospectus/Proxy
Statement), 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. Moreover, any limited partners of the Subject Partnership who have
UBTI from other sources may elect to exercise their dissenters' rights as
described under the caption "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 83.64% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .70% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and 1.01%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (16.36% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participated.
See "THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners." The General Partner's
voting interest may increase
3
<PAGE>
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnerships. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues."
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $33,417 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 by $9,755 ($0 if the
minimum number of Partnerships participateper year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $4,633.
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 approxi mately 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject 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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 7 in Appendix A to the
Prospectus/Proxy Statement.
4
<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 September 30, 1996 the Subject Partnership
owed the General Partner $45,600. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute 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
AND THE EXCHANGE OFFER--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement, and each limited partner
will receive a smaller proportionate interest in the Consolidated Partnership
than such partner would have received in the Consolidation absent such
conversion of debt for Units by the General Partner.
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 Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $11.13 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $9.90 per $500 Interest if the minimum number of Partnerships
participate versus no distributions if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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 longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation.
5
<PAGE>
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the exchange offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $45,600 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $9,725 if all the Partnerships participate ($0 if only the minimum number of
Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($124,251) with the Subject
Partnership's going concern value ($105,281). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the considerations to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 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.
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 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 AND THE EXCHANGE OFFER--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
6
<PAGE>
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. In structuring the Consolidation, the General Partner
strove to ensure that the terms and provisions of the Articles did not
materially differ from the terms and provisions of the Partnership Agreements.
See "Differences in Rights and Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 16.36% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $3,195 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03%
7
<PAGE>
to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 Income and Retirement Fund - Series 3, L.P.
Calculation of Exchange Value
As of September 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 $59,433
Corinne 17,212
East Cameron 22,132
Barnes Estate 43,678
Rigney 4,294
Bagley 4,227
---------
Subtotal - Property 150,976
Cash & cash equivalents 4,022
Accounts receivable 28,526
Other current assets -
---------
Subtotal - assets 183,524
Less:
Liabilities to third parties 2
---------
Partnership Exchange Value 183,522 18,033
Less:
Liability to General Partner 45,600 4,560
General Partner Capital Balance 8,836 884
Attributable to GP's revenue interest (2) 3,195
--------- -------
Exchange value attributable
to Limited Partners $125,891 12,589
========= =======
Exchange value per $500
Interest $42.14 4.21
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.19%
=======
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30,1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $21,785 $30,983 $38,590 $31,241
Net debt repaid to GP 36,903 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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $11,088 $15,926 $22,645 $16,423
Cash distributions paid to GP as GP (1) 860 998 770 1,105
Cash distributions paid to GP as LP (2) 20,342 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
----------------------------------------------------------------------------
September 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>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $40,027 $39,507
Cash Distributions (5) $23,325 $26,342
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
DATED , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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 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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values."
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and
Indemnification" and "--Conflicts of Interest."
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 ("UBTI"). 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 Table F in the Prospectus/Proxy
Statement), 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. Moreover, any limited partners of the Subject Partnership who have
UBTI from other sources may elect to exercise their dissenters' rights as
described under the caption "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 94.28% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .27% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .40%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (5.72% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners." The General Partner's
voting interest may increase
3
<PAGE>
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnerships. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues."
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $12,335 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 by $4,796 ($3,794 if the
minimum number of Partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $2,257.
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 approxi mately 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 7 in Appendix A to the
Prospectus/Proxy Statement.
4
<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 September 30, 1996 the Subject Partnership
owed the General Partner $36,004. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable 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 AND THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values--Indebtedness to the General Partner" in the Prospectus/Proxy
Statement, and each limited partner will receive a smaller proportionate
interest in the Consolidated Partnership than such partner would have received
in the Consolidation absent such conversion of debt for Units by the General
Partner.
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 Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $5.11 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$4.54 per $500 Interest if the minimum number of Partnerships participate versus
no distributions if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net
revenues.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 longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation.
5
<PAGE>
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the exchange offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $36,004 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $4,796, if all the Partnerships participate ($3,794 if only the minimum
number of Partnerships participate) which represents the General Partner's
estimate of the additional value to be received each year by the limited
partners through participation in the Consolidation as compared to the
alternative of continuation. 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 compared the
Subject Partnership's exchange value used in the Consolidation ($43,919) with
the Subject Partnership's going concern value ($38,924). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the considerations to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 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.
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 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 AND THE EXCHANGE OFFER--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,
6
<PAGE>
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. In structuring
the Consolidation, the General Partner strove to ensure that the terms and
provisions of the Articles did not materially differ from the terms and
provisions of the Partnership Agreements. See "Differences in Rights and
Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement. The General Partner currently has a 5.72% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights provided for in the
Subject Partnership's Partnership Agreement will continue to apply on a
proportional basis under the Articles as follows: As indicated in "THE
CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting
and Other Rights of the Limited Partners" in the Prospectus/Proxy Statement, the
General Partner will abstain from voting on any selection of an additional or
successor general partner, 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 those Units it holds as a limited partner
that it receives in the Consolidation for Interests in the Subject Partnership
and the other Partnerships formed in Enex Oil & Gas Income Program IV and Enex
88-89 Income and Retirement Fund. The General Partner holds Interests with
respect to which its voting rights are restricted in this way totaling 5.7215%
of the Subject Partnership's outstanding Interests. In total, the General
Partner owns 0.84% of such outstanding Interests. The General Partner will also
abstain from voting on any matter those Units it receives in the Consolidation
in exchange for Interests in the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $4,701 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the
7
<PAGE>
Partnerships participate in the Consolidation, the Consolidated Partnership's
net revenues will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 88-89 Income and Retirement Fund - Series 5, L.P.
Calculation of Exchange Value
As of September 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 $14,204
Speary 30,639
Baywood II 780
Wardner Ranch 26,494
--------
Subtotal - Property 72,117
Cash & cash equivalents 4,840
Accounts receivable 15,597
Other current assets -
--------
Subtotal - assets 92,554
Less:
Liabilities to third parties 6
--------
Partnership Exchange Value 92,548 8,784
Less:
Liability to General Partner 36,004 3,600
General Partner Capital Balance 7,924 792
Attributable to GP's revenue interest (2) 4,701
-------- ------
Exchange value attributable
to Limited Partners $43,919 4,392
======== ======
Exchange value per $500
Interest $19.09 1.91
======== ======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 0.58%
======
</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 Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $7,915 $10,052 $10,814 $20,439
Net debt repaid to GP 20,009 30,223 8,017 (14,220)
Cash distributions paid to GP as GP 689 758 3,210 3,180
Cash distributions paid to GP as LP 352 303 925 667
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $4,029 $5,167 $6,346 $10,744
Cash distributions paid to GP as GP (1) 1,267 1,165 89 1,290
Cash distributions paid to GP as LP (2) 12,520 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $6,181 $6,818 $28,898 $33,710 $47,951 $109,911
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $19,500 $19,238
Cash Distributions (5) $8,225 $9,100
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
DATED , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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 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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values."
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest."
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 ("UBTI"). 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 Table F in the Prospectus/Proxy
Statement), 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. Moreover, any limited partners of the Subject Partnership who have
UBTI from other sources may elect to exercise their dissenters' rights as
described under the caption "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 87.22% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .24% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .36%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (12.78% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners." The General Partner's
voting interest may increase
3
<PAGE>
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnerships. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues."
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $12,422 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 by $6,276 ($4,964 if the
minimum number of Partnerships participated) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $2,954.
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 approxi mately 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 7 in Appendix A to the
Prospectus/Proxy Statement.
4
<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 September 30, 1996 the Subject Partnership
owed the General Partner $65,039. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable 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 AND THE EXCHANGE OFFER22--Method of Determining Exchange
Values--Indebtedness to the General Partner" in the Prospectus/Proxy Statement,
and each limited partner will receive a smaller proportionate interest in the
Consolidated Partnership than such partner would have received in the
Consolidation absent such conversion of debt for Units by the General Partner.
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 Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $5.47 per $500 Interest in the next four quarters
after the Consolidation if the maximum number of Partnerships participate and
$4.81 per $500 Interest if the minimum number of Partnerships participate versus
no distributions if the Subject Partnership does not participate in the
Consolidation. The minimum number of Partnerships include the Subject
Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy
Statement.Distributions were estimated for the next four quarters upon
Consolidation by aggregating the future net revenues estimated by Gruy for all
of the Partnerships which participate. Estimated general and administrative
costs were subtracted from this amount and the net amount was allocated to the
Subject Partnership based upon its pro rata share of the aggregate exchange
value. Distributions in the absence of the Consolidation were estimated for the
next four quarters by subtracting estimated general and administrative costs and
debt repayment from Gruy's estimate of the Subject Partnership's future net
revenues. 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 longer- lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation.
5
<PAGE>
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the exchange offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $65,039 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $6,276 if all the Partnerships participate ($4,964 if only the minimum number
of Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation. 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 compared the Subject
Partnership's exchange value used in the Consolidation ($42,246) with the
Subject Partnership's going concern value ($36,979). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the considerations to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 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.
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 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 AND THE EXCHANGE OFFER--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,
6
<PAGE>
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. In structuring
the Consolidation, the General Partner strove to ensure that the terms and
provisions of the Articles did not materially differ from the terms and
provisions of the Partnership Agreements. See "Differences in Rights and
Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 12.78% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights provided for in the
Subject Partnership's Partnership Agreement will continue to apply on a
proportional basis under the Articles as follows: As indicated in "THE
CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting
and Other Rights of the Limited Partners" in the Prospectus/Proxy Statement, the
General Partner will abstain from voting on any selection of an additional or
successor general partner, 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 those Units it holds as a limited partner
that it receives in the Consolidation for Interests in the Subject Partnership
and the other Partnerships formed in Enex Oil & Gas Income Program IV and Enex
88-89 Income and Retirement Fund. The General Partner holds Interests with
respect to which its voting rights are restricted in this way totaling 12.7781%
of the Subject Partnership's outstanding Interests. In total, the General
Partner owns 0.84% of such outstanding Interests. The General Partner will also
abstain from voting on any matter those Units it receives in the Consolidation
in exchange for Interests in the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $4,480 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the
7
<PAGE>
Partnerships participate in the Consolidation, the Consolidated Partnership's
net revenues will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 88-89 Income and Retirement Fund - Series 6, L.P.
Calculation of Exchange Value
As of September 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 $20,428
Baywood II 834
Wardner Ranch 83,269
--------
Subtotal - Property 104,531
Cash & cash equivalents 5,610
Accounts receivable 9,299
Other current assets -
--------
Subtotal - assets 119,440
Less:
Liabilities to third parties 4
--------
Partnership Exchange Value 119,436 11,497
Less:
Liability to General Partner 65,039 6,504
General Partner Capital Balance 7,671 767
Attributable to GP's revenue interest (2) 4,480
-------- -------
Exchange value attributable
to Limited Partners $42,246 4,225
======== =======
Exchange value per $500
Interest $20.44 2.04
======== =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 0.76%
=======
</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 Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $8,089 $10,350 $11,102 $20,455
Net debt repaid to GP 23,989 28,971 9,820 (9,656)
Cash distributions paid to GP as GP 717 518 2,921 2,456
Cash distributions paid to GP as LP 824 274 1,202 660
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $4,117 $5,320 $6,515 $10,753
Cash distributions paid to GP as GP (1) 1,204 1,126 869 1,247
Cash distributions paid to GP as LP (2) 21,061 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-----------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $6,459 $4,664 $26,279 $35,688 $48,763 $89,443
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $25,658 $25,078
Cash Distributions (5) $7,843 $8,676
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
DATED , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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 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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values."
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest."
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 ("UBTI"). 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 Table F in the Prospectus/Proxy
Statement), 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. Moreover, any limited partners of the Subject Partnership who have
UBTI from other sources may elect to exercise their dissenters' rights as
described under the caption "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 89.87% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own 1.85% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and 2.72%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (10.13% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners."
3
<PAGE>
The General Partner's voting interest may increase further as described below in
"Differences in Rights and Responsibilities". Also, the pooling of the
Partnership's property holdings in the larger Consolidated Partnership may
reduce the possibility for extraordinary increases in value in the Subject
Partnerships. See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues."
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $14,889 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 by $17,793 ($14,075 if the
minimum number of Partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $8,375.
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 approxi mately 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 7 in Appendix A to the
Prospectus/Proxy Statement.
4
<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 September 30, 1996 the Subject Partnership
owed the General Partner $2,659. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable 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 AND THE EXCHANGE OFFER--Method of Determining Exchange
Values--Indebtedness to the General Partner" in the Prospectus/Proxy Statement,
and each limited partner will receive a smaller proportionate interest in the
Consolidated Partnership than such partner would have received in the
Consolidation absent such conversion of debt for Units by the General Partner.
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 Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $26.99 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $23.73 per $500 Interest if the minimum number of Partnerships
participate versus $20.47 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net
revenues.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 longer- lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation.
5
<PAGE>
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the exchange offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $2,659 by the Subject
Partnership. In a liquidation, 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 Subject
Partnership for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $17,793 if all the Partnerships participate ($14,075 if only the minimum
number of Partnerships participated), which represents the General Partner's
estimate of the additional value to be received each year by the limited
partners through participation in the Consolidation as compared to the
alternative of continuation.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($311,482) with the Subject
Partnership's going concern value ($264,539). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the considerations to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 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.
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 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 AND THE EXCHANGE OFFER--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
6
<PAGE>
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. In structuring the Consolidation, the General Partner
strove to ensure that the terms and provisions of the Articles did not
materially differ from the terms and provisions of the Partnership Agreements.
See "Differences in Rights and Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 10.13% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights provided for in the
Subject Partnership's Partnership Agreement will continue to apply on a
proportional basis under the Articles as follows: As indicated in "THE
CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting
and Other Rights of the Limited Partners" in the Prospectus/Proxy Statement, the
General Partner will abstain from voting on any selection of an additional or
successor general partner, 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 those Units it holds as a limited partner
that it receives in the Consolidation for Interests in the Subject Partnership
and the other Partnerships formed in Enex Oil & Gas Income Program IV and Enex
88-89 Income and Retirement Fund. The General Partner holds Interests with
respect to which its voting rights are restricted in this way totaling 10.1336%
of the Subject Partnership's outstanding Interests. In total, the General
Partner owns 0.84% of such outstanding Interests. The General Partner will also
abstain from voting on any matter those Units it receives in the Consolidation
in exchange for Interests in the 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.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $10,524 for the Subject
7
<PAGE>
Partnership). Thus, the Consolidation will not increase the compensation of the
General Partner. If all of the Partnerships participate in the Consolidation,
the Consolidated Partnership's net revenues will be allocated 3.03% to the
General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 88-89 Income and Retirement Fund - Series 7, L.P.
Calculation of Exchange Value
As of September 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 $585
Wardner Ranch 302,792
---------
Subtotal - Property 303,377
Cash & cash equivalents 24,862
Accounts receivable 8,218
Other current assets -
---------
Subtotal - assets 336,457
Less:
Liabilities to third parties 3
---------
Partnership Exchange Value 336,454 32,593
Less:
Liability to General Partner 2,659 266
General Partner Capital Balance 11,789 1,179
Attributable to GP's revenue interest (2) 10,524
--------- --------
Exchange value attributable
to Limited Partners $311,482 31,148
========= ========
Exchange value per $500
Interest $100.84 10.08
========= ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 2.16%
========
</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 Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $10,792 $12,818 $11,973 $20,726
Net debt repaid to GP 36,561 30,444 14,841 2,644
Cash distributions paid to GP as GP 4,430 7,103 10,137 9,811
Cash distributions paid to GP as LP 3,068 2,947 5,733 1,359
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $5,493 $6,586 $7,026 $10,895
Cash distributions paid to GP as GP (1) 2,836 2,547 1,966 2,820
Cash distributions paid to GP as LP (2) 12,705 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $31,485 $36,917 $91,248 $96,730 $92,398 $159,862
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $72,870 $69,740
Cash Distributions (5) $57,768 $63,909
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
DATED , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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 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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values."
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's 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. 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
2
<PAGE>
CONSOLIDATED PARTNERSHIP--Management--Fiduciary Obligations and Indemnification"
and "--Conflicts of Interest."
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 ("UBTI"). 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 Table F in the Prospectus/Proxy
Statement), 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. Moreover, any limited partners of the Subject Partnership who have
UBTI from other sources may elect to exercise their dissenters' rights as
described under the caption "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 82.96% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own 2.01% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and 2.87%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (17.04% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners." The General Partner's
voting interest may increase
3
<PAGE>
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnerships. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues."
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $17,315 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 by $20,740 ($0 if the
minimum number of Partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $9,762.
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 approxi mately 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 7 in Appendix A to the
Prospectus/Proxy Statement.
4
<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 September 30, 1996 the Subject Partnership
owed the General Partner $1,955. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable 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 AND THE EXCHANGE OFFER--Method of Determining Exchange
Values--Indebtedness to the General Partner" in the Prospectus/Proxy Statement,
and each limited partner will receive a smaller proportionate interest in the
Consolidated Partnership than such partner would have received in the
Consolidation absent such conversion of debt for Units by the General Partner.
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 Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $32.95 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $28.75 per $500 Interest if the minimum number of Partnerships
participate versus $28.20 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net
revenues.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 longer- lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation.
5
<PAGE>
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION", should also be considered by the limited partners of the Subject
Partnership.
Alternatives to the Consolidation and the exchange offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $1,955. In a liquidation,
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 Subject Partnership for Units of the
Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $20,740 if all the Partnerships participate ($0 if only the minimum number of
Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation. 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 compared the Subject
Partnership's exchange value used in the Consolidation ($366,426) with the
Subject Partnership's going concern value ($311,009). See Table E-1 in he
Prospectus/Proxy Statement. As shown, the considerations to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 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.
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 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 AND THE EXCHANGE OFFER--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,
6
<PAGE>
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. In structuring
the Consolidation, the General Partner strove to ensure that the terms and
provisions of the Articles did not materially differ from the terms and
provisions of the Partnership Agreements. See "Differences in Rights and
Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement. The General Partner currently has a 17.04% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the Subject Partnership, but only to
the extent such Interests were acquired within two years from the date of the
Subject Partnership's commencement of operations. The same restriction applies
in the case of the other Partnerships formed in Enex Oil & Gas Income Programs V
and VI and in Enex 90-91 Income and Retirement Fund. The General Partner holds
Interests with respect to which its voting rights are restricted in this way
totaling 17.0386% of the Subject Partnership's outstanding Interests. In total,
the General Partner owns 1.85% of such outstanding Interests.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $16,908 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the
7
<PAGE>
Partnerships participate in the Consolidation, the Consolidated Partnership's
net revenues will be allocated 3.03% to the General Partner and 96.97% 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.
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 90-91 Income and Retirement Fund - Series 1, L.P.
Calculation of Exchange Value
As of September 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 $344,425
FEC 24,600
---------
Subtotal - Property 369,025
Cash & cash equivalents 16,071
Accounts receivable 11,720
Other current assets -
---------
Subtotal - assets 396,816
Less:
Liabilities to third parties 3
---------
Partnership Exchange Value 396,813 37,991
Less:
Liability to General Partner 1,955 196
General Partner Capital Balance 11,524 1,152
Attributable to GP's revenue interest (2) 16,908
--------- -------
Exchange value attributable
to Limited Partners $366,426 36,643
========= =======
Exchange value per $500
Interest $123.16 12.32
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 2.52%
=======
</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 1, L.P.
---------------------------------------------------------------
HISTORICAL Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $9,925 $13,946 $20,025 $26,347
Net debt repaid to GP 52,828 31,881 6,770 (1,660)
Cash distributions paid to GP as GP 6,211 5,445 12,852 12,589
Cash distributions paid to GP as LP 7,289 7,334 11,232 6,818
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
-----------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $5,052 $5,167 $6,346 $10,744
Cash distributions paid to GP as GP (1) 4,557 4,106 3,170 4,547
Cash distributions paid to GP as LP (2) 23,712 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $43,473 $49,003 $115,678 $123,588 $114,323 $173,485
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $85,187 $84,856
Cash Distributions (5) $68,814 $76,407
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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 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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values."
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's 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. 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."
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 ("UBTI"). 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 Table F in the Prospectus/Proxy
Statement), 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. Moreover, any limited partners of the Subject Partnership who have
UBTI from other sources may elect to exercise their dissenters' rights as
described under the caption "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement.
Risk of Taxable Income In Excess of Cash Distribtutions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 84.98% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own .66% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and .95%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (15.02% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners." The General Partner's
voting interest may increase further as described below in "Differences in
Rights and Responsibilities". Also, the pooling of the Partnership's property
holdings in the larger Consolidated Partnership may reduce the possibility for
extraordinary increases in value in the Subject Partnerships. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues."
3
<PAGE>
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $24,649 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 by $8,986 ($0 if the
minimum number of Partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $4,230.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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
4
<PAGE>
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 September 30, 1996 the Subject Partnership
owed the General Partner $46,647. If the Subject 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 AND THE EXCHANGE OFFER--Method
of Determining Exchange Values--Indebtedness to the General Partner" in the
Prospectus/Proxy Statement, and each limited partner will receive a smaller
proportionate interest in the Consolidated Partnership than such partner would
have received in the Consolidation absent such conversion of debt for Units by
the General Partner.
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 Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $15.46 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $13.65 per $500 Interest if the minimum number of Partnerships
participate versus $7.78 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net
revenues.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 longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
5
<PAGE>
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, 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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $1,955. In a liquidation,
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 Subject Partnership for Units of the
Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $20,740 if all Partnerships participate ($0 if only the minimum number of
Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($116,705) with the Subject
Partnership's going concern value ($97,623). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the considerations to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 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.
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 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 AND THE EXCHANGE OFFER--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
6
<PAGE>
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 did not materially differ from the terms and
provisions of the Partnership Agreements. See "Differences in Rights and
Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 15.02% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the Subject Partnership, but only to
the extent such Interests were acquired within two years from the date of the
Subject Partnership's commencement of operations. The same restriction applies
in the case of the other Partnerships formed in Enex Oil & Gas Income Programs V
and VI and in Enex 90-91 Income and Retirement Fund. The General Partner holds
Interests with respect to which its voting rights are restricted in this way
totaling 17.0386% of the Subject Partnership's outstanding Interests. In total,
the General Partner owns 1.85% of such outstanding Interests.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $16,908 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
7
<PAGE>
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership.
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."
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 90-91 Income and Retirement Fund - Series 2, L.P.
Calculation of Exchange Value
As of September 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 $153,973
Cash & cash equivalents 3,458
Accounts receivable 17,621
Other current assets -
---------
Subtotal - assets 175,052
Less:
Liabilities to third parties 4
---------
Partnership Exchange Value 175,048 16,461
Less:
Liability to General Partner 43,647 4,365
General Partner Capital Balance 4,253 425
Attributable to GP's revenue interest (2) 10,443
--------- --------
Exchange value attributable
to Limited Partners $116,705 11,671
========= ========
Exchange value per $500
Interest $57.77 5.78
========= ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 1.09%
========
</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 Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $15,578 $21,513 $29,721 $29,551
Net debt repaid to GP 28,229 (4,468) (9,723) 1,039
Cash distributions paid to GP as GP 2,222 1,614 4,974 10,631
Cash distributions paid to GP as LP 2,168 3,233 7,967 13,278
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $7,929 $11,058 $17,441 $15,534
Cash distributions paid to GP as GP (1) 2,815 2,792 2,156 3,092
Cash distributions paid to GP as LP (2) 17,645 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $14,683 $22,351 $56,475 $100,039 $103,638 $70,983
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $36,948 $40,194
Cash Distributions (5) $21,756 $24,172
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
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 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.
1
<PAGE>
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. and because
of its ability to determine its compensation and the amount it must pay to
limited partners who exercise their dissenters' rights and all other terms of
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party in an arms-length transaction, and
the limited partners may receive less consideration than they might have had an
independent representative been appointed. 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 AND THE EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values."
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's 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. 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."
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 ("UBTI"). 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 Table F in the Prospectus/Proxy
Statement), 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. Moreover, any limited partners of the Subject Partnership who have
UBTI from other sources may elect to exercise their dissenters' rights as
described under the caption "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 95.95% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own 3.47% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and 4.84%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (4.05% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation, and 57.97% if the minimum number of Partnerships participate. See
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of Limited Partners." The General Partner's
voting interest may increae further as described below in "Differences in Rights
and Responsibilities". Also, the pooling of the Partnership's property holdings
in the larger Consolidated Partnership may reduce the possibility for
extraordinary increases in value in the Subject Partnerships. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues."
3
<PAGE>
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $34,955 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 by $30,375 ($0 if the
minimum number of Partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $14,297.
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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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 2.21 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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
4
<PAGE>
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 September 30, 1996 the Subject Partnership
owed the General Partner $38. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable 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 AND THE EXCHANGE OFFER--Method of Determining Exchange
Values--Indebtedness to the General Partner" in the Prospectus/Proxy Statement,
and each limited partner will receive a smaller proportionate interest in the
Consolidated Partnership than such partner would have received in the
Consolidation absent such conversion of debt for Units by the General Partner.
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 Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $67.25 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $58.55 per $500 Interest if the minimum number of Partnerships
participate versus $48.05 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net
revenues.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 longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation.
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, but determined that the Consolidation
5
<PAGE>
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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $38. In a liquidation,
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 Subject Partnership for Units of the
Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $30,375 if all the Partnerships participate ($0 if only the minimum number of
Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($546,700) with the Subject
Partnership's going concern value ($433,582). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the considerations to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 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.
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 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 AND THE EXCHANGE OFFER--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. In structuring the Consolidation, the General Partner
strove
6
<PAGE>
to ensure that the terms and provisions of the Articles did not materially
differ from the terms and provisions of the Partnership Agreements. See
"Differences in Rights and Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 4.05% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the Subject Partnership, but only to
the extent such Interests were acquired within two years from the date of the
Subject Partnership's commencement of operations. The same restriction applies
in the case of the other Partnerships formed in Enex Oil & Gas Income Programs V
and VI and in Enex 90-91 Income and Retirement Fund. The General Partner holds
Interests with respect to which its voting rights are restricted in this way
totaling 4.0525% of the Subject Partnership's outstanding Interests. In total,
the General Partner owns 1.85% of such outstanding Interests.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. 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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $29,346 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
7
<PAGE>
Moreover, except for Enex Oil & Gas Income Program VI, all of the existing
Partnership Agreements provide that upon the limited partners' receipt of
aggregate Partnership distributions equal to (or in the case of the Partnerships
formed in Enex Oil & Gas Income Program V equal to twice) their subscriptions to
the Partnership, the General Partner's net revenue sharing percentage will
increase to 15%. Although the General Partner's share of revenues is not likely
to experience this increase in the foreseeable future, the General Partner will
forego this potential increase in its share of net revenues with respect to each
participating Partnership.
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 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 90-91 Income and Retirement Fund - Series 3, L.P.
Calculation of Exchange Value
As of September 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 $498,319
Cash & cash equivalents 38,236
Accounts receivable 49,199
Other current assets -
----------
Subtotal - assets 585,754
Less:
Liabilities to third parties -
----------
Partnership Exchange Value 585,754 55,641
Less:
Liability to General Partner 38 4
General Partner Capital Balance 9,670 967
Attributable to GP's revenue interest (2) 29,346
---------- --------
Exchange value attributable
to Limited Partners $546,700 54,670
========== ========
Exchange value per $500
Interest $251.35 25.13
========== ========
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 3.69%
========
</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 90-91 INCOME AND RETIREMENT FUND - SERIES 3, L.P.
---------------------------------------------------------------
HISTORICAL Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $29,188 $28,177 $21,904 $26,960
Net debt repaid to GP 7,445 (3,872) 28,292 17,318
Cash distributions paid to GP as GP 15,833 12,417 7,758 20,055
Cash distributions paid to GP as LP 4,099 3,320 1,871 4,043
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended
Ended December 31,
------------------------------------------------
September 30, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $14,855 $14,484 $12,854 $14,172
Cash distributions paid to GP as GP (1) 7,911 7,119 5,497 7,883
Cash distributions paid to GP as LP (2) 8,590 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.
Nine Months
HISTORICAL Ended Year Ended December 31,
-------------------------------------------------------------------------------
September 30, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $103,686 $111,762 $69,821 $180,501 $113,939 -
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $124,872 $124,707
Cash Distributions (5) $102,112 $113,941
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 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 EXCHANGE OFFER
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated , 1997
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.
This offering involves risks, including the following:
o The consideration to be received by the Partnerships and the
General Partner (including future compensation) 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 and because of its ability to determine its
compensation and the amount it must pay to limited partners who
exercise their dissenters' rights and all other terms of the
Consolidation, faces a conflict of interest in determining how to
allocate costs and benefits among the Partnerships, and, with
respect to the total mix of consideration and future compensation,
between the limited partners and the General Partner.
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 General Partner has not retained unaffiliated representatives
to act on the limited partners' behalf to negotiate the terms of
the Consolidation. As a result, limited partners may receive less
consideration than they might have had an independent
representative been appointed or if their Partnership's assets
were sold to an unaffiliated party in an arms-length transaction.
o The General Partner's management of the Consolidated Partnership's
operations will be subject to conflicts of interest.
o 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.
o The Articles governing the Consolidated Partnership do not require
that during the sixth year after commencement of operations and at
least every two years thereafter, the General Partner will submit
1
<PAGE>
a proposal to sell all of the Partnership's properties and to
dissolve and liquidate to a vote of the limited partners.
o Under certain circumstances, the Subject Partnership's
participation in a transaction such as the Consolidation, would
require compliance with certain terms and conditions of the
Partnership agreement that are not satisfied by the Consolidation.
Additional information about risk factors associated with the Consolidation is
summarized below and described in more detail under the caption "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer" in the
Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in Determining
Consideration. The consideration to be received by the Partnerships in the
Consolidation and the General Partner (including future compensation) 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 revenue
interests and ownership percentages in each Partnership and because of its
ability to determine its compensation and the amount it must pay to limited
partners who exercise their dissenters' rights and all other terms of the
Consolidation. These conflicts affect the allocation of costs and benefits among
the Partnerships and, with respect to the total mix of consideration and future
compensation, between the limited partners and the General Partner. The General
Partner has inherent conflicts of interest in adopting the methods of
determining the exchange values since it will purchase the limited partnership
interests of dissenting limited partners at the exchange value prices following
the Consolidation. 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, and there were no
"arms length" negotiations to determine the amount of consideration. As a
result, the consideration may not reflect the value of the Partnership's net
assets if sold to an unaffiliated third party, and the limited partners may
receive less consideration than they might have had an independent
representative been appointed. 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 AND THE
EXCHANGE OFFER--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.
Risks of Disadvantageous Exchange Values. In approving the
Consolidation, or accepting the Exchange Offer, a limited partner risks that his
Partnership's 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. Gruy's valuations are as of
December 31, 1995 and values may have changed or may change before the date of
the Consolidation. See "SELECTED FINANCIAL DATA" and "RISK FACTORS--The Proposed
Consolidation and the Exchange Offer--Risks of Disadvantageous Exchange Values"
in the accompanying Prospectus/Proxy Statement.
Conflicts of Interest of the General Partner in the Future Management
of the Consolidated Partnership. The General Partner's interest in each separate
Partnership's revenues, if any, 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
2
<PAGE>
a fiduciary of a limited partnership and must handle partnership affairs with
trust, confidence and good faith. 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. Delaware
courts, which are often looked to for guidance on undecided corporate issues,
have in several cases involving corporations held that fully informed
stockholder approval of a transaction may, in certain circumstances, serve to
extinguish certain related fiduciary claims against directors.
Risk of Taxable Income In Excess of Cash Distributions. 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" in the Prospectus/Proxy
Statement.
Risk of Dilution of Voting Interest. 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. The limited partners of the Subject Partnership
(excluding the General Partner) currently own 76.05% of the outstanding voting
Interests of the Subject Partnership. Based on the exchange values to be used in
the Consolidation, the limited partners of the Subject Partnership (excluding
the General Partner) will own 1.76% of the voting Units of the Consolidated
Partnership if all the Partnerships participate in the Consolidation, and 2.51%
of the voting Units if the minimum number of Partnerships participate in the
Consolidation, including the Subject Partnership. In addition, the General
Partner currently has voting Interests in the Partnerships ranging from 4.05% to
54.10% (23.95% in the Subject Partnership), but will have a voting interest in
the Consolidated Partnership of 47.08% if all Partnerships participate in the
Consolidation. See "THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of
Limited Partnership--Voting and Other Rights of Limited Partners" in the
Prospectus/Proxy Statement. The General Partner's voting interest may increase
further as described below in "Differences in Rights and Responsibilities".
Also, the pooling of the Partnership's property holdings in the larger
Consolidated Partnership may reduce the possibility for extraordinary increases
in value in the Subject Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Participation in Costs and Revenues" in the Prospectus/Proxy
Statement.
3
<PAGE>
Changes From Partnership Agreement. While the Partnership Agreement of
the Subject Partnership requires that during the sixth year after commencement
of operations and at least every two years thereafter, the General Partner will
submit a proposal to sell all of the Subject Partnership's properties and to
dissolve and liquidate to a vote of the limited partners, the Articles governing
the Consolidated Partnership provide a right of presentment instead of such
requirement. See "Differences in Rights and Responsibilities," below.
Roll-Up Transaction. The Partnership Agreement of the Subject
Partnership 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 Subject Partnership and in the roll-up
entity (i.e., the Consolidated Partnership); (ii) the term of the existence of
the Subject Partnership and the Consolidated Partnership; (iii) the General
Partner's compensation in the Subject Partnership and the Consolidated
Partnership or (iv) the investment objectives of the Subject Partnership and the
Consolidated Partnership. Those provisions contain two requirements which the
proposed Consolidation does not satisfy. See "Differences in Rights and
Responsibilities," below.
Risk of Decreases in Oil and Gas Prices. 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.
The objectives of the Consolidation, which are summarized below, are described
in more detail in the Prospectus/Proxy Statement under the captions "THE
PROPOSED CONSOLIDATION AND THE EXCHANGE OFFER" and "THE EXCHANGE OFFER".
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 $34,733 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 by $24,037 ($0 if the
minimum number of Partnerships participate) per year as a result of simplified
managerial and administrative requirements. The Subject Partnership's share of
the costs of the Consolidation will be approximately $11,303.
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 approxi mately 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. 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. See, however, "RISK
FACTORS--The Proposed Consolidation and the Exchange Offer--Risk of Dilution of
Voting Interest" in the Prospectus/Proxy Statement.
Expanded Reserve Base: At January 1, 1996, the Subject Partnership had
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.
4
<PAGE>
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.2 million barrels of oil, condensate and
natural gas liquids and 12.2 billion cubic feet of gas. This represents 4.13
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 $23.7 million. See Tables 6 and 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 September 30, 1996 the Subject Partnership
owed the General Partner $72,051. If the Subject Partnership participates in the
Consolidation, the General Partner will contribute this receivable for Units in
the Consolidated Partnership. The General Partner will be doing the same thing
for every participating Partnership that is indebted to the General Partner. 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 AND
THE EXCHANGE OFFER--Method of Determining Exchange Values--Indebtedness to the
General Partner" in the Prospectus/Proxy Statement, and each limited partner
will receive a smaller proportionate interest in the Consolidated Partnership
than such partner would have received in the Consolidation absent such
conversion of debt for Units by the General Partner.
Elimination of Certain 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.
Increases in Distributions. Although the General Partner's cash
distribution policies will not change following the Consolidation, the General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $46.23 per $500 Interest in the next four
quarters after the Consolidation if the maximum number of Partnerships
participate and $41.57 per $500 Interest if the minimum number of Partnerships
participate versus $45.04 per $500 Interest if the Subject Partnership does not
participate in the Consolidation. The minimum number of Partnerships include the
Subject Partnership and 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. See Tables F, G-1 and G-2 in the Prospectus/Proxy Statement.
Distributions were estimated for the next four quarters upon Consolidation by
aggregating the future net revenues estimated by Gruy for all of the
Partnerships which participate. Estimated general and administrative costs were
subtracted from this amount and the net amount was allocated to the Subject
Partnership based upon its pro rata share of the aggregate exchange value.
Distributions in the absence of the Consolidation were estimated for the next
four quarters by subtracting estimated general and administrative costs and debt
repayment from Gruy's estimate of the Subject Partnership's future net revenues.
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 longer-lived properties with
greater cumulative cash flow and distributions than the Subject Partnership
would have if it does not participate in the Consolidation.
5
<PAGE>
The following summary of additional information, all of which is provided in
more detail in the Prospectus/Proxy Statement under the caption "THE PROPOSED
CONSOLIDATION AND THE EXCHANGE OFFER", should also be considered by the limited
partners of the Subject Partnership.
6
<PAGE>
Alternatives to the Consolidation and the Exchange Offer: The General
Partner considered the alternatives of liquidating the Subject Partnership and
continuing the Subject Partnership, but determined that the Consolidation
7
<PAGE>
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 Subject
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 the Subject Partnership would likely result in lower cash
value to the limited partners than would a continuation of the Subject
Partnership, on either a combined or separate basis. This is because third party
purchasers of oil and gas properties typically pay less than the net present
value of the discounted anticipated cash flows of a property's proved oil and
gas reserves. In addition, the General Partner is owed $72,051. In a
liquidation, 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 Subject Partnership
for Units of the Consolidated Partnership.
In comparing the alternatives of the Consolidation and continuing the Subject
Partnership 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
Subject Partnership as separate entity. 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 $445,000 per year, and up to $824,000 per year
if all Partnerships participate. As Table E in the Prospectus/Proxy Statement
shows, the estimated annual general and administrative cost savings to be
yielded by the Consolidation for the limited partners of the Subject Partnership
is $24,037 if all of the Partnerships participate ($0 if only the minimum number
of Partnerships participate), which represents the General Partner's estimate of
the additional value to be received each year by the limited partners through
participation in the Consolidation as compared to the alternative of
continuation. The estimates of general and administrative costs savings set
forth in Table E and elsewhere in the Prospectus/Proxy Statement constitute
forward-looking statements that involve known and unknown risks and
uncertainties which may cause actual cost savings to differ materially from such
forecasts. These risks include risks generally associated with the incurrence of
general and administrative expenses in connection with oil and gas production
and marketing operations, and are described in detail in "RISK FACTORS" in the
Prospectus/Proxy Statement.
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 compared the Subject Partnership's
exchange value used in the Consolidation ($349,059) with the Subject
Partnership's going concern value ($294,889). See Table E-1 in the
Prospectus/Proxy Statement. As shown, the considerations to be received by the
limited partners of the Subject Partnership in the Consolidation is greater than
the Subject Partnership's value on a going concern 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 (I) participation in the
Consolidated Partnership, whether by the participation of a Partnership in the
Consolidation or by the participation of a limited partner through the Exchange
Offer, and without regard to the identity of the other participating
Partnerships and limited partners, would be more beneficial to the limited
partners than continuing in their Partnerships, and (ii) maximum participation
in the Consolidation would provide 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 AND THE EXCHANGE OFFER--Background of the
Consolidation and the Exchange Offer" and "--Fairness of the Transaction" in the
Prospectus/Proxy Statement.
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 the Partnerships, regardless of which Partnerships
participate in the Consolidation. The number of Units to be distributed to the
limited partners and the General Partner pursuant
8
<PAGE>
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 AND THE EXCHANGE OFFER--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
based on 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
methodology for estimating 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 did not materially differ from the terms and provisions of the
Partnership Agreements. See "Differences in Rights and Responsibilities" below.
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
Articles 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.
The General Partner's voting rights as a limited partner will be increased as a
result of its exchange of indebtedness for Units (see "--Method of Determining
Exchange Values--Indebtedness to the General Partner"), and to the extent that
it purchases the limited partnership Interests of limited partners who exercise
their dissenters' rights (see "THE PROPOSED CONSOLIDATION AND THE EXCHANGE
OFFER--Terms of the Consolidation--Dissenters' Rights" in the Prospectus/Proxy
Statement). The General Partner currently has a 23.95% voting Interest in the
Subject Partnership, but will have a voting interest in the Consolidated
Partnership of 47.08% if all Partnerships participate in the Consolidation, and
57.40% if all Partnerships participate in the Consolidation and the maximum
number of limited partners exercise their dissenters' rights. Nevertheless,
existing limitations on the General Partner's voting rights will continue to
apply on a proportional basis under the Articles as follows: As indicated in
"THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership--Voting and Other Rights of the Limited Partners" in the
Prospectus/Proxy Statement, the General Partner will abstain from voting on any
selection of an additional or successor general partner, 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 those Units
it holds as a limited partner that it receives in the Consolidation for
Interests in a participating Partnership whose Partnership Agreement contained a
similar restriction (i.e., the 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 the Subject Partnership, but only to
the extent such Interests were acquired within two years from the date of the
Subject Partnership's commencement of operations. The same restriction applies
in the case of the other Partnerships formed in Enex Oil & Gas Income Programs V
and VI and in Enex 90-91 Income and Retirement Fund. The General Partner holds
Interests with respect to which its voting rights are restricted in this way
totaling 23.9544% of the Subject Partnership's outstanding Interests. In total,
the General Partner owns 1.85% of such outstanding Interests.
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 90% to the limited partners (including the General Partner with
respect to the Interests it owns) and 10% to the General Partner. Other
Partnerships have similar provisions. In many 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 Partnerships in whose
revenues it owns such interest, including the Subject Partnership. For each
9
<PAGE>
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. Table I in the Prospectus/Proxy Statement shows the exchange values of
all of the General Partner's percentage shares of Partnership net revenues
(which is $48,922 for the Subject Partnership). Thus, the Consolidation will not
increase the compensation of the General Partner. If all of the Partnerships
participate in the Consolidation, the Consolidated Partnership's net revenues
will be allocated 3.03% to the General Partner and 96.97% 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.
The Partnership Agreement of the Subject Partnership provides that during the
sixth year after the commencement of operations and at least every two years
thereafter, the General Partner will submit a proposal to sell all of the
Subject Partnership's properties and to dissolve and liquidate to a vote of the
limited partners. 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, the Articles do
give the Consolidated Partnership's limited partners the annual right to present
their Interests for purchase at prices that, in the General Partner's opinion,
will closely approximate the estimated fair market values of Partnership
properties as determined by Gruy (which are intended to be an approximation of
the prices for which Partnership properties could be sold). In the General
Partner's view, the limited partners of the Subject Partnership 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
the Subject Partnership. See "THE CONSOLIDATED PARTNERSHIP--Right of
Presentment" in the Prospectus/Proxy Statement.
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
and the Exchange Offer" 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 distribution history from the Subject Partnership for the three
most recent fiscal years and the nine months ended September 30, 1996 and what
such amounts would have been had the Consolidation been effective at that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the nine months ended September 30, 1996
(Table C).
The Partnership Agreement of the Subject Partnership 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 Subject
Partnership and in the roll-up entity (i.e., the Consolidated Partnership); (ii)
the term of the existence of the Subject Partnership and the Consolidated
Partnership; (iii) the General Partner's compensation in the Subject Partnership
and in the Consolidated Partnership; or (iv) the investment objectives of the
Subject Partnership and the Consolidated Partnership. For the reasons set forth
below, the General Partner believes that the proposed Consolidation does not
entail any significant adverse differences of the types described above and,
therefore, that the referenced Partnership Agreement provisions do not apply to
the Consolidation.
This belief is not based on opinion or advice from counsel.
10
<PAGE>
Voting Rights.
The Consolidated Partnership Agreement will contain substantially the
same voting provisions as the Partnership Agreement, with all limited partner
votes concerning the Consolidated Partnership, including removal of the General
Partner, being on a majority-in-interest basis (other than votes on the
admission of additional general partners, which shall be on a
two-thirds-in-interest basis), and the General Partner being required to vote
its general partnership interest in concurrence with the votes of the limited
partners. Thus, in the General Partner's view, although its ownership of Units
in the Consolidated Partnership will be greater than its ownership internal in
all of the Partnerships other than Enex Program I Partners, L.P., the
Consolidation will not effect a significant adverse change in the voting rights
of the limited partners of the Subject Partnership.
Term of Existence.
The termination date of the Consolidated Partnership will be December
31, 2015, which is earlier than the December 31, 2020 termination date of the
Subject Partnership. The Partnership Agreement does provide that during the
sixth year after the commencement of Partnership operations and at least every
two years thereafter during the term of the Subject Partnership, the General
Partner will submit to a vote of the limited partners a proposal to sell all of
the Subject Partnership's properties and to dissolve and liquidate the Subject
Partnership. While the Consolidated Partnership Agreement will not provide
limited partners with similar dissolution rights, the Consolidated Partnership
Agreement will provide limited partners with more frequent opportunities to cash
in their investment on substantially the same basis as provided in the
Partnership Agreement. All limited partners of the Consolidated Partnership will
be given the annual opportunity to present their Units to the General Partner
for purchase at the price determined by a presentment formula which will closely
approximate the estimated liquidation values of Partnership properties since the
formula is based upon escalated oil and gas prices, discounted present value of
oil and gas reserves, and an additional discount for risk.
Management Compensation.
The General Partner will receive no fees or increases in compensation
as a result of the Consolidation. The General Partner currently receives no type
of "net asset value" fee or asset acquisition or disposition fee under the
Partnership Agreement, and will not receive any such fees under the Consolidated
Partnership Agreement. Under the existing Partnership Agreement, for its
management services as general partner, the General Partner currently receives a
10% interest in the Subject Partnership's revenues and reimbursement of
operating costs and administrative expenses incurred on behalf of the Subject
Partnership. As more fully described in "THE CONSOLIDATED
PARTNERSHIP--Participation in Cost and Revenues" in the Prospectus/Proxy
Statement, the General Partner's interest in each separate Partnership's
revenues (either 0 or 10%) will be blended into a single interest in the
revenues of the Consolidated Partnership (which is expected to be 3.03% if all
of the Partnerships participate in the Consolidation). This blended interest
will be lower than the General Partner's interest in the Subject Partnership's
revenues, which is currently 10%. 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 Partnerships in whose
revenues it owns such an interest, including the Subject Partnership. The
exchange value of the General Partner's net revenue sharing percentage will be
converted into a proportionate allocation of Consolidated Partnership revenues
rather than into Units. Thus, the Consolidation will not increase the
compensation of the General Partner.
Investment Objectives.
The Consolidated Partnership will continue the businesses of the
participating Partnerships with no significant change in operating policy. The
Consolidated Partnership's principal operations will be the ownership and
operation of existing properties transferred to it by the participating
Partnerships in connection with the Consolidation. Like the original
Partnerships, the Consolidated Partnership will not engage in any exploratory
drilling activities and will
11
<PAGE>
only engage in limited development drilling in order and to the extent necessary
to preserve, protect and increase the value of the transferred properties.
Nevertheless, limited partners of the Subject Partnership should note
that the provisions of the Partnership Agreement (which the General Partner
believes do not apply to the Consolidation) 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
Agreement compliance with them is waived by the amendments to the Partnership
Agreements set forth in Appendix D to the Prospectus/Proxy Statement. 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 Subject Partnership
assets over a 12 month period.
The General Partner believes that the Consolidation is fair to the limited
partners of the Subject Partnership despite the possible waiver of certain
provisions of the Subject Partnership's Partnership Agreement. First, the
General Partner does not believe that the provisions described above, are even
triggered by the Consolidation. If the General Partner is correct, there is no
waiver at all. Second, because the Subject Partnership is the only Partnership
whose Partnership agreement contains such provisions, the General Partner could
have exercised its prerogative to exclude the Subject Partnership from the
Consolidation. This would, in the General Partner's view, however, be unfair to
the limited partners because it would deprive them of the financial benefit of
participation in the Consolidation in the form of reduced general and
administrative costs. Third, the General Partner believes that the methodology
for determining exchange values, as discussed under "THE PROPOSED
CONSOLIDATION-Method of Determining Exchange Values" in the Prospectus/Proxy
Statement, is fair to the limited partners of the Subject Partnership. The
Partnership properties were appraised by Gruy as of December 31, 1995 to
determine their fair market values (not their liquidation values), which the
General Partner adjusting those values for production and sales of oil and gas
between January 1 and September 30, 1996 and for the value of the Partnership's
other assets and liabilities. At September 30, 1996, the other assets consist of
cash of $8,684, accounts receivable of $33,432 an 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.
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
12
<PAGE>
TABLE A
Enex Oil & Gas Income Program VI - Series 1, L.P.
Calculation of Exchange Value
As of September 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 $334,554
McBride 138,189
---------
Subtotal - Property 472,743
Cash & cash equivalents 5,415
Accounts receivable 41,172
Other current assets -
---------
Subtotal - assets 519,330
Less:
Liabilities to third parties 30,501
---------
Partnership Exchange Value 488,829 43,991
Less:
Liability to General Partner 72,051 7,205
General Partner Capital Balance 19,195 1,920
Attributable to GP's revenue interest (2) 48,922
--------- -------
Exchange value attributable
to Limited Partners $348,661 34,866
========= =======
Exchange value per $500
Interest $172.54 17.25
========= =======
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 2.91%
=======
</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 Nine Months Year Ended From Inception
Ended December 31, to December 31,
September 30, 1996 1995 1994
<S> <C> <C> <C>
Reimbursement of expenses paid to GP $17,878 $23,709 $58,767
Net debt repaid to GP 18,364 35,848 (157,185)
Cash distributions paid to GP as GP 2,862 2,307 1,550
Cash distributions paid to GP as LP 4,239 7,689 8,676
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA Nine Months Year Ended From Inception
Ended December 31, to December 31,
September 30, 1996 1995 1994
<S> <C> <C> <C>
Reimbursement of expenses paid to GP $9,099 $12,187 $34,485
Cash distributions paid to GP as GP (1) 13,767 11,631 8,980
Cash distributions paid to GP as LP (2) 48,411 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.
Nine Months Year Ended From Inception
HISTORICAL Ended December 31, to December 31,
September 30, 1996 1995 1994
<S> <C> <C> <C> <C>
Cash Distributions (3) $18,178 $33,954 $39,133
</TABLE>
<TABLE>
<CAPTION>
Nine Months Year Ended
PRO FORMA Ended December 31,
September 30, 1996 1995
<S> <C> <C> <C>
Cash Distributions (4) $102,977 $104,094
Cash Distributions (5) $62,841 $71,668
</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 3.03%. 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
September 30, 1996. These September 1996 exchange values do not
necessarily correspond with the relative exchange values which would
have been in effect at an earlier date.
(5) Distributions paid to the limited partners assumes participation by the
Subject Partnership and 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 minumum condition. The estimated distributions are based
upon the exchange values computed as of September 30, 1996. These
September 1996 exchange values do not necessarily correspond with the
relative exchange values which would have been in effect at an earlier
date.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits:
2 - Plan of Consolidation. See Appendix C to
Prospectus/Proxy Statement.
3.1 - Form of Amended Articles of Limited
Partnership. See Appendix B to Prospectus/
Proxy Statement.
3.2 - Certificate of Limited Partnership.*
3.3 - Articles of Limited Partnership.*
5 - Legality opinion of Messrs. Satterlee Stephens Burke &
Burke LLP of Summit, New Jersey, including consent.*
8 - Tax opinion of Satterlee Stephens Burke & Burke LLP
of New York, New York, including consent.*
23.1 - Consents of Independent Public Accountants.*
23.2 - Consent of Messrs. Satterlee Stephens Burke & Burke
LLP. See Exhibit 5.
23.3 - Consent of Satterlee Stephens Burke & Burke LLP.
See Exhibit 8.
23.4 - Consent of H. J. Gruy and Associates, Inc.*
27 - Financial Data Schedule.*
99.1 - Form of Operating Agreement.Incorporated by reference
to Exhibit 28(d) to Registration Statement No.33-34348
of Enex Oil & Gas Program V.
99.2 - Reports of H. J. Gruy and Associates, Inc.*
99.3 - Form of Proxy and Ballot *
*Previously filed.
.
II-1
<PAGE>
(b) Financial Statements and Schedules: - Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Kingwood, Texas, on the day of , 1997.
ENEX CONSOLIDATED PARTNERS, L.P.
a New Jersey limited partnership
By: ENEX RESOURCES CORPORATION
General Partner
By: /s/ Gerald B. Eckley
Gerald B. Eckley, President
ATTEST:
/s/ Robert E. Densford
Robert E. Densford, Vice
President-Finance,
Secretary and Treasurer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment to the Registration Statement has been signed below on ,
1997 by the following persons in the capacities indicated.
Signature Title
/s/ Gerald B. Eckley President, Chief Executive
Gerald B. Eckley, Officer and Director
/s/ Robert E. Densford Vice President-Finance,
Robert E. Densford Secretary, Treasurer,
Chief Financial Officer and
Director
II-2
<PAGE>
/s/ James A. Klein Controller and Chief Ac-
James A. Klein counting Officer
II-3
<PAGE>
/s/ Robert D. Carl Director
Robert D. Carl, III
/s/ Martin J. Freedman Director
Martin J. Freedman
/s/ W. C. Hooper Director
William C. Hooper, Jr.
/s/ James T. Shorney Director
Tom Shorney
/s/ Stuart B. Strasner Director
Stuart Strasner
II-4
<PAGE>
Exhibit 5
Legality opion of Messrs. Satterlee Stephens Burke & Burke
of Summit, New Jersey, including consent
February __, 1997
Enex Resources Corporation
Suite 200
800 Rockmead Drive
Three Kingwood Place
Kingwood, Texas 77339
Re: ENEX CONSOLIDATED PARTNERS, L.P.
Gentlemen:
You have requested our opinion, as special counsel to Enex Consolidated
Partners, L.P., a New Jersey limited partnership (the "Consolidated
Partnership"), in connection with a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (SEC File No. 333-09953) originally filed by
Enex with the Securities and Exchange Commission (the "Commission") on August
12, 1996, and amended by Pre-Effective Amendment No. 1 thereto filed with the
Commission on November 13, 1996, Pre-Effective Amendment No. 2 thereto filed
with the Commission on January 10, 1997 and Pre-Effective Amendment No. 3
thereto to which this letter is intended to be filed as an Exhibit (as so
amended, the "Registration Statement").
In our capacity as such counsel, we have familiarized ourselves with the
actions taken by Enex Resources Corporation, the general partner of the
Consolidated Partnership ("Enex" or the "General Partner"), in connection with
the formation of the Consolidated Partnership and the proposed consolidation of
up to thirty-four (34) partnerships (the "Partner ships"), of each of which Enex
is the general partner (the "Consolidation"), and the related exchange offer
(the "Exchange Offer"), pursuant to which limited partners of those of the
Partnerships that do not participate in the Consolidation may exchange their
limited partnership interests in such Partnerships for units of limited
partnership interest of the
<PAGE>
Enex Resources Corporation
February __, 1997
Page 2
Consolidated Partnership ("Units") as described in the prospectus/proxy
statement (the "Prospectus/Proxy Statement") included in the Registration
Statement.
We have examined the certificate of limited partnership (the "Certificate")
of the Consolidated Partnership, as filed with the Secretary of State of the
State of New Jersey, and the Agreement of Limited Partnership (the "Agreement")
of the Consolidated Partnership, and the original or certified copies of all
such records and agreements, such certificates of public officials, certificates
of officers and other representatives of the General Partner and others, and
such other documents as we deem relevant and necessary as a basis for the
opinions hereafter expressed. In such examination, we have assumed the
genuineness of all signatures on original documents and the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all copies submitted to us as conformed or photostatic copies, and the
authenticity of the originals of such latter documents. As to various questions
of fact material to our opinion which have not been independently established,
we have relied upon statements or certificates of officials and representatives
of the General Partner and others and we have assumed the accuracy and
completeness of all statements of fact contained therein.
Based upon the foregoing, we are of the opinion that:
1. The Consolidated Partnership is duly formed and validly existing as a
limited partnership under the New Jersey Uniform Limited Partnership Law (1976)
(the "Act") with full partnership power and authority to own its properties and
to conduct its business as contemplated in its Certificate and its Agreement.
2. The Consolidation and the Exchange Offer have been duly authorized by the
General Partner and, when Units have been issued to the participating
Partnerships in connection with the Consolidation or to exchanging limited
partners who have properly executed Proxy/Ballots in the form filed with the
Commission marked with an election to participate in the Exchange Offer, all in
accordance with the terms and conditions described in the Registration Statement
(after declaration of its effectiveness by the Commission) and in accordance
with all applicable federal securities laws and the securities ("Blue Sky") laws
of states having jurisdiction over such issuances, then, upon proper execution
and filing for record of a legally adequate amendment of the Certificate of the
Consolidated Partnership admitting the holders of the Units (or, in the case of
holders who are ineligible to become, or elect not to become, limited partners
and therefore have the status of assignees of limited partnership interests, the
General Partner as limited partner of record) to the Consolidated Partnership as
limited partners ("Limited Partners") and the adoption of an amended Agreement
substantially in the form contained in the Registration Statement, as
contemplated therein, such Units will represent validly issued, fully paid and
non-assessable interests in the Consolidated Partnership, except as otherwise
set forth in its Agreement as the same may be amended from time to time.
<PAGE>
Enex Resources Corporation
February __, 1997
Page 3
The opinion contained in paragraph (2) above is, with respect to the
Consolidated Partnership, subject to (i) compliance with all applicable laws
relating to the limited liability of limited partners of a limited partnership
or its nearest legal equivalent in any jurisdiction in which the Consolidated
Partnership shall conduct business, (ii) the absence of any event of dissolution
with respect to the Consolidated Partnership, and (iii) with respect to any
Limited Partner sought to be charged with a debt, obligation or liability of the
Consolidated Partnership, the absence of any action by such Limited Partner that
could be construed as taking part in the control of the business of the
Consolidated Partnership. To the extent that any distribution to a Limited
Partner of a Partnership constitutes a return of all or any part of such Limited
Partner's capital contribution, such Limited Partner will be liable to the
Partnership for the amount of such distribution constituting a return of capital
(a) for one year after the distribution if the return of capital did not violate
the Partnership's Agreement or the Act, but only to the extent necessary to
discharge the liabilities of the Partnership to its creditors who extended
credit before such distribution or (b) for six years after the distribution if
the return of capital did violate the Partner ship's Agreement or the Act. For
this purpose, a Limited Partner receives a return of his contribution to the
extent that a distribution made by the Partnership to such Limited Partner
causes his share of the fair value of the net assets of the Partnership to be
less than the value of such Limited Partner's aggregate contributions to the
Partnership which have not been returned to him.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name and the references to this
firm in the Prospectus in connection with the matters referred to under the
caption "GENERAL INFORMATION-Legal Opinion."
Very truly yours,
SATTERLEE STEPHENS BURKE & BURKE LLP
Exhibit 8
Tax opinion of Messrs. Satterlee Stephens Burke & Burke LLP
of New York, New York, including consent
Enex Resources Corporation
February , 1997
Page 1
February , 1997
Enex Resources Corporation
Three Kingwood Place
Kingwood, Texas 77339
Re: CONSOLIDATION OF PARTNERSHIPS
Gentlemen:
We have acted as counsel to Enex Resources Corporation, a Delaware
corporation ("Enex"), in connection with a proposed consolidation (the
"Consolidation") of thirty-four limited partnerships of which Enex is the
general partner with and into Enex Consolidated Partners, L.P., a New Jersey
limited partnership (the "Consolidated Partnership"), pursuant to the terms of
the proposed Plan of Consolidation (the "Plan") described in the joint proxy
statement/prospectus (the "Prospectus/Proxy Statement") included in the
Registration Statement on Form S-4 (SEC File No. 333-09953) originally filed by
Enex with the Securities and Exchange Commission (the "Commission") on August
12, 1996, and amended by Pre-Effective Amendment No. 1 thereto filed with the
Commission on November 13, 1996, Pre-Effective Amendment No. 2 thereto filed
with the Commission on January 10, 1997 and Pre-Effective Amendment No. 3
thereto to which this letter is intended to be filed as an Exhibit (as so
amended, the "Registration Statement"). This opinion is being rendered pursuant
to your request. All capitalized terms, unless otherwise specified, have the
meanings assigned to them in the Prospectus/Proxy Statement.
In connection with the opinions below, we have examined and have
relied upon the facts, representations, and covenants set forth in the
Prospectus/Proxy Statement and such other documents as we have deemed necessary
and appropriate in order to enable us to render the opinion below. In our
examination, we have assumed the genuineness of all signatures, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents submitted
to us as certified, conformed or photostatic copies and the authenticity of the
originals of such copies. We have further assumed that the Consolidation and the
Exchange Offer will be properly effected as provided in the Plan.
In rendering our opinions, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, Internal Revenue Service
<PAGE>
Enex Resources Corporation
February , 1997
Page 2
interpretive rulings and revenue procedures as in effect on the date hereof, the
Employee Retirement Income Security Act of 1976, as amended, Department of Labor
plan assets regulations, pertinent judicial authorities, and such other
authorities as we have considered relevant.
Based upon and subject to the foregoing, and subject to the
limitations and qualifications hereinafter set forth, we are of the opinion that
(i) the discussion contained in the Prospectus/Proxy Statement under the caption
"TAX ASPECTS" expresses the material federal income tax consequences of the
Consolidation applicable to limited partners in the participating Partnerships
and of the Exchange Offer to limited partners who exchange their interests
pursuant to the Exchange Offer; and (ii) the Units will be "freely transferable"
for purposes of the Department of Labor plan assets regulations.
Except as set forth above, we express no opinion as to the tax
consequences to any party, whether federal, state, local or foreign, of the
Consolidation or the Exchange Offer or any transactions related to the
Consolidation or contemplated by the Plan. Additionally, we express no opinion
as to the tax treatment of any condition existing at the time of, or the effects
resulting from, the transaction which are not specifically addressed in the
foregoing opinion.
This opinion is limited by and subject to the following:
(a) The foregoing opinions are as of the date hereof and we expressly
disclaim any undertaking or obligation to advise you of any changes which may
occur or be brought to our attention subsequent to such date. In addition, we
assume no obligation to revise or supplement this opinion should present laws be
changed by legislative action, judicial decision, or otherwise.
(b) With respect to questions of fact material to the opinions
expressed above, we have relied, without independent investigation, on the
representations made by officers of Enex. Should any of the representations or
facts referred to above prove to be incomplete, inaccurate or untrue, either now
or in the future, this opinion could be nullified and the risk of successful
challenge by the Internal Revenue Service or the Department of Labor could be
increased.
(c) This opinion shall not constitute a representation, express or
implied, that we have made any independent investigation as to the accuracy or
completeness of any representation, warranty, or other information made or
furnished by any party to the Plan, and we assume in rendering the opinions set
forth above that such information does not contain any untrue statement of a
material fact or omit a fact necessary to make the statements made, in light of
the circumstances under which they were made, not misleading.
<PAGE>
Enex Resources Corporation
February , 1997
Page 3
(d) We expressly decline to opine, and nothing herein shall be
construed as an opinion, on the adequacy or accuracy of the disclosure in the
Registration Statement, including the financial statements and exhibits thereto,
or whether the Registration Statement complies as to form or content with the
requirement of the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, or the rules and regulations of the Securities and
Exchange Commission.
This opinion is being furnished to you solely for your use in
connection with the Registration Statement and may not be circulated, quoted or
otherwise referred to for any other purpose without our express written consent.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement. We also consent to the references to Satterlee Stephens
Burke & Burke LLP under the captions "TAX ASPECTS" and "EMPLOYEE RETIREMENT
INCOME SECURITY ACT" in the Registration Statement.
Very truly yours,
SATTERLEE STEPHENS BURKE & BURKE LLP
II-7
Exhibit 23.1
Consents of Independent Public Accountants
CONSENT OF INDEPENDENT AUDITORS
Enex Resources Corporation
Houston, Texas
We consent to the use in this Registration Statement on Form S-4 - Amendment 3
of the following reports of Deloitte & Touche LLP, appearing in and/or
incorporated by reference in the Prospectus/Proxy Statement, which is a part of
this Registration Statement, and to the reference to us under the heading
"experts" in such Prospectus/Proxy Statement:
<TABLE>
<CAPTION>
Entity Date of Report
<S> <C>
Enex Resources Corporation March 18, 1996
(February 22,
1997 as to
Note 10)
Enex Consolidated Partners, L.P. July 31, 1996
Enex Oil & Gas Income Program and Enex Income and Retirement
Fund Limited Patnerships July 31, 1996
Enex Program I Partners, L.P. March 18, 1996
Enex Oil & Gas Income Program II-7, L.P. March 18, 1996
Enex Oil & Gas Income Program II-8, L.P. March 18, 1996
Enex Oil & Gas Income Program II-9, L.P. March 18, 1996
Enex Oil & Gas Income Program II-10, L.P. March 18, 1996
Enex Oil & Gas Income Program III, Series 1, L.P. March 18, 1996
Enex Oil & Gas Income Program III, Series 2, L.P. March 18, 1996
Enex Oil & Gas Income Program III, Series 3, L.P. March 18, 1996
Enex Oil & Gas Income Program III, Series 4, L.P. March 18, 1996
Enex Oil & Gas Income Program III, Series 5, L.P. March 18, 1996
Enex Oil & Gas Income Program III, Series 6, L.P. March 18, 1996
Enex Oil & Gas Income Program III, Series 7, L.P. March 18, 1996
Enex Oil & Gas Income Program III, Series 8, L.P. March 18, 1996
Enex Oil & Gas Income Program IV, Series 1, L.P. March 18, 1996
Enex Oil & Gas Income Program IV, Series 2, L.P. March 18, 1996
Enex Oil & Gas Income Program IV, Series 4, L.P. March 18, 1996
Enex Oil & Gas Income Program IV, Series 5, L.P. March 18, 1996
Enex Oil & Gas Income Program IV, Series 6, L.P. March 18, 1996
Enex Oil & Gas Income Program IV, Series 7, L.P. March 18, 1996
Enex Oil & Gas Income Program V, Series 1, L.P. March 18, 1996
Enex Oil & Gas Income Program V, Series 2, L.P. March 18, 1996
Enex Oil & Gas Income Program V, Series 3, L.P. March 18, 1996
<PAGE>
Entity Date of Report
Enex Oil & Gas Income Program V, Series 4, L.P. March 18, 1996
Enex Oil & Gas Income Program V, Series 5, L.P. March 18, 1996
Enex Oil & Gas Income Program VI, Series 1, L.P. March 18, 1996
Enex Income and Retirement Fund, Series 1, L.P. March 18, 1996
Enex Income and Retirement Fund, Series 2, L.P. March 18, 1996
Enex Income and Retirement Fund, Series 3, L.P. March 18, 1996
Enex 88-89 Income and Retirement Fund, Series 5, L.P. March 18, 1996
Enex 88-89 Income and Retirement Fund, Series 6, L.P. March 18, 1996
Enex 88-89 Income and Retirement Fund, Series 7, L.P. March 18, 1996
Enex 90-91 Income and Retirement Fund, Series 1, L.P. March 18, 1996
Enex 90-91 Income and Retirement Fund, Series 2, L.P. March 18, 1996
Enex 90-91 Income and Retirement Fund, Series 3, L.P. March 18, 1996
</TABLE>
DELOITTE & TOUCHE LLP
Houston, Texas
February 22, 1997
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
Enex Resources Corporation
We consent to the incorporation by reference of our report dated March 18, 1996,
appearing in this Annual Report on Form 10-KSB/A-2 of Enex Resources Corporation
for the year ended December 31, 1995 in the Enex Employee Stock Purchase Plan
filed in Registration Statement No. 33-48644 on Form S-8 on March 22, 1993; in
the 1984 Incentive Stock Option Plan and 1979 Employees Non-qualified Stock
Option Plan filed in Registration Statement No. 2-93688 on Form S-8 on July 1,
1992; in the 1990 Non-Qualified Stock Option Plan filed in Registration
Statement No. 33-60084 on Form S-8 on March 22, 1993 and the 1991 Non-Qualified
Stock Option Award Program filed in Registration Statement No. 33-60086 on Form
S-8 on March 22, 1993.
DELOITTE & TOUCHE LLP
Houston, Texas
February 24, 1997
<PAGE>
Exhibit 23.4
Consent of H. J. Gruy and Associates, Inc.
October 12, 1996
Enex Resources Corporation
Three Kingwood Place, Suite 200
Kingwood, Texas 77339
Re: Enex Fair Market Value Letters
As of January 1, 1996
Gentlemen:
H.J. Gruy and Associates, Inc. (Gruy) hereby consents to the distribution of and
references to our letters dated October 4, 1996 regarding Enex Resources
Corporation oil and natural gas reserves. Enex Resources Corporation may
distribute the above referenced letters to whomever they deem appropriate,
provided the narrative portion is included in its entirety.
Yours very truly,
H.J. GRUY AND ASSOCIATES, INC.
Marilyn Wilson, P.E.
Executive Vice President
MW:sk
C:\WPWIN60\WPDOCS\CONSENT.LTR
<PAGE>
Exhibit 99.2 - Reports of H. J. Gruy And Associates, Inc.
ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND LIMITED PARTNERSHIPS
Proxy and Ballot for Meetings of Limited Partnerships
to be held xxxxxxxx, 1997
----------------------------------------------------------
The undersigned limited partner hereby appoints Gerald B. Eckley,
Robert E. Densford, and William C. Hooper and each or any of them lawful
attorneys and proxies, with full power of substitution, and authorizes them to
act for and in place of the undersigned at the meetings of the limited partners
to be held on xxxxxxxxxxx, 1997, and at any adjournments thereof, and to vote
the limited partnership interests ("Interests") owned by the undersigned in the
Enex Oil & Gas Income Program and Enex Income and Retirement Fund limited
partnerships ("Partnerships") named below on xxxxxx , 1997, the record date for
such meetings, as follows:
1. In connection with the proposal to approve the adoption of the
plan of consolidation pursuant to which each participating Partnership will
transfer its assets to Enex Consolidated Partners, L. P., a New Jersey limited
partnership (the "Consolidated Partnership"), and thereafter dissolve and
terminate, with the limited partners of the participating Partnerships receiving
units of limited partnership interest ("Units") in the Consolidated Partnership
(the "Consolidation"), all as more fully described in the accompanying
Prospectus/Proxy Statement.
(a) The undersigned wishes to vote all Interests in the same manner as follows:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
OR
(b) If the undersigned wishes to vote Interests in different Partnerships named
below separately, please attach a schedule setting forth the name of each
Partnership in which the undersigned owns Interests and opposite each such
Partnership name a vote FOR or AGAINST or ABSTAIN
2. In connection with the proposal to amend each participating
Partnership's certificate and agreement of limited partnership to provide for
the Consolidation, all as more fully described in the accompanying
Prospectus/Proxy Statement.
(a) The undersigned wishes to vote all Interests in the same manner as follows:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
OR
(b) If the undersigned wishes to vote Interests in different Partnerships named
below separately, please attach a schedule setting forth the name of each
Partnership in which the undersigned owns Interests and opposite each such
Partnership name a vote FOR or AGAINST or ABSTAIN
Partnership(s) Percentage Partnership(s) Percentage
Number Owned (%) Number Owned (%)
================ ================ ================= ===============
3. In their discretion, upon such other business as may properly come before
the meetings.
THIS PROXY AND BALLOT IS SOLICITED BY ENEX RESOURCES CORPORATION
("THE GENERAL PARTNER").
Votes it represents will be cast as specified. If no contrary specification is
made above, all Interests owned by the limited partner(s) signing below will be
voted FOR the Consolidation and FOR the amendments to each participating
Partnership's certificate and agreement of limited partnership.
SIGNATURE BOX
SIGNATURE(S) OF LIMITED PARTNER: X Signed:
Dated: X Signed:
Please sign exactly as the name is printed above. When signing as attorney,
executor, administrator, trustee, guardian, general partner, corporate officer,
or in any other representative capacity, give full title and note the
representations included in the two immediately preceding paragraphs. If two or
more persons are the joint owners of the Interests covered hereby, each person
named hereon must sign above.
=============================================================================
PLEASE TURN OVER
<PAGE>
REPRESENTATION BY PERSONS SIGNING
IN A REPRESENTATIVE CAPACITY
If the limited partner whose name printed on the front is not an
individual, the person signing this Proxy and Ballot hereby represents that he
is, in his representative capacity, empowered and duly authorized by the
governing documents, trust instruments, pension plan, charter, certificate of
incorporation, by law provision, board or stockholder resolution or similar
authority to complete and execute this Proxy and Ballot in such capacity on
behalf of the limited partner.
EXECUTION BY IRA, KEOGH AND PENSION PLAN LIMITED PARTNERS
If the limited partner is an individual retirement account or
Keogh or pension plan pursuant to which the beneficiary thereof is permitted to
direct the investment (i.e., a self-directed plan), the person signing this
Proxy and Ballot, in addition to making the representation contained in the
preceding paragraph, further represents that this Proxy and Ballot has been
completed pursuant to the direction of such beneficiary.
REQUEST FOR ADMISSION AS LIMITED PARTNER
Unless indicated to the contrary below, the undersigned hereby
(a) requests admission as a limited partner in the Consolidated Partnership,
with respect to all of the Units to which the undersigned become entitled
pursuant to the proposed Consolidation or the Exchange Offer described in the
accompanying Prospectus/Proxy Statement and (b) agrees to become a party to the
Articles of Limited Partnership of the Consolidated Partnership (the "Articles";
a copy of which is included in an appendix to the Prospectus/Proxy Statement)
and to be bound by all of the terms and conditions thereof. [Note: If a
Partnership approves the Consolidation, its limited partners will receive Units.
A failure to check the box below will result in admission to the Consolidated
Partnership as a limited partner if you receive Units.
Check only if you request not to be admitted as a limited partner
in the Consolidated Partnership. Note: If you check this box, you will not be
entitled to exercise all the rights of a limited partner described in the
accompanying Prospectus/Proxy Statement. See "THE PROPOSED CONSOLIDATION - Terms
of the Consolidation - Request for Admission as Limited Partner" in the
accompanying Prospectus/Proxy Statement. [ ]
POWER OF ATTORNEY
The undersigned hereby irrevocably constitutes and appoints Enex Resources
Corporation, the General Partner, with full power of substitution, as the true
and lawful attorney of the undersigned, in the undersigned's name, place and
stead, to execute, acknowledge, swear to and file: (i) 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, any state or local
government, or any other jurisdiction which the General Partner considers
necessary or desirable to carry out the purposes and business of the
Consolidated Partnership and (ix) all other agreements, certificates and
documents referred to in the power of attorney that is set forth in Article 10
of the Articles. This power of attorney shall be deemed coupled with an
interest, shall be irrevocable and shall survive the death, bankruptcy,
incapacity, dissolution or termination of the undersigned and shall extend to
the undersigned's heirs, representatives, successors or assigns, to the extent
the undersigned may legally contract for such survival.
CERTIFICATION AS TO ELIGIBILITY
PARTNERSHIP'S RIGHT TO PURCHASE INTERESTS
The undersigned hereby certifies to the Consolidated Partnership
and the General Partner that, unless otherwise indicated below, the undersigned
(including, to the best of the undersigned's knowledge, any person for whom the
undersigned will hold the Units) can and does hereby make all of the
representations, warranties, certifications, covenants, agreements and
designations set forth in Section 10.1 of the Articles (which are substantially
similar to those which were contained in the subscription agreement and power of
attorney signed by each limited partner at the time the limited partner
subscribed for Interests in a Partnership and include among other things, a
certification that the limited partner's Social Security or Taxpayer
Identification Number is correct and that the limited partner is not subject to
backup withholding on interest or dividends, representations regarding the
limited partner's ownership of and qualifications to own federal oil and gas
leases, the limited partner's ownership of the General Partner's common stock,
and acceptance of the Consolidated Partnership's tax matters partner and, in
most cases, a representation that the limited partner 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). (See
Page B-35.) The undersigned understands that if at any time the Consolidated
Partnership or the General Partner determines that any representation, warranty,
certification, covenant, agreement or designation made by or requested of the
undersigned was false when made, has been breached, or would be false if made at
a later time, or that the undersigned 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 limited
partners, then the General Partner, or any party designated by the General
Partner, shall have the right, but not the obligation, to purchase all or any
part of the limited partner held by the undersigned at a purchase price
determined in accordance with the Articles.
Check only if you are not able to certify in accordance with the foregoing.
Note: If you check this box, you will have the status of an assignee of a
limited partnership interest rather than a limited partner of the Consolidated
Partnership, as described in the accompanying Prospectus/Proxy Statement in "THE
PROPOSED CONSOLIDATION -Terms of the Consolidation - Request for Admission as
Limited Partner. [ ]
- ------------------------------------------------------------------------------
<PAGE>
ELECTION TO PARTICIPATE IN THE EXCHANGE OFFER
The Consolidated Partnership is offering Units, in accordance
with the terms and conditions set forth in the accompanying Propectus/Proxy
Statement, in exchange for the Interests of individual limited partners of
Partnerships that fail to approve the proposed Consolidation. This offer is only
available to limited partners who vote in favor of the proposed Consolidation.
Please check the appropriate box below to indicate whether or not
you wish to participate in the Exchange Offer and exchange all of your Interests
for Units of the Consolidated Partnership in accordance with the terms and
conditions set forth in the accompanying Prospectus/Proxy Statement.
The undersigned: [ ] I wish to participate in the Exchange Offer.
[ ] does not wish to participate in the Exchange
Offer.
Unless otherwise specified, if the limited partner(s) signing
above has voted FOR the Consolidation, all limited partnership interests owned
by the limited partner(s) will be exchanged for Units.
- -----------------------------------------------------------------------------
<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> sep-30-1996
<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
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</TABLE>
