SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 4, 1998
TEXOIL, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 0-12633 88-0177083
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
110 CYPRESS STATION DRIVE
SUITE 220
HOUSTON, TEXAS 77090
(Address of principal executive offices)
(281) 537-9920
(Issuer's telephone number)
(NOT APPLICABLE)
(Former name or former address, if changed sine last report)
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ITEM 2. ACQUISITION OF OIL & GAS PROPERTIES
On May 4, 1998, Texoil, Inc. (the "Company"), through its wholly-owned
subsidiary Cliffwood Oil & Gas Corp. ("Cliffwood"), acquired all of the oil and
gas assets of the affiliated Cliffwood Acquisition - 1996 Limited Partnership
(the "Partnership). Cliffwood is the General Partner of the Partnership and
owned 10% of the Partnership. The purchase price was $4,430,000 cash and 898,000
shares of the Company's common stock to be issued. The properties include
working interests in seven producing fields located in Texas. A wholly-owned
subsidiary of the Company is the operator of all the acquired properties. The
Company financed the cash portion of the acquisition with proceeds from its
pre-existing credit facility with a bank.
Proved developed reserves associated with the acquisition have been
estimated, by an independent petroleum engineering firm, to be 1,260,700 Bbls of
oil and 1,962,100 Mcf of gas, net to Cliffwood. Additional secondary recovery
operations and certain development and exploratory opportunities may result in
additional proved reserves.
Concurrent with the acquisition of properties, the Company and Cliffwood
entered into certain agreements with EnCap Equity 1996 Limited Partnership and
Energy Capital Investments Company PLC (both referred to herein as "Limited
Partners"), which amended and restated various terms of the Partnership
Agreement, including but not limited to, (1) rename the Partnership the
CLIFFWOOD ACQUISITION - 1998 LIMITED PARTNERSHIP, (2) increase available
Partnership capital to $15.0 million, (3) increase Cliffwood's initial General
Partnership ownership to 15%, (4) commit 30% of the Company's future
acquisitions to the Partnership (subject to Partnership capital limitations),
(5) allow the Partnership to participate in exploratory and/or development
drilling activities and (6) modify various terms related to operating and
development expenditures. Pursuant to the terms of the Partnership Agreement,
the General Partner's share of Partnership profits and ownership increases
significantly, predicated upon a return of capital, with a specified rate of
return to Limited Partners. The increased capital to the Partnership is expected
to have an indirect benefit to the Company because the Partnership intends to
co-invest with the Company.
In addition, Limited Partners surrendered common stock warrants for
2,022,000 shares in exchange for 1,647,225 shares of common stock to be issued.
The Partnership and its limited Partners received certain registration rights in
connection with the stock to be issued in this transaction.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
*(a) Financial statements of business acquired.
*(b) Pro forma financial information.
(c) Exhibits
2.1 Acquisition and Distribution Agreement dated May 4, 1998, by and between
Texoil, Inc., Cliffwood Oil & Gas Corp., and Cliffwood Acquisition -
1996 Limited Partnership.
2.2 May 1998 Agreement in Respect of Agreement of Limited Partnership dated
May 4, 1998, by and among Cliffwood Oil & Gas Corp., EnCap Equity 1996
Limited Partnership and Energy Capital Investment Company PLC.
2.3 Registration Rights Agreement dated May 4, 1998, by and among Texoil,
Inc., EnCap Equity 1996 Limited Partnership and Energy Capital
Investment Company PLC.
2.4 Assignment of General Partner Interest dated May 4, 1998, by and between
Cliffwood Energy Company and Cliffwood Oil & Gas Corp.
2.5 First Amended and Restated Agreement of Limited Partnership dated May 4,
1998, by and among Cliffwood Oil & Gas Corp., EnCap Equity 1996 Limited
Partnership and Energy Capital Investment Company PLC.
2.6 Co-Sale Agreement dated May 4, 1998, by and among Cliffwood Oil & Gas
Corp., Cliffwood Acquisition 1998 Limited Partnership, EnCap Equity 1996
Limited Partnership and Energy Capital Investment Company PLC.
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*At the time of this report the required financial statements for the acquired
properties could not be provided, therefore, such required financial statements
will be filed by amendment when available.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
DATE: May 12, 1998 TEXOIL, INC.
By: /s/ FRANK A. LODZINSKI
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FRANK A. LODZINSKI
President and
Principal Financial Officer
ACQUISITION AND DISTRIBUTION AGREEMENT
THIS ACQUISITION AND DISTRIBUTION AGREEMENT (this "AGREEMENT") is made
and entered into as of this 4th day of May 1998, by and between Texoil, Inc., a
Nevada corporation ("TEXOIL"), Cliffwood Oil & Gas Corp., a Texas corporation
(the "GENERAL PARTNER"), and Cliffwood Acquisition - 1996 Limited Partnership, a
Texas limited partnership (the "PARTNERSHIP").
RECITALS:
A. The Partnership was formed in 1996 and is governed by that certain
Agreement of Limited Partnership dated as of September 27, 1996, as amended (the
"PARTNERSHIP AGREEMENT"). The General Partner is the sole general partner of the
Partnership. The limited partners of the Partnership are EnCap Equity 1996
Limited Partnership, a Texas limited partnership ("ENCAP LP"), and Energy
Capital Investment Company PLC, an English investment company ("ECIC")
(individually, a "LIMITED PARTNER" and collectively, the "LIMITED PARTNERS").
B. Texoil, the General Partner and the Partnership deem in it in their
mutual best interests to enter into the transaction contemplated hereby. As
provided more particularly herein, the transaction contemplated hereby
essentially has two components: (i) an in-kind distribution to the General
Partner by the Partnership of the General Partner's interest in the
Partnership's oil and gas properties and related assets; and (ii) a sale by the
Partnership to Texoil of the remaining portion of the Partnership's interest in
such oil and gas properties and related assets.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants and agreements contained herein, the parties hereto do hereby
agree as follows:
ARTICLE I
DEFINITIONS AND REFERENCES
SECTION 1.1. CERTAIN DEFINED TERMS. When used in this Agreement, the
following terms shall have the respective meanings assigned to them in this
SECTION 1.1 or in the sections, subsections or other subdivisions referred to
below:
"AGREEMENT" shall mean this Agreement, as hereafter changed, amended or
modified in accordance with the terms hereof.
"CASH PORTION" shall have the meaning assigned to such term in ARTICLE
III.
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"CLOSING" and "CLOSING DATE" shall have the respective meanings assigned
to such terms in SECTION 6.1.
"COMMON STOCK" shall mean shares of Texoil common stock, $.01 par value
per share.
"ECIC" shall have the meaning assigned to such term in PARAGRAPH A of
the Recitals hereto.
"EFFECTIVE DATE" shall have the meaning assigned to such term in SECTION
6.2(A).
"ENCAP LP" shall have the meaning assigned to it in PARAGRAPH A of the
Recitals hereto.
"EXCHANGE SHARES" shall have the meaning assigned to it in SECTION 9.13.
"GENERAL PARTNER"shall have the meaning assigned to such term in the
introductory paragraph to this Agreement.
"LIMITED PARTNERS" shall have the meaning assigned to such term in
PARAGRAPH A of the Recitals hereto.
"OIL AND PROPERTIES" shall have the meaning assigned to such term in
ARTICLE II.
"PARTNERSHIP" shall have the meaning assigned to such term in the
introductory paragraph to this Agreement.
"PROPERTIES" shall have the meaning assigned to such term in ARTICLE II.
"PURCHASE SHARES" shall have the meaning assigned to it in ARTICLE III.
"PURCHASED PORTION" shall have the meaning assigned to such term in
ARTICLE II.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and
all rules and regulations under such Act.
"STOCK AUTHORIZATION APPROVAL" shall have the meaning assigned to it in
SECTION 9.13.
"TEXOIL" shall have the meaning assigned to such term in the
introductory paragraph to this Agreement.
SECTION 1.2. REFERENCES AND CONSTRUCTION.
(a) All references in this Agreement to articles, sections, subsections
and other subdivisions refer to corresponding articles, sections, subsections
and other subdivisions of this Agreement unless expressly provided otherwise.
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(b) Titles appearing at the beginning of any of such subdivisions are
for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
(c) The words "this Agreement", "this instrument", "herein", "hereof",
"hereby", "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited.
(d) Words in the singular form shall be construed to include the plural
and VICE VERSA, unless the context otherwise requires. Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender.
(e) Unless the context otherwise requires or unless otherwise provided
herein, the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection shall
be construed to authorize such renewal, extension, modification, amendment or
restatement.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "includes" and its derivatives means "includes, but is not
limited to" and corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption that one
party had a greater or lesser hand in drafting this Agreement.
(i) Unless otherwise indicated, all references herein to "$" or
"dollars" shall refer to U.S. Dollars.
(j) EXHIBITS II, 6.2(A), 6.3(C) and 6.3(D) are attached hereto. Each
such Exhibit is incorporated herein by reference for all purposes and references
to this Agreement shall also include such Exhibit unless the context in which
used shall otherwise require.
ARTICLE II
PROPERTY TO BE TRANSFERRED
The Partnership agrees to transfer and assign, and the General Partner
agrees to receive, subject to the terms and provisions herein contained
(including the last full paragraph of this ARTICLE II), the following described
properties, rights and interests:
(a) All right, title and interest of the Partnership in and to
the oil, gas and/or mineral leases described in EXHIBIT II hereto (and
any ratification and/or amendments to
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such leases, whether or not such ratifications or amendments are
described on EXHIBIT II) insofar as such leases (and such ratifications
and amendments ) cover the lands and depths described on such EXHIBIT
II; and
(b) Without limiting the foregoing, all other right, title and
interest (of whatever kind or character, whether legal or equitable, and
whether vested or contingent) of the Partnership in and to the oil, gas
and other minerals in and under or that may be produced from the lands
and depths described on EXHIBIT II (including interests in oil, gas
and/or mineral leases covering such lands and depths, overriding
royalties, production payments and net profits interests in such lands
or such leases, and fee mineral interests, fee royalty interests and all
other interests of any kind or character in such oil, gas and other
minerals); and
(c) All rights, titles and interests of the Partnership in and to
all permits; licenses; servitudes; easements; rights-of-way; orders;
farm-in and farm-out agreements; bottom hole agreements; crude oil,
condensate and natural gas purchase and sale, gathering, transportation
and marketing agreements; hydrocarbon storage agreements; acreage
contribution agreements; operating agreements; balancing agreements;
pooling agreements; unitization agreements; processing agreements;
saltwater disposal agreements; options; facility ore equipment leases;
and other contracts, agreements, and rights owned by the Partnership, in
whole or in part, to the extent that they are (i) appurtenant to or
affect the properties described in SUBSECTIONS (A) and (B) above or (ii)
used or held for use in connection with the ownership or operation of
the properties described in SUBSECTIONS (A) and (B) above or the
production or treatment of oil, gas, and other hydrocarbons and
associated products on or produced from the properties described in
SUBSECTIONS (A) and (B) above, or the sale or disposal of water, oil,
gas and other hydrocarbons and associated products; and
(d) All rights, titles and interests of the Partnership in and to
all materials, supplies, machinery, equipment, improvements and other
personal property and fixtures (including, but not by way of limitation,
all wells, saltwater disposal wells, wellhead equipment, compression
equipment, flow lines, pipelines, gathering systems, processing and
separation systems, and other equipment) whether or not located on the
properties described in SUBSECTIONS (A), (B) and (C) above and used in
connection with the exploration, development, operation or maintenance
thereof and all oil, gas and other hydrocarbons produced from or
allocated thereto; and
(e) All of the files, records, information, and data, whether
written or electronically stored, relating to the interests of the
Partnership in the properties described in SUBSECTIONS (A), (B) and (C)
above, including without limitation: (i) land and title records
(including abstracts of title, title opinions, and title curative
documents); (ii) contract files; (iii) correspondence; (iv) operations,
environmental, production and accounting records (but not including
general financial accounting or tax accounting records); (v) facility
and well records; and (vi) geological, geophysical and other scientific
and technical data and information relating to the properties described
in
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SUBSECTIONS (A), (B) and (C) above that is nonproprietary and that the
Partnership has the unencumbered right to transfer.
The properties and interests specified in the foregoing SUBSECTIONS (A), (B) and
(C) are herein sometimes collectively called the "OIL AND GAS PROPERTIES," and
the properties and interests specified in the foregoing SUBSECTIONS (A),(B),(C),
(D) and (E) are herein sometimes collectively called the "PROPERTIES".
It is specifically agreed that the transfer contemplated by this ARTICLE
II shall be deemed to constitute (x) an in-kind distribution to the General
Partner by the Partnership of the General Partner's interest in the Properties
(which, for purposes hereof, shall constitute 10% of the Partnership's interest
in the Properties) and (y) a sale by the Partnership to Texoil, and a purchase
by Texoil from the Partnership, of the Partnership's entire interest in the
Properties less the interest described in CLAUSE (X) above. The portion of the
Partnership's interest in the Properties described in CLAUSE (Y) of the
immediately preceding sentence shall be herein called the "PURCHASED PORTION".
It is hereby acknowledged and affirmed that Texoil has directed the Partnership
to convey and assign to the General Partner, a wholly-owned subsidiary of
Texoil, the Purchased Portion.
ARTICLE III
PURCHASE PRICE FOR PURCHASED PORTION
In consideration of the sale by the Partnership to Texoil of the
Purchased Portion, as provided in the last full paragraph of ARTICLE II, Texoil
shall pay to the Partnership an aggregate purchase price consisting of the
following: (a) $4,465,000 cash (the "CASH PORTION"); and (b) 898,000 shares of
Common Stock (the "PURCHASE SHARES").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP
The Partnership hereby represents and warrants to Texoil as follows:
SECTION 4.1. ORGANIZATION AND EXISTENCE. The Partnership is a limited
partnership duly formed and validly existing under the laws of the State of
Texas.
SECTION 4.2. POWER AND AUTHORITY. The Partnership has full partnership
power and partnership authority to execute, deliver, and perform this Agreement
and each other agreement, instrument, or document executed or to be executed by
the Partnership in connection with the transactions contemplated hereby to which
it is a party and to consummate the transactions contemplated hereby and
thereby. The execution, delivery, and performance by the Partnership of this
Agreement and each other agreement, instrument, or document executed or to be
executed by the Partnership in connection with the transactions contemplated
hereby to which it is a party, and the consummation by it of the transactions
contemplated
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hereby and thereby, have been duly authorized by all necessary partnership
action of the Partnership.
SECTION 4.3. VALID AND BINDING AGREEMENT. This Agreement has been duly
executed and delivered by the Partnership and constitutes, and each other
agreement, instrument, or document executed or to be executed by the Partnership
in connection with the transactions contemplated hereby to which it is a party
has been, or when executed will be, duly executed and delivered by the
Partnership and constitutes, or when executed and delivered will constitute, a
valid and legally binding obligation of the Partnership, enforceable against it
in accordance with their respective terms, except that such enforceability may
be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws affecting creditors' rights generally and (b) equitable
principles which may limit the availability of certain equitable remedies (such
as specific performance) in certain instances.
SECTION 4.4. NON-CONTRAVENTION. Other than requirements (if any) that
there be obtained consents to assignment (or waivers of preferential rights to
purchase) from third parties, and except for approvals required to be obtained
from governmental entities who are lessors under leases forming a part of the
Oil and Gas Properties (or who administer such leases on behalf of such lessors)
which are customarily obtained post-closing, neither the execution, delivery,
and performance by the Partnership of this Agreement and each other agreement,
instrument, or document executed or to be executed by the Partnership in
connection with the transactions contemplated hereby to which it is a party nor
the consummation by it of the transactions contemplated hereby and thereby do
and will (a) conflict with or result in a violation of any provision of the
partnership agreement or other governing instruments of the Partnership, (b)
conflict with or result in a violation of any provision of, or constitute (with
or without the giving of notice or the passage of time or both) a default under,
or give rise (with or without the giving of notice or the passage of time or
both) to any right of termination, cancellation, or acceleration under, any
bond, debenture, note, mortgage, indenture, lease, contract, agreement, or other
instrument or obligation to which the Partnership is a party or by which the
Partnership or any of its properties may be bound, (c) result in the creation or
imposition of any lien or other encumbrance upon the properties of the
Partnership, or (d) violate any applicable law, rule or regulation binding upon
the Partnership.
SECTION 4.5. APPROVALS. Other than requirements (if any) that there be
obtained consents to assignment (or waivers of preferential rights to purchase)
from third parties, and except for approvals required to be obtained from
governmental entities who are lessors under leases forming a part of the Oil and
Gas Properties (or who administer such leases on behalf of such lessors) which
are customarily obtained post-closing, no consent, approval, order, or
authorization of, or declaration, filing, or registration with, any court or
governmental agency or of any third party is required to be obtained or made by
the Partnership in connection with the execution, delivery, or performance by
the Partnership of this Agreement and each other agreement, instrument, or
document executed or to be executed by the Partnership in connection with the
transactions contemplated hereby to which it is a party or the consummation by
it of the transactions contemplated hereby and thereby.
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SECTION 4.6. INVESTMENT INTENT. The Partnership is acquiring the
Purchase Shares to be acquired by it hereunder for its own account for
investment and not with a view to, or for sale or other disposition in
connection with, any distribution of all or any part thereof, except (i) in an
offering covered by a registration statement filed with the Securities and
Exchange Commission under the Securities Act covering the Purchase Shares, or
(ii) pursuant to an applicable exemption under the Securities Act; provided,
however, that it is specifically acknowledged and agreed that the Partnership
shall be permitted to make a distribution of the Purchase Shares to the Limited
Partners immediately after receipt by the Partnership of such shares.
SECTION 4.7. INVESTMENT EXPERIENCE. The Partnership acknowledges that it
is able to fend for itself, can bear the economic risk of its investment in the
Purchase Shares to be acquired by it hereunder, and has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the Purchase Shares. The Partnership
represents that it has not been organized for the purpose of acquiring the
Purchase Shares to be acquired by it hereunder.
SECTION 4.8. RESTRICTED SECURITIES. The Partnership understands that the
Purchase Shares will not have been registered pursuant to the Securities Act or
any applicable state securities laws, that such Purchase Shares will be
characterized as "restricted securities" under federal securities laws, and that
under such laws and applicable regulations such Purchase Shares cannot be sold
or otherwise disposed of without registration under the Securities Act or an
exemption therefrom.
SECTION 4.9. LEGEND. It is agreed and understood by the Partnership that
the certificates representing the Purchase Shares shall each conspicuously set
forth on the face or back thereof, in addition to any legends required by
applicable law or other agreement, a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
UNLESS THEY ARE FIRST REGISTERED PURSUANT TO THAT ACT AND APPLICABLE
STATE SECURITIES LAWS OR UNLESS THE CORPORATION RECEIVES A WRITTEN
OPINION OF COUNSEL, WHICH OPINION AND COUNSEL ARE SATISFACTORY TO THE
CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
SECTION 4.10. DISCLAIMER OF WARRANTIES. Other than those expressly set
out in this ARTICLE IV, the Partnership hereby expressly disclaims any and all
representations or warranties with respect to the Properties or the transaction
contemplated hereby, and Texoil agrees that the Properties are being sold or
otherwise transferred by the Partnership "where is" and "as is". Specifically as
a part of (but not in limitation of) the foregoing, Texoil acknowledges that
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the Partnership has not made, and the Partnership hereby expressly disclaims,
any representation or warranty (express, implied, under common law, by statute
or otherwise) as to the condition of the Properties (INCLUDING WITHOUT
LIMITATION, THE PARTNERSHIP DISCLAIMS ANY IMPLIED OR EXPRESS WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR CONFORMITY TO MODELS OR
SAMPLES OF MATERIALS), status of title to the Properties, the compliance by the
Partnership with environmental or other laws, rules, regulations and/or orders,
the extent of oil, gas and/or other mineral reserves, the recoverability of or
the cost of recovering any of such reserves, the value of reserves, prices (or
anticipated prices) at which production has been or will be sold and the ability
to sell oil or gas production from the Properties.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TEXOIL ENTITIES
Texoil and the General Partner (in this ARTICLE V, a "TEXOIL ENTITY")
hereby jointly and severally represent and warrant to the Partnership and for
the benefit of the Limited Partners as follows:
SECTION 5.1. ORGANIZATION AND EXISTENCE. Each Texoil Entity is a
corporation duly organized, legally existing and in good standing under the laws
of its state of incorporation, and, in the instance of Texoil, is qualified to
do business in the State of Texas.
SECTION 5.2. POWER AND AUTHORITY. Subject to the Stock Authorization
Approval, each Texoil Entity has full corporate power and corporate authority to
execute, deliver, and perform this Agreement and each other agreement,
instrument, or document executed or to be executed by such Texoil Entity in
connection with the transactions contemplated hereby to which it is a party and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery, and performance by each Texoil Entity of this Agreement and each other
agreement, instrument, or document executed or to be executed by such Texoil
Entity in connection with the transactions contemplated hereby to which it is a
party, and the consummation by it of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary corporate action of such
Texoil Entity except for the Stock Authorization Approval.
SECTION 5.3. VALID AND BINDING AGREEMENT. This Agreement has been duly
executed and delivered by each Texoil Entity and constitutes, and each other
agreement, instrument, or document executed or to be executed by such Texoil
Entity in connection with the transactions contemplated hereby to which it is a
party has been, or when executed will be, duly executed and delivered by such
Texoil Entity and constitutes, or when executed and delivered will constitute, a
valid and legally binding obligation of such Texoil Entity, enforceable against
it in accordance with their respective terms, except that such enforceability
may be limited by (a) applicable bankruptcy, insolvency, reorganization,
moratorium, and similar laws affecting
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creditors' rights generally and (b) equitable principles which may limit the
availability of certain equitable remedies (such as specific performance) in
certain instances.
SECTION 5.4. NON-CONTRAVENTION. The execution, delivery, and performance
by each Texoil Entity of this Agreement and each other agreement, instrument, or
document executed or to be executed by such Texoil Entity in connection with the
transactions contemplated hereby to which it is a party and the consummation by
it of the transactions contemplated hereby and thereby do not and will not (a)
conflict with or result in a violation of any provision of the charter or bylaws
or other governing instruments of such Texoil Entity, (b) conflict with or
result in a violation of any provision of, or constitute (with or without the
giving of notice or the passage of time or both) a default under, or give rise
(with or without the giving of notice or the passage of time or both) to any
right of termination, cancellation, or acceleration under, any bond, debenture,
note, mortgage, indenture, lease, contract, agreement, or other instrument or
obligation to which such Texoil Entity is a party or by which such Texoil Entity
or any of its properties may be bound, (c) result in the creation or imposition
of any lien or other encumbrance upon the properties of such Texoil Entity, or
(d) violate any applicable law, rule or regulation binding upon such Texoil
Entity.
SECTION 5.5. APPROVALS. No consent, approval, order, or authorization
of, or declaration, filing, or registration with, any court or governmental
agency or of any third party is required to be obtained or made by each Texoil
Entity in connection with the execution, delivery, or performance by such Texoil
Entity of this Agreement and each other agreement, instrument, or document
executed or to be executed by such Texoil Entity in connection with the
transactions contemplated hereby to which it is a party or the consummation by
it of the transactions contemplated hereby and thereby, other than the Stock
Authorization Approval and compliance with any applicable requirements of the
Securities Act and any applicable state securities laws.
SECTION 5.6. PENDING LITIGATION. There are no pending suits, actions, or
other proceedings in which any Texoil Entity is a party which affect the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
SECTION 5.7. KNOWLEDGEABLE PURCHASER. Each Texoil Entity is a
knowledgeable purchaser, owner and operator of oil and gas properties, has the
ability to evaluate (and in fact has evaluated) the Properties for purchase, and
is acquiring the Properties for its own account and not with the intent to make
a distribution within the meaning of the Securities Act of 1933 (and the rules
and regulations pertaining thereto) or a distribution thereof in violation of
any other applicable securities laws.
SECTION 5.8. TEXOIL COMMON STOCK. Upon receipt of the Stock
Authorization Approval, the Purchase Shares and the Exchange Shares will be duly
authorized for such issuance and, when issued and delivered by Texoil in
accordance with the provisions of this Agreement, will be validly issued, fully
paid, and nonassessable.
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SECTION 5.9. SEC FILINGS. Texoil is current in its obligations to file
all periodic report and proxy statements with the Commission required to be
filed under the Exchange Act. Texoil's Annual Report on Form-10KSB for the year
ended December 31, 1997 (the "SEC DOCUMENTS") do not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. Since
December 31, 1997, there have been no material developments, transactions or
events affecting Texoil (other than developments or events affecting the oil and
gas exploration and production industry generally) other than as disclosed by
Texoil in the SEC Documents or to the Partnership and the Limited Partners in
writing. There are no material liabilities of Texoil (contingent or otherwise),
other than as disclosed in the SEC Documents and the financial statements
included therein.
ARTICLE VI
CLOSING OF TRANSACTION
SECTION 6.1. THE CLOSING. The closing (herein called the "CLOSING") of
the transaction contemplated hereby shall take place in the offices of Thompson
& Knight, P.C., at 1700 Chase Tower, 600 Travis Street, Houston, Texas, at 10:30
a.m. Central Standard Time, on the date hereof (such date and time being herein
called the "CLOSING DATE").
SECTION 6.2. THE PARTNERSHIP'S CLOSING OBLIGATIONS. At the Closing, the
Partnership shall:
(a) execute, acknowledge and deliver to Texoil and the General
Partner Assignments of the Properties (the "ASSIGNMENTS"), in the form
attached hereto as EXHIBIT 6.2(A), being effective as to runs of oil and
deliveries of gas as of 12:01 o'clock a.m., Central Daylight Time on
February 1, 1998 (the "EFFECTIVE DATE");
(b) to the extent requested by Texoil or the General Partner,
execute and deliver to Texoil or the General Partner (i) letters in lieu
of transfer orders (or similar documentation), in form acceptable to
both parties; and
(c) to the extent requested by Texoil or the General Partner,
execute and deliver an affidavit or other certification (as permitted by
such code) that the Partnership is not a "foreign Person" within the
meaning of Section 1445 (or similar provisions) of the Internal Revenue
Code of 1986 as amended (I.E., the Partnership is not a non-resident
alien, foreign corporation, foreign partnership, foreign trust or
foreign estate as those terms are defined in such code and regulations
promulgated thereunder).
SECTION 6.3. TEXOIL'S AND GENERAL PARTNER'S CLOSING OBLIGATIONS. At the
Closing:
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(a) Texoil shall deliver to the Partnership, by wire transfer to
an account or accounts designated by the Partnership in a bank located
in the United States, an amount equal to the Cash Portion;
(b) (i) The General Partner shall furnish to the Partnership such
evidence (including, without limitation, evidence of satisfaction of all
applicable bonding requirements) as the Partnership or the Limited
Partners may require that the General Partner is qualified with the
applicable authorities to succeed the Partnership as the owner and,
where applicable, operator of the Properties, (ii) with respect to
properties operated by the Partnership where the General Partner is to
succeed the Partnership as operator, the General Partner shall execute
and deliver to the Partnership appropriate evidence reflecting change of
operator as required by applicable authorities, and (iii) the General
Partner shall execute and deliver to the Partnership such forms as the
Partnership or the Limited Partners may reasonably request for filing
with the applicable authorities to reflect the General Partner's
assumption of plugging and abandonment liabilities with respect to the
wells located on the Properties or on units in which the Properties
participate;
(c) Texoil shall execute and deliver that certain Registration
Rights Agreement substantially in the form of the document attached
hereto as EXHIBIT 6.3(C); and
(d) Texoil and the General Partner shall cause to be delivered to
the Partnership an opinion of counsel reasonably acceptable to the
Partnership, which opinion shall cover the matters described in EXHIBIT
6.3(D) and shall be in form and scope reasonably acceptable to the
Limited Partners.
SECTION 6.4. DELIVERY OF FILES. Within 30 days after the Closing, the
Partnership shall deliver to the General Partner the files and other materials
referenced in SUBSECTION (E) of ARTICLE II. Notwithstanding the foregoing, to
the extent such files or other materials include items which the Partnership
cannot provide to the General Partner without, in the opinion of the
Partnership, breaching confidentiality agreements with other parties, the
Partnership shall have no obligation to furnish such items. The Partnership may
retain copies of all or any parts of the files or other materials so furnished,
and all costs of copying such files shall be borne by the Partnership. So long
as such files or other materials so delivered by the Partnership to Texoil are
maintained by the General Partner or an affiliate, the General Partner shall
permit the Partnership, its partners and their respective representatives to
have access to the same for a period of three years after Closing. The General
Partner shall advise the Partnership and its partners before it destroys any
such files or other materials (and will, if requested by the Partnership or any
partner thereof, deliver to the Partnership or such partner any files or other
materials it intends to destroy).
ARTICLE VII
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ASSUMPTION AND INDEMNIFICATION
The General Partner agrees, as of the date of Closing (and, upon the
execution and delivery of the Assignments by the Partnership, the General
Partner shall be deemed to have agreed), (a) to assume, and to timely pay and
perform, all duties, obligations and liabilities relating to the ownership
and/or operation of the Properties, whether arising before, on or after the
Effective Date (including, without limitation, those arising under the contracts
and agreements described in ARTICLE II(C), and (b) to indemnify and hold the
Partnership, its partners and its and such partners' parent and subsidiary
companies and other affiliates, and its and their respective shareholders,
members, owners, directors, officers, managers, employees and agents harmless
from and against any and all claims, actions, liabilities, losses, damages,
costs or expenses (including court costs and attorneys' fees) of any kind or
character arising out of or otherwise relating to the ownership and/or operation
of the Properties, whether arising before, on or after the Effective Date. In
connection with (but not in limitation of) the foregoing, it is specifically
understood and agreed that matters arising out of or otherwise relating to the
ownership and/or operation of the Properties shall include all matters arising
out of the condition of the Properties (including, without limitation, within
such matters all obligations to properly plug and abandon, or replug and
re-abandon, wells located on the Properties, to restore the surface, and to
comply with, or to bring the Properties into compliance with, applicable
environmental laws including conducting any remediation activities which may be
required on, or otherwise in connection with activities on, the Properties),
regardless of when the events occurred which give rise to such condition (AND
REGARDLESS OF WHETHER THE PARTNERSHIP, ITS PARTNERS AND ITS AND SUCH PARTNERS'
PARENT AND SUBSIDIARY COMPANIES AND OTHER AFFILIATES, AND ITS AND THEIR
RESPECTIVE SHAREHOLDERS, MEMBERS, OWNERS, DIRECTORS, OFFICERS, MANAGERS,
EMPLOYEES AND AGENTS, WERE WHOLLY OR PARTIALLY NEGLIGENT OR OTHERWISE AT FAULT),
and the above provided for assumptions and indemnifications by the General
Partner shall expressly cover and include such matters so arising out of such
condition.
ARTICLE VIII
NOTICES
All notices and other communications required under this Agreement shall
(unless otherwise specifically provided herein) be in writing and be delivered
personally, by recognized commercial courier or delivery service (which provides
a receipt), by telecopier (with receipt acknowledged), or by registered or
certified mail (postage prepaid), at the following addresses:
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IF TO THE PARTNERSHIP: Cliffwood Acquisition - 1996
Limited Partnership c/o Cliffwood Oil & Gas Corp.
110 Cypress Station Dr.
Suite 220
Houston, Texas 77090
Attention: Frank A. Lodzinski
Fax No.: 281-537-8324
WITH A COPY TO:
EnCap Investments, L.C.
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Fax No.: 713-659-6130
IF TO TEXOIL OR
THE GENERAL PARTNER: c/o Texoil, Inc.
110 Cypress Station Dr.
Suite 220
Houston, Texas 77090
Attention: Frank A. Lodzinski
Fax No.: 281-537-8324
and shall be considered delivered on the date of receipt. Either Texoil and the
General Partner, on the one hand, or the Partnership, on the other hand, may
specify as its proper address any other post office address within the
continental limits of the United States by giving notice to the other, in the
manner provided in this Article, at least ten (10) days prior to the effective
date of such change of address.
ARTICLE IX
MISCELLANEOUS MATTERS
SECTION 9.1. SURVIVAL OF PROVISIONS. All representations and warranties
made herein by Texoil, the General Partner and the Partnership shall be
continuing and shall be true and correct on and as of the date of Closing with
the same force and effect as if made at that time; further, all of such
representations and warranties shall survive the Closing and the delivery of the
Assignments. The provisions of, and the obligations of the parties under,
ARTICLE VI (to the extent the same are, by mutual agreement, not performed at
Closing), and ARTICLES VII through IX inclusive shall survive the Closing and
the delivery of the Assignments.
SECTION 9.2. FURTHER ASSURANCES. From time to time after the Closing, at
the request of any party hereto and without further consideration, the
Partnership, on the one hand, and
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Texoil and the General Partner, on the other hand, shall execute and deliver to
the requesting party such instruments and documents and take such other action
(but without incurring any material financial obligation) as such requesting
party may reasonably request in order to consummate more fully and effectively
the transactions contemplated hereby.
SECTION 9.3. BINDING EFFECT; SUCCESSORS AND ASSIGNS. The Agreement shall
be binding on the parties hereto and their respective successors and permitted
assigns. No party hereto shall have the right to assign its rights under this
Agreement without the prior written consent of the other party first having been
obtained.
SECTION 9.4. COMMISSIONS. Texoil and the General Partner jointly and
severally agree to indemnify and hold harmless the Partnership and the Limited
Partners from and against any and all claims, obligations, actions, liabilities,
losses, damages, costs or expenses (including court costs and attorneys fees) of
any kind or character arising out of or resulting from any agreement,
arrangement or understanding alleged to have been made by, or on behalf of,
Texoil or the General Partner with any broker or finder in connection with this
Agreement or the transactions contemplated hereby.
SECTION 9.5. EXPENSES; SALES TAXES; FILINGS AND RECORDING FEES.
(a) Texoil and the General Partner, on the one hand, and the
Partnership, on the other hand, shall bear and pay all expenses incurred by them
or it in connection with the transaction contemplated by this Agreement.
(b) Notwithstanding anything to the contrary herein, since the
transaction contemplated hereby is an isolated transaction, no sales tax will be
collected from Texoil or the General Partner. If, however, this transaction is
later deemed to be other than an occasional sale, Texoil and the General Partner
jointly and severally agree to be solely responsible, and shall indemnify and
hold the Partnership (and their respective partners, and each of their and each
such partners' parent and subsidiary companies and other affiliates, and
shareholders, managers, owners, directors, officers, employees, consultants, and
agents, respectively) harmless, from any and all sales or transfer taxes or fees
(including related penalty, interest or legal costs) due by virtue of this
transaction on the Properties transferred pursuant hereto and Texoil or the
General Partner shall remit such sales or transfer taxes at that time. The
Partnership, the General Partner and Texoil agree to cooperate with each other
in demonstrating that the requirements for an occasional or isolated sale or any
other sales tax exemption have been met.
(c) Texoil and the General Partner shall be solely responsible for all
filings and recordings of assignments and other documents related to the
Properties and for all fees connected therewith, and Texoil or the General
Partner shall furnish the Partnership and its partners with pertinent recording
data. The Partnership (or the Limited Partners) shall not be responsible for any
loss to Texoil or the General Partner because of Texoil's or the General
Partner's failure to file or record documents correctly or promptly.
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SECTION 9.6. ENTIRE AGREEMENT. This Agreement and the documents referred
to herein to be delivered at Closing contain the entire understanding of the
parties hereto with respect to subject matter hereof and supersede all prior
agreements, understandings, negotiations, and discussions among the parties with
respect to such subject matter. Time is of the essence in this Agreement.
SECTION 9.7. PUBLIC STATEMENTS. The Partnership, on the one hand, and
Texoil, on the other hand, shall consult with each other with regard to all
publicity and other releases at or prior to Closing concerning this Agreement
and the transactions contemplated hereby and, except as required by applicable
law or the applicable rules or regulations of any governmental body or stock
exchange, neither the Partnership, on the one hand, nor Texoil, on the other
hand, shall issue any publicity or other release without the prior consent of
the other.
SECTION 9.8. INJUNCTIVE RELIEF. The parties hereto acknowledge and agree
that irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement, and shall be entitled to enforce specifically the provisions of this
Agreement, in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which the parties may be
entitled under this Agreement or at law or in equity.
SECTION 9.9. DECEPTIVE TRADE PRACTICES. To the extent applicable to the
transaction contemplated hereby or any portion thereof, TEXOIL CAN AND DOES
EXPRESSLY WAIVE THE PROVISIONS OF THE TEXAS DECEPTIVE TRADE PRACTICES-CONSUMER
PROTECTION ACT, SECTION 17.41 ET SEQ., TEXAS BUSINESS & COMMERCE CODE, OTHER
THAN SECTION 17.555, WHICH IS NOT WAIVED, AND ALL OTHER CONSUMER PROTECTION LAWS
OF THE STATE OF TEXAS, OR ANY OTHER STATE, APPLICABLE TO THIS TRANSACTION THAT
MAY BE WAIVED BY THE PARTIES. IN CONNECTION WITH SUCH WAIVER, TEXOIL HEREBY
REPRESENTS TO THE PARTNERSHIP THAT TEXOIL (A) IS IN THE BUSINESS OF SEEKING OR
ACQUIRING BY PURCHASE OR LEASE, GOODS OR SERVICES FOR COMMERCIAL OR BUSINESS
USE, (B) HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT
ENABLES IT TO EVALUATE THE MERITS AND RISKS OF THE TRANSACTIONS CONTEMPLATED
HEREBY, (C) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION AND (D) HAS
ASSETS OF $5,000,000 OR MORE ACCORDING TO ITS MOST RECENT FINANCIAL STATEMENTS.
SECTION 9.10. AMENDMENTS. This Agreement may be amended, modified,
supplemented, restated or discharged (and provisions hereof may be waived) only
by an instrument in writing signed by the parties hereto.
SECTION 9.11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
SECTION 9.12. COUNTERPARTS. This Agreement may be executed in
counterparts, all of which are identical and all of which constitute one and the
same instrument. It shall not be
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<PAGE>
necessary for Texoil, the General Partner, the Partnership and the Limited
Partners to sign the same counterpart.
SECTION 9.13. POST-CLOSING COVENANT OF TEXOIL REGARDING STOCK
AUTHORIZATION APPROVAL. Texoil covenants and agrees with and for the benefit of
the Partnership and the Limited Partners that (a) immediately after the Closing,
it will commence to take all necessary steps to amend its charter or other
applicable documents so as to increase the number of authorized shares of Common
Stock to an amount sufficient to permit it to duly issue (i) to the Partnership,
the Purchase Shares, and (ii) to the Limited Partners, the Exchange Shares,
including, if necessary, obtaining the requisite consent or approval of the
shareholders of Texoil, and (b) it will have duly completed the actions
described in the immediately preceding CLAUSE (A) no later than May 25, 1998.
The actions described in CLAUSE (A) of the immediately preceding sentence shall
be herein called the "STOCK AUTHORIZATION APPROVAL". Immediately upon receipt of
the Stock Authorization Approval, Texoil shall (A) issue and deliver to the
Partnership a certificate or certificates representing the Purchase Shares
registered in the name of the Partnership or, if requested by the Partnership,
the Limited Partners; (B) shall issue and deliver to the Limited Partners, in
consideration of and upon the delivery of the instruments described in SECTION
9.14(C), a certificate or certificates representing shares of Common Stock (the
"EXCHANGE SHARES") as follows: EnCap LP - 1,251,919 shares of Common Stock; and
EClC- 417,306 shares of Common Stock; and (C) shall cause to be delivered to the
Limited Partners an opinion of counsel reasonably satisfactory to the Limited
Partners to the effect that the Purchase Shares and the Exchange Shares have
been duly and validly authorized and issued and are fully paid and
non-assessable.
SECTION 9.14. JOINDER. Each Limited Partner joins in the execution of
this Agreement for the limited purposes of making the representations,
warranties and covenants below:
(a) Each Limited Partner severally (and not jointly and severally)
represents and warrants to Texoil and the General Partner that such Limited
Partner has not placed a mortgage, lien or other similar encumbrance on the
Properties.
(b) In connection with the contemplated distribution by the Partnership
to such Limited Partner of Purchase Shares and the receipt by such Limited
Partner of Exchange Shares under SECTION 9.13, each Limited Partner severally
(and not jointly and severally) represents and warrants to Texoil as follows:
(i) Such Limited Partner is acquiring the Purchase Shares to be
received by it upon distribution from the Partnership and the Exchange
Shares for its own account for investment and not with a view to, or for
sale or other disposition in connection with, any distribution of all or
any part thereof, except (i) in an offering covered by a registration
statement filed with the Securities and Exchange Commission under the
Securities Act covering the Purchase Shares and the Exchange Shares, or
(ii) pursuant to an applicable exemption under the Securities Act.
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(ii) Such Limited Partner acknowledges that it is able to fend
for itself, can bear the economic risk of its investment in the Purchase
Shares to be received from the Partnership and the Exchange Shares, and
has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of an investment in the
Purchase Shares and the Exchange Shares. Such Limited Partner has not
been organized for the purpose of acquiring the Purchase Shares to be
received by it from the Partnership or the Exchange Shares.
(iii) Such Limited Partner understands that the Purchase Shares
and the Exchange Shares will not have been registered pursuant to the
Securities Act or any applicable state securities laws, that such
Purchase Shares and Exchange Shares will be characterized as "restricted
securities" under federal securities laws, and that under such laws and
applicable regulations such Purchase Shares and Exchange Shares cannot
be sold or otherwise disposed of without registration under the
Securities Act or an exemption therefrom.
(iv) It is agreed and understood by such Limited Partner that the
certificates representing the Purchase Shares and the Exchange Shares
shall each conspicuously set forth on the face or back thereof, in
addition to any legends required by applicable law or other agreement, a
legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
UNLESS THEY ARE FIRST REGISTERED PURSUANT TO THAT ACT AND APPLICABLE
STATE SECURITIES LAWS OR UNLESS THE CORPORATION RECEIVES A WRITTEN
OPINION OF COUNSEL, WHICH OPINION AND COUNSEL ARE SATISFACTORY TO THE
CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
(c) In consideration of and against receipt by the Limited Partners of
the Exchange Shares as provided in SECTION 9.13, (i) ECIC will transfer and
assign to Texoil Stock Purchase Warrant No. 001 dated September 27, 1996,
entitling ECIC to purchase 75,000 shares of the common stock of Cliffwood Oil &
Gas Corp., a Texas corporation; and (ii) EnCap LP will transfer and assign Stock
Purchase Warrant No. 002 dated September 27, 1996, entitling EnCap LP to
purchase 225,000 shares of the common stock of Cliffwood Oil & Gas Corp., a
Texas corporation.
(d) At the Closing, each Limited Partner will execute and deliver that
certain Registration Rights Agreement substantially in the form of the document
attached hereto as EXHIBIT 6.3(C).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on
the date set forth above.
CLIFFWOOD ACQUISITION - 1996 LIMITED
PARTNERSHIP
By: CLIFFWOOD OIL & GAS CORP.,
General Partner
By:_________________________________
Frank A. Lodzinski, President
TEXOIL, INC.
By:_________________________________
-----------------, --------------
CLIFFWOOD OIL & GAS CORP.
By:_________________________________
Frank A. Lodzinski
EXECUTED FOR THE SOLE
PURPOSE OF BEING BOUND
BY SECTION 9.14:
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: EnCap Investments L.C.
By:____________________________
Robert L. Zorich, Managing Director
ENERGY CAPITAL INVESTMENT COMPANY PLC
By:_____________________________
Gary R. Petersen, Director
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MAY 1998 AGREEMENT
IN RESPECT OF
AGREEMENT OF LIMITED PARTNERSHIP
CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP
THIS MAY AGREEMENT IN RESPECT OF AGREEMENT OF LIMITED PARTNERSHIP is
made and entered into this 4th day of May, 1998, by and among Cliffwood Oil &
Gas Corp., a Texas corporation, EnCap Equity 1996 Limited Partnership, a Texas
limited partnership, and Energy Capital Investment Company PLC, an English
investment company.
RECITALS:
A. Cliffwood Energy Company, a California corporation ("CEG"), and the
Limited Partners have heretofore executed and delivered that certain Agreement
of Limited Partnership dated as of September 27, 1996, establishing Cliffwood
Acquisition - 1996 Limited Partnership the " PARTNERSHIP AGREEMENT").
B. CEG has heretofore assigned its interest as a general partner in the
Partnership to the General Partner and the General Partner has been admitted to
the Partnership as a substitute general partner in place of CEG.
C. The General Partner, on behalf of the Partnership, proposes to
execute and deliver that certain Acquisition and Distribution Agreement dated as
of even date herewith (the "A&D AGREEMENT"), by and between the Partnership,
Texoil, Inc. ("TEXOIL"), and the General Partner (in its separate corporate
capacity). Under the terms of the A&D Agreement, the Partnership would (x) make
an in-kind distribution to the General Partner of the General Partner's interest
in the Properties (which, for purposes hereof, shall constitute 10% of the
Partnership's interest in the Properties) and (y) sell to Texoil the
Partnership's entire interest in the Properties less the interest described in
CLAUSE (X) above (with the Partnership being directed by Texoil to transfer and
assign the interest described in this CLAUSE (Y) to the General Partner).
D. The parties hereto desire to enter into this Agreement for the
purpose of (i) authorizing the execution and delivery by the General Partner of
the Purchase Agreement on behalf of the Partnership and authorizing the
consummation by the Partnership of the Transaction and (ii) setting forth their
agreement with respect to (x) the manner in which the cash and shares of stock
received by the Partnership under the A&D Agreement will be shared by the
parties and (iii) the conduct of the Partnership's affairs after the
consummation of the Transaction and (y) certain other matters affecting the
Partnership.
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AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants and agreements contained herein and in the Partnership
Agreement, the parties hereto do hereby agree as follows:
SECTION 1. DEFINED TERMS, REFERENCES AND CONSTRUCTION.
(a) When used in this Agreement, the following terms shall have the
respective meanings assigned to them below in this SUBSECTION (A) or in the
sections, subsections or other subdivisions referred to below in this SUBSECTION
(A):
"A&D AGREEMENT" shall have the meaning assigned to it in
PARAGRAPH B of the Recitals.
"AGREEMENT" shall mean this May 1998 Agreement in Respect of
Agreement of Limited Partnership.
"CASH PORTION" shall have the meaning assigned to it in the A&D
Agreement.
"CLOSING" shall have the meaning assigned to it in the A&D
Agreement.
"CONVEYANCING DOCUMENTS" shall mean (i) the Assignment and Bill
of Sale, substantially in the form attached to the A&D Agreement in all
material respects, and (ii) the other documents and instruments to
executed and delivered at the Closing in connection with the sale,
assignment and transfer of the Properties and related obliga tions,
substantially in the form previously furnished to the Limited Partners
and its counsel in all material respects.
"PARTNERSHIP AGREEMENT" shall have the meaning assigned to it in
PARAGRAPH A of the Recitals.
"PURCHASE SHARES" shall have the meaning assigned to it in the
A&D Agree ment.
"PURCHASED PORTION" shall have the meaning assigned to it in the
A&D Agreement.
"TEXOIL" shall have the meaning assigned to it in PARAGRAPH B of
the Recitals.
"TRANSACTION" shall mean the transaction contemplated under the
A&D Agreement.
(b) All other terms not otherwise defined herein shall have the
respective meanings assigned to them in the Partnership Agreement.
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(c) All references in this Agreement to sections, subsections and other
subdivisions refer to corresponding sections, subsections and other subdivisions
of this Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any of such subdivisions are for convenience only and shall not
constitute part of such subdivisions and shall be disregarded in construing the
language contained in such subdivisions. The words "this Agreement", "this
instrument", "herein", "hereof", "hereby", "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. Words in the singular form shall be construed to
include the plural and VICE VERSA, unless the context otherwise requires. The
word "includes" and its derivatives means "includes, but is not limited to" and
corresponding derivative expressions.
SECTION 2. AUTHORIZATION OF THE EXECUTION AND DELIVERY OF THE A&D
AGREEMENT; AUTHORIZATION OF THE CONSUMMATION OF THE TRANSACTION UNDER THE A&D
AGREEMENT.
(a) Notwithstanding Section 6.2(d) or anything else in the Partnership
Agreement to the contrary (and in reliance on the representation and warranty of
the General Partner set forth in SECTION 9(A)(VII)), the Limited Partners hereby
consent to and approve the execution and delivery of the A&D Agreement by the
General Partner on behalf of the Partnership.
(b) Subject to the terms hereof, the Limited Partners hereby consent to
and approve the consummation by the Partnership of the Transaction and agree
that the General Partner shall have the power and authority to cause the
Partnership to consummate the Transaction (including the power and authority to
execute and deliver the Conveyancing Documents).
(c) The Limited Partners agree to transfer and assign to Texoil the
instruments described in Section 9.14(c) of the A&D Agreement (provided that
Texoil performs its obligations under the A&D Agreement, including Section 9.13
thereof).
(d) Pursuant to Section 9.13 of the A&D Agreement, the General Partner
agrees that it will request that Texoil issue stock certificates representing
the Purchase Shares in the names of the Limited Partners, with each Limited
Partner receiving the number of Purchase Shares set forth opposite its name in
SECTION 3.
(e) Promptly after the Closing, the General Partner agrees to provide
the Limited Partners with a complete set of all the documents and other
instruments executed by the General Partner and Texoil at the Closing.
SECTION 3. ALLOCATIONS AND DISTRIBUTIONS ATTRIBUTABLE TO THE PURCHASED
PORTION. Notwithstanding anything in the Partnership Agreement to the contrary
(including Article IV thereof), (a) all revenues of the Partnership relating to
the Purchased Portion (including for this purpose the Purchase Shares), as well
as all related items of Partnership income, gain and amount realized for Federal
income tax purposes shall be allocated 100% to the Limited Partners (and, as
between the Limited Partners, in the percentages set forth in Section 4.5 of the
Partnership Agreement) and (b) immediately (i) after the Closing, the
Partnership will distribute solely to the Limited Partners the Cash Portion, and
(ii) after the issuance to the
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Partnership of the Purchase Shares under the A&D Agreement, the Partnership will
solely distribute to the Limited Partners such Purchase Shares, as follows:
LIMITED PARTNER CASH PURCHASE SHARES
--------------- ---- ---------------
EnCap LP $3,348,750 673,500
Energy PLC $1,116,250 224,500
SECTION 4. CERTAIN RESTRICTIONS. Without limiting Section 6.2(d) or any
other provision of the Partnership Agreement or this Agreement, it is hereby
agreed that the General Partner shall not do, perform or authorize any of the
following without the prior written consent of the Limited Partners:
(a) alter, supplement, modify or amend the A&D Agreement in any material
respect, waive any of the Partnership's rights or any of Texoil's or the General
Partner's duties and obligations thereunder in any material respect, or make any
material election, determination or agreement thereunder; or
(b) alter, supplement, modify or amend any Conveyance Document in any
material respect, waive any of the Partnership's rights or any of Texoil's or
the General Partner's duties and obligations thereunder in any material respect,
or make any material election, determination or agreement thereunder.
SECTION 5. AGREEMENT REGARDING THE CONTINUED EXISTENCE OF THE
PARTNERSHIP.
(a) Notwithstanding Section 10.1(d) of the Partnership Agreement or
anything else therein or in the Act to the contrary, the parties hereto agree
that the Partnership shall not dissolve upon the consummation of the Transaction
and that the Partnership shall continue to exist and conduct business.
(b) Without limiting SUBSECTION (A) above, the parties hereto agree that
immediately after the consummation of the Transaction, the parties hereto shall
execute and deliver an amended and restated agreement of limited partnership to
govern the Partnership in a form mutually acceptable to them, which shall be
conclusively evidenced by their execution and delivery thereof; provided, that
the terms and provisions of this Agreement shall not be superseded by the
execution and delivery by the parties of any such agreement.
SECTION 6. EFFECTIVENESS OF AGREEMENT; APPROVALS. This Agreement shall
be expressly conditioned upon and effective if, and only if, the Transaction is
consummated.
SECTION 7. REPRESENTATIONS AND WARRANTIES.
(a) The General Partner represents and warrants to the Limited Partners
as follows:
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(i) The General Partner is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas.
(ii) The General Partner has the requisite power and authority to
execute and deliver this Agreement and to perform its obligations
hereunder.
(iii) The execution, delivery and performance by the General
Partner of this Agreement has been duly and validly authorized by all
requisite corporate action.
(iv) The execution, delivery and performance by the General
Partner of this Agreement is within its corporate powers and will not
(A) be in contravention of or violate any provisions of its applicable
charter or other governing documents, as amended to the date hereof, or
(B) be in contravention of or result in any breach or constitute a
default under any applicable law, rule, regulation, judgment, license,
permit or order or any loan, note or other agreement or instrument to
which the General Partner is a party or by which it or any of its
properties are bound.
(v) When delivered to the Limited Partners, this Agreement will
have been duly and validly executed and will be binding upon the General
Partner and enforceable in accordance with the terms hereof, except as
limited by bankruptcy, insolvency or similar law of general application
relating to the enforcement of creditors' rights.
(vi) No consent, approval, authorization or order of any court or
governmen tal agency or authority or of any third party which has not
been obtained is required in connection with the execution, delivery and
performance by the General Partner of this Agreement.
(vii) The General Partner has furnished the Limited Partners with
a true, correct and complete copy of the A&D Agreement and related
documents.
(viii) All Partnership debts and liabilities have been paid in
full or adequate provision has been made therefor.
(b) Each Limited Partner represents and warrants to the General Partner
as follows:
(i) It is duly organized and validly existing under the laws of
the jurisdic tion of its formation.
(ii) It has all requisite power and authority to execute and
deliver this Agreement and to perform its obligations hereunder.
(iii) The execution, delivery and performance of this Agreement
are within its powers and do not (A) contravene or violate any
provisions of its charter or other governing documents, as amended to
the date hereof, or (B) contravene or result in any breach of or
constitute a default under any applicable law, rule or regulation or any
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loan, note or other agreement or instrument to which it is a party or by
which it or any of its properties are bound.
(iv) When delivered to the General Partner, this Agreement will
be duly and validly executed by such Limited Partner and will be binding
upon it in accordance with the terms hereof, except as limited by
bankruptcy, insolvency or similar law of general application relating to
the enforcement of creditors' rights.
(c) All representations, warranties and covenants made by the General
Partner or the Limited Partners in this Agreement or any other document
contemplated thereby or hereby shall be considered to have been relied upon by
the other parties hereto and shall survive the execution and delivery of this
Agreement or such other document, regardless of any investiga tion made by or on
behalf of any such party.
SECTION 8. RATIFICATION. The Partnership Agreement, to the extent
amended by this Agreement, is hereby ratified and confirmed.
SECTION 9. COUNTERPARTS. This Agreement shall be executed in multiple
counter parts, with each such counterpart constituting an original, and all of
such counterparts constituting but one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
GENERAL PARTNER:
CLIFFWOOD OIL & GAS CORP.
By:____________________________
Frank A. Lodzinski, President
SIGNATURE PAGE--MAY 1998 AGREEMENT IN RESPECT OF AGREEMENT OF LIMITED
PARTNERSHIP OF CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
LIMITED PARTNER:
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By:__________________________
Gary R. Petersen, Director
SIGNATURE PAGE--MAY 1998 AGREEMENT IN RESPECT OF AGREEMENT OF LIMITED
PARTNERSHIP OF CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
LIMITED PARTNER:
ENCAP EQUITY 1996 LIMITED
PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By:__________________________
Robert L. Zorich, Managing
Director
SIGNATURE PAGE--MAY 1998 AGREEMENT IN RESPECT OF AGREEMENT OF LIMITED
PARTNERSHIP OF CLIFFWOOD ACQUISITION - 1996 LIMITED PARTNERSHIP.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and
entered into as of this 4th day of May, 1998, by and among Texoil, Inc., a
Nevada corporation (the "COMPANY"), Energy Capital Investment Company PLC, an
English investment company ("ENERGY PLC"), and EnCap Equity 1996 Limited
Partnership, a Texas limited partnership ("ENCAP LP").
RECITALS:
A. Reference is herein made to that certain Acquisition and Distribution
Agreement dated as of even date herewith (the "A&D AGREEMENT") by and among the
Company, Cliffwood Oil & Gas Corp., a Texas corporation ("COGC"), and Cliffwood
Acquisition - 1996 Limited Partnership, a Texas limited partnership (the
"PARTNERSHIP").
B. Energy PLC and EnCap LP are limited partners in the Partnership.
Under the terms of the documents governing the Partnership, the Limited Partners
are required to consent to the execution, delivery and performance by the
Partnership of the A&D Agreement. The Company acknowledges and agrees that the
shares of Common Stock (as defined herein) to be issued by the Company to the
Partnership under the A&D Agreement will be immediately distributed to the
Limited Partners by the Partnership. Under the A&D Agreement, the Company has
also agreed to issue shares of Common Stock to Energy PLC and EnCap LP in
exchange for certain stock purchase warrants held by Energy PLC and EnCap LP
entitling them to purchase shares of common stock in COGC, a wholly-owned
subsidiary of the Company. In order to induce Energy PLC and EnCap LP to consent
to the execution, delivery and performance by the Partnership of the A&D
Agreement and to exchange the abovementioned stock purchase warrants (and
recognizing that Energy PLC and EnCap LP would not be willing to grant such
consent and exchange such stock purchase warrants in the absence of this
Agreement), the Company has agreed to provide Energy PLC and EnCap LP with the
registration rights set forth herein.
AGREEMENT:
NOW, THEREFORE, for and in consideration of the foregoing Recitals and
the mutual covenants contained herein, the sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:
SECTION 1. DEFINITIONS AND REFERENCES.
(a) When used in this Agreement, the following terms shall have the
respective meanings assigned to them in this SECTION 1 or in the sections,
subsections or other subdivisions referred to below:
"A&D AGREEMENT" shall have the meaning assigned to such term in
PARAGRAPH A of the Recitals hereto.
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"AGREEMENT" shall mean this Agreement, as hereafter changed, modified or
amended in accordance with the terms hereof.
"COMMISSION" shall mean the Securities and Exchange Commission (or any
successor body thereto).
"COMMON STOCK" shall mean the common stock of the Company, $.01 par
value per share.
"COMPANY" shall have the meaning assigned to it in the introductory
paragraph hereof.
"ENCAP LP" shall have the meaning assigned to it in the introductory
paragraph hereof.
"ENERGY PLC" shall have the meaning assigned to it in the introductory
paragraph hereof.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated under such Act.
"HOLDER" shall mean any Person that holds Registrable Securities.
"HOLDER INDEMNIFIED PARTIES" shall have the meaning assigned to it in
SECTION 9(A).
"ISSUANCE DATE" shall mean the date upon which the Company has issued to
EnCap LP and Energy PLC the shares of Common Stock to be acquired or received by
them under the A&D Agreement.
"PERSON" shall mean any individual, corporation, partnership, joint
venture, limited partnership, limited liability company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"REGISTRABLE SECURITIES" shall mean (i) the shares of Common Stock
issued pursuant to the A&D Agreement (which, for purposes hereof, shall mean the
Purchase Shares, as defined in the A&D Agreement, and the Exchange Shares, as
defined in the A&D Agreement) and (ii) any securities issued or issuable with
respect to the shares described in CLAUSE (I) above by way of a stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization.
"REGISTRATION EXPENSES" shall mean all expenses incident to the
Company's performance of or compliance with the registration rights granted
hereunder, including (without limitation) all registration and filing fees, fees
and expenses of compliance with securities and blue sky laws, printing and
engraving expenses, messenger, telephone and delivery expenses, and fees and
disbursements of counsel for the Company, fees and expenses of the Company's
independent certified public accountants, fees and expenses of underwriters
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<PAGE>
(excluding discounts and commissions), and the fees and disbursements of one
counsel to the selling Holders; provided, that Registration Expenses shall not
include any Selling Expenses.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and
all rules and regulations under such Act.
"SELLING EXPENSES" shall mean underwriting discounts or commissions, any
selling commissions and stock transfer taxes attributable to sales of
Registrable Securities.
(b) All references in this Agreement to sections, subsections and other
subdivisions refer to corresponding sections, subsections and other subdivisions
of this Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any of such subdivisions are for convenience only and shall not
constitute part of such subdivisions and shall be disregarded in construing the
language contained herein. The words "this Agreement", "this instrument",
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular subdivision unless expressly
so limited. Words in the singular form shall be construed to include the plural
and VICE VERSA, unless the context otherwise requires. Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender.
SECTION 2. SHELF REGISTRATION. The Company will use its best efforts to
prepare and file with the Commission, no later than 30 days after the Issuance
Date, a shelf registration statement on Form S-3 or other appropriate form
pursuant to Rule 415 of the Securities Act covering the sale by the Holders of
all of the Registrable Securities. The Company shall use its best efforts to
cause the registration statement to be declared effective as promptly as
possible after the Issuance Date and to keep such registration statement
effective until the Holders have disposed of all of the Registrable Securities.
The Holders agree to furnish to the Company such information regarding the
distribution of the Registrable Securities covered by the registration statement
filed under this Section as the Company may from time to time reasonably request
in writing and such other information as may be legally required in connection
with such registration statement.
SECTION 3. AGREEMENT OF HOLDERS REGARDING THE DISPOSITION OF THE
REGISTRABLE SECURITIES. In connection with the disposition of the Registrable
Securities by the Holders, the Holders hereby agree with the Company that, as of
each date specified below, the percentage amount of the Registrable Securities
disposed of by them pursuant to the registration statement filed under SECTION 2
will not exceed the percentage amount set forth opposite such date:
DATE CUMULATIVE PERCENTAGE AMOUNT
---- ----------------------------
June 30, 1998 20%
September 30, 1998 40%
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December 31, 1998 60%
March 31, 1999 80%
June 30, 1999 100%
SECTION 4. REGISTRATION PROCEDURES.
(a) In connection with a registration statement filed pursuant to
SECTION 2, the Company will:
(i) at least seven days prior to filing the registration
statement or prospectus or any amendments or supplements thereto,
furnish copies of all such documents proposed to be filed to any holder
of Registrable Securities covered by such registration statement;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective as provided in Rule 415 of the Securities Act and
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration
statement;
(iii) notify the Holders promptly after the Company shall receive
notice thereof of the time when such registration statement has been
filed and becomes effective;
(iv) furnish to each Holder such number of copies of such
registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including, without
limitation, each preliminary prospectus) and such other documents as
such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Holder;
(v) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of
such jurisdictions within the United States as any seller of Registrable
Securities reasonably requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be
required to qualify generally to do business or subject itself to any
general service of process in any jurisdiction where it is otherwise not
then so subject);
(vi) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the
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happening of any event which requires the making of any change in the
prospectus included in such registration statement so that such document
will not contain an untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and, at the request of any such
seller, the Company will prepare a supplement or amendment to such
prospectus so that such prospectus will not contain an untrue statement
of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading;
(vii) use its reasonable best efforts to cause all such
Registrable Securities to be listed on each securities exchange or
exchanges, automated quotation system or over-the-counter market upon
which securities of the Company of the same class are then listed;
(viii) enter into such customary agreements (including, without
limitation, underwriting agreements in customary form, substance and
scope) and take all such other action as the Holders of a majority of
the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities;
(ix) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission;
(x) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the
qualification of any common stock included in such registration
statement for sale in any jurisdiction, the Company will use its
reasonable best efforts promptly to obtain the withdrawal of such order;
(xi) use its reasonable best efforts to cause such Registrable
Securities covered by such registration statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary to enable the sellers thereof to consummate the disposition of
such Registrable Securities; and
(xii) use its reasonable best efforts to obtain a comfort letter
from the Company's public accountants in customary form and covering
such matters of the type customarily covered by comfort letters with
respect to offerings of the type being made pursuant to the registration
statement as the Holders of the Registrable Securities reasonably
request.
(b) Each Holder of Registrable Securities will be deemed to have agreed
as follows:
(i) upon receipt of any notice from the Company of the happening
of any event of the kind described in SECTION 4(A)(VI), the Holders of
Registrable Securities covered by such registration statement will
forthwith discontinue disposition of any
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<PAGE>
such Registrable Securities until the Holders of Registrable Securities
receive copies of the supplemented or amended prospectus contemplated by
SECTION 4(A)(VI), or until they are advised in writing by the Company
that the use of the applicable prospectus may be resumed, and they have
received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such
prospectus (it being the agreement of the parties hereto, however, that
the obligation of the Company with respect to maintaining the subject
registration statement current and effective shall be extended by a
period of days equal to the period the Holders of Registrable Securities
are required by this SECTION 4(B)(I) to discontinue disposition of such
Registrable Securities); and
(ii) furnish to the Company such information regarding each
Holder, the Registrable Securities held by such Holder and the intended
method of disposition thereof as the Company shall reasonably request
and as shall be reasonably required in connection with the preparation
of the applicable registration statement and other actions taken by the
Company under this Agreement, and it shall be a condition precedent to
the obligation of the Company to take any action pursuant to this
Agreement in respect of the Registrable Securities that such information
has been furnished to the Company by the Holders of Registrable
Securities.
SECTION 5. EXPENSES OF REGISTRATION. The Company shall pay all
Registration Expenses in connection with the registration effected pursuant to
SECTION 2 and, in any event, shall pay its internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal and accounting duties), the expense of any annual audit and the fees and
expenses incurred in connection with the listing of the securities to be
registered on each securities exchange on which similar securities issued by the
Company are then listed. All Selling Expenses incurred in connection with a
registration effected pursuant to the terms hereof shall be borne by the seller
or sellers of Registrable Securities pro rata based upon the number of
Registrable Securities included in such registration or as otherwise agreed by
such sellers.
SECTION 6. INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless, with respect to any
registration statement filed by it, to the full extent permitted by law, each
Holder of Registrable Securities covered by such registration statement, and
each other Person, if any, who controls such Holder within the meaning of
Section 15 of the Securities Act (collectively, "HOLDER INDEMNIFIED PARTIES")
against all losses, claims, damages, liabilities and expenses, joint or several
to which any such Holder Indemnified Party may become subject under the
Securities Act, the Exchange Act, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement in which such Registrable Securities
were included as contemplated hereby or any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein
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<PAGE>
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary, final or summary prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto), or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or (iii) any violation by the Company of any federal,
state or common law rule or regulation applicable to the Company and relating to
action of or inaction by the Company in connection with any such registration;
and in each such case, the Company shall reimburse each such Holder Indemnified
Party for any reasonable legal or other expenses incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability, expense, action or proceeding; provided, however, that the Company
shall not be liable to any such Holder Indemnified Party in any such case to the
extent, that any such loss, claim, damage, liability or expense (or action or
proceeding, whether commenced or threatened, in respect thereof) arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or amendment thereof or
supplement thereto or in any such preliminary, final or summary prospectus in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any such Holder Indemnified Party for use in the
preparation thereof. Such indemnity and reimbursement of expenses and other
obligations shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holder Indemnified Parties and shall
survive the transfer of such securities by such Holder Indemnified Parties.
(b) Each Holder of Registrable Securities participating in any
registration hereunder shall severally (and not jointly or jointly and
severally) indemnify and hold harmless, to the fullest extent permitted by law,
the Company, its directors, officers, employees and agents, and each Person who
controls the Company (within the meaning of Section 15 of the Securities Act)
(collectively, "COMPANY INDEMNIFIED PARTIES") against all losses, claims,
damages, liabilities and expenses to which any Company Indemnified Party may
become subject under the Securities Act, the Exchange Act, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any registration statement in which
such Holder's Registrable Securities were included or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus, together with the documents
incorporated by reference therein (as amended or supplemented if the Company
shall have filed with the Commission any amendment thereof or supplement
thereto), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading to the extent in the cases described in CLAUSES (I) and (II), that
such untrue statement or omission was furnished in writing by such Holder for
use in the preparation thereof, or (iii) any violation by such Holder of any
federal, state or common law
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rule or regulation applicable to such Holder and relating to action of or
inaction by such Holder in connection with any such registration; and in each
such case, such Holder shall reimburse each such Company Indemnified Party for
any reasonable legal or other expenses incurred by any of them in connection
with investigating or defending any such loss, claim, damage, liability,
expense, action or proceeding. Such indemnity obligation shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company Indemnified Parties (except as provided above) and shall survive the
transfer of such securities by such Holder.
(c) Promptly after receipt by an indemnified party under SUBSECTION (A)
or (B) of written notice of the commencement of any action, suit, proceeding,
investigation or threat thereof made in writing with respect to which a claim
for indemnification may be made pursuant to this SECTION 6, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the indemnifying party of the threat or
commencement thereof; provided, however, that the failure to so notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. If any such claim or action
referred to under SUBSECTION (A) or (B) is brought against any indemnified party
and it then notifies the indemnifying party of the threat or commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it wishes, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense of any such claim or
action, the indemnifying party shall not be liable to such indemnified party
under this SECTION 6 for any legal expenses of counsel or any other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation unless the indemnifying
party has failed to assume the defense of such claim or action or to employ
counsel reasonably satisfactory to such indemnified party. Under no
circumstances will the indemnifying party be obligated to pay the fees and
expenses of more than one law firm for all indemnified parties. The indemnifying
party shall not be required to indemnify the indemnified party with respect to
any amounts paid in settlement of any action, proceeding or investigation
entered into without the written consent of the indemnifying party, which
consent shall not be unreasonably withheld. No indemnifying party shall consent
to the entry of any judgment or enter into any settlement without the consent of
the indemnified party unless (i) such judgment or settlement does not impose any
obligation or liability upon the indemnified party other than the execution,
delivery or approval thereof, and (ii) such judgment or settlement includes as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a full release and discharge from all liability in respect
of such claim for all persons that may be entitled to or obligated to provide
indemnification or contribution under this SECTION 6.
(d) Indemnification similar to that specified in the preceding
subsections of this SECTION 6 (with appropriate modifications) shall be given by
the Company and each seller of Registrable Securities with respect to any
required registration or qualification of securities under any state securities
or blue sky laws.
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<PAGE>
(e) If the indemnification provided for in this SECTION 6 is unavailable
to or insufficient to hold harmless an indemnified party under SUBSECTION (A) or
(B), then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) referred
to in SUBSECTION (A) or (B) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other in connection with the statements, omissions, actions or
inactions which resulted in such losses, claims, damages, liabilities or
expenses as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or the indemnified
party, any action or inaction by any such party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement, omission, action or inaction. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
expenses (or actions or proceedings in respect thereof) pursuant to this
SUBSECTION (E) shall be deemed to include, without limitation, any reasonable
legal or other expenses incurred by such indemnified party in connection with
investigating or defending any such action or claim (which shall be limited as
provided in SUBSECTION (C) if the indemnifying party has assumed the defense of
any such action in accordance with the provisions thereof) which is the subject
of this SUBSECTION (E). No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Promptly after receipt by an indemnified party under this
SUBSECTION (E) of written notice of the commencement of any action, suit,
proceeding, investigation or threat thereof made in writing with respect to
which a claim for contribution may be made against an indemnifying party under
this SUBSECTION (E), such indemnified party shall, if a claim for contribution
in respect thereof is to be made against an indemnifying party, give written
notice to the indemnifying party in writing of the commencement thereof (if the
notice specified in SUBSECTION (C) has not been given with respect to such
action); provided, however, that the failure to so notify the indemnifying party
shall not relieve it from any obligation to provide contribution which it may
have to any indemnified party under this SUBSECTION (E) except to the extent
that the indemnifying party is actually prejudiced by the failure to give
notice.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this paragraph were determined by pro rata allocation
or by any other method of allocation which does not take account the equitable
considerations referred to in the immediately preceding paragraph.
If indemnification is available under this SECTION 6, the indemnifying
parties shall indemnify each indemnified party to the fullest extent provided in
SUBSECTIONS (A) and (B), without regard to the relative fault of said
indemnifying party or any other equitable consideration provided for in this
subsection. The provisions of this subsection shall be in addition to any other
rights to indemnification or contribution which any indemnified party may have
pursuant to law or contract, shall remain in full force and effect regardless of
any
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investigation made by or on behalf of any indemnified party, and shall survive
the transfer of securities by any such party.
(f) In connection with any underwritten offering contemplated by this
Agreement which includes Registrable Securities, the Company and all sellers of
Registrable Securities included in any registration statement shall agree to
customary provisions for indemnification and contribution (consistent with the
other provisions of this SECTION 6) in respect of losses, claims, damages,
liabilities and expenses of the underwriters of such offering.
SECTION 7. SELECTION OF UNDERWRITERS. If a registration effected
pursuant to SECTION 2 is an underwritten offering or a best efforts underwritten
offering, the investment bankers or investment bankers and manager or managers
that will administer the offering shall be selected by the Holders of a majority
of the Registrable Securities to be registered in such registration; provided,
however, that such investment bankers and managers must be reasonably
satisfactory to the Company.
SECTION 8. RULE 144. The Company covenants to each Holder that, to the
extent that the Company shall be required to do so under the Exchange Act, the
Company shall (a) timely file the reports required to be filed by it under the
Exchange Act or the Securities Act (including, but not limited to, the reports
under Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c)
(1) of Rule 144 adopted by the Commission under the Securities Act) and the
rules and regulations adopted by the Commission thereunder, and (b) take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitations of the exemption
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any Holder, the Company shall deliver to such
Holder a written statement as to whether it has complied with such requirements.
Each Holder agrees that if such Holder is able to sell Registrable Securities
without registration pursuant to an exemption under Rule 144, such Holder shall
use reasonable efforts to attempt to do so, giving due consideration to the
quantity of Registrable Securities such Holder desires to sell.
SECTION 9. MISCELLANEOUS.
(a) From and after the date of this Agreement, the Company will not,
without the prior written consent of the Holders of a majority of the number of
Registrable Securities then outstanding, enter into any agreement with respect
to its securities which is inconsistent with or violates the rights granted to
the Holders of Registrable Securities in this Agreement. Without limiting the
foregoing, the Company also specifically agrees that during the period
commencing on the date hereof and ending when the Holders have disposed of all
of their Registrable Securities, the Company will not enter into an agreement
with a third party pertaining to the registration by the Company of such third
party's Common Stock on terms more favorable to the third party than those
afforded to the Holders hereunder (including, without limitation, SECTION 3).
The Company represents and warrants to Energy PLC and
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EnCap LP that, as of the date hereof, the Company is not a party to any
agreement with a third party pertaining to the registration by the Company of
such third party's Common Stock other than those listed in EXHIBIT 9(A) attached
hereto (which Exhibit also sets forth the principal terms of each such agreement
and which agreements are, in this SUBSECTION (A), called an "EXISTING
AGREEMENT"). The Company covenants and agrees with the Holders of Registrable
Securities that if a party to an existing agreement is permitted under the terms
thereof to dispose or otherwise transfer all or a portion of its Common Stock on
a basis more favorable than that accorded the Holders under SECTION 3, the
Company will consent to an amendment to this Agreement reasonably proposed by
the Holders that would permit the Holders to dispose or transfer of their
Registrable Securities on the same basis as such third party and/or shall
otherwise take all reasonable actions as are reasonably requested by the Holders
so as to accord the Holders with the right to dispose or transfer of their
Registrable Securities on the same basis as such third party.
(b) Energy PLC and EnCap LP agree, and each other Holder of Registrable
Securities (including Registrable Securities in any registration statement filed
pursuant to this Agreement) will be deemed to have agreed that if any
Registrable Securities are being registered in any registration pursuant to this
Agreement, the Holder thereof will comply with all anti-stabilization,
manipulation and similar provisions of Section 10 of the Exchange Act, as
amended, and any rules promulgated thereunder by the Commission and, at the
request of the Company, will execute and deliver to the Company and to any
underwriter participating in such offering, an appropriate agreement to such
effect.
(c) All questions concerning the construction, validity and
interpretation of this Agreement shall be governed by the internal law, and not
the law of conflicts, of the State of Texas.
(d) All covenants and agreements in this Agreement by or on behalf of
any of the parties hereto will bind and inure to the benefit of the respective
successors and assigns of the parties hereto. In addition, the rights and
obligations under this Agreement shall automatically be transferred to and
binding on any transferee or assignee of the Registrable Securities; provided,
that (i) the Company is, within a reasonable time after such transfer, furnished
with written notice of the name and address of such transferee or assignee and
the Registrable Securities with respect to which such registration rights are
being transferred or assigned, (ii) such transferee or assignee agrees in
writing to be bound by and subject to the terms and conditions of this
Agreement, (iii) the transfer and assignment of the subject Registrable
Securities is in compliance with the Securities Act and applicable state
securities laws or an exemption from the registration requirements of the
Securities Act and applicable state securities laws, and (iv) such assignment of
rights and obligations under this Agreement shall be effective only if
immediately following such transfer the further disposition of such Registrable
Securities by the transferee or assignee is restricted under the Securities Act.
(e) This Agreement is intended by the parties as a final expression of
their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter herein contained. There are
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<PAGE>
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein, with respect to the registration rights granted by
the Company to the Holders of the Registrable Securities. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(f) All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally or sent
by reputable express courier service (charges prepaid), or mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid, or sent by telefax, to the parties at the following address (or to such
other address or to the attention of such other person as the recipient party
has specified by prior like notice to the sending party):
IF TO THE COMPANY:
------------------
Texoil, Inc.
110 Cypress Station Dr.
Suite 220
Houston, Texas 77090
Telecopier No.: (281)537-8324
Attention: Frank A. Lodzinski
IF TO ENERGY PLC OR ENCAP LP:
-----------------------------
c/o EnCap Investments L.C.
1100 Louisiana
Suite 3150
Houston, Texas 77002
Telecopier No.: (713) 659-6130
Attention: Robert L. Zorich, Managing Director
(g) If any provision of this Agreement is held to be unenforceable, this
Agreement shall be considered divisible and such provision shall be deemed
inoperative to the extent it is deemed unenforceable, and in all other respects
this Agreement shall remain in full force and effect; provided, however, that if
any such provision may be made enforceable by limitation thereof, then such
provision shall be deemed to be so limited and shall be enforceable to the
maximum extent permitted by applicable law.
(h) This Agreement may be executed by the parties hereto in any number
of counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same agreement. Each counterpart may consist of a
number of copies hereof each signed by less than all, but together signed by
all, the parties hereto.
(i) Each Holder of Registrable Securities, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be
entitled to specific
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<PAGE>
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of
breach by it of the provisions of this Agreement and hereby agrees to waive (to
the extent permitted by law) the defense in any action for specific performance
that a remedy of law would be adequate.
(j) In any action or proceeding brought to enforce any provision of this
Agreement, or where any provision hereof is validly asserted as a defense, the
successful party shall be entitled to recover reasonable attorneys' fees in
addition to any other available remedy.
(k) The Company agrees to remove any legends on certificates
representing Registrable Securities describing transfer restrictions applicable
to such securities upon the sale of such securities (i) pursuant to an effective
Registration Statement under the Securities Act or (ii) in accordance with the
provisions of Rule 144 under the Securities Act.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TEXOIL, INC.
By:___________________________________
Name: ________________________________
Title: President
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By: ___________________________________
Name: Gary R. Petersen
Title : Director
ENCAP EQUITY 1996 LIMITED
PARTNERSHIP
By: EnCap Investments L.C., General Partner
By:________________________________________
Name: Robert L. Zorich
Title: Managing Director
-14-
ASSIGNMENT OF GENERAL PARTNER INTEREST
THIS ASSIGNMENT OF GENERAL PARTNER INTEREST (this "ASSIGNMENT") is made
and entered into this 4th day of May, 1998, by and between Cliffwood Energy
Company, a California corporation ("ASSIGNOR"), and Cliffwood Oil & Gas Corp., a
Texas corporation ("ASSIGNEE").
RECITALS:
A. Reference is hereby made to the Cliffwood Acquisition - 1996
Limited Partnership, a Texas limited partnership (the "PARTNERSHIP"). The
Partnership is governed by that certain Agreement of Limited Partnership dated
as of September 27, 1996, as amended (the "PARTNERSHIP AGREEMENT").
B. Assignor is the sole general partner of the Partnership and is
the record and beneficial owner of an interest in the Partnership as a general
partner (such general partner interest being called the "INTEREST").
C. Assignor desires to assign the Interest to Assignee, and
Assignee desires to accept the Interest from Assignor, on the terms and
conditions set forth herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and
the mutual covenants and agreements contained herein, Assignor and Assignee do
hereby agree as follows:
1. ASSIGNMENT. Assignor hereby transfers and assigns the Interest
to Assignee, together with all of their respective rights and obligations as a
general partner of the Partnership appurtenant thereto, it being the intention
of Assignor and Assignee that Assignee shall become a substituted general
partner of the Partnership in place of Assignor.
2. ACCEPTANCE. Assignee hereby accepts the Interest and agrees to
become a substituted general partner of the Partnership in place of Assignor
with respect to the Interest and agrees to be bound by all of the terms and
provisions of the Partnership Agreement.
3. EFFECTIVE DATE. The transactions contemplated hereby shall be
effective as of 12:01 o'clock a.m., Central Standard Time, on April 1, 1998 (the
"EFFECTIVE DATE").
4. ASSUMPTION AND INDEMNIFICATION. Assignor agrees to indemnify
and hold Assignee and its shareholders, directors, officers, employees and
agents harmless from and against any and all claims, actions, liabilities,
losses, damages, costs or expenses (including court costs and attorneys' fees)
of any kind or character arising out of or otherwise
-1-
<PAGE>
relating to the ownership of the Interest before the Effective Date. Assignee
agrees (a) to assume, and to timely pay and perform, all duties, obligations and
liabilities relating to the ownership of the Interest after the Effective Date
and (b) to indemnify and hold Assignor, its shareholders, directors, officers,
employees and agents harmless from and against any and all claims, actions,
liabilities, losses, damages, costs or expenses (including court costs and
attorneys' fees) of any kind or character arising out of or otherwise relating
to the ownership of the Interest after the Effective Date.
5. BINDING EFFECT; SUCCESSORS AND ASSIGNS; AMENDMENTS. This
Assignment shall be binding on the parties hereto and their respective
successors and assigns. This Assignment may be amended, modified, supplemented,
restated or discharged (and provisions hereof may be waived) only by an
instrument in writing signed by the parties hereto.
6. SEVERABILITY. If any provision of this Assignment is held to
be unenforceable, this Assignment shall be considered divisible and such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and in all other respects this Assignment shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law.
7. NO WAIVER. The failure of any party hereto to insist upon
strict performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall not
be a waiver of such party's right to demand strict compliance in the future. No
consent or waiver, express or implied, to or of any breach or default in the
performance of any obligation hereunder shall constitute a consent or waiver to
or of any other breach or default in the performance of the same or any other
obligation hereunder.
8. COUNTERPARTS. This Assignment may be executed in multiple
counterparts, each of which shall be deemed an original and all of which shall
constitute but one and the same instrument.
9. GOVERNING LAW. This Assignment shall be governed by the laws
of the State of Texas.
10. AGREEMENT OF LIMITED PARTNERS; AGREEMENT OF TEXOIL.
(a) By their respective signatures below, Energy Capital
Investment Company PLC, an English investment company, and EnCap Equity
1996 Limited Partnership, a Texas limited partnership, in their
capacities as the limited partners of the Partnership (the "LIMITED
PARTNERS"), hereby acknowledge and agree as follows: (i) the terms and
provisions of the Partnership Agreement have either been complied
with or waived with respect to the transfer and assignment of the
Interest by Assignor
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<PAGE>
to Assignee; (ii) Assignee shall be substituted as general partner of
the Partnership in place of Assignor with respect to the Interest (and
the Limited Partners hereby grant their consent thereto for purposes of
compliance with the Partnership Agreement); and (iii) the execution and
delivery by Assignor and Assignee of this Assignment shall be sufficient
to effect the above described substitution. By their respective
signatures below, the Limited Partners hereby waive the obligations of
Assignee under that certain Guaranty and Support Agreement dated
September 27, 1996 (the "GUARANTY"), and executed by Assignee in favor
of the Partnership and the Limited Partners.
(b) By its respective signature below, Texoil, Inc., a Nevada
corporation and the owner of 100% of the issued and outstanding capital
stock of Assignee ("PARENT"), hereby covenants and agrees for the
benefit of the Partnership and the Limited Partners as follows: (i) that
if, at any time, Assignee's net worth (as determined in accordance with
generally accepted accounting principles) is less than $5,000,000,
Parent will, upon request of the Limited Partners by notice in writing
to Parent, execute and deliver a guaranty and support agreement in form
and scope reasonably acceptable to the Limited Partners (it being
agreed, however, that the execution and delivery by Parent of a guaranty
and support agreement substantially in the form of the Guaranty (with
appropriate changes for name and dates) shall be deemed reasonably
acceptable to the Limited Partners); and (ii) that it understands that
the Limited Partners would not be willing to execute and deliver this
Assignment without the covenants and agreements of Parent herein and
that such covenants and agreements are being made to induce the Limited
Partners to execute and deliver this Assignment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment as of the date set forth above.
ASSIGNOR:
CLIFFWOOD ENERGY COMPANY
By: ____________________________
Name: Frank A. Lodzinski
Title: President
ASSIGNEE:
CLIFFWOOD OIL & GAS CORP.
By: ________________________________
Name: Frank A. Lodzinski
Title: President
ACCEPTED AND AGREED TO
BY THE LIMITED PARTNERS
AS OF THE DATE SET FORTH ABOVE:
ENCAP EQUITY 1996 LIMITED PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By: ________________________
Name: Robert L. Zorich
Title: Managing Director
ENERGY CAPITAL INVESTMENT COMPANY PLC
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<PAGE>
By: ____________________________________
Name: Gary R. Petersen
Title: Director
ACCEPTED AND AGREED TO
AS OF THE DATE SET FORTH ABOVE:
TEXOIL, INC.
By: _______________________________
Name: _____________________________
Title: _______________________
-5-
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
CLIFFWOOD ACQUISITION - 1998 LIMITED PARTNERSHIP
DATED AS OF MAY 4, 1998
<PAGE>
TABLE OF CONTENTS
RECITALS: ...........................................................1
AGREEMENT: ..........................................................2
ARTICLE I FORMATION OF PARTNERSHIP..........................................2
Section 1.1. Formation..............................................2
Section 1.2. Name...................................................2
Section 1.3. Business...............................................3
Section 1.4. Places of Business, Registered Agent and Addresses. ...3
Section 1.5. Term...................................................3
Section 1.6. Filings................................................3
ARTICLE II CERTAIN DEFINITIONS AND REFERENCES...............................4
Section 2.1. Certain Defined Terms..................................4
Section 2.2. References and Construction. .........................11
ARTICLE III CAPITALIZATION.................................................12
Section 3.1. Capital Contributions of General Partner. ............12
Section 3.2. Agreed Capital Contributions of Limited Partners. ....13
Section 3.3. Optional Capital Contributions of the Limited
Partners With Respect to Future Acquisitions.................13
Section 3.4. Optional Capital Contributions of the Limited
Partners.............................................16
Section 3.5. Further Optional Additional Capital Contributions of
Limited Partners. ...........................................16
Section 3.6. Options If Limited Partners Decline to Make
Optional Capital Contributions...............18
Section 3.7. Reduced Capital Contributions of Limited Partner......19
Section 3.8. Payments of Capital Contributions. ...................19
Section 3.9. Non-payment of Capital Contributions..................20
Section 3.10. Interest on and Return of Capital Contributions......20
Section 3.11. Limited Partner's Share of Capital
Contributions................................21
ARTICLE IV ALLOCATIONS AND DISTRIBUTIONS...................................21
Section 4.1. Allocation of Costs and Expenses......................21
Section 4.2. Allocation of Revenues................................21
Section 4.3. Income Tax Allocations................................24
Section 4.4. Distributions.........................................27
Section 4.5. Allocation Among Limited Partners.....................27
Section 4.6. Withholding...........................................28
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<PAGE>
ARTICLE V PARTNERSHIP PROPERTY.............................................28
Section 5.1. Title to Partnership Property.........................28
Section 5.2. Acquisitions of Additional Interests in the
Subject Lands. ......................................28
Section 5.3. Lease Sales. .........................................28
Section 5.4. Sales of Production...................................29
Section 5.5. Operations on Partnership Leases......................29
ARTICLE VI MANAGEMENT......................................................30
Section 6.1. Power and Authority of General Partner................30
Section 6.2. Certain Restrictions on General Partner's
Power and Authority..................................30
Section 6.3. Duties and Services of General Partner................32
Section 6.4. Liability of General Partner..........................32
Section 6.5. Limitations on Indemnification........................33
Section 6.6. Costs, Expenses and Reimbursement. ...................33
Section 6.7. Amendment Costs.......................................33
Section 6.8. Insurance.............................................34
Section 6.9. Tax Elections.........................................34
Section 6.10. Tax Returns..........................................35
Section 6.11. Appointment of Trustee to Receive Payments...........35
ARTICLE VII RIGHTS AND OBLIGATIONS OF LIMITED PARTNER......................36
Section 7.1. Rights of Limited Partner.............................36
Section 7.2. Limitations on Limited Partner........................36
Section 7.3. Liability of Limited Partner..........................36
Section 7.4. Access of Limited Partner to Data.....................37
Section 7.5. Withdrawal and Return of Capital Contribution.........37
ARTICLE VIII BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS.....................38
Section 8.1. Capital Accounts, Books and Records. .................38
Section 8.2. Reports...............................................40
Section 8.3. Bank Accounts. .......................................43
Section 8.4. Information Relating to the Partnership...............44
Section 8.5. Certain Notices.......................................44
ARTICLE IX ASSIGNMENTS OF INTERESTS AND SUBSTITUTIONS......................44
Section 9.1. Assignments by Limited Partner. ......................44
Section 9.2. Assignment by General Partner.........................45
Section 9.3. Merger or Consolidation...............................45
Section 9.4. Removal of General Partner............................45
Section 9.5. Right of General Partner Upon Removal.................47
ARTICLE X DISSOLUTION, LIQUIDATION AND TERMINATION.........................47
Section 10.1. Dissolution..........................................47
Section 10.2. Withdrawal by General Partner and Reconstitution.....49
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<PAGE>
Section 10.3. Liquidation and Termination..........................50
Section 10.4. Cancellation of Certificate..........................51
ARTICLE XI REPRESENTATIONS AND WARRANTIES..................................52
Section 11.1. Representations and Warranties of General Partner....52
Section 11.2. Representations and Warranties of Limited Partner....54
ARTICLE XII MISCELLANEOUS..................................................55
Section 12.1. Notices..............................................55
Section 12.2. Amendments...........................................55
Section 12.3. Partition............................................56
Section 12.4. Entire Agreement.....................................56
Section 12.5. No Waiver............................................56
Section 12.6. Applicable Law.......................................56
Section 12.7. Successors and Assigns...............................56
Section 12.8. Exhibits.............................................56
Section 12.9. Survival of Representations and Warranties...........56
Section 12.10. No Third-Party Benefit..............................57
Section 12.11. Counterparts........................................57
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<PAGE>
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
CLIFFWOOD ACQUISITION - 1998 LIMITED PARTNERSHIP
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"AGREEMENT") is made and entered into this 4th day of May, 1998, by and among
Cliffwood Oil & Gas Corp. a Texas corporation (herein sometimes called
"CLIFFWOOD"), Energy Capital Investment Company PLC, an English investment
company (herein sometimes called "ENERGY PLC"), and EnCap Equity 1996 Limited
Partnership, a Texas limited partnership (herein sometimes called "ENCAP LP").
RECITALS:
WHEREAS, Cliffwood Energy Company, a Texas corporation ("CEG"), Energy
PLC and EnCap LP have heretofore formed a limited partnership (the
"PARTNERSHIP") pursuant to the terms and conditions of that certain Agreement of
Limited Partnership dated as of September 27, 1996, as amended (the "ORIGINAL
AGREEMENT");
WHEREAS, CEG was designated the sole general partner of the Partnership
under the Original Agreement;
WHEREAS, effective April 1, 1998, CEG assigned its interest as a general
partner in the Partnership to Cliffwood and Cliffwood was admitted to the
Partnership as a substituted general partner in place of CEG;
WHEREAS, Cliffwood is sometimes referred to herein as the "GENERAL
PARTNER";
WHEREAS, Energy PLC and EnCap LP are the limited partners of the
Partnership and are sometimes referred to herein as the "LIMITED PARTNERS";
WHEREAS, the Partnership has heretofore acquired and owned Leases (as
defined herein) pursuant to the terms and conditions of the Original Agreement
(the "ORIGINAL AGREEMENT PROPERTIES");
WHEREAS, pursuant to the terms of that certain Acquisition and
Distribution Agreement dated as of May 4, 1998, by and among Texoil, the General
Partner and the Partnership (the "A&D AGREEMENT"), the Partnership (i)
distributed in-kind to the General Partner its interest in the Partnership's
Leases and related assets and (ii) sold to Texoil the Partnership's interest in
the Partnership's Leases and related assets exclusive of the interest
distributed in-kind as provided in CLAUSE (I);
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<PAGE>
WHEREAS, pursuant to the terms of that certain April 1998 Amendment to
the Agreement of Limited Partnership dated as of May 4, 1998, the Partnership
has heretofore distributed to the Limited Partners the cash proceeds and shares
of stock received from Texoil under the A&D Agreement;
WHEREAS, the transaction contemplated by the A&D Agreement constituted a
sale and disposition of all of the Partnership's assets existing on the date of
the closing thereof and therefore the Partnership dissolved under the terms of
the Original Agreement;
WHEREAS, notwithstanding the technical dissolution of the Partnership
under the terms of the Original Agreement or the Act (as defined herein), the
General Partner and the Limited Partners desire to keep the Partnership in
existence and hereafter transact business on the terms and conditions provided
herein; and
WHEREAS, the General Partner and the Limited Partners desire to amend
and restate the Original Agreement for the purpose of renaming the Partnership
and to set forth (i) the terms and conditions upon which the Partnership will
hereafter conduct business, (ii) their agreement with respect to the ownership
and operation of the Partnership and (iii) their agreement with respect to other
matters.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants and agreements contained herein and in the Original Agreement,
the parties hereto do hereby agree as follows:
ARTICLE I
FORMATION OF PARTNERSHIP
SECTION 1.1. FORMATION. The parties hereto have heretofore formed the
Partnership pursuant to the provisions of the Texas Revised Limited Partnership
Act (Article 6132a-1, Vernon's Texas Civil Statutes) (such Act, as amended from
time to time, or any successor statute or statutes thereto, being called the
"ACT"), which limited partnership is hereby continued pursuant to the provisions
of this Agreement..
SECTION 1.2. NAME. The name of the Partnership set forth in the Original
Agreement is "Cliffwood Acquisition - 1996 Limited Partnership". From and after
the date hereof, the name of the Partnership shall be "Cliffwood Acquisition -
1998 Limited Partnership". The business of the Partnership shall be conducted in
the name of the Partnership. The General Partner shall cause to be filed on
behalf of the Partnership such partnership or assumed or fictitious name
certificate or certificates or similar instruments as may from time to time be
required by law.
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<PAGE>
SECTION 1.3. BUSINESS. Subject to the other provisions of this
Agreement, the business of the Partnership shall be: (a) acquire, own, hold,
maintain, renew, drill, develop and operate Leases (as defined herein); (b) to
produce, collect, store, treat, deliver, market, sell or otherwise dispose of
oil, gas and related hydrocarbons and minerals from such Leases; (c) to
farm-out, sell, abandon and otherwise dispose of such Leases; and (d) to take
all such other actions incidental to any of the foregoing as the General Partner
may determine to be necessary and appropriate. Notwithstanding the foregoing and
any other provision of this Agreement, the Partnership shall not acquire (i) any
carbon-dioxide removal, sulfur removal or other equipment for the processing or
treatment of gas or other hydrocarbons, whether on or off the Partnership's
Leases (other than equipment acquired by the Partnership in connection with the
assignment or acquisition of such Leases or except as otherwise acquired
pursuant to the terms hereof), (ii) any refining facilities or (iii) any
transportation facilities except pipelines and gathering systems connecting the
Partnership's Leases with other gathering systems or transmission pipelines (and
then only as acquired pursuant to the terms hereof) or as otherwise acquired in
connection with the assignment or acquisition of such Leases, or engage in the
contract drilling business or any other business except as expressly permitted
herein.
SECTION 1.4. PLACES OF BUSINESS, REGISTERED AGENT AND ADDRESSES.
(a) The principal United States office and place of business of the
Partnership and its street address shall be 110 Cypress Station Drive, Suite
220, Houston, Texas 77090. The General Partner, at any time and from time to
time, may change the location of the Partnership's principal United States
office and place of business, provided notice thereof is concurrently given to
the Limited Partners.
(b) The registered office of the Partnership in Texas shall be 110
Cypress Station Drive, Suite 220, Houston, Texas 77090, and the registered agent
for service of process on the Partnership shall be the Parent, a corporation
whose business address is the same as the Partnership's registered office. The
General Partner, at any time and from time to time, may change the Partnership's
registered office or registered agent or both by complying with the applicable
provisions of the Act and giving concurrent notice thereof to the Limited
Partners and may establish, appoint and change additional registered offices and
registered agents of the Partnership in such other states as the General Partner
shall determine to be necessary or advisable.
SECTION 1.5. TERM. The Partnership commenced as provided in Section 1.5
of the Original Agreement and shall continue until terminated in accordance with
ARTICLE X.
SECTION 1.6. FILINGS. Upon the request of the General Partner, the
Limited Partners shall promptly execute and deliver all such certificates and
other instruments conforming hereto as shall be necessary for the General
Partner to accomplish all filing, recording, publishing and other acts
appropriate to comply with all requirements for the formation and operation of
the Partnership as a limited partnership under the laws of the State of Texas
and for the qualification or reformation and operation of the Partnership as a
limited partnership
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<PAGE>
(or a partnership in which the Limited Partners have limited liability) in all
other jurisdictions where the Partnership shall propose to conduct business.
Prior to the conducting of any business in any jurisdiction, the General Partner
shall: (a) to the full extent necessary to establish limited liability for the
Limited Partners under the laws of such jurisdiction and otherwise to comply
with the laws of such jurisdiction, cause the Partnership to comply with all
requirements for the registration, qualification or reformation of the
Partnership to conduct business as a limited partnership (or a partnership in
which the Limited Partners have limited liability) in such jurisdiction and (b)
at the request of the Limited Partners, obtain an opinion of reputable counsel
in such jurisdiction satisfactory in all respects to the Limited Partners as to
such registration, qualification or reformation and as to the limited liability
of the Limited Partners under the laws of such jurisdiction. Thereafter, the
General Partner shall cause the Partnership to continue to comply with all such
requirements regarding registration, qualification or formation in each
jurisdiction where the, Partnership does business.
ARTICLE II
CERTAIN DEFINITIONS AND REFERENCES
SECTION 2.1. CERTAIN DEFINED TERMS. When used in this Agreement, the
following terms shall have the respective meanings assigned to them in this
SECTION 2.1 or in the sections, subsections or other subdivisions referred to
below:
"ACQUISITION COST" shall mean:
(a) with respect to the purchase by the Partnership from the General
Partner or its Affiliates of any Lease, the costs as described in PARAGRAPH (B)
immediately below incurred by the General Partner and/or its Affiliates in
acquiring such Lease; and
(b) with respect to the acquisition by the Partnership of any Lease
other than those purchased pursuant to PARAGRAPH (A) immediately above, the sum
of (i) the price paid or contractually agreed to be paid for such Lease to the
lessor, assignor or grantor of such Lease, including lease bonuses, advance
rentals and other acquisition costs and (ii) title insurance or examination
costs, broker's commissions, attorneys' fees, due diligence fees, filing fees,
recording costs, and transfer and sales taxes, if any, and other similar costs
incurred with respect to such Lease in connection with its acquisition, but
excluding (without limitation) any actual, allocated or imputed interest
expense.
"ACT" shall have the meaning assigned to such term in SECTION 1.1.
"A&D AGREEMENT" shall have the meaning assigned to such term in the
Recitals hereto.
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<PAGE>
"ADDITIONAL PLACEMENT FEE" shall mean, with respect to a Subject
Property acquired by the Partnership pursuant to the terms hereof, a fee payable
to EnCap Investments L.C. equal to (a) 1% of the aggregate amounts that the
Limited Partners have committed to contribute to the Partnership pursuant to
SECTION 3.3 to fund their allocable share of Acquisition Costs with respect to
such Subject Property and (b) 1% of the aggregate amounts that the Limited
Partners have committed to contribute to the Partnership to fund their share of
Capital Costs attributable to Committed Operations on such Subject Property.
"ADJUSTED CAPITAL ACCOUNT" shall mean the capital account maintained for
each Partner pursuant to SECTION 8.1(B) of this Agreement as of the end of each
fiscal year (a) increased by (i) the amount of any unpaid Capital Contributions
unconditionally agreed to be contributed by such Partner under ARTICLE III, if
any, and (ii) an amount equal to such Partner's allocable share of the
Partnership's Minimum Gain, as computed on the last day of such fiscal year in
accordance with applicable Treasury Regulations, and (b) reduced by (i) the
amount of all depletion deductions reasonably expected to be allocated to such
Partner in subsequent years and charged to such Partner's capital account, (ii)
the amount of all losses and deductions reasonably expected to be allocated to
such Partner in subsequent years under Sections 704(e)(2) and 706(d) of the
Internal Revenue Code and Treasury Regulation ss. 1.751-1(b)(2)(ii), and (iii)
the amount of all distributions reasonably expected to be made to such Partner
to the extent they exceed offsetting increases to such Partner's capital account
that are reasonably expected to occur during (or prior to) the year in which
such distributions are reasonably expected to be made.
"AFE COSTS" shall mean (a) with respect to a Committed Operation, the
estimated Capital Costs for such operation as set forth in the subject
Development Plan agreed upon by the Partners hereunder that includes such
Committed Operation, and (b) with respect to an operation other than a Committed
Operation, the estimated Capital Costs for such operation as agreed upon by the
Partners hereunder.
"AFFILIATE" shall mean (a) any person directly or indirectly owning,
controlling or holding with power to vote 10% or more of the outstanding voting
securities of the General Partner, (b) any person 10% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by the General Partner, (c) any person directly or
indirectly controlling, controlled by or under common control with the General
Partner, (d) any officer, director, member, manager, or partner of the General
Partner or any person described in CLAUSE (A), (B) or (C) of this paragraph or
(e) any person related by blood, adoption or marriage to any person referred to
in CLAUSE (C) or (D) of this paragraph. As used in this Agreement, the term
"PERSON" shall include an individual, an estate, a corporation, a partnership, a
limited liability company, an association or other entity, a joint stock company
and a trust.
"AMENDMENT COSTS" shall have the meaning assigned to such term in
SECTION 6.7.
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"CAPITAL CONTRIBUTIONS" shall mean for any Partner at the particular
time in question the aggregate of the dollar amounts of any cash or the fair
market value (as agreed upon by the Partners) of any properties contributed to
the capital of the Partnership (net of any liabilities secured by such
properties that the Partnership is considered to assume or take subject to), or,
if the context in which such term is used so indicates, the dollar amounts of
cash or the fair market value of properties agreed to be contributed, or
requested to be contributed, by such Partner to the capital of the Partnership.
"CAPITAL COSTS" shall mean (a) all geological and geophysical costs
incurred by the Partnership to the extent any of such costs are incurred in
connection with Partnership wells drilled or proposed to be drilled on the
Properties and any additional Leases acquired pursuant to the terms hereof, (b)
all costs incurred by the Partnership in locating, drilling, completing,
equipping, deepening or sidetracking a well located on the Properties or any
additional Lease acquired pursuant to the terms hereof, including without
limitation (i) the costs of surveying and staking such well, the costs of any
surface damages and the costs of clearing, coring, testing, logging and
evaluating such well, (ii) the costs of casing, cement and cement services for
such well, (iii) the cost of plugging and abandoning such well if it is
determined that such well would not produce in commercial quantities and should
be abandoned and (iv) all direct charges and overhead (subject to SECTION 5.6)
chargeable to the Partnership with respect to such well under any applicable
operating agreement until such time as all operations are carried out as
required by applicable regulations and sound engineering practices to make such
well ready for production, including the installation and testing of wellhead
equipment, or to plug and abandon a dry hole; (c) all costs incurred by the
Partnership in recompleting or plugging back any Partnership well; (d) all costs
incurred by the Partnership in reworking any Partnership well when the
Partnership's share of such costs as set forth in the applicable authority for
expenditure presented to the Partnership with respect thereto is greater than
$10,000 (or an amount lesser than $10,000, if a part of a Development Plan); (e)
all costs incurred by the Partnership in locating, drilling, completing,
equipping, deepening or sidetracking any enhanced recovery producer or injector
well (including the costs of all necessary surface equipment such as steam
generators, compressors, water treating facilities, injection pumps, flow lines
and steam lines) or otherwise conducting Enhanced Recovery Operations and (f)
all costs incurred by the Partnership in constructing, modifying or
reengineering production facilities, pipelines and other facilities necessary to
develop the Properties and any additional Leases acquired pursuant to the terms
hereof and produce, collect, store, treat, deliver, market, sell or otherwise
dispose of oil, gas and other hydrocarbons and minerals therefrom; but such term
shall not include (without limitation) (A) any Lease Operating and Production
Costs or (B) any Catastrophe Costs.
"CAPITAL OVERRUN COSTS" shall mean with respect to any Partnership
operation or project, that portion of the aggregate Capital Costs incurred by
the Partnership which is in excess of 110% of the AFE Costs attributable to such
operation or project.
"CATASTROPHE COSTS" shall mean all costs, expenses and damages incurred
by the Partnership as a result of the failure of the General Partner to cause
the Partnership to obtain
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or carry the types or amounts of insurance coverage agreed upon from time to
time by the Partners in accordance with SECTION 6.8, but such term shall not
include the deductible amounts under any insurance coverage arranged by or on
behalf of the Partnership or with respect to its property or operations to the
extent such deductible amounts have been approved or agreed to by the Limited
Partners in accordance with SECTION 6.8.
"COMMITTED OPERATION" shall have the meaning assigned to such term in
SECTION 3.4.
"CONVEYANCE" shall mean any conveyance, assignment, bill of sale or
other similar instrument by which a Lease or other property or asset is conveyed
or otherwise transferred to the Partnership.
"CO-SALE AGREEMENT" shall mean that certain Co-Sale Agreement dated as
of May 4, 1998, by and among the General Partner, the Partnership and the
Limited Partners.
"DEFICIT PARTNER" shall have the meaning assigned to such term in
SECTION 4.3(H).
"DELIVERY DATE" shall mean the date on which this Agreement has been
fully and unconditionally executed and delivered by each of the parties hereto.
"DEPLETABLE PROPERTY" shall have the meaning assigned to it in SECTION
4.3(B).
"DEVELOPMENT PLAN" shall have the meaning assigned to such term in
SECTION 3.4.
"ENCAP LP" shall have the meaning assigned to such term in the
introductory paragraph of this Agreement.
"ENERGY PLC" shall have the meaning assigned to such term in the
introductory paragraph of this Agreement.
"ENGINEERING REPORT" shall have the meaning assigned to such term in
SECTION 8.2(F).
"ENHANCED RECOVERY OPERATIONS" shall mean any operations or project
intended to increase the recovery of oil and/or gas from a pool or unit by
artificial means or by the application of energy extrinsic to the pool or unit,
which artificial means or application shall include (without limitation)
pressuring, cycling, pressure maintenance, injection to the pool or unit of a
substance or form of energy, or other operations or projects that would be
commonly considered secondary or tertiary operations or projects, but such term
shall not include the injection in a well of a substance or form of energy for
the sole purpose of (a) aiding in the lifting of fluids in the well, or (b)
stimulation of the pool or unit at or near the well by mechanical, chemical,
thermal or explosive means.
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"GENERAL PARTNER" shall mean Cliffwood Oil & Gas Corp., a Texas
corporation, in its capacity as general partner of the Partnership and any
person who becomes a substituted general partner of the Partnership pursuant to
the terms hereof.
"HEDGING TRANSACTION" shall mean any commodity hedging transaction
pertaining to oil, gas and related hydrocarbons and minerals, whether in the
form of a swap agreement, option to acquire or dispose of a futures contract,
whether on an organized commodities exchange or otherwise, or similar type of
financial transaction classified as "notional principal contracts" pursuant to
Treasury Regulation ss.1.512(b)-1(a)(1). Any Hedging Transaction shall be
identified in the books and records of the Partnership as a "hedging
transaction" in the manner and at the times prescribed by Treasury Regulation
ss.1.1221-2(e).
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute or statutes.
"LEASE" shall mean a lease, mineral interest, royalty or overriding
royalty, fee right, mineral servitude, license, concession or other right
covering oil, gas and related hydrocarbons (or a contractual right to acquire
such an interest) or an undivided interest therein or portion thereof, together
with all appurtenances, easements, permits, licenses, servitudes and
rights-of-way situated upon or used or held for future use in connection with
such an interest or the exploration, development or operation thereof. A "Lease"
shall also mean and include all rights and interests in all lands and interests
unitized or pooled therewith pursuant to any law, rule, regulation or agreement.
"LEASE OPERATING AND PRODUCTION COSTS" shall mean all costs incurred by
the Partnership in connection with the maintenance of the Properties (except
drilling and similar obligations the costs of which are classified as Capital
Costs hereunder) and the production and marketing of oil, gas and related
hydrocarbons from completed wells (including wells which have been involved in
Enhanced Recovery Operations) in which the Partnership has an interest pursuant
to this Agreement, including (without limitation) costs incurred for all delay
rentals, shut-in royalties and similar payments, royalties on lost or flared gas
or gas used for which payment is required, labor, fuel, repairs, transportation,
supplies, utility charges, ad valorem, severance, excise and similar taxes, the
cost of reworking any Partnership well (except to the extent provided in the
definition of Capital Costs), the costs of plugging and abandoning any
Partnership well (except to the extent provided in the definition of Capital
Costs), and compensation to well operators, consultants and others and insurance
in connection with the foregoing; but such term shall not include (without
limitation) (a) any Capital Costs or (b) any Catastrophe Costs.
"LIMITED PARTNER" shall mean Energy Capital Investment Company PLC, an
English investment company, EnCap Equity 1996 Limited Partnership, a Texas
limited partnership, and any person who becomes a substituted limited partner of
the Partnership pursuant to the terms hereof.
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"MINIMUM GAIN" shall mean (a) with respect to Partnership Nonrecourse
Liabilities, the amount of gain that would be realized by the Partnership if it
disposed of (in a taxable transaction) all Partnership properties which are
subject to Partnership Nonrecourse Liabilities in full satisfaction of such
liabilities, computed in accordance with applicable Treasury Regulations and (b)
with respect to each Partner Nonrecourse Debt, the amount of gain that would be
realized by the Partnership if it disposed of (in a taxable transaction) the
Partnership property that is subject to such liability in full satisfaction of
such liability, computed in accordance with applicable Treasury Regulations.
"NET INVESTMENT" shall mean, as of the date in question, an amount equal
to X divided by Y, where "X" is equal to the difference between (a) the
aggregate Capital Contributions actually paid by the Limited Partners pursuant
to SECTIONS 3.2 and 3.3, which Capital Contributions shall be discounted back
from the respective dates such Capital Contributions are made to the last day of
the month in which the Delivery Date occurs at a rate of 12% per annum
compounded monthly, and (b) the aggregate cash distributions (other than any
cash distributions made pursuant to SECTION 10.2) which the Limited Partners
shall have actually received from the Partnership, which cash distributions
shall be discounted back from the respective dates such cash distributions are
made to the last day of the month in which the Delivery Date occurs at a rate of
12% per annum compounded monthly, and where "Y" is the applicable discount
factor set forth in EXHIBIT 2.1--PAYOUT NO.1 with respect to the month in which
the date in question falls. For purposes of making such discount calculations,
each cash distribution and Capital Contribution shall be deemed to have been
made on the last day of the month during which it was paid or received, and all
such discount calculations shall be made on a monthly basis and by application
of the appropriate discount factors set forth in EXHIBIT 2.1--PAYOUT NO. 1.
"ORIGINAL AGREEMENT" shall have the meaning assigned to such term in the
Recitals hereto.
" ORIGINAL PLACEMENT FEE" shall mean that certain Placement Fee (as
defined in the Original Agreement) in the amount of $100,000 previously paid to
EnCap Investments L.C. under the terms of the Original Agreement.
"PARENT" shall mean Texoil, Inc., a Nevada corporation.
"PARENT AGREEMENT" shall mean that certain Registration Rights Agreement
dated as of May 4, 1998, by and among the Parent and the Limited Partners, and
any other agreement hereafter executed by Parent in favor of the Partnership or
the Limited Partners in respect of the transactions contemplated hereby.
"PARTNER NONRECOURSE DEBT" shall mean any nonrecourse debt of the
Partnership (or portions thereof) for which any Partner bears the economic risk
of loss.
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"PARTNER NONRECOURSE DEDUCTIONS" shall mean the amount of deductions,
losses and expenses equal to the net increase during the year in Minimum Gain
attributable to a Partner Nonrecourse Debt, reduced (but not below zero) by
proceeds of such Partner Nonrecourse Debt distributed during the year to the
Partners who bear the economic risk of loss for such debt, as determined in
accordance with applicable Treasury Regulations.
"PARTNERS" shall mean the General Partner and the Limited Partners.
"PARTNERSHIP" shall have the meaning assigned to it in the Recitals
hereto.
"PARTNERSHIP NONRECOURSE LIABILITIES" shall mean any nonrecourse
liabilities (or portions thereof) of the Partnership for which no Partner bears
the economic risk of loss.
"PAYOUT NO. 1" shall mean the last day of the earliest calendar month
during which (a) the aggregate cash distributions (other than any cash
distributions made pursuant to SECTION 10.2) which the Limited Partners shall
have actually received from the Partnership after the date hereof, when
discounted back from the respective dates such cash distributions are made to
the last day of the month in which the Delivery Date occurs at a rate of 12% per
annum compounded monthly shall equal (b) the aggregate Capital Contributions
actually paid by the Limited Partners pursuant to SECTIONS 3.3, 3.4 and 3.5,
which Capital Contributions shall be discounted back from the respective dates
such Capital Contributions are made to the last day of the month in which the
Delivery Date occurs at a rate of 12% per annum compounded monthly. For purposes
of making such discount calculations, each cash distribution and Capital
Contribution shall be deemed to have been made on the last day of the month
during which it was paid or received, and all such discount calculations shall
be made on a monthly basis and by application of the appropriate discount
factors set forth in EXHIBIT 2.1--PAYOUT NO.1.
"PAYOUT NO. 2" shall mean the last day of the earliest calendar month
during which (a) the aggregate cash distributions (other than any cash
distributions made pursuant to SECTION 10.2) which the Limited Partners shall
have actually received from the Partnership after the date hereof, when
discounted back from the respective dates such cash distributions are made to
the last day of the month in which the Delivery Date occurs at a rate of 18% per
annum compounded monthly shall equal (b) the aggregate Capital Contributions
actually paid by the Limited Partners pursuant to SECTIONS 3.3, 3.4 and 3.5,
which Capital Contributions shall be discounted back from the respective dates
such Capital Contributions are made to the last day of the month in which the
Delivery Date occurs at a rate of 18% per annum compounded monthly. For purposes
of making such discount calculations, each cash distribution and Capital
Contribution shall be deemed to have been made on the last day of the month
during which it was paid or received, and all such discount calculations shall
be made on a monthly basis and by application of the appropriate discount
factors set forth in EXHIBIT 2.1--PAYOUT NO.2.
"POSITIVE PARTNER" shall have the meaning assigned to such term in
SECTION 4.3(H).
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"PROVED INVESTMENT COVERAGE" shall mean, at the point in time in
question, a ratio equal to X divided by Y, where "X" is the pre-income tax value
of projected net revenues (I.E., revenues less direct expenses) attributable to
the proved reserves set forth in the then most recently prepared Engineering
Report (and computed net to the Partnership's interest in such reserves)
discounted at a rate of 10% per annum, and where "Y" is the Limited Partners'
Net Investment.
"PROVED PRODUCING INVESTMENT COVERAGE" shall mean, at the point in time
in question, a ratio equal to X divided by Y, where "X" is the pre-income tax
value of projected net revenues (I.E., revenues less direct expenses)
attributable to the proved developed producing reserves set forth in the then
most recently prepared Engineering Report (and computed net to the Partnership's
interest in such reserves) discounted at a rate of 10% per annum, and where "Y"
is the Limited Partners' Net Investment.
"PURCHASE DOCUMENT" shall mean a purchase and sale or other similar
agreement and all documents and other instruments related thereto that set forth
the terms and condition by which the Partnership will acquire Leases and other
assets from the seller thereof.
"REVENUE ALLOCATION ADJUSTMENT" shall have the meaning assigned to it in
SECTION 4.2(F).
"SCHEDULED OPERATION" shall have the meaning assigned to such term in
SECTION 3.4.
"SIMULATED BASIS", "SIMULATED GAIN", "SIMULATED DEPLETION" and
"SIMULATED LOSS" shall have the respective meanings assigned to such terms in
SECTION 8.1(B).
"SUBJECT LANDS" shall mean the lands covered by the Leases acquired by
the Partnership.
"SUBJECT PROPERTY" shall have the meaning assigned to such term in
SECTION 3.3(A).
SECTION 2.2. REFERENCES AND CONSTRUCTION.
(a) All references in this Agreement to articles, sections, subsections
and other subdivisions refer to corresponding articles, sections, subsections
and other subdivisions of this Agreement unless expressly provided otherwise.
(b) Titles appearing at the beginning of any of such subdivisions are
for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
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(c) The words "this Agreement", "this instrument", "herein", "hereof",
"hereby", "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited.
(d) Words in the singular form shall be construed to include the plural
and VICE VERSA, unless the context otherwise requires.
(e) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(f) The word "includes" and its derivatives means "includes, but is not
limited to" and corresponding derivative expressions.
(g) No consideration shall be given to the fact or presumption that one
party had a greater or lesser hand in drafting this Agreement.
(h) All references herein to "$" or "dollars" shall refer to U.S.
Dollars.
(i) Unless the context otherwise requires or unless otherwise provided
herein, the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection shall
be construed to authorize such renewal, extension, modification, amendment or
restatement.
ARTICLE III
CAPITALIZATION
SECTION 3.1. CAPITAL CONTRIBUTIONS OF GENERAL PARTNER.
(a) The General Partner has heretofore made Capital Contributions to the
Partnership pursuant to the terms of the Original Agreement and as reflected in
the books and records of the Partnership.
(b) The General Partner shall hereafter contribute in cash to the
Partnership such additional amounts as shall be necessary to pay timely the
costs and expenses allocated and charged to the General Partner in SECTIONS 3.3
and 4.1 and elsewhere herein. Such Capital Contributions shall be paid to the
Partnership by the General Partner from time to time in the appropriate amounts
concurrently with each payment to the Partnership by the Limited Partners of
their Capital Contributions to pay its allocable share of such costs or, with
respect to costs allocated solely to the General Partner, when necessary for the
Partnership to pay timely such costs.
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(c) If, at any time after the expiration of a one-year period commencing
upon the consummation by the Partnership of a purchase of Leases consisting
primarily of proved reserves, the Proved Investment Coverage is less than 1.75
to 1, the General Partner shall contribute cash to the Partnership in the amount
of $300,000 within 30 days after receipt by the Partnership and the Limited
Partners of an Engineering Report that establishes such Proved Investment
Coverage; provided, that if, at the time of and in connection with the initial
acquisition by the Partnership of Leases consisting primarily of proved
reserves, the Proved Investment Coverage with respect to such Leases is less
than 1.75 to 1 and it is not reasonably expected that the Proved Investment
Coverage with respect to such Leases (or any other Leases which the Partners
reasonably anticipate will be acquired by the Partnership hereunder) will equal
or be greater than 1.75 to 1 in the forseeable future (as reflected in an
engineering report reasonably acceptable to the Partners and giving due
consideration to any contemplated drilling or other development activities on
such Leases), the Limited Partners, if it elects to make Capital Contributions
under SECTION 3.3 with respect to such Leases, shall make a downward adjustment
to the 1.75 to 1 ratio referenced above, which adjustment shall be reasonably
acceptable to the General Partner.
SECTION 3.2. AGREED CAPITAL CONTRIBUTIONS OF LIMITED PARTNERS. The
Limited Partners have heretofore made Capital Contributions to the Partnership
pursuant to the terms of the Original Agreement and as reflected in the books
and records of the Partnership.
SECTION 3.3. OPTIONAL CAPITAL CONTRIBUTIONS OF THE LIMITED PARTNERS WITH
RESPECT TO FUTURE ACQUISITIONS.
(a) If the General Partner or an Affiliate thereof hereafter proposes to
participate, either directly or indirectly or by itself or with others, in the
acquisition, exploitation and/or development of Leases or the acquisition of
other oil and gas related assets (a "SUBJECT PROPERTY"), the General Partner
shall propose that the Partnership also participate in the Subject Property as
provided in this Section. The General Partner shall use its best efforts to give
the Limited Partners as much advance notice of a proposed acquisition of a
Subject Property under this SECTION 3.3 as is reasonably possible in order to
give the Limited Partners a sufficient time to properly and thoroughly review
and analyze such transaction, but in any event no less than 30 days prior to the
proposed closing date (unless exigent circumstances reasonably outside the
General Partner's control prevent it from doing so, in which event the General
Partner shall give such notice as much in advance of the proposed closing date
as is reasonably possible). A notice of the type described in the immediately
preceding sentence shall in this SECTION 3.3 be called an "ACQUISITION NOTICE".
Each Acquisition Notice shall (i) describe generally the Subject Property and
specify the name of the seller(s), (ii) specify the nature and amount of the
interest the General Partner or its Affiliates propose to acquire in the Subject
Property, (iii) specify the Acquisition Costs (or reasonably anticipated
Acquisition Costs ) attributable to the Subject Property, the reasonably
anticipated effective date of the purchase and sale and the other salient terms
(or proposed terms) of the purchase and sale, (iv) describe the drilling
operations, development operations or Enhanced Recovery Operations the General
Partner proposes the Partnership engage in with respect to the Subject Property
and
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the estimated costs associated therewith, (v) if reasonably available, include a
summary of the pertinent geological and geophysical data relating to the Subject
Property or proposed drilling operations, development operations or Enhanced
Recovery Operations, (vi) if reasonably available, include financial projections
relating to the Subject Property and any internally or externally prepared
related engineering or reserve reports, (vii) describe the nature and extent of
planned title examination and property related due diligence (including, without
limitation, environmental due diligence), (viii) include such other information
as the General Partner deems material and (ix) subject to SUBSECTION (C)(II)
below, offer to the Partnership the right to participate in no less than 30% of
the Subject Property on the same terms as the General Partner or an Affiliate.
Thereafter, the General Partner shall promptly furnish to the Limited Partners
any additional information concerning the Subject Property or the proposed
drilling operations, development operations or Enhanced Recovery Operations as a
Limited Partner may reasonably request (including, without limitation, any then
existing reports of consultants and outside engineers).
(b) The Limited Partners shall have the right (but not the obligation)
to agree to make Capital Contributions to the Partnership to fund their
allocable share of the Acquisition Costs attributable to the purchase of the
Subject Property. To evidence their agreement to make Capital Contributions to
the Partnership to fund their allocable share of the Acquisition Costs
attributable to the purchase of the Subject Property, the Limited Partners shall
give notice to that effect to the General Partner no later than 10 business days
after the last of either receipt of the Acquisition Notice or the date on which
the Limited Partners have received all information requested by them pursuant to
the last sentence of SUBSECTION (A) above; provided, that the failure of the
Limited Partners to give timely notice to the General Partner shall be deemed an
election on their part not to make the subject Capital Contributions; provided,
further, that even though the Limited Partners may agree to make the subject
Capital Contributions, the Limited Partner shall nonetheless be permitted to
place reasonable and customary conditions on such agreement to make such Capital
Contributions, which conditions shall be set forth in the notice of the Limited
Partners' agreement to make Capital Contributions to fund their share of the
Acquisition Costs, and (i) may include (A) receipt of a third party engineering
report satisfactory to the Limited Partners with respect to the Subject Property
or the review of the geological or geophysical data or other information, (B)
satisfaction of the Limited Partners with the terms and conditions of the
purchase and sale agreement and related documents and instruments with respect
to the Subject Property, (C) completion of a due diligence investigation with
respect to the Subject Property and satisfaction of the Limited Partners with
the results of such investigation, including the status of title to, and the
environmental and other condition of, the Subject Property, and all contracts
and other agreements affecting or burdening the Subject Property, (D) agreement
among the General Partner and the Limited Partners on a drilling or development
plan with respect to the Subject Property and (E) that the purchase and sale
close within a reasonable time frame, and (ii) if not satisfied, shall obviate
the Limited Partners' agreement to make such Capital Contributions.
(c) Notwithstanding the foregoing or anything else herein to the
contrary:
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(i) If the General Partner or an Affiliate is participating,
either directly or indirectly or by itself or with other others, in the
acquisition of Leases for the purpose of assembling an Exploratory
Prospect (as defined below), the General Partner shall propose that
Partnership acquire an interest in such Leases when the Exploratory
Prospect has been fully evaluated and the Leases comprising such
Exploratory Prospect acquired and either (A) the General Partner or such
Affiliate has commenced to offer interests in such Exploratory Prospect
to third parties or (B) if the General Partner does not propose to offer
interests in such Exploratory Prospect to third parties (exclusive of
the Partnership), at such time as the General Partner or such Affiliate
reasonably believes a test well will be drilled on the Leases so
assembled (and, in any event, no less than 30 days prior to the proposed
spud date of such test well, unless exigent circumstances outside the
General Partner's control prevent it from doing so, in which event the
General Partner shall make such proposal as much in advance of the
proposed spud date as is reasonably possible).
(ii) If the General Partner proposes that the Partnership
participate in an Exploratory Prospect that is generated by
Cliffwood-Blue Moon Joint Venture, Inc., the General Partner shall have
the right to propose that the Partnership participate in such
Exploratory Prospect on the same terms and conditions as the General
Partner is offering interests in such Exploratory Prospect to third
party industry participants (as opposed to the same terms and conditions
upon which the General Partner or such Affiliate will participate).
(iii) As used in this SUBSECTION (C), an "EXPLORATORY PROSPECT"
shall mean an oil and gas prospect which would be considered to be
primarily exploratory in nature in accordance with general accepted
customary standards and practices in the oil and gas industry.
(d) An agreement of the Limited Partners under this SECTION 3.3 to make
Capital Contributions to the Partnership to fund their allocable shares of the
Acquisition Costs attributable to the purchase of the Subject Property (in this
SUBSECTION (D), a "FUNDING AGREEMENT"), shall also be deemed to constitute the
agreement of the Limited Partners to fund their allocable share of that portion
of the Additional Placement Fee described in CLAUSE (A) of the definition
thereof associated with such funding agreement should the acquisition of the
Subject Property be consummated by the Partnership.
(e) The General Partner's and Affiliates' obligations under this SECTION
3.3 shall expire upon the expiration of the Commitment Period. As used in this
Section, the term "COMMITMENT PERIOD"shall mean the period commencing as of the
date hereof and ending at such point in time as the Limited Partners have
thereafter made or committed to make Capital Contributions to the Partnership in
an aggregate amount equal to $12,750,000 (exclusive of any Capital Contributions
the Limited Partners have made to the Partnership prior to the date hereof).
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SECTION 3.4. OPTIONAL CAPITAL CONTRIBUTIONS OF THE LIMITED PARTNERS WITH
RESPECT TO A DEVELOPMENT PLAN. It is contemplated that in connection with the
agreement of the Limited Partners to make additional Capital Contributions to
the Partnership with respect to the acquisition of a Subject Property pursuant
to SECTION 3.3, the Partners will agree on certain drilling operations,
development operations or Enhanced Recovery Operations to be conducted by the
Partnership on the Subject Property and the costs associated therewith (a
"DEVELOPMENT PLAN"); provided, that it is hereby recognized that the Partners
may agree on a Development Plan for a Subject Property at some date after the
acquisition by the Partnership of such Subject Property. Unless the Limited
Partners otherwise agree at the time of the Partners' agreement on a Development
Plan, the Limited Partners' obligation to make additional Capital Contributions
to the Partnership with respect to the operations comprising the Development
Plan shall be limited solely to those which the Limited Partners thereafter
agree to make pursuant to the terms of this SECTION 3.4. In connection with any
given Development Plan on a Subject Property, the General Partner shall notify
the Limited Partners at least 30 days in advance of the commencement of a
proposed operation listed in the Development Plan (a "SCHEDULED
OPERATION")(unless exigent circumstances reasonably outside of the General
Partner's control prevent the General Partner from doing so, in which event the
General Partner shall give as much advance notice as possible), which notice
shall also contain a request that the Limited Partners agree to make additional
Capital Contributions to the Partnership to fund their allocable share of the
Capital Costs attributable to such Scheduled Operation. Thereafter, the General
Partner shall provide the Limited Partners with such written and other
information as the Limited Partners shall reasonably request with respect to
such Scheduled Operation. The Limited Partners shall give the General Partner
notice of whether or not they elect to make the requested additional Capital
Contributions to the Partnership with respect to the Scheduled Operation within
15 days after receipt of the later of the above notice or receipt by the Limited
Partners of the information described in the immediately preceding sentence.
Failure of the Limited Partners to give such notice within the aforementioned
time period shall be deemed an election on the part of the Limited Partners not
to make the requested additional Capital Contributions. Any Scheduled Operation
contemplated by a Development Plan with respect to which the Limited Partners
have agreed to make an additional Capital Contribution pursuant to this SECTION
3.4 shall be herein called a "COMMITTED OPERATION". An agreement of the Limited
Partners to make Capital Contributions to the Partnership to fund their
allocable shares of the Capital Costs attributable to a Committed Operation (in
this Section, a "FUNDING AGREEMENT"), shall also be deemed to constitute the
agreement of the Limited Partners to fund their allocable share of that portion
of the Additional Placement Fee described in CLAUSE (B) of the definition
thereof associated with such funding agreement.
SECTION 3.5. FURTHER OPTIONAL ADDITIONAL CAPITAL CONTRIBUTIONS OF
LIMITED PARTNERS.
(a) With respect to each Development Plan, the General Partner may
request (exclusive of a request made pursuant to SECTIONS 3.3 and 3.4 and
subject to the limitations described below) additional Capital Contributions
from each Limited Partner to be used
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exclusively for the payment of its allocated share (pursuant to SECTION
4.1) of (i) Capital Costs of the type described in CLAUSE (A) of the definition
thereof, (ii) Capital Costs of the type described in CLAUSE (B) of the
definition thereof, (iii) Capital Costs of the type described in CLAUSE (C) of
the definition thereof, (iv) Capital Costs of the type described in CLAUSE (D)
of the definition thereof, (v) Capital Costs of the type described in CLAUSE (E)
of the definition thereof, (vi) Capital Costs of the type described in CLAUSE
(F) of the definition thereof, (vii) Acquisition Costs under the circumstances
described in SECTION 5.2, and (viii) cost overruns associated with any of the
operations or projects with respect to which a Limited Partner has previously
agreed to make Capital Contributions to the Partnership hereunder. Each of the
categories of expenditures described in CLAUSES (I), (II), (III), (IV), (V),
(VI), (VII) and (VIII) of this SECTION 3.5(A) may include such contingent
amounts as the General Partner in good faith shall determine to be appropriate
under the circumstances.
(b) Requests for additional Capital Contributions pursuant to this
SECTION 3.5 shall be made by the General Partner and agreed to by each Limited
Partner separately with respect to each operation or acquisition included in any
given category of expenditures as specified in SUBSECTION (A) above. Requests
pursuant to this SECTION 3.5 shall not be made more often than quarterly each
year (i) except for requests pursuant to either CLAUSE (VII) or CLAUSE (VIII) of
SUBSECTION (A) above or (ii) unless an emergency or some other urgent need for
funds exist outside of the reasonable control of the General Partner. Payments
of any additional Capital Contributions agreed to be made by a Limited Partner
pursuant to this SECTION 3.5 shall be requested by the General Partner and made
by such Limited Partner in the manner provided for in SECTION 3.7(B).
(c) Notice of any request for additional Capital Contributions made by
the General Partner shall be in writing and sent to each Limited Partner at its
address as provided in SECTION 12.1. With respect to the category of costs
described in CLAUSES (I), (II), (III), (IV), (V) and (VI) of SECTION 3.5(A),
each request shall cover all of the Capital Costs intended to be incurred during
the next three months (and with respect to any Partnership well or Enhanced
Recovery Operation or facility, the costs estimated to be incurred in connection
with such well or operation or facility). With respect to the category of costs
described in CLAUSE (VII) of SECTION 3.5(A), each request shall contain the
information specified in SECTION 5.2. With respect to the category of costs
described in CLAUSE (VIII) of SECTION 3.5(A), each request shall cover the
reasonably anticipated overruns associated with conducting the Partnership
operation. Each such request shall also set forth (i) the date by which the
Limited Partner must elect in writing to make the requested additional Capital
Contributions, which date shall not be less than 30 days from the date the
General Partner mails or sends such request, unless a shorter period is provided
to the General Partner under any applicable "authority for expenditure", in
which event such shorter period shall also be applicable to the election period
of the Limited Partner (provided that in no event shall such shorter period be
less than 15 days), (ii) the purpose or purposes for which the proceeds of the
requested additional Capital Contributions are to be used, (iii) to the extent
practicable, a summary of the pertinent geological data relating to each well or
operation with respect to which the proceeds that are requested are to be
expended and financial projections with respect to the expenditure of such
additional Capital
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Contributions and the revenue projected to be received therefrom and (iv) a
summary of the action that the General Partner anticipates it will take under
SECTION 3.5(D) and any applicable operating agreement if the Limited Partner
does not elect to make such requested additional Capital Contributions. In
connection with any request pertaining to an Enhanced Recovery Operation, the
General Partner shall endeavor to confine such request to the extent possible in
accordance with generally accepted industry standards to those matters or items
which should be conducted in conjunction with each other. Thereafter, the
General Partner shall promptly furnish to each Limited Partner such additional
information concerning the use and application of the requested additional
Capital Contributions as such Limited Partner shall reasonably request. In the
event a Limited Partner does not elect to pay all of the categories of requested
additional Capital Contributions (or operations or acquisitions within a given
category), it may elect to pay all of the Capital Contributions requested to be
used for any of the remaining categories of costs designated in the General
Partner's request as provided above (or, as to a given category, the costs
associated with any other operation or acquisition within such category). The
General Partner shall not use any Capital Contributions received from a Limited
Partner pursuant to this SECTION 3.5 and designated for payment of one category
of costs (or an operation or acquisition within such category) to pay any other
category of costs (or other operations or acquisitions within such category).
SECTION 3.6. OPTIONS IF LIMITED PARTNERS DECLINE TO MAKE OPTIONAL
CAPITAL CONTRIBUTIONS.
(a) If the Limited Partners decline to make additional Capital
Contributions to the Partnership with respect to a proposed purchase of a
Subject Property pursuant to SECTION 3.3, the General Partner or an Affiliate
may purchase, retain or otherwise deal for its own account the Subject Property,
and the Partnership (and the Limited Partners) shall have no further interest or
rights under this Agreement in or to the Subject Property or any operations
conducted thereon by the General Partner or such Affiliate).
(b) If a Limited Partner declines to make any additional Capital
Contributions requested by the General Partner or fails to give timely notice to
the General Partner pursuant to a request for additional Capital Contributions
made pursuant to either SECTION 3.4 or SECTION 3.5(A), the General Partner
shall, subject to SUBSECTION (C) below, take the action specified in PARAGRAPHS
(1) and (2) below with respect to each Lease, Partnership well, Enhanced
Recovery Operation or other operation or project to which the request pertains,
if appropriate:
(1) With respect to the acquisition of Leases pursuant to SECTION
5.2, the General Partner or its Affiliates may purchase or retain for
its or their own account the Leases not acquired by the Partnership.
(2) The General Partner may take such other actions as may be
mutually agreed upon by the Partners.
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(c) If a Limited Partner (for purposes of this SUBSECTION (E), a
"NON-ELECTING LP") declines to make any additional Capital Contributions
requested by the General Partner or fails to give timely notice to the General
Partner in accordance with SECTION 3.5 with respect to the category of
expenditures described in CLAUSE (VIII) of SECTION 3.5(A), the General Partner
may elect (i) to take the action specified in PARAGRAPH (2) of SECTION 3.6(B)
with respect to each Partnership well, Enhanced Recovery Operation or other
operation or project to which the request pertains or (ii) to advance to the
Partnership on behalf of such non-electing LP the amount of the requested
additional Capital Contribution (which advance shall bear interest on the
principal amount outstanding from time to time at a rate of 10% per annum, shall
be nonrecourse to such non-electing LP and shall be repaid to the General
Partner from the Designated Percentage (as defined below) of the cash
distributions that would otherwise be made to such non-electing LP from the
well, operation or project to which the request pertains (which cash
distributions shall be applied first to accrued interest and second to the
principal amount outstanding from time to time)). As used in this preceding
sentence, "DESIGNATED PERCENTAGE" shall mean a percentage equal to X divided by
Y, where "X" is the amount of the costs of the well, operation, or project
attributable to the non-electing LP and funded by the General Partner, and where
"Y" is the total amount of the costs of the well, operation or project
attributable to the non-electing LP. Notwithstanding the foregoing or anything
else herein to the contrary, however, a Limited Partner shall not, in connection
with the repayment to the General Partner of the amount advanced by it pursuant
to this SUBSECTION (E), forfeit any interest it has in revenues from Partnership
wells or operations unrelated to such requested additional Capital Contribution
or in revenues it would have otherwise received absent the well or operation to
which such requested additional Capital Contribution pertains.
(d) If, in connection with a request to the Limited Partners for Capital
Contributions to fund their share hereunder of Capital Overrun Costs, the
General Partner notifies the Limited Partners that it is unable to fund its
share hereunder of such costs, the Limited Partners shall have the right to make
the Capital Contributions the General Partner would otherwise be required to
make to fund such costs, subject to SECTIONS 4.1 and 4.2.
SECTION 3.7. REDUCED CAPITAL CONTRIBUTIONS OF LIMITED PARTNER. In the
event the Partnership or the General Partner properly retains (in accordance
with SECTION 4.4) a portion of a Limited Partner's share of Partnership revenues
for the purpose of paying any Capital Costs, Acquisition Costs, or Capital
Overrun Costs allocated to such Limited Partner hereunder, the amount so
retained and not distributed shall reduce on a dollar for dollar basis the
amount of Capital Contributions such Limited Partner is required to thereafter
make.
SECTION 3.8. PAYMENTS OF CAPITAL CONTRIBUTIONS.
(a) The Limited Partners shall pay the Capital Contributions agreed to
be made by them pursuant to SECTION 3.3 on the closing date of the purchase of
the Subject Property with respect to which such Capital Contributions pertain or
on such date or dates as shall be mutually agreed upon by the Partners in good
faith.
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(b) Except as otherwise provided in SUBSECTION (A) above, each Limited
Partner shall pay its Capital Contributions monthly upon request by the General
Partner in such amounts as are required to pay its share of all costs and
expenses properly allocated to it hereunder. The General Partner may request on
a monthly basis additional payments of the Capital Contributions elected or
agreed to be made by a Limited Partner for such Limited Partner's share of all
costs and expenses estimated to have been and/or to be incurred by the
Partnership during that calendar month except those for which advances have
previously been made or for which payment will be made from another source. Each
monthly request for payment shall be adjusted to the extent a Limited Partner's
cumulative share of actual Partnership disbursements for the preceding calendar
month's costs and expenses is either greater or less than the amounts previously
contributed by such Limited Partner for such purpose. Any request from the
General Partner to a Limited Partner for payment by such Limited Partner of
Capital Contributions shall be in writing and shall set forth (i) the type,
nature or items of Partnership costs or expenses for which such payment will be
used by the Partnership, including invoices, cancelled checks and other similar
items requested for each expense item if previously incurred, (ii) the net
amount of the Capital Contributions to be paid by such Limited Partner and (iii)
the date by which payment of such Capital Contributions shall be received, which
shall not be less than ten business days from the date the notice is received by
such Limited Partner.
(c) Payments by each Limited Partner of its Capital Contributions shall
be made by wire transfer of funds to the Partnership's account as designated by
the General Partner by notice to such Limited Partner pursuant to SECTION 12.1.
SECTION 3.9. NON-PAYMENT OF CAPITAL CONTRIBUTIONS. The Partnership shall
have the right to pursue any remedy existing at law or in equity for the
collection of the unpaid amount of the Capital Contributions agreed to be made
in SECTIONS 3.1 and 3.2 or hereafter elected or agreed to be made in accordance
with SECTIONS 3.3, 3.4 and 3.5, including the prosecution of a suit against a
defaulting Partner. Notwithstanding anything in this ARTICLE III or elsewhere
herein to the contrary, in no event shall any Limited Partner have any
obligation to make a Capital Contribution to the Partnership except to the
extent that it has agreed to make a Capital Contribution to the Partnership
pursuant to SECTION 3.3, SECTION 3.4 or SECTION 3.5 (and provided all conditions
precedent to an agreement to make such Capital Contribution have been
satisfied).
SECTION 3.10. INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONS. No
interest shall accrue on any contributions to the capital of the Partnership;
and no Partner shall have the right to withdraw or be repaid any capital
contributed by such Partner (a) except as provided in SECTION 10.3 and (b) in
the instance of a return of cash funds due to a post-closing adjustment to the
amount of the Acquisition Costs to be paid by the Partnership to a seller of
Leases (in which event the General Partner shall cause the Partnership to refund
immediately to each Limited Partner and itself its allocable share of such
funds, which share shall be determined by reference to SECTION 4.1(C), as
applicable). All interest which accrues on Partnership funds shall be allocated
and credited to the Partners in accordance with SECTION 4.2.
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SECTION 3.11. LIMITED PARTNER'S SHARE OF CAPITAL CONTRIBUTIONS. With
respect to any requested additional Capital Contributions pursuant to SECTIONS
3.3, 3.4 and 3.5), each Limited Partner's several share of such Capital
Contributions shall be as follows: (i) Energy PLC, 25%; and (ii) EnCap LP, 75%.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
SECTION 4.1. ALLOCATION OF COSTS AND EXPENSES. All costs and expenses of
the Partnership attributable to Partnership operations prior to the date hereof
shall be allocated and charged to the Partners as provided in the Original
Agreement. All costs and expenses of the Partnership attributable to Partnership
operations on or after the date hereof shall be allocated and charged to the
Partners as follows:
(a) Catastrophe Costs shall be allocated 100% to the General Partner.
(b) Amendment Costs and Additional Placement Fees shall be allocated
100% to the Limited Partners.
(c) Capital Overrun Costs shall be allocated 70% to the General Partner
and 30% to the Limited Partners.
(d) Acquisition Costs shall be allocated 15% to the General Partner and
85% to the Limited Partners.
(e) All other costs and expenses of the Partnership not specifically
allocated above shall be allocated (i) 15% to the General Partner and 85% to the
Limited Partners prior to Payout No. 1, (ii) 45% to the General Partner and 55%
to the Limited Partners after Payout No. 1 but prior to Payout No. 2 and (iii)
70% to the General Partner and 30% to the Limited Partners after Payout No. 2;
provided, however, that if, pursuant to SECTION 4.2(E), an adjustment is made to
the allocation of revenues between the General Partner and the Limited Partners,
a corresponding adjustment to the allocation of costs described in this
SUBSECTION (E) shall be made as between the General Partner and the Limited
Partners; and provided, further, that if, pursuant to SECTION 4.2(F), an
adjustment is made to the allocation of revenues between the General Partner and
the Limited Partners, a corresponding adjustment to the allocation of costs
described in this SUBSECTION (E) shall be made as between the General Partner
and the Limited Partners.
SECTION 4.2. ALLOCATION OF REVENUES. All revenues of the Partnership
(which shall not include Capital Contributions and loans to the Partnership)
attributable to Partnership operations prior to the date hereof shall be
allocated and credited to the Partners as provided in the Original Agreement.
All revenues of the Partnership (which shall not include Capital
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Contributions and loans to the Partnership) attributable to Partnership
operations on or after the date hereof shall be allocated and credited to the
Partners as follows:
(a) Insurance proceeds, to the extent not otherwise expended by the
Partnership to preserve and protect Partnership property in the event of an
accident or other occurrence or to pay Partnership liabilities or other
obligations arising from an accident or other occurrence, shall be allocated
between the Partners in the same manner as revenues from the sale of the
property to which such insurance proceeds relate would be allocated under this
SECTION 4.2.
(b) All revenues used to repay any principal, interest or other amounts
owing with respect to any Partnership borrowings or indebtedness shall be
allocated to the Partners in the same proportions as the costs and expenses paid
with such borrowings or indebtedness were allocated to the Partners (and, with
respect to any indebtedness to which any property acquired by the Partnership is
subject at the time of its acquisition, in the same proportions as costs are
allocated under SECTION 4.1(F) at the time such property is acquired by the
Partnership).
(c) After making the allocation provided for in SECTION 4.2(B) and
taking into account the revenues allocated therein, all additional revenues
resulting from the sale or other disposition of Depletable Property (as defined
in SECTION 4.3(B)) shall be allocated, to the extent such revenues constitute a
recovery of Simulated Basis of such property, to the Partners in the same
percentages as the costs of the property sold were allocated up to an amount
equal to each Partner's share of the Partnership's Simulated Basis in such
property at the time of such sale. Thereafter, revenues resulting from any such
sale or disposition shall be allocated to the Partners in a manner which will
cause the aggregate of all revenues allocated to the Partners from such sale or
disposition and all prior sales or other dispositions of Depletable Property (to
the extent possible and subject to, and taking into account, the other
subsections (as applicable) referenced in SUBSECTION (D) of this SECTION 4.2) to
equal the amounts which would have been allocated under SUBSECTION (D) of this
SECTION 4.2 in the absence of this SUBSECTION (C).
(d) Subject to SUBSECTION (E) or SUBSECTION (F) below (as applicable),
all other revenues of the Partnership not specifically allocated above shall be
allocated (i) 15% to the General Partner and 85% to the Limited Partners prior
to Payout No. 1, (ii) 45% to the General Partner and 55% to the Limited Partners
after Payout No. 1 but prior to Payout No. 2 and (iii) 70% to the General
Partner and 30% to the Limited Partners after Payout No. 2.
(e) Notwithstanding SUBSECTION (D) above, if the Limited Partners fund
the General Partner's share of any Capital Overrun Costs (the amount so funded
in this SUBSECTION (E) being called the "AGGREGATE AMOUNT"), the Limited
Partners' LP Allocable Share (as defined below) (i) shall be permanently
increased by an amount equal to 10 percentage points (and the General Partner's
GP Allocable Share (as defined below) shall be correspondingly permanently
decreased) as of the date on which the Limited Partners initially fund the
Aggregate Amount (in this SUBSECTION (E), the "INITIAL FUNDING DATE") and (ii)
shall be further permanently increased by an amount equal to ten percentage
points (and the General Partner's GP Allocable
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Share shall be correspondingly permanently decreased) upon the expiration of a
three-month period commencing with the Initial Funding Date (and upon the
expiration of each successive three-month period thereafter); provided, that
additional permanent increase(s) (and corresponding permanent decrease(s)) shall
cease when (x) the General Partner contributes cash to the Partnership in an
amount equal to the Aggregate Amount and (y) the Partnership distributes such
cash to the Limited Partners (the date on which such distribution occurs in this
SUBSECTION (E) being called the "DISTRIBUTION DATE"); provided, further, that
without limiting the foregoing (and subject to the Limited Partners thereafter
funding any additional Capital Overrun Costs), the Limited Partner's LP
Allocable Share shall remain the percentage amount as revised to the
Distribution Date and the General Partner's GP Allocable Share shall remain the
percentage amount as revised to the Distribution Date; provided, further, that
notwithstanding any adjustment pursuant to this SUBSECTION (E), the General
Partner's GP Allocable Share shall not be less than 1%. As used in this
SUBSECTION (E), "LP ALLOCABLE SHARE" shall mean the Limited Partners' percentage
share of Partnership revenues specified in CLAUSES (I), (II) and (III) of
SUBSECTION (D) above. As used herein, "GP ALLOCABLE SHARE" shall mean the
General Partner's percentage share of Partnership revenues specified in CLAUSES
(I), (II) and (III) of SUBSECTION (D) above.
(f) Notwithstanding SUBSECTION (D) above or anything else herein to the
contrary, if at any time the Proved Producing Investment Coverage is less than
1.25 to 1, then, from and after the effective date of the Engineering Report
upon which the computation of the Proved Producing Investment Coverage is based,
all revenues of the type described in SUBSECTION (D) above shall be adjusted
from time to time as determined by the Limited Partners so as to increase the
Limited Partners' share thereof (and to correspondingly decrease the General
Partner's share thereof) (provided that the General Partner shall be allocated
not less than 1% of such revenues and the Limited Partners shall be allocated no
more than 99% of such revenues) until the point that the Proved Producing
Investment Coverage is equal to or greater than the ratio of 1.25 to 1 (which
point shall be the effective date of a subsequent Engineering Report that
establishes that the Proved Producing Investment Coverage is equal to or greater
than 1.25 to 1, and at which point all revenues of the type described in
SUBSECTION (D) above shall be allocated as provided in SUBSECTION (D) above). An
adjustment to the allocation of revenues made pursuant to the first sentence of
this SUBSECTION (F) shall be herein called a "REVENUE ALLOCATION ADJUSTMENT".
(g) Notwithstanding SUBSECTION (C) above, SECTION 10.3 or anything else
herein to the contrary, if, (i) a Revenue Allocation Adjustment is effected and
(ii) during the time the Revenue Allocation Adjustment is in effect all or a
portion of the properties of the Partnership are sold or otherwise disposed of,
the revenues from any such sale shall be allocated (A) 1% to the General Partner
and 99% to the Limited Partners until Payout No. 2 and (B) thereafter as
provided in CLAUSE (IV) of SUBSECTION (D) above (subject, however, to any
modifications of the percentages in such clause pursuant to SUBSECTION (E)).
SECTION 4.3. INCOME TAX ALLOCATIONS. Except as otherwise provided
herein, for purposes of any applicable federal, state or local income tax law,
rule or regulation items of
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income, gain, deduction, loss, credit and amount realized shall be hereafter
allocated to the Partners as follows:
(a) Income from the sale of oil or gas production (and any credits under
Section 29 of the Internal Revenue Code with respect thereto) shall be allocated
in the same manner as revenue therefrom is allocated and credited pursuant to
SECTION 4.2.
(b) Cost and percentage depletion deductions and the gain or loss on the
sale or other disposition of property the production from which is subject to
depletion (herein sometimes called "DEPLETABLE PROPERTY") shall be computed
separately by the Partners rather than the Partnership. For purposes of Section
613A(c)(7)(D) of the Internal Revenue Code, the Partnership's adjusted basis in
each Depletable Property shall be allocated in proportion to each Partner's
respective share of the costs and expenses which entered into the Partnership's
adjusted basis for such Depletable Property. The amount realized on the sale or
other disposition of each Depletable Property shall be allocated to the Partners
in proportion to each Partner's respective share of the revenue from the sale or
other disposition of such property provided for in SECTION 4.2. For purposes of
allocating amounts realized upon any such sale or disposition which are deemed
to be received for federal income tax purposes and are attributable to
Partnership indebtedness or indebtedness to which the Depletable Property is
subject at the time of such sale or disposition, such amounts shall be allocated
in the same manner as Partnership revenues used for the repayment of such
indebtedness would have been allocated under SECTION 4.2(B).
(c) Items of deduction, loss and credit not specifically provided for
above (other than loss from the sale or other disposition of Depletable
Property), shall be allocated to the Partners in the same manner that the costs
and expenses of the Partnership that gave rise to such items of deduction, loss
and credit were allocated pursuant to SECTION 4.1.
(d) Gain from the sale or other disposition of Partnership property that
is not specifically provided for above shall be allocated to the Partners in a
manner which reflects each Partner's allocable share of the revenue from the
sale of the Partnership property provided for in SECTION 4.2, and loss from the
sale or other disposition of Partnership property that is not specifically
provided for above shall be allocated to the Partners in a manner which reflects
each Partner's allocable share of the costs and expenses of the Partnership
property provided for in SECTION 4.1.
(e) All recapture of income tax deductions resulting from the sale or
other disposition of Partnership property shall, to the maximum extent possible,
be allocated to the Partner to whom the deduction that gave rise to such
recapture was allocated hereunder to the extent that such Partner is allocated
any gain from the sale or other disposition of such property.
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(f) Any other items of Partnership income or gain not specifically
provided for above shall be allocated in the same manner as the revenue that
resulted in such income or gain is allocated and credited pursuant to SECTION
4.2.
(g) Notwithstanding any of the foregoing provisions of this SECTION 4.3
to the contrary:
(i) If during any fiscal year of the Partnership there is a net
increase in Minimum Gain attributable to a Partner Nonrecourse Debt that
gives rise to Partner Nonrecourse Deductions, each Partner bearing the
economic risk of loss for such Partner Nonrecourse Debt shall be
allocated items of Partnership deductions and losses for such year
(consisting first of cost recovery or depreciation deductions with
respect to property that is subject to such Partner Nonrecourse Debt and
then, if necessary, a pro rata portion of the Partnership's other items
of deductions and losses, with any remainder being treated as an
increase in Minimum Gain attributable to Partner Nonrecourse Debt in the
subsequent year) equal to such Partner's share of Partner Nonrecourse
Deductions, as determined in accordance with applicable Treasury
Regulations.
(ii) If for any fiscal year of the Partnership there is a net
decrease in Minimum Gain attributable to Partnership Nonrecourse
Liabilities, each Partner shall be allocated items of Partnership income
and gain for such year (consisting first of gain recognized, including
Simulated Gain, from the disposition of Partnership property subject to
one or more Partnership Nonrecourse Liabilities and then, if necessary,
a pro rata portion of the Partnership's other items of income and gain
for that year, and if necessary, for subsequent years) equal to such
Partner's share of such net decrease (except to the extent such
Partner's share of such net decrease is caused by a change in debt
structure with such Partner commencing to bear the economic risk of loss
as to all or part of any Partnership Nonrecourse Liability or by such
Partner contributing capital to the Partnership that the Partnership
uses to repay a Partnership Nonrecourse Liability), as determined in
accordance with applicable Treasury Regulations.
(iii) If for any fiscal year of the Partnership there is a net
decrease in Minimum Gain attributable to a Partner Nonrecourse Debt,
each Partner bearing the economic risk of loss for such Partner
Nonrecourse Debt shall be allocated items of Partnership income and gain
for such year (consisting first of gain recognized, including Simulated
Gain, from the disposition of Partnership property subject to Partner
Nonrecourse Debt, and then, if necessary, a pro rata portion of the
Partnership's other items of income and gain, and if necessary, for
subsequent years) equal to such Partner's share of such net decrease
(except to the extent such Partner's share of such net decrease is
caused by a change in debt structure or by the Partnership's use of
capital contributed by such Partner to repay Partner Nonrecourse Debt)
as determined in accordance with applicable Treasury Regulations.
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(h) The General Partner shall use all reasonable efforts to prevent any
allocation or distribution from causing a negative balance in the Limited
Partner's Adjusted Capital Account. Consistent therewith, and notwithstanding
any of the foregoing provisions of this SECTION 4.3 to the contrary, if for any
fiscal year of the Partnership the allocation of any loss or deduction (net of
any income or gain) to any Partner would cause or increase a negative balance in
such Partner's Adjusted Capital Account as of the end of such fiscal year (a
"DEFICIT PARTNER") after taking into account the provisions of SUBSECTION (G) of
this SECTION 4.3, only the amount of such loss or deduction that reduces the
balance to zero shall be allocated to such Deficit Partner and the remaining
loss or deduction shall be allocated to the Partners whose Adjusted Capital
Accounts have a positive balance remaining at such time (the "POSITIVE
PARTNERS") in proportion to such positive balances. After any such allocation,
any Partnership income or gain (including Simulated Gain) that would otherwise
be allocated to the Deficit Partner shall be allocated instead to the Positive
Partners up to an amount equal to the Partnership loss or deduction allocated to
the Positive Partners under the preceding sentence; provided, however, that no
allocation of income, gain or amount realized shall be made under this sentence
if the effect of such allocation would be to cause the Adjusted Capital Account
of a Deficit Partner to be less than zero. If, after taking into account the
allocation in the first sentence of this SECTION 4.3(H), the Adjusted Capital
Account balance of a Deficit Partner remains less than zero at the end of a
fiscal year, a pro rata portion of each item of Partnership income or gain
(including Simulated Gain) otherwise allocable to the Positive Partners for such
fiscal year (or if there is no such income or gain allocable to the Positive
Partners for such fiscal year, all such income or gain (including Simulated
Gain) so allocable in the succeeding fiscal year or years) shall be allocated to
the Deficit Partner in an amount necessary to cause its Adjusted Capital Account
balance to equal zero; provided that if there is more than one Deficit Partner,
such income or gain shall be allocated to all Deficit Partners in proportion to
their negative Adjusted Capital Accounts; and provided further that no
allocation under this sentence shall have the effect of causing any Positive
Partner's Adjusted Capital Account to be less than zero. After any such
allocation, any Partnership gain (including Simulated Gain) resulting from the
sale or other disposition of Partnership property that would otherwise be
allocated to a Deficit Partner for any fiscal year under this SECTION 4.3 shall
be allocated instead to the Positive Partners until the amount of gain so
allocated equals the amount of gain previously allocated to such Deficit Partner
under the preceding sentence of this SECTION 4.3(H); provided, however, that no
allocation of gain shall be made under this sentence if the effect of such
allocation would be to cause the Adjusted Capital Account of a Deficit Partner
to be less than zero.
(i) Notwithstanding anything to the contrary herein, in accordance with
SECTION 704(C) of the Internal Revenue Code and the Treasury Regulations
thereunder, income, gain, loss and deductions with respect to any property
contributed to the Partnership or with respect to which a revaluation pursuant
to Treasury Regulation ss. 1.704-1(b)(2)(iv)(f) has occurred shall, solely for
federal income tax purposes, be allocated among the Partners in a manner to take
into account any variation between the adjusted tax basis of such property to
the Partnership and its fair market value. In making such allocations, the
General Partner shall use the traditional method with curative allocations as
set forth in Treasury Regulation ss.
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1.704-3(c) limited to similar items of depreciation deductions for depreciable
assets and depletion deductions for depletable assets, unless otherwise agreed
by all Partners.
SECTION 4.4. DISTRIBUTIONS. From and after the date hereof, all cash
funds of the Partnership (exclusive of Capital Contributions, any borrowed funds
and any dry hole and bottom hole and similar contributions) which the General
Partner reasonably determines are not needed for the payment of any existing or
reasonably foreseeable (within 30 days) Partnership obligations and expenditures
shall be distributed to the Partners on at least a monthly basis (commencing
with the first month after the date hereof in which the Partnership receives
revenues); provided, however, that notwithstanding the foregoing or any other
provision contained in this Agreement, (a) unless a Limited Partner otherwise
consents in writing or defaults in the payment of any Capital Contributions
previously agreed to be made by it, the General Partner shall not be entitled to
cause the Partnership to retain any of a Limited Partner's share of Partnership
revenues for the purpose of paying (directly or indirectly) any Capital Costs,
Acquisition Costs or Capital Overrun Costs and (b) the Partnership may retain
such insurance proceeds and other amounts as the General Partner shall
reasonably determine are necessary to pay Partnership liabilities and expenses
upon the occurrence of an accident (E.G., a blowout), catastrophe or similar
event (and to preserve or protect Partnership property in connection therewith)
or to comply with all applicable environmental laws, ordinances, rules and
regulations. All such cash funds of the Partnership shall be distributed to the
Partners in the same respective percentages as the revenues to which such cash
funds are attributable were allocated to the Partners pursuant to SECTION 4.2
(after deducting therefrom the costs and expenses charged to the Partnership
pursuant to SECTION 4.1 and elsewhere herein); provided, however, that if Payout
No. 1 or Payout No. 2 would occur, as applicable, as a result of a distribution
of cash funds to the Limited Partners, such distribution shall be deemed to
constitute two distributions: (i) the first distribution shall consist of the
amount of cash funds necessary to cause Payout No.1 or Payout No.2, as
applicable, to occur and (ii) the second distribution shall consist of the
balance of the funds then distributed. The calculation of each monthly
distribution shall be made pursuant to SECTION 8.2(D). Notwithstanding the
foregoing or anything else herein to the contrary, the General Partner shall
cause the Partnership to distribute to the Limited Partners 100% of the cash
funds contributed to the Partnership pursuant to SECTION 3.1(C) immediately upon
receipt of such funds by the Partnership. Payment of all distributions made by
the Partnership to each Limited Partner shall be made by wire transfer of
immediately available funds in accordance with such written instructions to the
General Partner as may be provided by such Limited Partner from time to time.
Nothing contained in this SECTION 4.4 shall relieve the General Partner from its
obligation to bear 100% of Catastrophe Costs pursuant to SECTION 4.1(A).
SECTION 4.5. ALLOCATION AMONG LIMITED PARTNERS. Subject to SECTION 3.3,
all Partnership items of costs, expenses, deductions (other than depletion),
credits, income, revenues, gain and loss (other than gain or loss from the sale
or other disposition of Depletable Property) to be allocated, charged or
credited to the Limited Partners shall be allocated, charged or credited to each
Limited Partner as follows: 25% to Energy PLC and 75% to EnCap LP.
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SECTION 4.6. WITHHOLDING. The General Partner shall be entitled to
withhold from distributions made to the Partners any taxes required to be
withheld under applicable law. Amounts so withheld shall upon payment to the
appropriate taxing authority be treated as distributions to the Partner for
whose account the funds are withheld.
ARTICLE V
PARTNERSHIP PROPERTY
SECTION 5.1. TITLE TO PARTNERSHIP PROPERTY. All property owned by the
Partnership, whether real or personal, tangible or intangible, shall be deemed
to be owned by the Partnership as an entity, and no Partner, individually, shall
have any ownership of such property. The Partnership shall hold all of its
assets in the name of the Partnership. The General Partner shall promptly take
all such action as it shall deem necessary or appropriate, or as may be required
by law, to perfect and preserve the ownership interest of the Partnership in all
Leases, and (if requested by a Limited Partner) upon recordation of title to a
Lease shall promptly supply such Limited Partner with a copy of such recorded
title.
SECTION 5.2. ACQUISITIONS OF ADDITIONAL INTERESTS IN THE SUBJECT LANDS.
If the General Partner or an Affiliate thereof acquires (or proposes to acquire)
an additional interest in the Subject Lands, the terms and provisions of this
SECTION 5.2 shall be operative. Specifically, upon the acquisition (or proposed
acquisition) under the circumstances described above, the General Partner shall
notify the Limited Partners, which notice shall (i) specify the additional
interest the General Partner or its Affiliates have acquired (or propose to
acquire) in the Subject Lands, (ii) specify the purchase price (or proposed
purchase price), and (iii) include such other information as the General Partner
deems material. Thereafter, the General Partner shall promptly furnish to the
Limited Partners any additional information concerning the acquisition (or
proposed acquisition) as a Limited Partner may reasonably request and which is
in the possession of the General Partner or its Affiliates or can be obtained
without undue effort or expense. Subject to SECTION 3.5, the Partnership shall
acquire its pro rata shares of the additional interest of the General Partner
and Affiliates in the Subject Lands (or, if applicable, which the General
Partner and Affiliates propose to acquire). In connection with any acquisition
of an interest by the Partnership pursuant to this SECTION 5.2, the General
Partner or an Affiliate thereof shall not retain from or otherwise burden the
interest assigned to the Partnership with any overriding royalty, net profits
interest, carried interest, reversionary interest, production payment or other
burden in favor of itself, its officers, directors or employees.
SECTION 5.3. LEASE SALES.
(a) Subject to SUBSECTION (B) below and SECTION 6.2(D) and elsewhere
herein, the General Partner may sell, farm-out, abandon or otherwise dispose of
any Partnership Lease, on such terms as the General Partner deems reasonable and
in the best interests of the Partnership and the Limited Partners.
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(b) Except as expressly permitted in SECTION 10.3, neither the General
Partner or any of its Affiliates nor any of their employees shall acquire,
directly or indirectly, any Lease (or any interest therein) from the
Partnership.
SECTION 5.4. SALES OF PRODUCTION. The General Partner shall have the
right to cause the Partnership to sell any oil or gas produced by or for the
account of the Partnership, including but not limited to crude oil, condensate,
natural gas liquids and natural gas (including casinghead gas) which may be
produced from or allocated to the Properties or any additional Leases acquired
pursuant to the terms hereof, to such purchaser and on such terms and conditions
as the General Partner shall determine to be in the best interest of the
Partnership; provided, however, that all such sales shall be upon terms and
conditions which are the best terms and conditions available as determined in
good faith by the General Partner taking into account all relevant
circumstances, including but not limited to, price, quality of production,
access to markets, minimum purchase guarantees, identity of purchaser, and
length of commitment. Notwithstanding anything to the contrary contained herein,
neither the General Partner nor any of its Affiliates shall purchase any oil or
gas produced by or for the account of the Partnership.
SECTION 5.5. OPERATIONS ON PARTNERSHIP LEASES. To the extent possible,
the General Partner or an Affiliate shall act as operator in connection with all
operations on the Partnership's Leases and shall be entitled to receive for its
account all compensation and reimbursement provided to an operator under the
standard COPAS-1984-Onshore accounting procedure, provided that (a) the amounts
charged to the Partnership by the General Partner or such Affiliate must in any
event be no less favorable than those available from unrelated third parties in
the area engaged in the business of rendering comparable services which could
reasonably be made available to the Partnership, and (b) the salaries, wages and
personal expenses of the General Partner's and Affiliates' technical employees
or the cost of professional consultant services and contract services of
technical personnel either (i) directly employed on a Lease or (ii) temporarily
or permanently assigned to and directly employed in the operation of a Lease
shall be deemed covered by the overhead rates. Notwithstanding the foregoing or
anything else herein to the contrary, payments under this SECTION 5.6 shall
terminate upon the occurrence of any of the events described in CLAUSES (A),
(B), (C) or (D) of the definition of "with cause" as set forth in SECTION 9.4 In
no event shall the terms of any operating or similar agreement governing all or
a portion of the Partnership's Leases vary or affect this Agreement or the
duties and obligations of the General Partner hereunder (even if the terms of
any such agreement should provide otherwise). The General Partner shall not
substitute another party as operator or assign its obligations as operator with
respect to any Partnership Lease where it acts as operator prior to the
occurrence of Payout unless the Limited Partners so request in the event the
General Partner is removed as such pursuant to SECTION 9.4 or the Limited
Partners dissolve the Partnership pursuant to any of SUBSECTIONS (C), (E), (F),
(H) or (I) of SECTION 10.1 (and the General Partner agrees to use its best
efforts to cause the person designated by the Limited Partners to be the
successor operator).
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ARTICLE VI
MANAGEMENT
SECTION 6.1. POWER AND AUTHORITY OF GENERAL PARTNER. Except as provided
in SECTIONS 6.2 and elsewhere in this Agreement and except as otherwise provided
by applicable law, the General Partner shall have full and exclusive power and
authority on behalf of the Partnership to manage, control, administer and
operate the properties, business and affairs of the Partnership in accordance
with this Agreement and to do or cause to be done any and all acts deemed by the
General Partner to be necessary or appropriate thereto, and (except as aforesaid
in this SECTION 6.1) the scope of such power and authority shall encompass all
matters in any way connected with such business or incident thereto.
SECTION 6.2. CERTAIN RESTRICTIONS ON GENERAL PARTNER'S POWER AND
AUTHORITY. Notwithstanding any other provisions of this Agreement to the
contrary, the General Partner shall not have the power or authority to, and
shall not, do, perform or authorize any of the following without having received
the prior written consent of the Limited Partners:
(a) To borrow any money in the name or on behalf of the Partnership, or
otherwise draw, make, execute and issue promissory notes and other negotiable or
non-negotiable instruments and evidences of indebtedness, except that the
General Partner may borrow money in the name and on behalf of the Partnership in
such amounts as the General Partner shall reasonably determine are necessary to
preserve and protect Partnership property upon the occurrence of an accident
(E.G., a blowout), catastrophe or similar event or to comply with all applicable
environmental laws, ordinances, rules and regulations;
(b) To mortgage, pledge, assign in trust or otherwise encumber any
Partnership property, or to assign any monies owing or to be owing to the
Partnership, except to secure the payment of any borrowing permitted in SECTION
6.2(A) and except for customary liens contained in or arising under any
operating agreements, construction contracts and similar agreements executed by
or binding on the Partnership, provided that in no event shall the General
Partner mortgage, pledge, assign in trust or otherwise encumber the
Partnership's right to receive Capital Contributions from the Limited Partners;
(c) To guarantee in the name or on behalf of the Partnership the payment
of money or the performance of any contract or other obligation of any person
except for responsibilities customarily assumed under operating agreements
considered standard in the industry;
(d) To sell, assign, farm-out, abandon or otherwise dispose of any
Partnership Lease except such Leases or interests therein as the General Partner
shall reasonably determine to be necessary to raise funds to pay Partnership
liabilities and expenses (other than Catastrophe Costs) upon the occurrence of
an accident, catastrophe or similar event (and to restore, preserve and protect
Partnership property in connection therewith) or to comply with all applicable
environmental laws, ordinances, rules and regulations;
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(e) To make any advance payments of compensation or other consideration
to the General Partner or any of its Affiliates;
(f) To bind or obligate the Partnership with respect to any matter
outside the scope of the Partnership business;
(g) To merge or consolidate the Partnership with any partnership or
other person or entity, convert the Partnership to a general partnership or
other entity or agree to an exchange of interests with any other person;
(h) To use the Partnership name, credit or property for other than
Partnership purposes;
(i) To loan any Partnership funds to the General Partner or any of its
Affiliates;
(j) To enter into any Hedging Transaction;
(k) To acquire any Lease in violation of the terms of this Agreement;
(l) To compromise or settle any lawsuit, administrative matter or other
dispute where the amount the Partnership may recover or might be obligated to
pay, as applicable, is in excess of $25,000 or to repair or replace Partnership
property damaged or destroyed as a result of an accident or other occurrence
when the Partnership's share of the costs of repair or replacement (either
individually or in the aggregate) is equal to or in excess of $100,000;
(m) To alter, supplement, modify or amend any Purchase Document in any
material respect, waive any of the Partnership's rights or any of seller's
duties thereunder in any material respect or make any material election or
agreement thereunder;
(n) To alter, supplement, modify or amend any Conveyance in any material
respect, waive any of the Partnership's rights or any of assignor's duties
thereunder in any material respect or make any material election or agreement
thereunder;
(o) To enter into any contract or agreement with the General Partner or
any Affiliate for the rendering of services or the sale or lease of supplies
(except that the foregoing shall not preclude the General Partner from serving
as operator in accordance with SECTION 5.6); or
(p) Except as expressly provided herein, to take any action with respect
to the assets or property of the Partnership which would reasonably be expected
to benefit the General Partner or any of its Affiliates to the detriment of the
Limited Partners or the Partnership, including, among other things, utilization
of funds of the Partnership as compensating balances for its own benefit.
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SECTION 6.3. DUTIES AND SERVICES OF GENERAL PARTNER. The General Partner
shall comply in all respects with the terms of this Agreement and shall use its
best efforts to cause its Affiliates to comply with the terms of this Agreement.
In the conduct of the business and operations of the Partnership the General
Partner shall cause the Partnership (a) to comply with the terms and provisions
of all agreements to which the Partnership is a party or to which its properties
are subject, (b) to comply with all applicable laws, ordinances or governmental
rules and regulations to which the Partnership is subject (including, without
limitation, all applicable federal, state and local environmental laws,
ordinances, rules and regulations) and (c) to obtain and maintain all licenses,
permits, franchises and other governmental authorizations necessary with respect
to the ownership of Partnership properties and the conduct of Partnership
business and operations. With respect to the maintenance, development and
operation of the Properties and any additional Leases acquired pursuant to the
terms hereof, the General Partner shall have the standard of care of a prudent
and diligent operator. With respect to the Limited Partners and their interests
in the Partnership, the General Partner shall have the duties set forth in
Section 4.04 of the Texas Revised Partnership Act and shall discharge such as
provided in Section 4.04(d) of the Texas Revised Partnership Act, provided that
(i) the General Partner shall at all times act with integrity and in good faith
and utilize its best efforts in all activities relating to the conduct of the
business of the Partnership and in resolving conflicts of interest; (ii) during
the existence of the Partnership, the General Partner shall devote such time and
effort to the Partnership business and operations as shall be necessary to
promote fully the interests of the Partnership and the mutual best interests of
the Partners; however, it is specifically understood and agreed that the General
Partner shall not be required to devote full time to Partnership business; and
(iii) subject to the other express provisions of this Agreement, each Limited
Partner acknowledges that the General Partner currently engages in and
possesses, and agrees that the General Partner may continue to engage in and
possess, interests in other business ventures of any and every type and
description, independently or with others, including without limitation the
ownership, acquisition, exploration, development, operation and management of
oil and gas properties, oil and gas drilling programs and partnerships similar
to this Partnership, and (subject to the other express provisions of this
Agreement) neither the Partnership nor any Limited Partner shall by virtue of
this Agreement have any right, title or interest in or to such independent
ventures. With respect to the maintenance and safekeeping of Partnership funds,
the General Partner shall owe the Partnership and the Limited Partners a
fiduciary duty. The General Partner covenants and agrees that it will at all
times have available to it and the Partnership a professional staff and outside
consultants which together will be reasonably adequate in size, experience and
competency to discharge properly the duties and functions of the General Partner
hereunder and under any applicable operating and other agreements, including
without limitation, engineers, geologists and other technical personnel,
accountants and secretarial and clerical personnel.
SECTION 6.4. LIABILITY OF GENERAL PARTNER. The General Partner and its
officers, employees and agents (all of such foregoing persons being herein
called an "INDEMNITEE") shall not be liable, responsible or accountable in
damages or otherwise to the Partnership or the Limited Partners for, and
(subject to SECTION 6.5) the Partnership shall indemnify and save
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harmless the General Partner and each Indemnitee from any costs, expenses,
losses or damages (including attorneys' fees and expenses, court costs,
judgments and amounts paid in settlement) incurred by reason of its being
General Partner or an Indemnitee, provided it has acted in good faith on behalf
of the Partnership and the Limited Partners and in a manner reasonably believed
by it to be within the scope of the authority granted to it by this Agreement
and in the best interests of the Partnership, and provided further that (a) the
General Partner or Indemnitee was not guilty of a material breach of this
Agreement, gross negligence, willful or wanton misconduct or breach of fiduciary
duty with respect to such acts or omissions, and (b) the satisfaction of any
indemnification and any saving harmless shall be from and limited to Partnership
assets (which shall be converted to cash to the extent necessary in a manner
appropriate to protect the interests of all Partners) and not from any Capital
Contributions to be made by the Limited Partners hereunder, and no Limited
Partner shall have any personal liability on account thereof.
SECTION 6.5. LIMITATIONS ON INDEMNIFICATION. The rights of the General
Partner or an Indemnitee under SECTION 6.4 with respect to indemnification from
the Partnership shall be subject to the provisions of Article 11 of the Act. Any
indemnification under SECTION 6.4 shall be made by the Partnership only as
permitted herein and, unless the General Partner or Indemnitee was wholly
successful on the merits, only upon a determination by a court upon the request
of the General Partner or by independent legal counsel selected by the General
Partner and satisfactory to the Limited Partners in a written opinion that
indemnification of the General Partner or Indemnitee is permitted (a) under the
circumstances because it has met the applicable standard of conduct set forth in
SECTION 6.4 and (b) pursuant to Article 11 of the Act.
SECTION 6.6. COSTS, EXPENSES AND REIMBURSEMENT.
(a) Subject to the other express provisions of this Agreement, all
direct, third party out-of-pocket costs and expenses reasonably incurred in the
Partnership's business shall be paid from Partnership funds, including without
limitation costs of reports under SECTION 8.2, costs of obtaining audits of the
Partnership's books and records, outside legal costs, general taxes and other
direct, third party out-of-pocket costs and expenses of the Partnership.
(b) Except as specifically provided in SECTION 5.6, this SECTION 6.6 and
SECTION 6.7, the General Partner and its Affiliates shall not be paid any fee,
compensation or reimbursement or be entitled to or charge the Partnership for or
on account of their services, services of their officers, employees or
consultants, fees or compensation of those geologists, geophysicists and
engineers who are employed or retained by them, office expense, overhead or any
other general and administrative costs unless otherwise agreed to in writing by
the Limited Partners.
SECTION 6.7. AMENDMENT COSTS. The Partnership from time to time shall
pay directly or shall reimburse the General Partner and the Limited Partners for
any payment by them of the following fees and expenses in connection with the
organization of the Partnership
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("AMENDMENT COSTS"): (a) all reasonable fees and expenses incurred by them
(including fees for outside legal services) in connection with the preparation
and filing of all certificates, opinions and documents required pursuant to
SECTIONS 1.2 and 1.6, (b) all reasonable fees and expenses incurred by the
Limited Partners in obtaining reports of outside consultants and advisors
relating to the determination of appropriate insurance coverage for the
Partnership, and (c) all reasonable fees and expenses of legal counsel to the
Limited Partners in connection with the negotiation, preparation and execution
of the A&D Agreement, the Co-Sale Agreement, this Agreement and all related
documents.
SECTION 6.8. INSURANCE. The General Partner shall cause the Partnership
to obtain (and maintain during the entire term of the Partnership), or the
General Partner shall carry for the benefit of the Partnership, insurance
coverage in such amounts, with provisions for such deductible amounts and for
such purposes as specified in EXHIBIT 6.8 attached hereto. Where appropriate,
the General Partner may include the Partnership or the Limited Partners as
additional insureds on any policies otherwise carried by the General Partner and
the costs thereof shall be allocated to the Partnership on a basis mutually
agreed upon in writing by the General Partner and the Limited Partners from time
to time. The General Partner shall furnish to the Limited Partners (a) within 10
days after the end of each calendar year, certified copies of all the policies
constituting the insurance coverage agreed upon pursuant to this SECTION 6.8 and
(b) within 10 days after their issuance or amendment, certified copies of any
new policies issued, or existing policies amended, during any calendar year. The
General Partner shall use its best efforts to cause all the policies
constituting the insurance coverage agreed upon pursuant to this SECTION 6.8 to
be endorsed to preclude cancellation or reduction of coverage except upon
30-days' written notice to the Limited Partners. In the event the insurance
coverage agreed upon by the General Partner and the Limited Partners pursuant to
this SECTION 6.8 is or becomes unavailable on the market, the General Partner
shall immediately notify the Limited Partners of such fact and shall use its
best efforts to obtain the maximum coverage of the type of insurance involved
available on the market. The cost of all such insurance coverage shall be
charged to the Partnership as a Partnership expense.
SECTION 6.9. TAX ELECTIONS.
(a) The General Partner shall make the following elections on behalf of
the Partnership:
(i) To elect, in accordance with Section 263(c) of the Internal
Revenue Code and applicable regulations and comparable state law
provisions, to deduct as an expense all intangible drilling and
development costs with respect to productive and non-productive wells
and the preparation of wells for the production of oil or gas;
(ii) To elect the calendar year as the Partnership's fiscal year
if permitted by applicable
(iii) To elect the accrual method of accounting;
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(iv) If requested by a Partner and at such Partner's expense, to
elect, in accordance with Sections 734, 743 and 754 of the Internal
Revenue Code and applicable regulations and comparable state law
provisions, to adjust basis in the event any Partnership interest is
transferred in accordance with this Agreement or any Partnership
property is distributed to any Partner;
(v) To elect to treat all organizational and start-up costs of
the Partnership as deferred expenses amortizable over 60 months under
Sections 195 and 709 of the Internal Revenue Code; and
(vi) To elect with respect to such other federal, state and local
tax matters as the General Partner and the Limited Partners shall agree
upon from time to time.
(b) The Partners agree to classify the Partnership as a partnership for
federal income tax purposes. Neither the Partnership, the General Partner nor
any Limited Partner shall file an election to classify the Partnership as an
association taxable as a corporation for federal income tax purposes.
SECTION 6.10. TAX RETURNS. The General Partner shall prepare and timely
file all federal, state and local income and other tax returns and reports as
may be required as a result of the business of the Partnership, which returns
shall be signed by the independent certified public accountants of the
Partnership. Not less than 30 days prior to the date (as extended) on which the
Partnership intends to file its federal income tax return or any state income
tax return, the return proposed to be filed by the General Partner shall be
furnished to the Limited Partners for review and comments. In addition, not more
than 10 days after the date on which the Partnership actually files its federal
income tax return or any state income tax return, a copy of the return so filed
by the General Partner shall be furnished to the Limited Partners. The General
Partner shall be designated the tax matters partner under Section 6231 of the
Internal Revenue Code and shall promptly notify the Limited Partners if any tax
return or report of the Partnership is audited or if any adjustments are
proposed by any governmental body. In addition, the General Partner shall
promptly furnish to the Limited Partners all notices concerning administrative
or judicial proceedings relating to federal income tax matters as required under
the Internal Revenue Code. During the pendency of any such administrative or
judicial proceeding, the General Partner shall furnish to the Limited Partners
periodic reports, not less often than monthly, concerning the status of any such
proceeding. Without the consent of the Limited Partners, the General Partner
shall not extend the statute of limitations, file a request for administrative
adjustment, file suit concerning any tax refund or deficiency relating to any
Partnership administrative adjustment or enter into any settlement agreement
relating to any Partnership item of income, gain, loss, deduction or credit for
any fiscal year of the Partnership.
SECTION 6.11. APPOINTMENT OF TRUSTEE TO RECEIVE PAYMENTS. The Limited
Partners may cause the Partnership at the Partnership's expense to assign the
Partnership's right to receive revenues to a trustee named by the Limited
Partners (a) if the General Partner has
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committed fraud, willful or intentional misconduct or gross negligence in the
performance of its duties hereunder, (b) if the General Partner is in default in
the performance or observation of any material agreement, covenant, term,
condition or obligation hereunder, (c) if a representation or warranty made by
the General Partner herein or by the General Partner or any of its officers in
any writing furnished in connection with or pursuant to this Agreement shall be
false in a material respect on the date as of which made, or (d) upon the
occurrence of any of the events described in either Section 4.02(a)(4) or in
Section 4.02(a)(5) of the Act (except that with respect to Section 4.02(a)(5)
the operative number of days shall be 60 instead of those set forth in such
Section). Such trustee shall receive and hold Partnership revenues for the
benefit of all the Partners, but shall not have the rights of the General
Partner hereunder. The trustee's sole right and responsibility shall be to
receive Partnership funds and disburse them in accordance with the other
provisions of this Agreement. In the event a trustee is appointed pursuant to
this SECTION 6.11 and the default is cured or the action or event under or with
respect to the bankruptcy law is completely dismissed or eliminated, the General
Partner and the Limited Partners shall, at the request of either the General
Partner or the Limited Partners, cause the trustee to be discharged at the
Partnership's expense; provided that in the judgment of the Limited Partners,
their interest under this Agreement will not be adversely affected by any such
discharge.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNER
SECTION 7.1. RIGHTS OF LIMITED PARTNER. In addition to the other rights
specifically set forth herein or by non-waivable provisions of applicable law,
each Limited Partner shall have the right to: (a) have the Partnership books and
records (including without limitation those required in Section 1.07 of the Act)
kept at the principal United States office of the Partnership and at all
reasonable times to inspect and copy any of them, (b) have on demand true and
full information of all things affecting the Partnership and a formal account of
Partnership affairs whenever circumstances render it just and reasonable, (c)
have dissolution and winding up by decree of court as provided for in the Act
and (d) exercise all rights of a limited partner under the Act (except to the
extent otherwise specifically provided for herein).
SECTION 7.2. LIMITATIONS ON LIMITED PARTNER. No Limited Partner shall
have the authority or power in its capacity as a Limited Partner to act as agent
for or on behalf of the Partnership or any other Partner, to do any act which
would be binding on the Partnership or any other Partner, or to incur any
expenditures on behalf of or with respect to the Partnership. The General
Partner shall not hold out or represent to any third party that any Limited
Partner has any such right or power or that a Limited Partner is anything other
than a "limited partner" in the Partnership.
SECTION 7.3. LIABILITY OF LIMITED PARTNER. No Limited Partner shall be
liable for the debts, liabilities, contracts or other obligations of the
Partnership except to the extent of any
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unpaid Capital Contributions hereafter agreed to be made by such Limited Partner
as set forth in SECTIONS 3.3, 3.4 and 3.5 (which shall be subject to reduction
as provided for in SECTION 3.6)and such Limited Partner's share of the assets
(including undistributed revenues) of the Partnership; and in all events, such
Limited Partner shall be liable and obligated to make payments of its Capital
Contributions only as and when such payments are due in accordance with the
terms of this Agreement, and such Limited Partner shall not be required to make
any loans to the Partnership. Except to the extent expressly provided in the
preceding sentence, the Partnership shall indemnify and hold harmless each
Limited Partner in the event it (a) becomes liable for any debt, liability,
contract or other obligation of the Partnership or (b) is directly or indirectly
required to make any payments with respect thereto.
SECTION 7.4. ACCESS OF LIMITED PARTNER TO DATA. During the term of the
Partnership, the Partnership may acquire or have access to geophysical,
geological and other similar data and information. Each Limited Partner and its
agents and representatives, at any time either during the term of or after
termination of the Partnership, shall have the right to inspect, review and copy
any such data or information (or studies, maps, evaluations or reports derived
therefrom) which relates to the Properties or other Leases which the Partnership
owns or has owned or which has been paid for with Partnership funds and to
consult with the Partnership's independent certified public accountants and
independent petroleum engineers and the General Partner's technical personnel
with respect to Partnership matters. Upon liquidation of the Partnership, copies
of all such documents shall be distributed to the General Partner and to each
Limited Partner if so requested by it. Notwithstanding the foregoing, the
Limited Partners shall not have the right to inspect, review or copy
geophysical, geological and other similar data and information if the
Partnership or the General Partner is subject to a valid, bona fide agreement
prohibiting such inspection, review or copying. If requested by a Limited
Partner, the General Partner shall attempt to obtain an amendment or waiver of
any such agreement to permit such data or other information to be provided to
such Limited Partner upon the execution by such Limited Partner of a similar
agreement and in any event shall attempt in advance of execution of any such
agreement to obtain permission for the Limited Partners to inspect, review and
copy any such data or other information.
SECTION 7.5. WITHDRAWAL AND RETURN OF CAPITAL CONTRIBUTION. No Limited
Partner shall be entitled to (a) withdraw from the Partnership except upon the
assignment by the Limited Partner of all of its interest in the Partnership and
the substitution of such Limited Partner's assignee as a Limited Partner of the
Partnership in accordance with SECTION 9.1, or (b) the return of its Capital
Contributions except to the extent, if any, that distributions made pursuant to
the express terms of this Agreement may be considered as such by law or by
unanimous agreement of the Partners, or upon dissolution and liquidation of the
Partnership, and then only to the extent expressly provided for in this
Agreement and as permitted by law.
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ARTICLE VIII
BOOKS, RECORDS, REPORTS AND BANK ACCOUNTS
SECTION 8.1. CAPITAL ACCOUNTS, BOOKS AND RECORDS.
(a) Except as may otherwise be required by this Agreement, the General
Partner shall keep books of account for the Partnership in accordance with
generally accepted accounting principles consistently applied in accordance with
the terms of this Agreement. Such books shall be maintained at the principal
United States office of the Partnership and shall be maintained by the General
Partner for review by the Limited Partners during the term of the Partnership
and for a period of five years thereafter. The calendar year shall be selected
as the accounting year of the Partnership and the books of account shall be
maintained on an accrual basis.
(b) An individual capital account shall be maintained by the Partnership
for each Partner as provided below:
(i) The capital account of each Partner shall, except as
otherwise provided herein, be (A) credited by such Partner's Capital
Contributions when made, (B) credited by the fair market value of any
property contributed to the Partnership by such Partner (net of
liabilities secured by such contributed property that the Partnership is
considered to assume or take subject to under Section 752 of the
Internal Revenue Code), (C) credited with the amount of any item of
taxable income or gain and the amount of any item of income or gain
exempt from tax allocated to such Partner, including the Partner's share
of Simulated Gain as provided in PARAGRAPH (II) of this SECTION 8.1(B),
(D) debited by the amount of any item of tax deduction or loss allocated
to such Partner, including the Partner's share of Simulated Loss and
Simulated Depletion as provided in paragraph (ii) of this SECTION
8.1(B), (E) debited by such Partner's allocable share of expenditures of
the Partnership not deductible in computing the Partnership's taxable
income and not properly chargeable as capital expenditures, including
any non-deductible book amortizations of capitalized costs, and (F)
debited by the amount of cash or the fair market value of any property
distributed to such Partner (net of liabilities secured by such
distributed property that such Partner is considered to assume or take
subject to under Section 752 of the Internal Revenue Code). Immediately
prior to any distribution of assets by the Partnership that is not
pursuant to a liquidation of the Partnership or all or any portion of a
Partner's interest therein, the Partners' capital accounts shall be
adjusted by (X) assuming that the distributed assets were sold by the
Partnership for cash at their respective fair market values as of the
date of distribution by the Partnership and (Y) crediting or debiting
each Partner's capital account with its respective share of the
hypothetical gains or losses, including Simulated Gains and Simulated
Losses, resulting from such assumed sales in the same manner as each
such capital account would be debited or credited for gains or losses on
actual sales of such assets. Notwithstanding the foregoing sentence,
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the Partnership shall not distribute any property in kind to any Partner
except as provided in SECTION 10.3.
(ii) The allocation of basis prescribed by Section 613A(c)(7)(D)
of the Internal Revenue Code and provided for in SECTION 4.3(B) and each
Partner's separately computed depletion deductions shall not reduce such
Partner's capital account, but such Partner's capital account shall be
decreased by an amount equal to the product of the depletion deductions
that would otherwise be allocable to the Partnership in the absence of
Section 613A(c)(7)(D) of the Internal Revenue Code (computed without
regard to any limitations which theoretically could apply to any
Partner) times such Partner's percentage share of the adjusted basis of
the property (determined under SECTION 4.3(B)) with respect to which
such depletion is claimed (herein called "SIMULATED DEPLETION"). The
Partnership's basis in any depletable property as adjusted from time to
time for the Simulated Depletion allocable to all Partners (and where
the context requires, each Partner's allocable share thereof, which
share shall be determined in the same manner as the allocation of basis
prescribed in SECTION 4.3(B)) is herein called "SIMULATED BASIS". No
Partner's capital account shall be decreased, however, by Simulated
Depletion deductions attributable to any Depletable Property to the
extent such deductions exceed such Partner's allocable share of the
Partnership's remaining Simulated Basis in such property. The
Partnership shall compute simulated gain ("SIMULATED GAIN") or simulated
loss ("SIMULATED LOSS") attributable to the sale or other disposition of
a Depletable Property based on the difference between the amount
realized from such sale or other disposition and the Simulated Basis of
such property, as theretofore adjusted. Any Simulated Gain shall be
allocated to the Partners and shall increase their respective capital
accounts in the same manner as the amount realized from such sale or
other disposition in excess of Simulated Basis shall have been allocated
pursuant to SECTION 4.3(B). Any Simulated Loss shall be allocated to the
Partners and shall reduce their respective capital accounts in the same
percentages as the costs of the property sold were allocated up to an
amount equal to each Partner's share of the Partnership's Simulated
Basis in such property at the time of such sale.
(iii) Any adjustments of basis of Partnership property provided
for under Sections 734 and 743 of the Internal Revenue Code and
comparable provisions of state law (resulting from an election under
Section 754 of the Internal Revenue Code or comparable provisions of
state law) and any election by an individual Partner under Section
59(e)(4) of the Internal Revenue Code to amortize such Partner's share
of intangible drilling and development costs shall not affect the
capital accounts of the Partners (unless otherwise required by
applicable Treasury Regulations), and the Partners' capital accounts
shall be debited or credited pursuant to the terms of this SECTION 8.1
as if no such election had been made.
(iv) Capital accounts shall be adjusted, in a manner consistent
with this SECTION 8.1, to reflect any adjustments in items of
Partnership income, gain, loss or deduction that result from amended
returns filed by the Partnership or pursuant to an
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agreement by the Partnership with the Internal Revenue Service or a
final court decision.
(v) If any property is carried on the books of the Partnership at
a value that differs from it adjusted tax basis, the Partners' capital
accounts shall be debited or credited for items of depreciation, cost
recovery, Simulated Depletion, amortization and gain or loss with
respect to such property computed in the same manner as such items would
be computed if the adjusted tax basis of such property were equal to
such book value in lieu of the capital account adjustments provided
above for such items, all in accordance with Treasury Regulation ss.
1.704-1(b)(2)(iv)(g).
(vi) It is the intention of the Partners that the capital
accounts of each Partner be kept in the manner required under Treasury
Regulation ss. 1.704-1(b)(2)(iv). To the extent any additional
adjustment to the capital accounts is required by such regulation, the
General Partner is hereby authorized to make such adjustment after
notice to the Limited Partners.
SECTION 8.2. REPORTS. The General Partner shall deliver to the Limited
Partners the following financial statements and reports at the times indicated
below:
(a) Daily, via facsimile, which the Partnership has any direct drilling
operations in progress, a drilling report detailing the progress as reported by
the subject drilling superintendent.
(b) Monthly, within 20 days after the end of the month for which such
report is given, while the Partnership has any direct drilling or enhanced
recovery operations in progress, a report disclosing in reasonable detail the
progress of such drilling operations on a well-by-well basis, such enhanced
recovery operations and such other information as the General Partner may
determine or a Limited Partner shall reasonably request.
(c) Monthly, within 20 days after the end of the month for which such
report is given, (i) a general description of the Properties, except succeeding
reports need contain only material changes (if any) regarding the Properties,
(ii) a list of wells in which the Partnership has an interest, a description of
the status thereof and the interest of the Partnership therein, except
succeeding reports need contain only material changes (if any) regarding any
such well, (iii) a statement of the cost of each well completed or abandoned and
an explanation of the abandonment of any well which has been abandoned after
production from such well has commenced and (iv) a description of each sale,
farmout or other transfer or disposition by the Partnership of any Lease
occurring during such month, including the reasons therefor, parties thereto and
terms thereof.
(d) Monthly, within 50 days after the end of each month for which such
report is given, a draft schedule prepared on a cash basis setting forth (i)
total 8/8ths production of oil and gas from the Properties net to the
Partnership, including the average price net to the
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Partnership, (ii) total Partnership revenues, expenses and costs allocated to
the Limited Partners, (iii) the amount of the proposed cash distribution to the
General Partner and the Limited Partners and (iv) a description of any permitted
Partnership borrowing occurring during such month, including the reasons
therefor, parties thereto and terms thereof, together with total Partnership
borrowings then outstanding. A draft schedule describing the specific
requirements outlined above is attached hereto as EXHIBIT 8.2(D) which will be
prepared by the General Partner to the specific requirement of the Limited
Partners. The Limited Partners may request sales reports, production reports,
invoices, cancelled checks and other information by each operating expense item,
severance, royalty, production tax item or any other cost item to be included
with such report. The Limited Partners may request such information and reports
at the property level in addition to at the Partnership level. A final schedule
of the type described in this SECTION 8.2(D) shall be submitted no more than 55
days after the end of the month for which such report is given. Notwithstanding
anything else herein to the contrary, any distribution not received within the
25th day of any month or, if the 25th day is not a business day, the business
day immediately preceding the 25th day of the month, will be credited as if
received in the following month for the purpose of computing Payout No. 1 and,
Payout No. 2. The distribution, if any, to the Limited Partners shall be
submitted with the final schedule.
(e) Quarterly within 30 days after the end of each fiscal quarter of the
Partnership and annually within 60 days after the end of each fiscal year of the
Partnership, (i) financial statements as of the end of and for such period,
including a balance sheet and the related statements of operations, of Partners'
capital and of cash flows, prepared in accordance with generally accepted
accounting principles and, with respect to the annual financial statements,
accompanied by a report of the Partnership's independent certified public
accountants stating that their examination was made in accordance with generally
accepted auditing standards and that in their opinion such financial statements
fairly present the Partnership's financial position, results of operations and
cash flow in accordance with generally accepted accounting principles
consistently applied, (ii) a schedule reflecting for such period the total costs
of the Partnership and the costs charged to the General Partner and the costs
charged to the Limited Partners, the total revenues of the Partnership and the
revenues credited to the account of the General Partner and to the account of
the Limited Partners and a reconciliation of such expenses and revenues to the
provisions of ARTICLE IV, (iii) a summary itemization by type and/or
classification of the total fees, compensation and reimbursement paid by the
Partnership (or indirectly on behalf of the Partnership) to the General Partner
and its Affiliates and a descriptive summary of each contract or agreement to
which SECTION 6.2(O) applies (which summary shall include a discussion of such
fees, compensation or reimbursement paid thereunder), which summaries shall be
accompanied by a report of the Partnership's independent certified public
accountants stating that in preparing such summaries nothing came to their
attention which caused them to believe that any transaction between the General
Partner or an Affiliate thereof and the Partnership did not comply with SECTION
6.6 or SECTION 6.2(O), or if they did so conclude, a statement specifying such
noncompliance, (iv) a schedule reflecting the capital account balances of each
Partner prepared pursuant to the provisions of SECTION 8.1(B), and (v) in the
event that an event has occurred within the preceding 90 days
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which has led to a reduction of the Partnership's oil and gas reserves of more
than 10% as most recently reported, excluding reduction resulting from normal
production or changes in oil or gas prices, an updated estimate of such reserves
from the Partnership's independent petroleum engineer. With respect to the
annual financial statements, the Limited Partners may, at their election,
request a report from the independent certified public accountants stating that
in the normal course of making the examination and reporting on the financial
statements described above, nothing came to their attention which caused them to
believe that (1) the revenues and costs and expenses allocated to the Partners
hereunder were not allocated in accordance with the specific allocation
provisions of this Agreement and (2) the General Partner failed to comply in any
material respect with this Agreement, or, if they did conclude that the General
Partner so failed, a statement specifying the nature and period of existence of
such failure. The independent certified public accountants for the Partnership
shall be Price Waterhouse or such other firm of independent certified public
accountants as shall be designated by the General Partner and approved by the
Limited Partners.
(f) Annually within 60 days after the end of each fiscal year beginning
with the fiscal year ending December 31, 1996, a report containing (i) an
estimation of the oil and gas reserves, classified by appropriate categories, as
of the end of the preceding fiscal year attributable to the interest of the
Partnership and of the Limited Partners therein, (ii) a projection of the rate
of production of and net income from such reserves with respect to each such
interest, (iii) a calculation of the present worth of such net income discounted
at a rate of 10% and at any other rates designated from time to time by the
Limited Partners, and (iv) a schedule or complete description of all
assumptions, estimates and projections made or used in the preparation of such
report. Each such report shall be prepared in accordance with customary and
generally accepted standards and practices for petroleum engineers, and shall be
based on (1) prices determined by the Limited Partners (however, it is
contemplated that such determination will likely be based upon projected futures
market prices reduced by (x) the historical average basis differential between
such NYMEX prices and posted and/or spot prices actually received by the
Partnership and (y) any gathering, transportation and processing fees) and in
any event the prices so utilized will be generally consistent with those used by
the Limited Partners in connection with other similar investments by them of the
type contemplated by this Agreement and the pricing assumptions being utilized
by major U.S. banks actively involved in energy lending in their evaluation of
oil and gas properties), escalated at a rate reasonably designated by the
Limited Partners (not to exceed 3% per annum), (2) lease operating expenses and
production taxes derived from and consistent with those actually incurred by the
Partnership, escalated at the same rate, if any, being applied to prices, and
(3) such other assumptions as shall be designated by the Limited Partners. In
addition to the foregoing, the Limited Partners shall have the right from time
to time to cause the independent petroleum engineer referenced below to prepare
an additional report of the type described above, not to exceed two additional
reports in any one calendar year, in which event all fees and expenses incurred
in connection with obtaining such additional report shall be paid by the
Partnership as a Partnership expense. Each such report contemplated above by
this SUBSECTION (F) shall be prepared by T.J. Smith & Company, Inc. or such
other independent petroleum engineer mutually agreed upon by the Partners and
shall herein be called an
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"ENGINEERING REPORT". Each annual report referenced above shall also include an
estimate of the Partnership's proved oil and gas reserves (as defined in
Regulation S-X promulgated by the Securities and Exchange Commission) and a
calculation of the "present value of estimated future net revenues" from such
proved oil and gas reserves, with such present worth calculation to be made in
accordance with Regulation S-X, as promulgated by the Securities and Exchange
Commission (provided that the estimate referenced in this sentence shall not be
deemed to be an Engineering Report for purposes of this Agreement).
(g) Quarterly, within 30 days after the end of each quarter, unaudited
financial statements of the General Partner for such quarter.
(h) Such other reports and financial statements as the General Partner
shall determine or as any Limited Partner shall reasonably request from time to
time.
The cost of such reporting paid to third parties (except for the
financial statements referenced in SUBSECTION (G) above) shall be paid by the
Partnership as a Partnership expense.
SECTION 8.3. BANK ACCOUNTS.
(a) The General Partner shall cause one or more accounts to be
maintained in the name of the Partnership in Comerica Bank, Houston, Texas, or
in such other bank or banks approved by the Limited Partners which each have
capital, surplus and undivided profits of at least $250,000,000, which accounts
shall be used for the payment of expenditures incurred by the Partnership in
connection with the conduct of its business and in which shall be deposited any
and all receipts of the Partnership. All amounts shall be and remain the
property of the Partnership and the General Partner shall cause the Partnership
to receive, hold and disburse such amounts for the purposes specified in this
Agreement. There shall not be deposited in any of such accounts any funds other
than funds belonging to the Partnership, and no other funds shall in any way be
commingled with such funds.
(b) The General Partner may invest the Partnership funds only in (i)
readily marketable securities issued by the United States or any agency or
instrumentality thereof and backed by the full faith and credit of the United
States maturing within 12 months or less from the date of acquisition, (ii)
readily marketable securities issued by any state or municipality within the
United States of America or any political subdivision, agency or instrumentality
thereof, maturing within 12 months or less from the date of acquisition and
rated "A" or better by Moody's and/or Standard and Poor's (or comparably rated
by such organizations or any successors thereto if the rating system is changed
or there are such successors), (iii) readily marketable commercial paper rated
"Prime-1" by Moody's and "A-1" by Standard and Poor's (or comparably rated by
such organizations or any successors thereto if the rating system is changed or
there are such successors) and maturing in not more than 12 months after the
date of acquisition, or (iv) certificates of deposit issued by any incorporated
bank organized and doing business under the laws of the United States of America
or of any state thereof and approved by the Limited Partners, provided such
investments do not exceed 3% of the
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combined capital and surplus of such bank and mature within 12 months or less
from the date of acquisition.
SECTION 8.4. INFORMATION RELATING TO THE PARTNERSHIP. Upon request, the
General Partner shall supply to any Limited Partner any information requested
regarding the Partnership or its activities. During ordinary business hours,
each Limited Partner and its authorized agents and representatives shall have
reasonable access to all books, records and materials in the Partnership's
offices regarding the Partnership or its activities and, at the risk of the
Limited Partner, to the drill site of each Partnership well.
SECTION 8.5. CERTAIN NOTICES. The General Partner shall promptly notify
the Limited Partners (a) of any default by the General Partner in the
performance of any of its obligations hereunder, (b) in the event the Limited
Partners become entitled to dissolve the Partnership pursuant to SECTION 10.1,
immediately after the General Partner becomes aware of such event or (c) if the
Partnership is no longer treated as a partnership for tax purposes.
ARTICLE IX
ASSIGNMENTS OF INTERESTS AND SUBSTITUTIONS
SECTION 9.1. ASSIGNMENTS BY LIMITED PARTNER.
(a) The interest of each Limited Partner in the Partnership shall be
assignable in whole or in part, subject to the following: (i) no such assignment
shall be made if such assignment would result in the violation of any applicable
federal or state securities laws and (ii) the Partnership shall not be required
to recognize any such assignment until the instrument conveying such interest
has been delivered to the General Partner for recordation on the books of the
Partnership. Any costs incurred by the Partnership or the General Partner in
connection with any assignment by a Limited Partner of all or a part of its
interest in the Partnership shall be borne by such Limited Partner.
(b) Unless an assignee becomes a substituted Limited Partner in
accordance with the provisions set forth below, such assignee shall not be
entitled to any of the rights granted to a Limited Partner hereunder, other than
the right to receive allocations of income, gain, loss, deduction, credit and
similar items and distributions to which the assignor would otherwise be
entitled, to the extent such items are assigned.
(c) An assignee of the interest of a Limited Partner, or any portion
thereof, shall become a substituted Limited Partner entitled to all of the
rights of the Limited Partner if, and only if (i) the assignor gives the
assignee such right, (ii) the General Partner, in its sole and absolute
discretion, consents to such substitution and (iii) the assignee executes and
delivers such instruments, in form and substance reasonably satisfactory to the
General Partner, as the General Partner may deem necessary or desirable to
effect such substitution and to confirm the agreement of the assignee to be
bound by all of the terms and provisions of this Agreement.
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Upon the satisfaction of such requirements, the General Partner shall
concurrently (or as of such later date as shall be provided for in any
applicable written instruments furnished to the General Partner) admit any such
assignee as a substituted Limited Partner of the Partnership and reflect such
admission and the date thereof in the records of the Partnership.
(d) The Partnership and the General Partner shall be entitled to treat
the record owner of any Partnership interest as the absolute owner thereof in
all respects and shall incur no liability for distributions of cash or other
property made in good faith to such owner until such time as a written
assignment of such interest that complies with the terms of this Agreement has
been received by the General Partner.
SECTION 9.2. ASSIGNMENT BY GENERAL PARTNER. The interest of the General
Partner in the Partnership shall not be assigned, mortgaged, pledged, subjected
to a security interest or otherwise encumbered, in whole or in part, without the
prior written consent of the Limited Partners in their sole and absolute
discretion.
SECTION 9.3. MERGER OR CONSOLIDATION. Notwithstanding the provisions of
SECTIONS 9.1 or 9.2, the merger or consolidation by a Partner with another
corporation or entity shall not be considered an assignment of an interest in
the Partnership, and upon the merger or consolidation of such Partner, the
resulting corporation or entity shall continue as a Partner.
SECTION 9.4. REMOVAL OF GENERAL PARTNER. Subject to the provisions
hereof, the Limited Partners may remove the General Partner with cause and
select a new General Partner to operate and carry on the business and affairs of
the Partnership. As used in this SECTION 9.4 and in SECTION 9.5, "WITH CAUSE"
shall include the occurrence of any of the following: (a) the commission by the
General Partner of fraud, willful or intentional misconduct or gross negligence
in the performance of its duties hereunder; (b) a default by the General Partner
in the performance of its obligation hereunder to make a distribution of cash or
properties due and owing to the Limited Partners, which default must have
continued for not less than five days after the date on which such distribution
was due; (c) a default by the General Partner in the performance or observation
of any other agreement, covenant, term, condition or obligation hereunder, which
default must have continued for not less than 30 days after the General Partner
has knowledge thereof or after written notice thereof given by the Limited
Partners has been received by the General Partner, whichever first occurs; (d) a
representation or warranty made by the General Partner herein or by the General
Partner or any of its officers or representatives in any writing furnished in
connection with or pursuant to this Agreement shall be false in any material
respect on the date as of which made; (e) the occurrence of any of the events
described in Section 4.02(a)(4) or Section 4.02(a)(5) of the Act (except that
with respect to Section 4.02(a)(5), the operative number of days shall be 60
instead of the numbers set forth in such Section) with respect to the General
Partner; (f) if, (i) a Revenue Allocation Adjustment is effected, (ii) such
Revenue Allocation Adjustment is in effect for a period of at least six
consecutive months and (iii) after the expiration of such six month period, the
Proved Producing Investment Coverage is less than 1.25 to 1; (g) (i) the death,
insanity, legal disability, bankruptcy or insolvency of Frank A. Lodzinski or
the resignation of Frank A.
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Lodzinski as an executive officer (or similar position) of the General Partner
or the Parent or (ii) the failure or inability for any reason whatsoever of
Frank A. Lodzinski to be actively involved in the business and affairs of the
General Partner or the Parent other than upon the occurrence of an event
described in CLAUSE (I) above (which failure or inability shall be determined by
the Limited Partners in good faith); (h) foreclosure on the General Partner's
interest in the Partnership; (i) a default by the Parent in the performance or
observation of any agreement, covenant, term, condition or obligation under any
Parent Agreement; (j) a representation or warranty made by the Parent in any
Parent Agreement or by the Parent or any of its officers or representatives in
any writing furnished in connection with or pursuant to any Parent Agreement
shall be false in any material respect on the date as of which made; (k) the
occurrence of any of the events described in Section 4.02(a)(4) or Section
4.02(a)(5) of the Act (except that with respect to Section 4.02(a)(5), the
operative number of days shall be 60 instead of the numbers set forth in such
Section) with respect to the Parent; (l) a default by any party other than the
Partnership in the performance or observation of any agreement, covenant, term,
condition or obligation under the Co-Sale Agreement, which default must have
continued for not less than 5 days after such party has knowledge thereof or
after written notice thereof given by the Partnership or the Limited Partners
has been received by such other party (as appropriate), whichever first occurs;
or (m) the General Partner is no longer a wholly-owned subsidiary of the Parent.
In the instance of an event described in CLAUSE (G) above, the Limited Partners
shall have twelve months from the date of such event within which it may
exercise it rights under this SECTION 9.4. Any such successor General Partner
will be named in, and his appointment as such will be effective as of a date
specified in, a notice to the General Partner from the Limited Partners
exercising their right to remove the General Partner and select the successor
General Partner. The removal of the General Partner shall be effective only if
and when the following conditions have been satisfied:
(1) A successor General Partner shall have been selected and shall have
agreed to accept the responsibilities of a General Partner and shall have made
arrangements to release the removed General Partner from personal liability on
all permitted Partnership indebtedness; and if the Partnership creditors will
not consent to such release, the new General Partner shall indemnify, in a
manner reasonably satisfactory to the removed General Partner, the removed
General Partner for such liability.
(2) This Agreement and the Certificate of Limited Partnership of the
Partnership shall have been duly amended to name the new General Partner. To the
extent required by the laws of any jurisdiction to which the Partnership or this
Agreement is subject, the Partners hereby unanimously consent to the admission
of such successor General Partner and hereby appoint such successor General
Partner as the agent and attorney in fact for each Partner (including without
limitation the retiring General Partner) for the purpose of signing, swearing to
and filing an amendment to the certificate of limited partnership of the
Partnership and all other necessary or appropriate documents in connection with
the substitution of such successor General Partner.
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The provisions of this SECTION 9.4 shall not be the sole remedy of the
Limited Partners in the event the General Partner is removed with cause, and in
such event the Partnership and/or the Limited Partners shall have all other
rights and remedies as shall be available to them pursuant to this Agreement, at
law or in equity to redress any wrong or damage arising from the event or
circumstances giving rise to the General Partner's removal with cause.
SECTION 9.5. RIGHT OF GENERAL PARTNER UPON REMOVAL. In the event the
General Partner is removed in accordance with SECTION 9.4, the incoming General
Partner shall have the right to purchase from the removed General Partner a one
percent general partner interest in the Partnership at a price equal to the
appraised value thereof. Such appraised value shall be determined by a qualified
independent appraiser who is mutually agreed upon by both the removed General
Partner and the incoming General Partner within 30 days after the selection of
the incoming General Partner. If the removed General Partner and the incoming
General Partner cannot mutually agree upon a single independent appraiser within
such period, they shall each select their own independent appraiser and those
two appraisers shall select a third independent appraiser. The cost of such
appraisal shall be borne by the removed General Partner. The incoming General
Partner's option to acquire such interests must be exercised by notice in
writing to the removed General Partner not more than 20 days after the selection
of the incoming General Partner and the purchase price for such interest shall
be paid in cash not more than 30 days after receipt by the parties of the report
of the appraiser setting forth the appraised value. In the event the incoming
General Partner does not elect to purchase the one percent general partner
interest of the removed General Partner pursuant to the provisions of this
SECTION 9.5, such interest shall be converted to a limited partner interest in
the Partnership. Further, in any event any remaining general partner interest of
the removed General Partner in the Partnership shall be converted to a limited
partner interest in the Partnership and the removed General Partner shall
continue as a limited partner in accordance with Section 6.02 of the Act, but
without any right to vote, consent or approve or otherwise make any
determination under this Agreement; provided, that after such conversion any
amendment to this Agreement that would change (a) the status of the removed
General Partner as a limited partner hereof, (b) the removed General Partner's
participation in the income, gain, loss, credits or distributions of the
Partnership, (c) the removed General Partner's obligation to contribute capital
to the Partnership or (d) this proviso, shall require the consent of the removed
General Partner.
ARTICLE X
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 10.1. DISSOLUTION. The Partnership shall be dissolved upon the
occurrence of any of the following:
(a) The occurrence of December 31, 2008.
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(b) The consent in writing of the General Partner and the Limited
Partners.
(c) The election of the Limited Partners by written notice to the
General Partner if at the time such notice is given (i) the General Partner has
committed fraud, willful or intentional misconduct or gross negligence in the
performance of its duties hereunder, (ii) the General Partner has defaulted in
the performance of its obligation hereunder to make a distribution of cash or
properties due and owing to the Limited Partners, which default must have
continued for not less than 5 days after the date on which such distribution was
due, (iii) the General Partner has defaulted in the performance or observation
of any other agreement, covenant, term, condition or obligation hereunder, which
default must have continued for not less than 30 days after the General Partner
has knowledge thereof or after written notice thereof given by the Limited
Partners has been received by the General Partner, whichever first occurs or
(iv) a representation or warranty made by the General Partner herein or by the
General Partner or any of its officers or representatives in any writing
furnished in connection with or pursuant to this Agreement shall be false in any
material respect.
(d) The sale or other disposition of all or substantially all of the
assets of the Partnership; provided, that at the time of such sale or
disposition, the Partners have made Capital Contributions to the Partnership
aggregating at least $15,000,000.
(e) The occurrence of an event of withdrawal from the Partnership by the
General Partner as provided for in Section 4.02(a) of the Act.
(f) The election of the Limited Partners by written notice to the
General Partner if at the time such notice is given (i) the General Partner has
breached SECTION 9.2 or the General Partner's interest in the Partnership has
been foreclosed upon, (ii) the General Partner has merged or consolidated with
another entity, or (iii) the General Partner has become a subsidiary of another
entity.
(g) The election of the Limited Partners by written notice to the
General Partner at any time after the expiration of December 31, 2001.
(h) The election of the Limited Partners at any time if: (i) a Revenue
Allocation Adjustment is effected, (ii) such Revenue Allocation Adjustment is in
effect for a period of at least six consecutive months and (iii) after the
expiration of such six-month period, the Proved Producing Investment Coverage is
less than the ratio of 1.25 to 1.
(i) The election of the Limited Partners by written notice to the
General Partner upon the occurrence of any of the following events: (i) the
death, insanity, legal disability, bankruptcy or insolvency of Frank A.
Lodzinski or the resignation of Frank A. Lodzinski as an executive officer (or
similar position) of the General Partner or the Parent; or (ii) the failure or
inability for any reason whatsoever of Frank A. Lodzinski to be actively
involved in the business and affairs of the General Partner or the Parent other
than upon the occurrence of an event described in CLAUSE (I) above (which
failure or inability shall be determined by the
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Limited Partners in good faith); (iv) a default by the Parent in the performance
or observation of any agreement, covenant, term, condition or obligation under
any Parent Agreement; (v) a representation or warranty made by the Parent in any
Parent Agreement or by the Parent or any of its officers or representatives in
any writing furnished in connection with or pursuant to any Parent Agreement
shall be false in any material respect on the date as of which made; (vi) the
occurrence of any of the events described in Section 4.02(a)(4) or Section
4.02(a)(5) of the Act (except that with respect to Section 4.02(a)(5), the
operative number of days shall be 60 instead of the numbers set forth in such
Section) with respect to the Parent; (vii) a default by any party other than the
Partnership in the performance or observation of any agreement, covenant, term,
condition or obligation under the Co-Sale Agreement, which default must have
continued for not less than 5 days after such party has knowledge thereof or
after written notice thereof given by the Partnership or the Limited Partners
has been received by such party, whichever first occurs; or (viii) the General
Partner is no longer a wholly-owned subsidiary of the Parent.
(j) The occurrence of any other event which under the Act causes the
dissolution of a limited partnership.
SECTION 10.2. WITHDRAWAL BY GENERAL PARTNER AND RECONSTITUTION.
(a) Except as specifically permitted in SECTION 9.2, the General Partner
covenants and agrees not to (i) withdraw voluntarily from the Partnership,
either directly, by dissolution, by transfer of its Partnership interest or by
any other voluntary act (including without limitation any event of withdrawal
from the Partnership by the General Partner as provided in Section 4.02(a) of
the Act) or (ii) allow seizure, attachment, garnishment, foreclosure or other
taking of its Partnership interest. Notwithstanding anything to the contrary
contained in this SECTION 10.2, in SECTION 10.1 or elsewhere in this Agreement,
the General Partner shall not merge or consolidate with, or assign or transfer
its interest in the Partnership to, any third party (including an Affiliate or
any other party related to the General Partner) if such merger, consolidation,
assignment or transfer will result in the termination of the Partnership for tax
purposes. If the General Partner breaches any provision of this SECTION 10.2 or
SECTION 9.2, if an event described in SECTION 10.1(E) occurs, or if an election
is made by the Limited Partners to dissolve the Partnership pursuant to SECTION
10.1(C), SECTION 10.1(F) or CLAUSE (II), (III), (IV), (V), (VII) or CLAUSE
(VIII) of SECTION 10.1(I), all interests and amounts which the General Partner
would otherwise receive under SECTION 10.3 shall be reduced by 90% if the
breach, event or election occurs prior to Payout No.1; by 50% if the breach,
event or election occurs after Payout No 1 but prior to Payout No. 2; and by 15%
if the breach, event or election occurs after Payout No.2. The distribution to
the Limited Partners of assets which would otherwise be distributable to the
General Partner in accordance with this SECTION 10.2 shall constitute liquidated
damages to the Limited Partners for a violation by the General Partner of the
covenant and agreement contained in the first sentence of this SECTION 10.2, the
parties having agreed that the amount of actual damages would be difficult or
impossible to calculate.
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(b) Notwithstanding the foregoing SECTION 10.2(A) or any other provision
of this Agreement, (i) the Partnership may be reconstituted and its business
continued without being wound up as provided for in Section 8.03 of the Act upon
the written consent of the Limited Partners and (ii) the provisions of Section
6.02 (including without limitation SUBSECTION (B) thereof) of the Act shall be
applicable to the Partnership except that the right to recover damages from the
withdrawing General Partner pursuant to Section 6.02(a) of the Act shall be
governed by SECTION 10.2(A).
SECTION 10.3. LIQUIDATION AND TERMINATION. Upon dissolution of the
Partnership (unless it is reconstituted and its business continued without being
wound up as provided for in SECTION 10.2(B)), the General Partner shall act as
liquidator or may appoint in writing one or more liquidators who shall have full
authority to wind up the affairs of the Partnership and make final distribution
as provided herein; provided, however, that if one of the events specified in
SECTION 10.1(C), (E), (F), (H) or (I) has occurred as a result of an act by the
General Partner or the Parent or if the Partnership dissolves as a result of the
dissolution (or similar event) of the General Partner, the liquidator shall be a
person selected in writing by the Limited Partners. The liquidator shall
continue to operate the Partnership properties with all of the power and
authority of the General Partner. The steps to be accomplished by the liquidator
are as follows:
(a) As promptly as possible after dissolution and again after final
liquidation, the liquidator shall cause a proper accounting to be made by the
Partnership's independent accountants of the Partnership's assets, liabilities
and operations through the last day of the month in which the dissolution occurs
or the final liquidation is completed, as appropriate.
(b) The liquidator shall pay all of the debts and liabilities of the
Partnership (including all expenses incurred in liquidation) or otherwise make
adequate provision therefor (including without limitation the establishment of a
cash escrow fund for contingent liabilities in such amount and for such term as
the liquidator may reasonably determine). After making payment or provision for
all debts and liabilities of the Partnerships, the liquidator shall sell all
properties and assets of the Partnership for cash as promptly as is consistent
with obtaining the best price therefor. All gain, loss, and amount realized on
such sales shall be allocated to the Partners as provided in this Agreement, and
the capital accounts of the Partners shall be adjusted accordingly. The
liquidator shall then distribute the proceeds of such sale to the Partners as
provided in SECTION 4.4. If the Limited Partners so direct, the liquidator shall
distribute all or any portion of such properties to the Partners in kind in the
same percentages as the proceeds of any sale of such properties would be
distributed under the preceding sentence. In such event the liquidator shall
first adjust the capital accounts of the Partners by the amount of any gains or
losses that would have been recognized by the Partners if such properties had
been sold for their respective fair market values and the proceeds had been so
distributed. It is intended that the foregoing distributions to each Partner
will be equal to each Partner's respective positive capital account balance as
determined after giving effect to the foregoing adjustments and to all
adjustments attributable to allocations of items of income, gain, loss and
deduction realized by the Partnership during the taxable year in question and
all
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adjustments attributable to contributions and distributions of money and
property effected prior to such distribution. To the extent that any such
Partner's positive capital account balance does not correspond to such
distribution, the allocations provided for in SECTION 4.3 shall be adjusted, to
the least extent necessary, to produce a capital account balance for the Partner
which corresponds to the amount of such distribution. Each Partner shall have
the right to designate another person to receive any property which otherwise
would be distributed in kind to that Partner pursuant to this SECTION 10.3 and
SECTION 10.2 if that Section is applicable. Any distributions to the Partners in
liquidation of the Partnership shall be made by the later of the end of the
taxable year in which the liquidation occurs, or 90 days after the date of such
liquidation. For purposes of the preceding sentence, the term "liquidation"
shall have the same meaning as set forth in Treasury Regulation ss.
1.704-1(b)(2)(ii)(g) as in effect at such time.
(c) Any Leases distributed to the Partners shall be subject to the
operating agreements then in effect with respect to such Leases; provided,
however, that if any of such Leases is subject to an operating agreement to
which an unaffiliated third person is not a party, such Leases shall be subject
to a standard form operating agreement and accounting procedure as shall be
agreed upon by the Partners. Upon written request made by any Partner, the
liquidator shall sell the Partnership Leases and other properties and assets
that otherwise would be distributable to such Partner under this SECTION 10.3 at
the best cash price available therefor and distribute such cash (after deducting
all expenses reasonably relating to such sale) to such Partner. Such sale shall
be on behalf of such Partner and shall be treated as the sale by such Partner of
its interest in such properties, and any gain or loss attributable to such sale
and any proceeds therefrom shall be for the account of such Partner.
(d) The provisions of SUBSECTIONS (B) and (C) of this SECTION 10.3 shall
be subject to the effect of SECTION 10.2 if that Section is applicable.
(e) Except as expressly provided herein, the liquidator shall comply
with any applicable requirements of the Act and all other applicable laws
pertaining to the winding up of the affairs of the Partnership and the final
distribution of its assets.
The distribution of cash and/or property to the Limited Partners in
accordance with the provisions of this SECTION 10.3 shall constitute a complete
return to each Limited Partner of its Capital Contributions and a complete
distribution to each Limited Partner of its interests in the Partnership and all
Partnership property. No Partner with a negative balance in its capital account
shall be liable to the Partnership or any other Partner for the amount of such
negative balance upon dissolution and liquidation.
SECTION 10.4. CANCELLATION OF CERTIFICATE. Upon the completion of the
distribution of Partnership assets as provided herein, the Partnership shall be
terminated, and the liquidator (or the Partners if necessary) shall cause the
cancellation of the certificate of limited partnership of the Partnership and
shall take such other actions as may be necessary to terminate the Partnership.
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ARTICLE XI
REPRESENTATIONS AND WARRANTIES
SECTION 11.1. REPRESENTATIONS AND WARRANTIES OF GENERAL PARTNER. The
General Partner represents, warrants and covenants to the Limited Partners as
follows:
(a) The General Partner is a corporation duly formed, validly existing
and in good standing under the laws of the State of Texas.
(b) The General Partner will qualify to transact business in every
jurisdiction where the character of the properties owned or held by the
Partnership or where the nature of the business transacted by the Partnership
makes qualification by it necessary or appropriate in order for the Partnership
to conduct its business.
(c) The General Partner has the requisite power and authority to execute
and deliver this Agreement and to perform its obligations hereunder (including,
without limitation, the power and authority to act as General Partner of the
Partnership).
(d) The execution, delivery and performance by the General Partner of
this Agreement has been duly and validly authorized by all requisite corporate
action, and no other corporate or shareholder action is required to be taken to
authorize such execution, delivery and performance.
(e) The execution, delivery and performance by the General Partner of
this Agreement is within its corporate powers and will not (i) be in
contravention of or violate any provisions of its articles of incorporation,
bylaws or other governing documents, as amended to the date hereof, or (ii) be
in contravention of or result in any breach or constitute a default under any
applicable law, rule, regulation, judgment, license, permit or order or any
loan, note or other agreement or instrument to which the General Partner is a
party or by which it or any of its properties are bound.
(f) When delivered to the Limited Partners, this Agreement will have
been duly and validly executed and will be binding upon the General Partner and
enforceable in accordance with its terms.
(g) Except for a change of law over which the General Partner has no
control (and the General Partner shall immediately notify the Limited Partners
when the General Partner learns of such occurrence), the foregoing
representations, warranties and covenants shall remain true and accurate during
the term of the Partnership, and the General Partner will neither take action
nor permit action to be taken which would cause any of the foregoing
representations to become untrue or inaccurate.
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(h) No consent, approval, authorization or order of any court or
governmental agency or authority or of any third party which has not been
obtained is required in connection with the execution, delivery and performance
by the General Partner of this Agreement except for (i) the filing of a
certificate of limited partnership for the Partnership with the Office of the
Secretary of State of the State of Texas pursuant to the Act and (ii) the filing
of certain documents with respect to the qualification or reformation and
operation of the Partnership as a limited partnership (or a partnership in which
the Limited Partners have limited liability) under the laws of any state in
which the Partnership owns properties or conducts business so as to require such
qualification.
(i) Neither the General Partner nor any of its Affiliates has employed
or retained any broker, agent or finder in connection with this Agreement, the
Other Agreements or the transactions contemplated herein or therein, or paid or
agreed to pay any brokerage fee, finder's fee, commission or similar payment to
any person on account of this Agreement, the Parent Agreements or the
transactions provided for herein or therein, except for the Original Placement
Fee and any Additional Placement Fees paid hereunder; and the General Partner
shall indemnify and hold harmless the Partnership and the Limited Partners from
any costs, including attorneys' fees, and liability arising from the claim of
any broker, agent or finder employed or retained by the General Partner in
connection with the Partnership, this Agreement or the Parent Agreements.
(j) As of the date hereof none of the financial statements or other
written documents or information delivered herewith or heretofore by or on
behalf of the General Partner to the Limited Partners in connection with the
General Partner, any Affiliate thereof, this Agreement, the Parent Agreements,
the Co-Sale Agreement, the A&D Agreement and the activities to be conducted
hereunder contains any untrue statement of a material fact or omits to state any
material fact (other than facts which the Limited Partners recognize to be
industry risks normally associated with the oil and gas business) necessary to
keep the statements contained herein or therein from being misleading. There is
no fact peculiar to the General Partner, its Affiliates, the oil and gas
properties transferred under the A&D Agreement or the activities to be conducted
hereunder (other than facts which the Limited Partners recognize to be industry
risks normally associated with the oil and gas business) which materially
adversely affects or in the future may (so far as the General Partner can now
foresee) materially adversely affect (i) the business, property or assets, or
financial condition of the General Partner or its Affiliates, (ii) the Parent
Agreements or the Co-Sale Agreement, (iii) the A&D Agreement or (iv) the
activities to be conducted hereunder, and which has not been set forth in this
Agreement or in the other documents, certificates and statements furnished to
the Limited Partners by or on behalf of the General Partner or an Affiliate
thereof prior to the date hereof in connection with the transactions
contemplated hereby, the Parent Agreements, the A&D Agreement or the Co-Sale
Agreement.
(k) To the best knowledge of the General Partner, the General Partner
and its Affiliates and persons acting on their behalf have not taken any action,
or failed to take any action, which has caused the organization of the
Partnership and the issuance of the interests in
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the Partnership to come within the registration requirements of the Securities
Act of 1933, as amended, or any applicable state blue sky laws.
(l) There is no pending or, to the best of the General Partner's
knowledge, threatened judicial, administrative or arbitral action, suit or
proceeding against or investigation of the General Partner which is not fully
insured against (except standard deductible amounts) and which might materially
and adversely affect the financial condition of the General Partner or its
ability to perform its obligations under this Agreement.
(m) The representations and warranties of the General Partner in the
Original Agreement were true and accurate in all material respects as of the
date of the Original Agreement and are true and accurate as of the date hereof.
The General Partner is in compliance in all material respects with the terms and
provisions of the Original Agreement.
SECTION 11.2. REPRESENTATIONS AND WARRANTIES OF LIMITED PARTNER. Each
Limited Partner severally represents, warrants and covenants to the General
Partner with respect to such Limited Partner only and not as to any other
Limited Partner, as follows:
(a) It is duly organized and validly existing under the laws of its
state of formation.
(b) It has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.
(c) The execution, delivery and performance of this Agreement are within
its powers and do not (i) contravene or violate any provisions of its charter or
other governing documents, as amended to the date hereof, or (ii) contravene or
result in any breach of or constitute a default under any applicable law, rule
or regulation or any loan, note or other agreement or instrument to which it is
a party or by which it or any of its properties are bound.
(d) When delivered to the General Partner, this Agreement will be duly
and validly executed by such Limited Partner and will be binding upon it in
accordance with the terms hereof.
(e) Except for a change of law over which such Limited Partner has no
control (and such Limited Partner shall immediately notify the General Partner
when such Limited Partner learns of such occurrence), the foregoing
representations, warranties and covenants shall remain true and accurate during
the term of the Partnership, and such Limited Partner will neither take action
nor permit action to be taken which would cause any of the foregoing
representations to become untrue or inaccurate.
(f) Neither it nor any person acting on its behalf has employed or
retained any broker, agent or finder in connection with the transactions
provided for herein, or agreed to pay any brokerage fee, finder's fee,
commission or similar payment to any person on account
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of the transactions provided for herein; and such Limited Partner shall
indemnify and hold harmless the Partnership and the General Partner from any
costs, including attorneys' fees, and liability arising from the claim of any
broker, agent or finder employed or retained by such Limited Partner in
connection with the Partnership or this Agreement.
(g) It is acquiring its interest in the Partnership as an investment and
not with a view to the resale or other distribution to the public; provided,
however, that the disposition of its interest shall at all times be and remain
within its control. It has not been formed for the sole and specific purpose of
making an investment in the Partnership.
(h) No consent, approval, authorization or order of any court or
governmental agency or authority or of any third party which has not been
obtained is required in connection with the execution, delivery and performance
by such Limited Partner of this Agreement.
(i) There is no pending or, to the best of such Limited Partner's
knowledge, threatened judicial, administrative or arbitral action, suit or
proceeding against or investigation of such Limited Partner which might
materially and adversely affect its ability to perform its obligations under
this Agreement.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. NOTICES. All notices, elections, demands or other
communications required or permitted to be made or given pursuant to this
Agreement shall be in writing and shall be considered as properly given or made
if given by (a) personal delivery, (b) expedited delivery service with proof of
delivery, (c) first class mail postage prepaid, or (d) prepaid telegram, telex
or facsimile (provided that such telegram, telex or facsimile is confirmed by
expedited delivery service in the manner previously described). Each Partner's
address for notices and other communications hereunder shall be that set forth
below such Partner's signature hereto; provided, however, that when in this
Agreement it is provided that a time period shall commence when a notice is
received, such time period shall commence upon actual receipt by the addressee
regardless of when the notice is given or made. Any Limited Partner may change
its address by giving notice in writing to the General Partner of its new
address, and the General Partner may change its address by giving notice in
writing to the Limited Partners of its new address.
SECTION 12.2. AMENDMENTS. This Agreement may be changed, modified, or
amended only by an instrument in writing duly executed by the General Partner
and the Limited Partners.
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SECTION 12.3. PARTITION. Each of the Partners hereby irrevocably waives
for the term of the Partnership any right that such Partner may have to maintain
any action for partition with respect to the Partnership property.
SECTION 12.4. ENTIRE AGREEMENT. This Agreement and the other documents
contemplated hereunder constitute the full and complete agreement of the parties
hereto with respect to the subject matter hereof.
SECTION 12.5. NO WAIVER. The failure of any Partner to insist upon
strict performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall not
be a waiver of such Partner's right to demand strict compliance in the future.
No consent or waiver, express or implied, to or of any breach or default in the
performance of any obligation hereunder shall constitute a consent or waiver to
or of any other breach or default in the performance of the same or any other
obligation hereunder.
SECTION 12.6. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. THE
GENERAL PARTNER HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS IN THE STATE OF TEXAS AND AGREES
AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING
RELATED TO THIS AGREEMENT BY ANY MEANS ALLOWED UNDER THE LAWS OF THE STATE OF
TEXAS OR FEDERAL LAWS.
SECTION 12.7. SUCCESSORS AND ASSIGNS. Subject to ARTICLE IX, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
SECTION 12.8. EXHIBITS. EXHIBITS 2.1--PAYOUT NO. 1, 2.1--PAYOUT NO. 2,
6.8 AND 8.2(D) to this Agreement are attached hereto. All of such Exhibits are
incorporated herein by reference and made a part hereof for all purposes and
references to this Agreement shall also include such Exhibits unless the context
in which used shall otherwise require.
SECTION 12.9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties and covenants made by the General Partner or the
Limited Partners in this Agreement or any other document contemplated thereby or
hereby shall be considered to have been relied upon by the other parties hereto
and shall survive the execution and delivery of this Agreement or such other
document, regardless of any investigation made by or on behalf of any such
party.
SECTION 12.10. NO THIRD-PARTY BENEFIT. Except as provided in SECTION
6.4, nothing in this Agreement, either express or implied, is intended to or
shall confer upon any person
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other than the parties hereto, and their respective successors and permitted
assigns, any rights, benefits, or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 12.11. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
constitute but one and the same instrument.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
GENERAL PARTNER:
CLIFFWOOD OIL & GAS CORP.
By:____________________________________
Frank A. Lodzinski, President
ADDRESS FOR NOTICE PURPOSES:
110 Cypress Station Dr.
Suite 220
Houston, Texas 77090
Attention: Frank A. Lodzinski
Telecopy No.: 281-537-8324
SIGNATURE PAGE--FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
CLIFFWOOD ACQUISITION - 1998 LIMITED PARTNERSHIP
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
LIMITED PARTNER:
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By:________________________________
Gary R. Petersen, Director
ADDRESS FOR NOTICE PURPOSES:
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Telecopy No.: 713-659-6130
SIGNATURE PAGE--FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
CLIFFWOOD ACQUISITION - 1998 LIMITED PARTNERSHIP
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
LIMITED PARTNER:
ENCAP EQUITY 1996 LIMITED
PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By:_______________________________
Robert L. Zorich, Managing Director
ADDRESS FOR NOTICE
1100 Louisiana, Suite 3150
Houston, Texas 77002
Attention: Robert L. Zorich
Telecopy No.: 713-659-6130
SIGNATURE PAGE-- FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
CLIFFWOOD ACQUISITION - 1998 LIMITED PARTNERSHIP
CO-SALE AGREEMENT
THIS CO-SALE AGREEMENT (this "AGREEMENT") is made and entered into as of
this 4th day of May, 1998, by and among Cliffwood Oil & Gas Corp., a Texas
corporation (the "COMPANY"), Cliffwood Acquisition - 1998 Limited Partnership, a
Texas limited partnership (the "PARTNERSHIP"), Energy Capital Investment Company
PLC, an English investment company ("ENERGY PLC"), and EnCap Equity 1996 Limited
Partnership, a Texas limited partnership ("ENCAP 96") (with Energy PLC and EnCap
96 sometimes being herein called the "LIMITED PARTNERS").
RECITALS:
A. Contemporaneously with the execution and delivery of this Agreement,
the Company and the Limited Partners are executing and delivering that certain
First Amended and Restated Agreement of Limited Partnership of the Partnership
dated as of even date herewith (the "PARTNERSHIP AGREEMENT"). The Company is the
sole general partner of the Partnership and the Limited Partners are the limited
partners of the Partnership.
B. Under, and subject to the terms of, the Partnership Agreement, the
Company has agreed that if it or an Affiliate (as defined in the Partnership
Agreement) proposes to participate, either directly or indirectly or by itself
or with others, in the acquisition, exploitation and/or development of a Subject
Property (as defined in the Partnership Agreement), the Company shall propose
that the Partnership also participate in such acquisition, exploitation and/or
development.
C. If the Partnership elects to participate in a Subject Property with
the Company or an Affiliate thereof as provided in the Partnership Agreement,
the parties hereto desire to provide the Partnership with certain rights in the
event the Company or an Affiliate thereof thereafter elect to sell or otherwise
dispose of its interest in such Subject Property.
D. The Company acknowledges and affirms that it recognizes the Limited
Partners would not be willing to execute and deliver the Partnership Agreement
without the covenants and agreements of the Company herein and that the Company
is therefore executing and delivering this Agreement to induce the Limited
Partners to execute and deliver the Partnership Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants and agreements contained herein and in the Partnership
Agreement, the sufficiency of which is hereby acknowledged and confirmed, the
parties hereto, intending to be legally bound, do hereby agree as follows:
1. RIGHT TO JOIN IN SALE.
<PAGE>
If the Company and/or any Affiliate thereof (the "SELLING PARTY",
whether one or more) proposes to sell, dispose of or otherwise transfer all or a
portion of its interest in a Subject Property (the "SUBJECT INTEREST"), the
Selling Party shall refrain from effecting such transaction unless, prior to the
consummation thereof, the Partnership shall have been afforded the opportunity
to join in such sale on the basis hereinafter described. Prior to the
consummation of any proposed sale, disposition or transfer of the Subject
Interest, the Selling Party shall cause the person or entity that proposes to
acquire the Subject Interest (the "PROPOSED PURCHASER") to make an offer (the
"PURCHASE OFFER") in writing to the Partnership to purchase the Pro Rata
Percentage (as defined below) of the Subject Property owned by the Partnership
(and the Company or the Partnership shall immediately forward to the Limited
Partners a copy of any Purchase Offer). As used in the immediately preceding
sentence, the term "PRO RATA PERCENTAGE" shall refer to that percentage of the
Selling Party's total interest in the Subject Property that the Proposed
Purchaser proposes to purchase. Such purchase shall be made on the same price
(as adjusted for the relative interests in the Subject Property to be
transferred) and other terms and conditions as the Proposed Purchaser has
offered with respect to the Subject Interest. The Partnership shall have 30 days
from the date of receipt of the Purchase Offer in which to accept such Purchase
Offer, and the closing of such purchase shall occur contemporaneously with the
purchase and sale of the Subject Interest. The parties hereto agree that the
determination of whether the Partnership shall accept a Purchase Offer shall be
made solely by the Limited Partners.
2. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Partnership and the Limited Partners, and the Partnership and
each Limited Partner hereby severally represents and warrants to the Company as
follows:
(a) It is duly formed and validly existing under the laws of the
jurisdiction of its formation.
(b) It has the requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.
(c) The execution, delivery and performance by it of this Agreement has
been duly and validly authorized.
(d) The execution, delivery and performance by it of this Agreement is
within its powers and will not (i) be in contravention of or violate any
provisions of its articles of incorporation, bylaws, partnership agreement or
other governing documents, as amended to the date hereof, or (ii) be in
contravention of or result in any breach or constitute a default under any
applicable law, rule, regulation, judgment, license, permit or order or any
loan, note or other agreement or instrument to which it is a party or by which
it or any of its properties are bound.
(e) Upon delivery of this Agreement by all of the parties hereto, this
Agreement will have been duly and validly executed and will be binding upon it
and enforceable in accordance with its terms.
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<PAGE>
3. NOTICES. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally or sent
by reputable express courier service (charges prepaid), or mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid, or sent by telefax, to the parties at the following address (or to such
other address or to the attention of such other person as the recipient party
has specified by prior like notice to the sending party):
IF TO THE COMPANY OR THE PARTNERSHIP:
-------------------------------------
c/o Cliffwood Oil & Gas Corp.
110 Cypress Station Drive, Suite 220
Houston, Texas 77090
Telecopier No.: (281)537-8324
Attention: Frank A. Lodzinski, President
IF TO THE LIMITED PARTNERS:
---------------------------
c/o EnCap Investments L.C.
1100 Louisiana
Suite 3150
Houston, Texas 77002
Telecopier No.: (713)659-6130
Attention: Robert L. Zorich, Managing Director
4. AMENDMENTS. This Agreement may be changed, modified, or amended only
by an instrument in writing duly executed by the parties hereto.
5. ENTIRE AGREEMENT. This Agreement constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof.
6. NO WAIVER. The failure of any party to insist upon strict performance
of any obligation hereunder, irrespective of the length of time for which such
failure continues, shall not be a waiver of such part's right to demand strict
compliance in the future. No consent or waiver, express or implied, to or of any
breach or default in the performance of any obligation hereunder shall
constitute a consent or waiver to or of any other breach or default in the
performance of the same or any other obligation hereunder.
7. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGA
TIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
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<PAGE>
9. REFERENCES. All references in this Agreement to sections, subsections
and other subdivisions refer to corresponding sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any of such subdivisions are for convenience only
and shall not constitute part of such subdivisions and shall be disregarded in
construing the language contained herein. The words "this Agreement", "this
instrument", "herein", "hereof", "hereby", "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. Words in the singular form shall be construed to
include the plural and VICE VERSA, unless the context otherwise requires and
pronouns in masculine, feminine and neuter genders shall be construed to include
any other gender.
10. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
constitute but one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
CLIFFWOOD OIL & GAS CORP.
By:_____________________________
Name: Frank A. Lodzinski
Title: President
CLIFFWOOD ACQUISITON - 1998 LIMITED
PARTNERSHIP
By: CLIFFWOOD OIL & GAS CORP.,
General Partner
By:_____________________________
Name: Frank A. Lodzinski
Title: President
ENERGY CAPITAL INVESTMENT
COMPANY PLC
By: ____________________________
Name: Gary R. Petersen
Title: Director
ENCAP EQUITY 1996 LIMITED
PARTNERSHIP
By: ENCAP INVESTMENTS L.C.
By:_____________________________
Name: Robert L. Zorich
Title: Managing Director
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