UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 9)
-----------------------
INLAND RESOURCES INC.
(Name of Issuer)
COMMON STOCK, PAR VALUE $.001
(Title of Class of Securities)
90336P100
(CUSIP Number)
DAVID A. PERSING
885 THIRD AVENUE
NEW YORK, NEW YORK 10022
TEL. NO.: (212) 888-5500
(Name, Address and Telephone Number of
Person Authorized to Receive Notices
and Communications)
-----------------------
November 4, 1998
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 1(f) or 1(g), check the following box [ ].
<PAGE>
90336P100 Page 2 of 25 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Pengo Industries Inc.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [X]
(B) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
N.A.
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Texas
7 SOLE VOTING POWER
NUMBER OF 4,158,464
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON -0-
WITH
9 SOLE DISPOSITIVE POWER
4,158,464
10 SHARED DISPOSITIVE POWER
-0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,158,464
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
49.6%
14 TYPE OF REPORTING PERSON
CO
<PAGE>
90336P100 Page 3 of 25 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Pengo Securities Corp.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [X]
(B) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
7 SOLE VOTING POWER
NUMBER OF 4,129,269
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON -0-
WITH
9 SOLE DISPOSITIVE POWER
4,129,269
10 SHARED DISPOSITIVE POWER
-0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
4,129,269
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
49.3%
14 TYPE OF REPORTING PERSON
CO
<PAGE>
90336P100 Page 4 of 25 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Randall D. Smith
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [X]
(B) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
PF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
7 SOLE VOTING POWER
NUMBER OF 982,410
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON -0-
WITH
9 SOLE DISPOSITIVE POWER
982,410
10 SHARED DISPOSITIVE POWER
-0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
982,410
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
11.7%
14 TYPE OF REPORTING PERSON
IN
<PAGE>
90336P100 Page 5 of 25 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
John W. Adams
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [X]
(B) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
PF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New Jersey
7 SOLE VOTING POWER
NUMBER OF 163,735
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON -0-
WITH
9 SOLE DISPOSITIVE POWER
163,735
10 SHARED DISPOSITIVE POWER
-0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
163,735
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.95%
14 TYPE OF REPORTING PERSON
IN
<PAGE>
90336P100 Page 6 of 25 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Jeffrey A. Smith
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [X]
(B) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
PF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Texas
7 SOLE VOTING POWER
NUMBER OF 163,735
SHARES
BENEFICIALLY OWNED 8 SHARED VOTING POWER
BY EACH REPORTING
PERSON -0-
WITH
9 SOLE DISPOSITIVE POWER
163,735
10 SHARED DISPOSITIVE POWER
-0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
163,735
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.95%
14 TYPE OF REPORTING PERSON
IN
<PAGE>
90336P100 Page 7 of 25 Pages
AMENDMENT NO. 9 TO SCHEDULE 13D
This Amendment No. 9 to Schedule 13D is filed by the undersigned to
amend Amendment No. 8, filed on September 18, 1998.
Item 2. Identity and Background.
The following paragraph is hereby added after the second paragraph "B":
C. Smith Energy Partnership ("SEP"). SEP is a New York
partnership having its principal business address at 885 Third Avenue,
34th Floor, New York, NY 10022. SEP's principal business is to fund
drilling and inspection well locations pursuant to the Farmout
Agreement.
Item 3. Source and Amount of Funds or Other Considerations:
The following paragraph is hereby added at the end of Item 3:
In addition, 29,195 shares of Common Stock beneficially owned
by Pengo Industries were obtained by SEP as payment of proceeds under
the Farmout Agreement (previously filed as Exhibit 10 to Amendment No.
8). Pursuant to the Farmout Agreement, the Issuer is entitled to pay,
in lieu of cash proceeds, shares of the Issuer priced at a 10% discount
of the average bid side of the closing price for each trading day
during the month to which the payment relates. With respect to July
1998, 6,876 shares of Common Stock were issued in lieu of $54,164.84
and with respect to August 1998, 22,319 shares of Common Stock were
issued in lieu of $161,895.97.
Item 4. Purpose of Transaction.
All of the shares of Common Stock owned by Pengo Securities, Pengo
Industries and the Farmout Shareholders were acquired for investment purposes.
Pengo Securities, Pengo Industries and the Farmout Shareholders intend to review
their investment in the Issuer on a continuing basis and will take such actions
as they deem appropriate to preserve and enhance the value of their investment.
Depending upon Pengo Securities', Pengo Industries' and the Farmout
Shareholders' evaluation of a variety of factors and future developments
(including, without limitation, the Issuer's business and prospects, market
prices of the Common Stock, availability and alternative uses of funds, as well
as general and economic conditions), Pengo Securities, Pengo Industries and the
Farmout Shareholders reserve the right to acquire additional shares of Common
Stock, to dispose of some or all of their shares of Common Stock or to formulate
other purposes, plans or proposals regarding the Issuer to the extent they deem
advisable.
<PAGE>
90336P100 Page 8 of 25 Pages
Pursuant to the Subscription Agreement between the Issuer and Smith
Management dated May 12, 1994, Smith Management has the right to appoint two
representatives to the Issuer's Board of Directors. Three members of the
Issuer's Board of Directors are employees of Smith Management or its affiliates.
Effective October 1, 1998, pursuant to the Partnership Agreement
between Smith Management and Energy Management Corporation (filed as Exhibit 11
to this Amendment No. 9), the Farmout Agreement (filed as Exhibit 10 to
Amendment No. 8) was assigned by Smith Management to SEP as a capital
contribution.
Effective November 3, 1998, in accordance with its terms, the letter
agreement dated September 8, 1998 (filed as Exhibit 8 to Amendment No. 7) by and
among Pengo Securities, the Farmout Shareholders and KRM granting KRM the
exclusive right to act as placement agent for the purpose of finding a person or
persons to purchase all of the shares of Common Stock held by Pengo Securities
and the Farmout Shareholders, was terminated.
Except as set forth above, neither Pengo Securities nor Pengo
Industries has present plans or proposals which relate to or would result in any
matter of the type described in clauses (a) through (j) of Item 4 of Schedule
13D.
Item 5. Interest in Securities of the Issuer.
(a) The 4,129,269 shares of Common Stock beneficially owned by Pengo
Securities, constituting approximately 49.3% of the outstanding shares of Common
Stock, may be deemed beneficially owned by each of Pengo Securities and Pengo
Industries.
The 29,159 shares of Common Stock directly owned by SEP, constituting
approximately .35% of the outstanding shares of Common Stock, may be deemed
beneficially owned by Pengo Industries.
The shares of Common Stock owned by Mr. Randall Smith, 982,410 shares,
constitute 11.7% of the outstanding shares of Common Stock; the shares of Common
Stock owned by Mr. Adams, 163,735 shares, constitute 1.95% of the outstanding
shares of Common Stock; and the shares of Common Stock owned by Mr. Jeffrey
Smith, 163,735 shares, constitute 1.95% of the outstanding shares of Common
Stock.
Collectively, Pengo Securities, Pengo Industries, Mr. Randall Smith,
Mr. Adams and Mr. Jeffrey Smith beneficially own 5,468,308 shares of Common
Stock constituting approximately 65.3% of the outstanding shares of the Issuer.
(b) Each of Pengo Securities and Pengo Industries may be regarded as
having the sole power to vote or to direct the vote to dispose or to direct the
<PAGE>
90336P100 Page 9 of 25 Pages
disposition of the shares of Common Stock reported in Item 5(a) above
beneficially owned by Pengo Securities. Pengo Industries may be regarded as
having the sole power to vote or direct the vote to dispose or to direct the
disposition of the shares of Common Stock reported in Item 5(a) above directly
owned by SEP. Each of the Farmout Shareholders have the sole power to vote or
direct the vote and to dispose or direct the disposition of the shares of Common
Stock reported in Item 5(a).
(c) Except as described in Item 4, there have been no transactions by
Pengo Securities, Pengo Industries, SEP or the Farmout Shareholders in the
Common Stock during the sixty days ending November 4, 1998 or at any subsequent
date until the date of this report.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
There are no contracts, arrangements, understandings, or relationships
(legal or otherwise) among the reporting persons or between the reporting
persons and any person with respect to any securities of the Issuer other than
the agreements filed as Exhibits pursuant to Item 7 below.
Item 7. Material to be Filed as Exhibits.
1. Subscription Agreement dated May 12, 1994 between Smith Management
Company and the Issuer. (Previously filed.)
2. Amendment to Subscription Agreement dated September 16, 1994 between
Smith Management Company and the Issuer. (Previously filed.)
3. Registration Rights Agreement dated September 21, 1994 between
Energy Management Corporation and the Issuer. (Previously filed.)
4. Subscription Agreement between Inland Resources Inc. and Pengo
Securities Corp. dated October 23, 1995. (Previously filed.)
5. Registration Rights Agreement dated as of November 6, 1995 between
Inland Resources, Inc. and Pengo Securities Corp. (Previously filed.)
6. Agreement dated June 12, 1996 by and between Smith Management,
Farmout Inc., Randall D. Smith, Jeffrey A. Smith, John W. Adams, the Issuer and
Inland Production Company. (Previously filed.)
<PAGE>
90336P100 Page 10 of 25 Pages
7. Registration Rights Agreement dated as of June 12, 1996 by and
between the Issuer, Smith Management, Randall D. Smith, Jeffrey A. Smith and
John W. Adams. (Previously filed.)
8. Letter Agreement dated September 8, 1998 by and among Pengo
Securities Corp., Randall D. Smith, Jeffrey A. Smith, John W. Adams and KRM
Acquisition Corp. (Previously filed.)
9. Tagalong Agreement dated as of July 21, 1997 among Joint Development
Investments Limited Partnership and Pengo Securities Corp. (Previously filed.)
10. Farmout Agreement effective June 1, 1998 by and among Inland
Production Company, the Issuer and Smith Management. (Previously filed.)
11. Partnership Agreement effective October 1, 1998 by and between
Smith Management, LLC and Energy Management Corporation.
<PAGE>
90336P100 Page 11 of 25 Pages
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated as of November 24, 1998.
PENGO INDUSTRIES, INC.
By: /s/ David A. Persing
--------------------
Name: David A. Persing
Title: Senior Vice President
PENGO SECURITIES CORP.
By: /s/ David A. Persing
--------------------
Name: David A. Persing
Title: Senior Vice President
/s/ Randall D. Smith
--------------------
Randall D. Smith
/s/ John W. Adams
-----------------
John W. Adams
/s/ Jeffrey A. Smith
--------------------
Jeffrey A. Smith
90336P100 Page 12 of 25 Pages
================================================================================
PARTNERSHIP AGREEMENT
between
SMITH MANAGEMENT LLC
and
ENERGY MANAGEMENT CORPORATION
------------
June 1, 1998
------------
================================================================================
<PAGE>
90336P100 Page 13 of 25 Pages
TABLE OF CONTENTS
Page
----
1. DEFINITIONS..............................................................iii
2. ORGANIZATION...............................................................v
2.1 Name and Formation....................................................v
2.2 Purpose. .............................................................v
2.3 Principal Office and Place of Business................................v
2.4 Term..................................................................v
3. MANAGEMENT.................................................................v
3.1 Partnership Action....................................................v
3.2 Right to Indemnification..............................................v
4. CAPITALIZATION............................................................vi
4.1 Contributions........................................................vi
4.2 Interest on or Return of Capital Contributions.......................vi
5. BOOKS; CAPITAL ACCOUNTS; DISTRIBUTIONS....................................vi
5.1 Books................................................................vi
5.2 Capital Accounts.....................................................vi
5.3 Allocation of Net Income and Net Loss...............................vii
5.4 Allocation of Taxable Income and Loss..............................viii
5.5 Distributions......................................................viii
6. RIGHTS AND DUTIES OF PARTNERS...........................................viii
6.1 Nature of Obligations..............................................viii
6.2 No Restriction on Other Business...................................viii
7. TRANSFER OF PARTNERSHIP INTEREST; ADMISSION OF
ADDITIONAL PARTNERS.....................................................viii
7.1 Transfers..........................................................viii
7.2 Admission of New Partners............................................ix
<PAGE>
90336P100 Page 14 of 25 Pages
7.3 Conditions to Admittance.............................................ix
8. DISSOLUTION...............................................................ix
8.1 Dissolution..........................................................ix
8.2 Winding Up...........................................................ix
9. MISCELLANEOUS..............................................................x
9.1 Governing Law and Forum...............................................x
9.2 Notices..............................................................xi
9.3 Waivers and Amendments..............................................xii
9.4 Binding Effect; No Assignment.......................................xii
9.5 Further Assurances..................................................xii
9.6 Headings...........................................................xiii
9.7 Counterparts.......................................................xiii
<PAGE>
90336P100 Page 15 of 25 Pages
Exhibit 11
----------
THIS PARTNERSHIP AGREEMENT, dated June 1, 1998, between SMITH
MANAGEMENT LLC ("Smith"), a New York limited liability company, and ENERGY
MANAGEMENT CORPORATION ("EMC"), a Colorado corporation.
EMC and Smith intend to cause the Partnership to be operated (i) from
the date hereof until September 30, 1998, to fund Smith's obligations under that
certain Farmout Agreement (the "Farmout Agreement") by and among Smith, as
"Farmee," Inland Production Company and Inland Resources Inc. (together, the
"Farmor") and Inland Production Company as "Operator," effective June 1, 1998
and (ii) beginning October 1, 1998, to accept the assignment of Smith's right,
title, interest and obligations under the Farmout Agreement and henceforth to
assume the rights as Farmee under the Farmout Agreement. Pursuant to the Farmout
Agreement, Farmor agreed to farmout, and Farmee agreed to fund, a number of
drilling and injection well locations.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained, the parties hereto agree as follows:
1. DEFINITIONS
Capitalized terms not defined herein shall have the meanings
set forth in the Farmout Agreement. Unless the context otherwise requires, the
following additional terms shall have the meanings set forth below:
"Act" shall mean the Uniform Partnership Act of the State of
New York, as amended from time to time.
"Agreement" shall mean this Partnership Agreement, as amended
from time to time in accordance with its terms.
"Available Asset" shall mean assets in kind, cash or cash
equivalents of the Partnership in excess of such reserves as the Partnership may
deem necessary (a) to satisfy liabilities or expenses theretofore incurred, and
(b) to provide for the operations of the Partnership over the succeeding 90-day
period, in each case taking into account liabilities or expenses and cash
reasonably anticipated to be incurred and received, as the case may be, in such
period.
"Capital Account" shall mean the account established for each
Partner pursuant to Section 5.2 of this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
<PAGE>
90336P100 Page 16 of 25 Pages
"Interest" shall mean the rights and obligations of a Partner under this
Agreement.
"Net Income" and "Net Loss" shall mean, for each taxable year,
an amount equal to the Partnership's taxable income or loss, respectively, for
such taxable year determined in accordance with Section 703(a) of the Code (for
this purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a)(1) of the Code shall be included in
taxable income or loss), with the following adjustments: (i) any income of the
Partnership that is exempt from Federal income tax and not otherwise taken into
account in computing Net Income and Net Loss pursuant to this definition shall
be added to such taxable income or loss; (ii) any expenditures of the
Partnership described in section 705(a)(2)(B) of the Code or treated as such
pursuant to Regulations section 1.704-1(b)(2)(iv)(i), and not other wise taken
into account in computing Net Income or Net Loss pursuant to this defi nition
shall be subtracted from such taxable income or loss; (iii) income, gain, loss
and deduction of the Partnership shall be computed as if (A) the Partnership had
purchased at a price equal to its fair market value any property contributed by
a Partner to the Partnership, and (B) as if the Partnership had sold any
property distributed to a Partner on the date of such distribution at a price
equal to its fair market value at that date; and (iv) items of income, gain,
deductions or losses specially allocated pursuant to Section 5.3(c) in any
taxable year shall be excluded from the calculation of Net Income or Net Loss
for such year.
"Partners" shall mean, collectively, Smith and EMC.
"Partnership" shall have the meaning set forth in Section 2.1
of this Agreement.
"Percentage Interest" shall mean, for EMC, 99%, and for Smith,
1%.
"Regulations" shall mean the Treasury Regulations promulgated
under the Code.
"Transfer" shall mean any sale, pledge, exchange, assignment
or other change in or disposition of legal or beneficial ownership of an
Interest or any portion of an Interest in the Partnership, or any withdrawal by
a Partner from the Partnership.
2. ORGANIZATION
2.1 Name and Formation. Smith and EMC hereby organize a
general partnership (the "Partnership") pursuant to the Act and in accordance
with the terms and conditions of this Agreement. The activities of the
Partnership shall be conducted under the name of Smith Energy Partnership.
<PAGE>
90336P100 Page 17 of 25 Pages
2.2 Purpose. The purpose of the Partnership is (i) until
September 30, 1998, to fund Smith's obligations under the Farmout Agreement,
(ii) beginning October 1, 1998, to fund a number of drilling and injection well
locations in its capacity as Farmee under the Farmout Agreement, (iii) to
conduct all other activities as are related or incidental to the foregoing, and
(iv) to engage in any lawful act, activity, business, conduct or transaction
which may be approved by the Partners and for which partnerships may be formed
under the Act.
2.3 Principal Office and Place of Business. The principal
office for the Partnership shall initially be located at 885 Third Avenue, 34th
Floor, New York, New York 10022. The Partnership shall have such other places of
business as are approved by the Partnership.
2.4 Term. The term of the Partnership shall begin on the date
hereof and shall continue until the dissolution of the Partnership in accordance
with section 8.1 hereof.
3. MANAGEMENT
3.1 Partnership Action. The Partners shall manage, direct,
control and conduct the activities and affairs of the Partnership and each
Partner may exercise all the authority, rights and powers of the Partnership
under the Act or this Agreement. Either Partner may take action on behalf of the
Partnership.
3.2 Right to Indemnification. Except as prohibited by law,
each Partner shall be entitled to be indemnified by the Partnership against
expenses and any liability paid or incurred by such person in connection with
any claim, action, suit or proceeding, other than one brought by or in the right
of the Partnership or a Partner, in connection with an action taken or omitted
to be taken by such person in the good faith belief that such action was in the
best interest of the Partnership, so long as such action or omission is not in
violation of the provisions hereof and does not constitute fraud, gross
negligence or willful misconduct.
4. CAPITALIZATION
4.1 Contributions.
(a) EMC shall contribute cash to the capital of the
Partnership at such time or times and in such amounts as shall be necessary to
fund the Farmee's obligations under the Farmout Agreement. On October 1, 1998,
Smith shall contribute to the Partnership its right title, interest and
obligations under the
<PAGE>
90336P100 Page 18 of 25 Pages
Farmout Agreement which the Partners agree shall have a fair market value on the
date of contribution of $0.
(b) Except as provided, in Section 4.1(a), no Partner
shall be obligated to make any contributions to the capital of the Partnership.
4.2 Interest on or Return of Capital Contributions. No Partner
shall be paid interest on its capital contributions to the Partnership. No
Partner shall have the right to demand the return of all or any part of its
capital contribution to the Partnership.
5. BOOKS; CAPITAL ACCOUNTS; DISTRIBUTIONS
5.1 Books. The Partnership shall maintain its books on the
accrual basis and in accordance with the manner in which Net Income and Net Loss
are determined. Such books shall be maintained at the office of the Partnership.
Each Partner shall have access to such books and shall be entitled to examine
them at any time during reasonable business hours. Annual reports shall be
prepared showing the business and operations of the Partnership, which reports
shall be furnished to each Partner as early as possible after the end of each
year.
5.2 Capital Accounts. A Capital Account shall be established
and maintained for each Partner on the books of the Partnership in the manner
provided in Regulations section 1.704-1(b)(2)(iv). The Capital Account of each
Partner shall be increased by (i) the amount of any capital contribution made in
cash, (ii) the fair market value (net of liabilities that the Partnership is
considered to assume or take subject to under Section 752 of the Code) of any
capital contribution made in property other than cash, and (iii) allocations to
such Partner of Net Income and other items of income and gain pursuant to
Section 5.3. The Capital Account of each Partner shall be decreased by (x) the
amount of any cash distributed to such Partner, (y) the fair market value (net
of liabilities that such Partner is considered to assume or take subject to
under Section 752 of the Code) of any property distributed to such Partner, and
(z) allocations to such Partner of Net Loss and other items of loss or deduction
pursuant to Section 5.3.
5.3 Allocation of Net Income and Net Loss.
(a) Net Income for each taxable year (or portion
thereof) shall be credited to the Capital Accounts of the Partners as of the end
of such year (or portion thereof) as follows:
(i) first, to EMC until the aggregate
amount of Net Income allocated to EMC
pursuant to this clause
<PAGE>
90336P100 Page 19 of 25 Pages
(i) is equal to the aggregate amount of
Net Loss allocated to EMC pursuant to
Section 5.3(b)(i);
and
(ii) thereafter, to the Partners in
proportion to their respective
Percentage Interests.
(b) Net Loss for each taxable year (or portion
thereof) shall be charged to the Capital Accounts of the Partners as of the end
of such year (or portion thereof) as follows:
(i) first, to EMC until the aggregate
amount of Net Loss allocated to EMC is
equal to the sum of (x) the aggregate
amount of cash contributed to the
capital of the Partnership by EMC and
(y) the aggregate amount of Net Income
allocated to EMC pursuant to Section
5.3(a)(i);
and
(ii) thereafter, to the Partners in
proportion to their respective
Percentage Interests.
(c) The provisions of Sections 5.3(a) and 5.3(b) and
the other provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Regulations section 1.704-1(b) and shall be
interpreted and applied in a manner consistent with such Regulations. In
furtherance of the foregoing, this Agreement shall be deemed to include a
"qualified income offset" in accordance with Regulations section
1.704-1(b)(2)(ii)(d). The Partners shall make appropriate amendments to the
allocations of items pursuant to Sections 5.3(a) and 5.3(b) if necessary to
comply with section 704 of the Code or applicable Regulations thereunder;
provided, that no such change shall have an adverse effect upon the amount
distributable to any Partner pursuant to this Agreement.
5.4 Allocation of Taxable Income and Loss. Except as provided
in the following sentence, each separate item of income, gain, deduction or loss
of the Partnership for Federal income tax purposes shall be allocated to
Partners in proportion to the amount of Net Income or Net Loss that is credited
or charged to the Capital Account of each Partner for such taxable year. Income,
gain, loss or deductions of the Partnership shall, solely for income tax
purposes, be allocated between Partners in accordance with section 704(c) of the
Code and the Regulations thereunder using the traditional method so as to take
into account any difference between the adjusted basis to the Partnership for
Federal income tax purposes of any property contributed to the Partnership by a
Partner and its book value.
5.5 Distributions. Except as provided in Section 8.2,
Available Assets shall be distributed to the Partners quarterly and at such
other times as the
<PAGE>
90336P100 Page 20 of 25 Pages
Partners shall deem appropriate. Distributions of Available Assets shall be made
to the Partners in proportion to the positive balances in the respective Capital
Accounts.
6. RIGHTS AND DUTIES OF PARTNERS
6.1 Nature of Obligations. Each Partner hereby acknowledges,
as among the Partners and the Partnership, its responsibility for the
liabilities and obligations of the Partnership incurred in accordance with the
terms of this Agreement in proportion to its Percentage Interest, except as
otherwise expressly provided in this Agreement. Except as otherwise expressly
provided in this Agreement, as between the Partners no Partner shall be liable
or bear responsibility for more than its Percentage Interest of the liabilities
and obligations of the Partnership, and (except as aforesaid) in the event that
any Partner shall be liable or bear responsibility for any liability or
obligation of the Partnership in excess of such Partner's Percentage Interest,
the other Partner hereby agrees to indemnify, hold harmless and reimburse
(directly or through the Partnership) such Partner against and for such excess.
6.2 No Restriction on Other Business. Subject to the
Partnership's duties to the Farmor under the Farmout Agreement, each Partner and
each of its affiliates may engage in any business, investment or activity, and
neither the Partner ship nor the other Partner shall have any rights in or to
such businesses, investments or activities, or the income or profits derived
therefrom.
7. TRANSFER OF PARTNERSHIP INTEREST; ADMISSION OF ADDITIONAL PARTNERS
7.1 Transfers. Except with the prior written consent of each
other Partner, no Partner may Transfer its Interest in the Partnership and any
attempted Transfer by a Partner of all or any portion of its Interest shall be
void and of no effect.
7.2 Admission of New Partners. The Partnership may, from time
to time, upon the approval of all of the Partners, admit any person as a Partner
and grant such person Interests, which Interests may have such preferences,
rights and designations and such other terms and conditions as the Partners,
acting collectively, may determine, and such person shall, upon such issuance
and fulfilment of such conditions as may be determined by the Partners, be
admitted to the Partnership as a Partner.
7.3 Conditions to Admittance. As a condition to the admission
of any additional or successor Partners, the person so to be admitted shall
execute and acknowledge such instruments in form and substance reasonably
satisfactory to the Partners, as the Partners may deem necessary or desirable to
effectuate such
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admission and to confirm the agreement of the person to be admitted as such
Partner to be bound by all of the covenants, terms and conditions of this
Agreement as the same may therefore have been amended.
8. DISSOLUTION
8.1 Dissolution. The Partnership shall be dissolved upon the
earlier of (a) the occurrence of any event that would cause the dissolution of
the Partnership under the Act, or (b) June 1, 2008.
8.2 Winding Up. Upon a dissolution under Section 8.1(a) or (b)
above:
(a) the Partners shall have the right and power to do
all acts authorized by this Agreement and by law for the purpose of the
winding-up of the affairs of the Partnership;
(b) the Partners shall cause a balance sheet of the
Partnership to be prepared in accordance with generally accepted accounting
principles as of the date of dissolution;
(c) to the extent that the Partners determine that
any or all of the assets of the Partnership shall be sold, such assets shall be
sold as promptly as possible, but in an orderly and business-like manner and
subject to the obtaining of all requisite approvals and consents;
(d) the Capital Account of each Partner shall be
adjusted to take into account the Net Income or Net Loss resulting from the sale
or distribution in kind of the assets of the Partnership; and any Partner with a
deficit balance in its Capital Account after such adjustment shall contribute to
the Partnership an amount in cash equal to such deficit balance within the time
frame specified in Regulations section 1.704-1(b)(2)(ii)(b)(2);
(e) the proceeds of sale of the assets of the
Partnership and all other remaining assets of the Partnership shall be applied
and distributed within the time frame specified in Regulations section
1.704-1(b)(2)(ii)(b)(2) as follows, and in the following order of priority:
i) first, to the payment of all debts and
liabilities of the Partnership and the expenses of liquidation not otherwise
adequately provided for;
(i) second, to the setting up of any
reserves that are
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90336P100 Page 22 of 25 Pages
reasonably necessary for any contingent, unforeseen or potential liabilities or
obligations of the Partnership or of the Partners arising out of, or in
connection with, the Partnership; and
(ii) thereafter, to the Partners in
proportion to and to the extent of the positive balances of their respective
Capital Accounts at such time.
(f) the Partnership shall terminate when all property
and assets owned by the Partnership to be sold or distributed shall have been
disposed of, and the net sale proceeds, after payment of or provision for the
amounts specified in Section 8.2(e)(i) and (ii) hereof and any assets to be
distributed in kind shall have been distributed to the Partners as provided
herein.
9. MISCELLANEOUS
9.1 Governing Law and Forum.
(a) This Agreement shall be governed by and construed
in accordance with the laws of the State of New York. The Partners hereby waive
any right that they may have with respect to the partition of any Partnership
property or assets.
(b) Any legal action, suit or proceeding arising out
of or relating to this Agreement or the transactions contemplated hereby shall
be instituted in a federal court of the Southern District of New York, or a
state court located in New York County or State of New York, and each party
agrees not to assert, by way of motion, as a defense or otherwise, in any such
action, suit or proceeding, any claim that it is not subject personally to the
jurisdiction of such court, that the action, suit or proceeding is brought in an
inconvenient forum, that the venue of the action, suit or proceeding is improper
or that this Agreement or the subject matter hereof may not be enforced in or by
such court. Each party further irrevocably submits to the jurisdiction of such
court in any such action, suit or proceeding. Any and all service of process and
any other notice in any such action, suit or proceeding shall be effective
against any party if given personally or by registered or certified mail, return
receipt requested, or by any other means of mail that requires a signed receipt,
postage prepaid, mailed to such party as herein provided. Nothing herein
contained shall be deemed to affect the right of any party to serve process in
any manner permitted by law.
9.2 Notices. All notices required or permitted to be given
pursuant to this Agreement shall be given in writing shall be transmitted by
personal delivery, by registered or certified mail, return receipt requested,
postage prepaid, or by telecopier or other electronic means and shall be
addressed as follows:
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90336P100 Page 23 of 25 Pages
(i) if to Smith, to:
Smith Management LLC
885 Third Avenue, 34th Floor
New York, New York 10022
Telecopy Number: (212) 751-9502
Attn: David Persing
with a copy to:
Paul Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy Number: (212) 757-3990
Attn: Peter J. Rothenberg, Esq. or
Judith R. Thoyer, Esq.
(ii) if to EMC, to:
Energy Management Corporation
c/o Smith Management LLC
885 Third Avenue, 34th Floor
New York, New York 10022
Telecopy Number: (212) 751-9502
Attn: David Persing
with a copy to:
Paul Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy Number: (212) 757-3990
Attn: Peter J. Rothenberg, Esq. or
Judith R. Thoyer, Esq.
Either Partner may designate a new address to which notices required or
permitted to be given pursuant to this Agreement shall thereafter be transmitted
by giving notice to that effect to the other Partner. Each notice transmitted in
the manner described in this Section shall be deemed to have been given,
delivered, received and to have become effective for all purposes at the time it
shall have been (i) delivered to the addressee as indicated by the return
receipt (if transmitted by mail or personal
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90336P100 Page 24 of 25 Pages
delivery), the affidavit of the messenger (if transmitted by personal delivery)
or the answer back or call back (if transmitted by telecopier or other
electronic means), or (ii) presented for delivery to the addressee as so
indicated during normal business hours, if such delivery shall have been refused
for any reason.
9.3 Waivers and Amendments. This Agreement may be amended,
superseded, canceled, terminated, renewed or extended, and the terms hereof may
be waived, only by a written instrument signed by all of the Partners or, in the
case of a waiver, by the Partner waiving compliance.
9.4 Binding Effect; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the Partners and their respective
successors and legal representatives. This Agreement is not assignable except by
operation of law.
9.5 Further Assurances. The Partners shall execute, deliver
and acknowledge such documents and take such actions as may be reasonably
required to consummate the transactions contemplated hereby.
9.6 Headings. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
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90336P100 Page 25 of 25 Pages
9.7 Counterparts. This Agreement may be executed by the
Partners in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all, of the
Partners.
IN WITNESS WHEREOF, the Partners have executed this Agreement
on the date first above written.
SMITH MANAGEMENT LLC
By:_____________________________
Name:
Title:
ENERGY MANAGEMENT CORPORATION
By:_____________________________
Name:
Title:
