SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission only {as permitted by Rule
14a-6(e)(2)}
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials pursuant to ss.240.14a-11(c) or ss.240.14a-12
ENEX OIL & GAS INCOME PROGRAM III - SERIES 3, L.P.
(Name of Registrant as Specified In Its Charter)
ENEX RESOURCES CORPORATION
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(1)(3).
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
$500 "units" of limited partnership interest
2) Aggregate number of securities to which transaction applies:
XX,XXX
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.{Set forth the amount on which
the filing fee is calculated and state how it was determined.}:
$XXX,XXX {Partnership indebtedness, which exceeds estimated fair
market value of partnership assets to be sold in liquidation
pursuant to plan of dissolution.}
4) Proposed maximum aggregate value of transaction:
$XXX,XXX
5) Total fee paid:
$XX.XX
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$5,712.80
2) Form, Schedule or Registration Statement No.:
S-4
3) Filing Party:
Enex Consolidated Partners, L.P.
4) Date Filed:
08/10/96
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ENEX
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ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
LIMITED PARTNERSHIPS
Suite 200
Three Kingwood Place
Kingwood, Texas 77339
Dear Limited Partners:
You are cordially invited to attend special Meetings of the limited
partners of the thirty-four (34) limited partnerships consisting of Enex Program
I Partners, L.P., four partnerships in Enex Oil & Gas Income Program II, the
eight partnerships in Enex Oil & Gas Income Program III, six partnerships in
Enex Oil & Gas Income Program IV, the five partnerships in Enex Oil & Gas Income
Program V, Enex Oil & Gas Income Program VI, Series 1, L.P., the three
partnerships in Enex Income and Retirement Fund, three partnerships in Enex
88-89 Income and Retirement Fund and the three partnerships in Enex 90-91 Income
and Retirement Fund (the "Partnerships") to be held at the offices of Enex
Resources Corporation, Three Kingwood Place. Suite 200, Kingwood, Texas 77339,
on xxxxxx xx, 1996 at 2:30 P.M. Houston time. At this important meeting, you
will be asked to consider and vote upon a plan of consolidation by which the
Partnerships will consolidate to form a new partnership, Enex Consolidated
Partners, L.P. (the "Consolidated Partnership"). The accompanying Notice and
Prospectus/Proxy Statement provide a detailed description of the proposed
transaction. Please give this information your careful attention.
If the consolidation is approved by a sufficient number of the
Partnerships, the limited partners of the participating Partnerships will
receive units of limited partnership interest in the Consolidated Partnership in
place of the limited partnership interests they now own in the Partnerships.
However, in order to be admitted to the Consolidated Partnership as a limited
partner and to be entitled to exercise all of the privileges of a limited
partner, such as the right to present units for purchase at annual intervals, IT
IS ESSENTIAL THAT YOU COMPLETE AND SIGN THE ACCOMPANYING FORM OF PROXY AND
BALLOT, WHICH INCLUDES A "REQUEST FOR ADMISSION AS LIMITED PARTNER" ON THE
REVERSE SIDE, AND RETURN IT IN THE ENCLOSED ENVELOPE.
Sincerely,
Gerald B. Eckley,
President, Enex Resources Corporation,
General Partner
xxxxxxxx x, 1996
1
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ENEX
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ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
LIMITED PARTNERSHIPS
Notice of Special Meetings of Limited Partners
To Be Held xxxxxxxx xx, 1996
To Our Limited Partners:
Meetings of the limited partners of the thirty-four (34) limited
partnerships consisting of Enex Program I Partners, L.P., four partnerships in
Enex Oil & Gas Income Program II, the eight partnerships in Enex Oil & Gas
Income Program III, six partnerships in Enex Oil & Gas Income Program IV, the
five partnerships in Enex Oil & Gas Income Program V, Enex Oil & Gas Income
Program VI, Series 1, L.P., the three partnerships in Enex Income and Retirement
Fund, three partnerships in Enex 88-89 Income and Retirement Fund and the three
partnerships in Enex 90-91 Income and Retirement Fund, collectively (the
"Partnerships") will be held at the offices of Enex Resources Corporation, Three
Kingwood Place, Suite 200, Kingwood, Texas 77339, on xxxxxxxx xx, 1996 at 2:30
p.m. Houston time.
At the Meetings, the limited partners of each of the Partnerships will (1)
consider and vote upon the adoption of a plan of consolidation pursuant to which
the Partnerships will dissolve and terminate by consolidating their assets to
form a new partnership, ENEX CONSOLIDATED PARTNERS, L.P. (the "Consolidated
Partnership"), and (2) transact such other business that may properly come
before the Meetings or any adjournments thereof. The plan of consolidation
includes a proposal to amend each Partnership's Certificate and Agreement of
Limited Partnership. Your attention is directed to the accompanying
prospectus/proxy statement which contains further information with respect to
the proposal to be considered at the Meetings.
Only limited partners of record of one or more of the Partnerships at the
close of business on xxxxxxx x, 1996 are entitled to notice of and to vote at
the Meetings or any postponements or adjournments thereof. Each Partnership's
approval of the consolidation proposal requires an affirmative vote by a
majority-in-interest of the limited partners of such Partnership. Information
regarding voting and the revocation of proxies is set forth under "THE PROPOSED
CONSOLIDATION--Terms of the Consolidation--Partnership Voting Requirements and
Rights".
Limited partners of Partnerships that do not approve the Plan of
Consolidation will be given the opportunity to exchange the limited partnership
interests they own in such Partnerships for units of limited partnership
interest ("Units") in the Consolidated Partnership pursuant to an Exchange Offer
the terms and conditions of which are also described in the accompanying
prospectus/proxy statement (the "Exchange Offer"). Only those limited partners
who vote their limited partnership interests in favor of the Plan of
Consolidation will be eligible to participate in the Exchange Offer.
WHETHER OR NOT YOU EXPECT TO BE PERSONALLY PRESENT AT THE MEETINGS, PLEASE
BE SURE THAT THE ENCLOSED PROXY AND BALLOT IS PROPERLY COMPLETED, DATED, SIGNED
AND RETURNED WITHOUT DELAY IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE THE
PRESENCE OF A QUORUM AT EACH OF THE MEETINGS AND TO PERMIT YOU TO BE ADMITTED TO
THE CONSOLIDATED PARTNERSHIP AS A LIMITED PARTNER.
By Order of the Board of Directors of
ENEX RESOURCES CORPORATION,
General Partner
Gerald B. Eckley, President
xxxxxxx x, 1996
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SUBJECT TO COMPLETION, DATED _________ , 1996
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ENEX
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PROSPECTUS/PROXY STATEMENT
ENEX CONSOLIDATED PARTNERS, L.P.
LIMITED PARTNERSHIP INTERESTS
Enex Resources Corporation ("Enex" or the "General Partner") proposes the
adoption of a plan of consolidation pursuant to which thirty-four (34) limited
partnerships consisting of Enex Program I Partners, L.P., four partnerships in
Enex Oil & Gas Income Program II, the eight partnerships in Enex Oil & Gas
Income Program III, six partnerships in Enex Oil & Gas Income Program IV, the
five partnerships in Enex Oil & Gas Income Program V, Enex Oil & Gas Income
Program VI - Series 1, L.P., the three partnerships in Enex Income and
Retirement Fund, three partnerships in Enex 88-89 Income and Retirement Fund and
the three partnerships in Enex 90-91 Income and Retirement Fund (the
"Partnerships") will consolidate their assets (the "Consolidation") in a new New
Jersey limited partnership, Enex Consolidated Partners, L.P. (the "Consolidated
Partnership"). Subject to the terms and conditions set forth in this
Prospectus/Proxy Statement, each Partnership participating in the Consolidation
will convey its assets to the Consolidated Partnership subject to its
liabilities, receive units of limited partnership interest in the Consolidated
Partnership ("Units") in exchange for its assets, and distribute those Units to
its partners in connection with its dissolution and liquidation (the "Plan of
Consolidation"). Meetings of the Partnerships will be held to consider and vote
upon the proposal to adopt and agree to the Plan of Consolidation. Limited
partners of Partnerships that do not approve the Plan of Consolidation will be
given the opportunity to exchange the limited partnership interests
("Interests") they own in such Partnerships for Units in the Consolidated
Partnership pursuant to an Exchange Offer the terms and conditions of which are
also described in this prospectus/proxy statement (the "Exchange Offer"). Only
those limited partners who vote their limited partnership interests in favor of
the Plan of Consolidation will be eligible to participate in the Exchange Offer,
however.
The Plan of Consolidation will not be consummated unless the conditions
described under "THE PROPOSED CONSOLIDATION--Terms of the
Consolidation--Conditions to the Consolidation" are met or waived, including
approval of the Consolidation at the Meetings by Partnerships whose assets have
an aggregate exchange value, together with the exchange value of those Interests
exchanged for Units pursuant to the Exchange Offer, of $10 million or more.
This offering involves special risks. See "RISK FACTORS AND OTHER
CONSIDERATIONS". This Prospectus/Proxy Statement constitutes the prospectus for
the issuance of Units in ENEX CONSOLIDATED PARTNERS, L.P. pursuant to the
transactions proposed herein.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus/Proxy Statement is first being mailed to limited partners
on ___________, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
3
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
This Prospectus/Proxy Statement incorporates documents by reference that
are presented herein or delivered herewith. These documents are available
without charge upon request by contacting the Investor Relations Department of
Enex Resources Corporation at Three Kingwood Place, Suite 200, Kingwood, Texas
77339, (713) 358-8401. In order to ensure timely delivery of documents, any
request should be made by ___________, 1996.
After the Consolidation, the Consolidated Partnership will file periodic
reports and proxy statements with the SEC.
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UNTIL _____________, 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS/PROXY
STATEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
COPY OF THIS PROSPECTUS/PROXY STATEMENT. THIS IS IN ADDITION TO ANY OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS/PROXY STATEMENT WHEN ACTING AS UNDERWRITERS.
No person is authorized to give information or make any representation
concerning the Consolidation not contained in this Prospectus/Proxy Statement.
If given or made, that information or representation should not be relied upon
as being authorized. Neither the delivery of this Prospectus/Proxy Statement nor
any sale made hereunder shall under any circumstance create an implication that
the information herein is correct as of any time subsequent to its date. This
Prospectus/Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities to
which it relates, or an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby to any person to whom, or a solicitation of a
proxy in any state or other jurisdiction where, such an offer or solicitation
would be unlawful. Neither the delivery of this Prospectus/Proxy Statement nor
any distribution of securities made hereunder shall, under any circumstances,
create an implication that there has been no change in the information included
herein or in the affairs of the Partnerships, the Consolidated Partnership or
the General Partner since the date of this Prospectus/Proxy Statement.
4
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this
Prospectus/Proxy Statement. Except as otherwise defined in this Prospectus/Proxy
Statement, all capitalized terms used herein have the meanings ascribed to such
terms by the Articles of Limited Partnership of the Consolidated Partnership
attached to this Prospectus/Proxy Statement as Appendix B and incorporated
herein by reference.
Introduction
This Prospectus/Proxy Statement is being furnished to unitholders of Enex
Program I Partners, L.P. and the limited partners of four partnerships in Enex
Oil & Gas Income Program II, the eight partnerships in Enex Oil & Gas Income
Program III, six partnerships in Enex Oil & Gas Income Program IV, the five
partnerships in Enex Oil & Gas Income Program V, Enex Oil & Gas Income Program
VI - Series 1, L.P., the three partnerships in Enex Income and Retirement Fund,
three partnerships in Enex 88-89 Income and Retirement Fund and the three
partnerships in Enex 90-91 Income and Retirement Fund in connection with the
solicitation of proxies for use at the special Meetings (the "Meetings") being
held to consider and vote upon the adoption of the Plan of Consolidation by
which the Partnerships will transfer their assets to a new partnership, Enex
Consolidated Partners, L.P. (the "Consolidated Partnership"). The Plan of
Consolidation includes a proposal to amend each Partnership's Certificate and
Agreement of Limited Partnership ("Partnership Agreement") to provide for the
Consolidation. The Consolidated Partnership will continue, on a combined basis,
the separate businesses of the Partnerships. The Consolidation is intended to be
generally tax free to the limited partners of the Partnerships that participate
in the Consolidation. The limited partners of the Partnerships that participate
in the Consolidation will receive units of limited partnership interest in the
Consolidated Partnership ("Units") in place of the limited partnerships units or
the limited partnership interests in the Partnerships (collectively "Interests")
they now own. The Meetings of the limited partners may be adjourned by the
General Partner from time to time. A copy of the Plan of Consolidation is
attached to this Prospectus/Proxy Statement as Appendix C.
Enex Resources Corporation, with its principal executive office at Three
Kingwood Place, Suite 200, Kingwood Texas 77339 (telephone (713) 358-8401), is
proposing the transactions described herein in order to combine the operations
of the Partnerships, all of which are engaged in the production and sale of oil
and natural gas. The principle office of each of the Partnerships is the office
of the General Partner.
Both favorable and unfavorable aspects of the Consolidation are discussed
elsewhere in the Prospectus/Proxy Statement under the caption "RISK FACTORS AND
OTHER CONSIDERATIONS".
Risk Factors
Before voting on the Consolidation, limited partners should carefully
consider the following factors in addition to the other information included in
this Prospectus/Proxy Statement. Risk factors associated with the Consolidation
are summarized below and described in more detail elsewhere in this
Prospectus/Proxy Statement under the caption "RISK FACTORS AND OTHER
CONSIDERATIONS".
o Basis for Participation: Each Partnership will receive a number of Units
based upon the relative exchange value, as of March 31, 1996, of the net assets
of the Partnership transferred to the Consolidated Partnership. These exchange
values were calculated by the General Partner based upon fair market valuations
prepared by H.J. Gruy and Associates, Inc. ("Gruy"), an independent petroleum
engineering and consulting firm. Quantitative information regarding each
Partnership's oil and gas reserves is included in Item 2 of each Partnership's
1995 Form 10-KSB accompanying this Prospectus/Proxy Statement and in Tables 6
and 7 in Appendix A attached hereto. Gruy has been preparing reserve estimates
for each of the Partnership's oil and gas reserves since the inception of each
Partnership's operations. Gruy was selected by the General Partner for this task
based upon its reputation, experience and expertise in this area.
5
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Gruy has estimated for each oil and gas property in which the Partnerships
owns interests, as of December 31, 1995, the proved recoverable units of oil and
gas, the undiscounted and discounted future net cash flows by year commencing
January 1, 1996 and continuing through the estimated productive lives of the
properties and the estimated fair market values of the properties. The limited
partners should be aware that Gruy's reserve valuations are estimates only and
should not be construed as being exact amounts. (See "--Risks in Determining
Exchange Values" below). Gruy estimated each property's proved oil and gas
reserves, applied certain assumptions regarding price and cost escalations,
applied a 10% discount factor for time and various discount factors for risk,
location, type of ownership interest, operational characteristics and other
factors. Gruy allocated the estimates among the Partnerships on a pro-rata basis
in accordance with their respective ownership interest in each of the properties
evaluated. See Tables 4-7 in Appendix A. The General Partner adjusted these
valuations to account for sales of oil and gas produced during the period
January 1 through March 31, 1996. For additional information see "THE PROPOSED
CONSOLIDATION--Method of Determining Exchange Values". The limited partners of
the Partnerships and the General Partner will each receive a pro rata share of
the Units received by each participating Partnership, determined in accordance
with the dissolution and termination provisions of the participating
Partnership's Partnership Agreement, as amended pursuant to the transactions
described herein. See "THE PROPOSED CONSOLIDATION" and Table 13 in Appendix A.
o Conflicts of Interest of the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages owned in
each Partnership. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation cannot remove the inherent conflicts
of interest. See "THE PROPOSED CONSOLIDATION - Method of Determining Exchange
Values" and "- Fairness of The Transaction." The General Partner also faces
conflicts of interest in connection with its future operation of the
Consolidated Partnership similar to those it faces in connection with its
operation of each of the Partnerships. See "THE CONSOLIDATED PARTNERSHIP -
Conflicts of Interest." The Consolidation will not increase the compensation of
the General Partner although its interest in each separate Partnership's
revenues will be blended into a single interest in the revenues of the
Consolidated Partnership as described in "THE CONSOLIDATED PARTNERSHIP -
Compensation" and "- Participation in Costs and Revenues." By reason of the fact
that the reduced annual maximum obligation to purchase Units upon presentment
will be borne by the Consolidated Partnership, the General Partner will be
relieved of its commitment to purchase Interests pursuant to the Partnership
Agreements of certain Partnerships that participate in the Consolidation. See
"THE CONSOLIDATED PARTNERSHIP--Right of Presentment."
o Tax Risks. Although limited partners generally should not recognize gain
or loss from the Consolidation, there are risks that limited partners of certain
participating Partnerships could recognize gain or loss as a result of the
Consolidation. See "TAX ASPECTS--The Proposed Consolidation".
o Changes in Distributions: The Consolidation is expected to have an effect
on the distributions the limited partners of participating Partnerships will
receive. Although the General Partner's cash distribution policies will not
change following the Consolidation, limited partners of most of the Partnerships
will experience an increase in distributions over the amounts that would have
been sustainable by their Partnerships, while other limited partners will
experience a reduction from such levels of distributions. See "RISK FACTORS AND
OTHER CONSIDERATIONS--The Proposed Consolidation--Changes in Distributions".
o Form of Ownership of Interests: The Units to be issued by the
Consolidated Partnership are limited partnership interests in a New Jersey
limited partnership, as are the Interests owned by the limited partners of all
of the Partnerships other than the four Partnerships formed in Enex Oil & Gas
Income Program II (which are Texas limited partnerships). Limited partners in
Enex Oil & Gas Income Program II should see "THE CONSOLIDATED PARTNERSHIP -
Applicability of the New Jersey Act."
o Failure to Return Signed Proxy and Ballot: Limited partners who fail to
complete, sign and return the accompanying Proxy and Ballot or otherwise fail to
qualify for admission to the Consolidated Partnership as limited partners will
not be entitled to vote their Units or to present their Units for purchase by
the Consolidated Partnership and may also find it extremely difficult to
terminate their interests in the Consolidated Partnership. See
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"THE PROPOSED CONSOLIDATION--Terms of the Consolidation--Request for Admission
as Limited Partner" and "THE CONSOLIDATED PARTNERSHIP--Right of Presentment".
o Limited Liquidity: Although purchase offers for Units to be made by the
Consolidated Partnership will begin in 1997 for Units valued as of December 31,
1996, the Consolidated Partnership will not be obligated to purchase Units
representing more than 15% of the aggregate purchase price of the Units in
connection with any annual purchase offer. See "RISK FACTORS AND OTHER
CONSIDERATIONS--The Proposed Consolidation--Limited Liquidity". See "THE
CONSOLIDATED PARTNERSHIP--Transfer of Units".
o Risks in Determining Exchange Values: In approving the Consolidation, or
accepting the Exchange Offer a limited partner risks that his properties may
have oil or gas reserves, or both, that are not now apparent to the independent
engineering consultants or the General Partner. If that is the case, he will not
receive full credit for his property interests in the Consolidated Partnership.
Moreover, the pooling of a Partnership's holdings in the Consolidated
Partnership may reduce the possibility for extraordinary increases in value in
the existing Partnerships. Future events may also show that the exchange value
formula itself operated to the disadvantage of his Partnership in relation to
other Partnerships participating in the Consolidation. Other formulas or
approaches to the valuation process, which might also be considered fair and
reasonable, could yield materially different results. See "RISK FACTORS AND
OTHER CONSIDERATIONS--The Proposed Consolidation--Risks in Determining Exchange
Values". In an effort to value the holdings of the various Partnerships as
fairly as possible, the General Partner has employed an independent engineering
firm, H. J. Gruy & Associates ("Gruy") to value the oil and gas properties owned
by the Partnerships. However, there can be no guaranty that it has succeeded in
that effort. The assumptions that have been made may be erroneous and even if
they are not, factors beyond the General Partner's control may intervene to
upset those assumptions and the calculations on which they are based. The prices
at which limited partners will be able to present their Units for purchase by
the Consolidated Partnership will vary from the exchange value assigned to the
Units in the Consolidation primarily by reason of future changes in the oil and
gas markets.
o Lack of Independent Review or Separate Representation: No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units. The Units will not receive the independent review customarily made when
an unaffiliated selling agent offers securities to the public. No unaffiliated
representative has acted solely on behalf of the limited partners in connection
with the Consolidation. The attorneys, accountants and other experts who perform
services for the Consolidated Partnership all perform services for the
Partnerships and the General Partner. It is anticipated that such multiple
representation will continue in the future. See "RISK FACTORS AND OTHER
CONSIDERATIONS--The Proposed Consolidation--Lack of Independent Review or
Separate Representation" and "THE CONSOLIDATED PARTNERSHIP--Conflicts of
Interest".
o Unrelated Business Taxable Income to Tax-Exempt Limited Partners. Most of
the income to be generated by the Consolidated Partnership will constitute
income from oil and gas working interests, which will be unrelated business
taxable income to tax-exempt limited partners. Tax-exempt limited partners,
including individual retirement accounts and Keogh and other employee benefit
plans, may become subject to federal income taxation on their shares of such
income to the extent unrelated business taxable income from all sources exceeds
$1,000 per year. See "TAX ASPECTS--Participation in the Consolidated
Partnership--Considerations for Tax-Exempt Limited Partners".
o Changes in Voting Power: Because the Consolidated Partnership will be
larger than any Partnership, the Consolidation will, in effect, reduce a limited
partner's ability to influence the taking of action in those instances where the
Partnership Agreements provide for the vote and consent of the limited partners.
Also, the voting rights of the limited partners of several Partnerships are
different in certain respects from those of the limited partners of the
Consolidated Partnership. See "THE CONSOLIDATED PARTNERSHIP--Summary of the
Articles of Limited Partnership--Voting and Other Rights of Limited Partners".
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o Volatility of Oil and Gas Markets. The operating results of the
Consolidated Partnership will be dependent to a substantial degree on prices for
oil and natural gas, which are affected by many factors beyond the control of
producers and have demonstrated a high degree of volatility.
Objectives of the Consolidation
The General Partner is proposing that the Partnerships combine their assets
and businesses in the Consolidated Partnership because it believes that doing so
will result in: o savings in overhead expense and operating expense in excess of
$800,000 per year and; o simplified managerial and administrative requirements;
o reduction of risk due to diversification of assets; o an expanded reserve
base; o elimination of debt owed to the General Partner; o elimination of the
General Partner's increased revenue interest at payout; and o elimination of
certain conflicts of interest. See "THE PROPOSED CONSOLIDATION--Background and
Alternatives to the Consolidation" below in this Summary.
Alternatives to the Consolidation
The alternatives to the Consolidation include the continuation of the
Partnerships in their current form or the sale of their assets and distribution
of liquidation proceeds to limited partners. Although these alternatives could
potentially be more beneficial to limited partners by avoiding the risks and
disadvantages associated with the Consolidation and, in the case of a cash sale,
by providing an immediate cash return to limited partners, the General Partner
believes that the Partnerships will realize greater value from their properties
over the long term by operating them on a combined basis through the
Consolidated Partnership and achieving substantial cost savings than they would
realize in a liquidation sale of Partnership properties. In addition, the
General Partner is owed an aggregate of $2.9 million by the Partnerships. In a
liquidation of the Partnerships, the General Partner would be paid this amount
out of the liquidation proceeds before any proceeds would be available for
distribution to the limited partners. Pursuant to the Consolidation, however,
the General Partner will be exchanging its rights as a creditor of the
Partnerships for Units of the Consolidated Partnership. The General Partner has
not solicited third-party bids for a cash sale of the assets of the
Partnerships. See "THE PROPOSED CONSOLIDATION--Background and Alternatives to
the Consolidation".
Partnerships Subject to Consolidation
This Prospectus/Proxy Statement is furnished to the limited partners of
each of the Partnerships listed below in connection with the solicitation by the
General Partner of proxies and votes for Meetings of limited partners of the
Partnerships described in the accompanying Notice.
<TABLE>
<CAPTION>
The Partnerships
Number of Number of Limited
Limited Partners Partner Interests*
<S> <C> <C>
Enex Program I Partners, L.P..................... 4,734 193,629
Enex Oil & Gas Income Program II-7, L.P.......... 443 8,870
Enex Oil & Gas Income Program II-8, L.P.......... 1,299 5,863
Enex Oil & Gas Income Program II-9, L.P.......... 1,236 3,109
Enex Oil & Gas Income Program II-10, L.P......... 1,364 3,916
Enex Oil & Gas Income Program III, Series 1, L.P. 940 2,978
Enex Oil & Gas Income Program III, Series 2, L.P. 1,195 4,270
Enex Oil & Gas Income Program III, Series 3, L.P. 1,172 6,410
Enex Oil & Gas Income Program III, Series 4, L.P. 395 5,410
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Enex Oil & Gas Income Program III, Series 5, L.P...... 1,768 10,797
Enex Oil & Gas Income Program III, Series 6, L.P...... 1,468 6,340
Enex Oil & Gas Income Program III, Series 7, L.P...... 1,377 4,527
Enex Oil & Gas Income Program III, Series 8, L.P...... 1,549 7,196
Enex Oil & Gas Income Program IV, Series 1, L.P....... 1,363 6,472
Enex Oil & Gas Income Program IV, Series 2, L.P....... 1,400 4,938
Enex Oil & Gas Income Program IV, Series 4, L.P....... 431 2,520
Enex Oil & Gas Income Program IV, Series 5, L.P....... 824 4,561
Enex Oil & Gas Income Program IV, Series 6, L.P....... 723 4,326
Enex Oil & Gas Income Program IV, Series 7, L.P....... 807 5,021
Enex Oil & Gas Income Program V, Series 1, L.P........ 448 4,529
Enex Oil & Gas Income Program V, Series 2, L.P........ 569 2,972
Enex Oil & Gas Income Program V, Series 3, L.P........ 710 2,020
Enex Oil & Gas Income Program V, Series 4, L.P........ 364 2,954
Enex Oil & Gas Income Program V, Series 5, L.P........ 523 2,463
Enex Oil & Gas Income Program VI, Series 1, L.P....... 427 2,021
Enex Income and Retirement Fund, Series 1, L.P........ 189 2,736
Enex Income and Retirement Fund, Series 2, L.P........ 152 2,884
Enex Income and Retirement Fund, Series 3, L.P........ 143 2,988
Enex 88-89 Income and Retirement Fund, Series 5, L.P.. 208 2,300
Enex 88-89 Income and Retirement Fund, Series 6, L.P.. 204 2,067
Enex 88-89 Income and Retirement Fund, Series 7, L.P.. 250 3,089
Enex 90-91 Income and Retirement Fund, Series 1, L.P.. 278 2,975
Enex 90-91 Income and Retirement Fund, Series 2, L.P.. 218 2,020
Enex 90-91 Income and Retirement Fund, Series 3, L.P.. 228 2,175
- ------------------
</TABLE>
*The aggregate amount of Limited Partners' initial subscriptions divided by
$500.
The address of each Partnership is c/o Enex Resources Corporation, Three
Kingwood Place, Suite 200, 800 Rockmead, Kingwood, Texas 77339.
Limited Partners should note that they will be exercising their discretion
on two separate aspects of the proposed Consolidation: they will be 1) voting on
the Plan of Consolidation including amendments to the Partnership Agreements;
and 2) deciding whether to exchange their Interests for Units of the
Consolidated Partnership if their Partnership does not participate in the
Consolidation.
If the Consolidation is approved, the Consolidated Partnership will
continue on a combined basis the businesses of all of the Partnerships that take
part in the transaction. The limited partners of the participating Partnerships
will become Unitholders of the Consolidated Partnership.
Because the matters to be considered are the same for each of the
Partnerships, the Meetings of Limited Partners have been combined and will be
held at the same time and place. The Meetings may be adjourned from time to time
by the General Partner for any reason.
All of the Partnerships are New Jersey limited partnerships except for four
partnerships, Enex Oil & Gas Income Program II-7, L.P., Enex Oil & Gas Income
Program II-8, L.P., Enex Oil & Gas Income Program II-9, L.P., and Enex Oil & Gas
Income Program II-10, L.P. which are Texas limited partnerships. All of the
Partnerships have completed their purchases of producing properties. Information
regarding the Partnerships' producing oil and gas properties is contained in
Appendix A in Tables 6 through 11.
Conditions to the Consolidation
The Consolidation will not take place unless (a) the transaction is
approved by limited partners of Partnerships whose assets, together with the
exchange value of those Interests exchanged for Units pursuant to the
9
<PAGE>
Exchange Offer, have an aggregate exchange value of $10 million or more1; (b)
the Consolidation does not violate any order, decree or judgment of any court or
governmental body having jurisdiction; (c) no development or change occurs, or
is discovered, in the business or properties of one or more of the Partnerships
that approve the transaction, or in the applicable regulatory or tax structure,
or otherwise, that would materially adversely affect the business, properties or
prospects of the Consolidated Partnership, but that would not also affect the
Partnerships generally in the same manner or to the same extent; (d) all
necessary governmental and third party permits, consents and other approvals
have been obtained, and (e) there is no pending or threatened legal action
challenging or seeking to prevent the consummation of the Consolidation. To the
knowledge of the General Partner, no federal or state regulatory requirements
must be complied with or approvals must be obtained in connection with the
Consolidation, other than under the federal securities laws and state blue sky
laws, all of which have been complied with or obtained. If condition (c) is not
met with respect to one or more of the Partnerships that approve the
transaction, and the withdrawal of such Partnership or Partnerships from the
Consolidated Partnership would not have a material adverse effect on the
Consolidated Partnership, the General Partner may, in its sole discretion,
either form the Consolidated Partnership without including the assets of the
Partnership or Partnerships which do not meet condition (c) or resolicit the
limited partners of such Partnership or Partnerships and include such
Partnership or Partnerships in the Consolidated Partnership if the requisite
percentage of resolicited Partners approve the consolidation based upon exchange
values which give effect to the changed circumstances. If the exchange value of
any Partnership determined at the time of transfer has changed by less than 15%
from the exchange value set forth herein, such change will not be deemed
material. Conversely, any change in exchange value of 15% or more will be deemed
material. In addition, the General Partner may, in its discretion, elect to
cancel the Consolidation if dissenters' rights (see "--Dissenters' Rights; List
of Partners" below) are exercised by limited partners holding more than 10% of
the aggregate exchange value of all the Partnerships that participate in the
Consolidation and in certain other cases. See "THE PROPOSED CONSOLIDATION--Terms
of the Consolidation--Conditions to the Consolidation".
Exchange Offer
Any Partnership that does not approve the Plan of Consolidation because
less than a majority-in-interest of its limited partners vote for approval will
not participate in the Consolidation. Those Partnerships will continue their
existence pursuant to the provisions of their Partnership Agreements as though
the Plan of Consolidation had never been proposed. The limited partners of those
Partnerships who voted in favor of the Plan of Consolidation, however, will be
given the opportunity to tender the Interests they own in such Partnerships for
Units in the Consolidated Partnership pursuant to the terms and conditions of
the Exchange Offer described below under "THE PROPOSED CONSOLIDATION--The
Exchange Offer." The Interests of those limited partners desiring to tender them
in exchange for Units will be valued for purposes of the exchange in the same
manner as they have been valued for purposes of the Consolidation. See Table 13
in Appendix A. Only those limited partners who vote their Interests in favor of
the Plan of Consolidation will be eligible to participate in the Exchange Offer.
The right of a limited partner to participate in the Exchange Offer may be
limited to the extent that a transfer of Interests pursuant to the Exchange
Offer would cause a deemed termination of the Partnership for federal income tax
purposes.
Fairness of the Transaction
The General Partner believes that the proposed Consolidation is fair to and
in the best interests of the limited partners of each and all of the
Partnerships. The number of Units to be distributed to the limited partners and
the General Partner pursuant to the Consolidation in exchange for their
Interests will be determined in accordance with the exchange values of such
Interests, which, in turn, are based on valuations of the Partnership properties
by Gruy, an Independent Expert. See "Risk Factors--Basis for Participation"
above. The General Partner does not believe that alternative methods of valuing
the Partnership properties would result in materially different valuations of
Partnership properties than those yielded by Gruy's valuations. Even were such
to be the -------- 1By reason of the General Partner's ownership of more than
53% of the Interests in Enex Program I Partners, L.P., that Partnership's
participation in the Consolidation, with its $5.1 million exchange value, is
assured.
10
<PAGE>
case, in the General Partners' experience, oil and gas properties are generally
purchased and sold at prices approximating estimates of the discounted present
value of the subject oil and gas reserves. Thus, in the General Partner's view,
the Gruy estimated fair market valuations, as compared to other valuation
methods, represent the best estimation of the realizable value of the
Partnership properties and the fairest basis for determining the number of Units
to be distributed in consideration for the Partnerships' assets. See "THE
PROPOSED CONSOLIDATION - Fairness of the Transaction."
Recommendation of the Board
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and approved the Plan of Consolidation and recommended that the
limited partners vote "FOR" the Consolidation and (ii) approved the Exchange
Offer and recommended that each limited partner who votes in favor of the Plan
of Consolidation also elect to participate in the Exchange Offer should his
Partnership not participate in the Consolidation. Because of the relationships
among the parties to the Consolidation, these recommendations involve conflicts
of interest. See "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation--Risks in Determining Exchange Values" and "--Conflicts of
Interest of the General Partner" and "THE PROPOSED CONSOLIDATION--Method of
Determining Exchange Values" and "--Fairness of the Transaction."
The General Partner believes that the Consolidation will provide the
General Partner with the benefits summarized above under the caption "Objectives
of the Consolidation". Its recommendation is based in part on the conclusion
that those potential advantages over the current structure outweigh the
potential risks and disadvantages summarized above under the caption "--Risk
Factors" above.
Partnership Voting Requirements and Rights
Each Partnership's Partnership Agreement contains provisions authorizing
(i) the dissolution of the Partnership and the termination and winding up of the
Partnership's affairs; and (ii) the amendment of such Partnership Agreement upon
the affirmative vote of a majority-in-interest of its limited partners. For
specific requirements as to the vote needed to effectuate such action, see "THE
PROPOSED CONSOLIDATION--Terms of the Consolidation--Partnership Voting
Requirements and Rights". If the required vote is obtained, a Partnership will
transfer its assets to the Consolidated Partnership in exchange for Units
pursuant to the Plan of Consolidation. The participating Partnerships will be
dissolved and liquidated and the Units they receive will be distributed to their
partners. See "THE PROPOSED CONSOLIDATION--Terms of the
Consolidation--Consolidation Procedure".
Each limited partner of each Partnership at the close of business on the
record date for determining the limited partners entitled to notice of and to
vote on the proposal set forth in the accompany Notice will be entitled to vote
either FOR or AGAINST the proposal or to ABSTAIN from voting. Such voting rights
may be exercised separately with respect to each Partnership of which a person
is a limited partner. Limited partners entitled to vote may vote by use of the
form of Proxy and Ballot accompanying this Prospectus/Proxy Statement.
The General Partner owns Interests in each Partnership, which Interests it
intends to vote in favor of the Consolidation. See "THE PROPOSED
CONSOLIDATION--Terms of the Consolidation--Partnership Voting Requirements and
Rights" and Table 12 in Appendix A.
Request for Admission as Limited Partner. Execution of the Proxy and Ballot
by a limited partner also constitutes a request for admission as a limited
partner in the Consolidated Partnership in accordance with the terms and
conditions on the reverse side thereof. Persons not wishing to be limited
partners in the Consolidated Partnership must so indicate by checking the box
provided for that purpose on the reverse side of the Proxy and Ballot. In the
absence of such specific instructions, a limited partner signing and returning
the Proxy and Ballot will be admitted as a limited partner in the Consolidated
Partnership if his Partnership approves the proposal by the required majority in
interest, regardless of whether he voted for or against the Consolidation.
11
<PAGE>
Partnerships That Do Not Approve the Consolidation: Partnerships whose
limited partners do not approve the Consolidation will continue their business
unchanged and the limited partners of such Partnerships who do not participate
in the Exchange Offer will continue to have all of their existing rights and
privileges. Such Partnerships will not pay any part of the costs of planning and
developing the proposed Consolidation and presenting it to the limited partners
or of consummating the Consolidation following the vote of the limited partners.
Effect of Consolidation on Nonconsenting Limited Partners: A limited
partner will be bound by the Plan of Consolidation if it is adopted by a
majority vote of the other limited partners of his Partnership regardless of
whether he voted in favor of the Plan of Consolidation and will be entitled to
receive Units of the Consolidated Partnership. See "THE PROPOSED CONSOLIDATION -
Terms of the Consolidation - Request for Admission as Limited Partner,"
"--Effect of Approval on Nonconsenting Limited Partners" and--Dissenters'
Rights".
Proxies and Ballots: If the enclosed Proxy and Ballot is properly executed
and received by the General Partner, all of the Interests represented thereby
will be counted as a vote For or Against a Partnership's participation in the
Consolidation or as an abstention in accordance with the instructions specified
thereon or, if no instructions are given, such Interests will be counted as a
vote in favor of the Consolidation. The written consent of a limited partner
evidenced by his signed Proxy and Ballot approving the proposal may not be
withdrawn once it is received by the General Partner. A limited partner who
abstains or votes against the proposal may thereafter file a valid written
approval by sending his signed Proxy and Ballot voting for the proposal.
Reports to Limited Partners: The General Partner will furnish to the
Unitholders annual reports of the Consolidated Partnership's operations,
including financial statements. For further information see "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Records, Reports
and Returns".
Dissenters' Rights; List of Partners
Under the Plan of Consolidation the limited partners will be entitled to
dissenters' rights, which are not provided to limited partners under Texas or
New Jersey law or the Partnership Agreements. These rights give Interest holders
the right to surrender their Interests for an appraised value in cash if they
vote against the Consolidation and follow certain specified procedures. See "THE
PROPOSED CONSOLIDATION--Terms of the Consolidation--Dissenters' Rights".
However, if limited partners holding Interests representing more than 10% of the
aggregate exchange value of all of the Partnerships that participate in the
Consolidation exercise dissenters' rights, the General Partner may in its sole
discretion, elect to cancel the Consolidation.
A limited partner has the right to inspect and copy a list of the names and
addresses of all of the other limited partners of the Partnership(s) in which he
or she owns Interests at the principal office of the Partnership (which is the
office of the General Partner in Kingwood, Texas) during normal business hours.
On request, a copy of such list will, under certain circumstances, be furnished
to any limited partner upon payment of reasonable reproduction and mailing
costs. See "THE PROPOSED CONSOLIDATION--Partner Lists.
Tax Consequences of the Consolidation
It is anticipated that no gain or loss will be recognized by a limited
partner upon the transfer of his Partnership's assets in exchange for Units.
Unitholders will be required to share disproportionately in deductions
attributable to properties contributed to the Consolidated Partnership and to
recognize disproportionate amounts of gain or loss on the sale of such
properties to the extent of any difference between the fair market value and the
adjusted tax basis of each property at the time of contribution. The effect of
such allocations is to place each Unitholder in approximately the same position
with respect to deductions, gain and loss relative to contributed properties as
he would have been had the contributed property been purchased from the
participating Partnership by the Consolidated Partnership. See "TAX ASPECTS--The
Proposed Consolidation" and "--Participation in the Consolidated Partnership".
12
<PAGE>
The transactions involved in the proposed Consolidation may also be subject
to the income or other tax laws of one or more states and other taxing
jurisdictions and may result in an increase or decrease in the amount of state
income taxes payable by a Unitholder with respect to future operations and an
increase in the number of states in which taxes are owed by him. See "TAX
ASPECTS--Other Tax Aspects".
Tax Consequences of the Exchange Offer
It is anticipated that no gain or loss will be recognized by a limited
partner upon the transfer of an Interest to the Consolidated Partnership in
exchange for Units. Unitholders will be required to share disproportionately in
income, gains, losses, and deductions of the Consolidated Partnership to account
for any difference between the fair market value and adjusted basis of the
Interests transferred to the Consolidated Partnership.
Costs of the Consolidation
The costs of planning and developing the Consolidation and presenting it to
the limited partners of the Partnerships will be borne by the Consolidated
Partnership if the Consolidation is effectuated, otherwise by the General
Partner. The estimated amount of these costs is approximately $400,000 or
approximately 2% of the aggregate exchange value in the Consolidated Partnership
if all the Partnerships participate. Included are legal, accounting and
engineering fees, printing and postage expenses, filing fees, a share of the
Administrative Costs of the General Partner and its affiliates, and other costs.
The General Partner estimates, however, that if all the Partnerships participate
in the Consolidation, aggregate savings in reduced Direct, Administrative and
Operating Costs will exceed $800,000 per year.
Selected Financial Data
The following financial information of the Partnerships consists of
historical selected financial data for the two years ended December 31, 1995 and
1994 and for the three months ended March 31, 1996 and 1995. The historical
information is a summation of the individual Partnerships' selected financial
data. Although the historical selected financial data for the three months ended
March 31, 1996 and 1995 are unaudited, the General Partner believes that all
material adjustments (which include only normal recurring accruals and
adjustments) for fair presentations have been made. The results of operations
for the three months ended March 31, 1996 and 1995 should not be considered
indicative of results for annual periods. This information should be read in
conjunction with the Enex Oil & Gas Income Program and Enex Income and
Retirement Fund Limited Partnerships combined financial statements and related
notes and "THE PROPOSED CONSOLIDATION--Management's Discussion and Analysis of
Financial Condition and Results of Operations".
13
<PAGE>
COMBINED ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
(Amounts in $000s Except per $500 Limited Partner Interest)
Three Months Ended
<TABLE>
<CAPTION>
March 31, Year Ended December 31,
-------------------- ----------------------
1996 1995 1995 1994
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Oil and gas sales................... $ 2,948 $ 2,709 $ 10,117 $ 11,316
(Loss) from operations.............. $ (1,835) $ (227) $ (580) $ (1,534)
Net (loss).......................... $ (1,819) $ (223) $ (113) $ (1,444)
Net (loss) per $500 Interest
outstanding.................(Note 1) $ (5.53) $ (.68) $ (.34) $ (4.39)
Cash distributions per $500 Interest
outstanding.................(Note 1) $ 1.93 $ 1.20 $ 5.78 $ 7.09
Selected balance sheet data as of end of
period:
Oil and gas properties-at cost...... $ 139,717 $ 152,208 $ 146,080 $ 152,026
Accumulated depreciation, depletion and
amortization of oil and gas properties $ 125,037 $ 132,088 $ 128,512 $ 131,083
Total assets........................ $ 17,181 $ 22,297 $ 20,009 $ 23,168
Long-term obligations............... $ 2,178 $ 2,968 $ 2,291 $ 2,858
Partners' capital:
Limited Partners.................. $ 11,765 $ 15,638 $ 14,320 $ 16,340
General Partner................... $ 1,742 $ 1,591 $ 1,665 $ 1,543
</TABLE>
- ------------------
1. Based on the weighted average units outstanding during the period.
14
<PAGE>
RISK FACTORS AND OTHER CONSIDERATIONS
The Proposed Consolidation
In the General Partner's judgment, there are aspects of the proposed
Consolidation that are favorable to the limited partners and aspects that are
unfavorable. Limited Partners should be aware of all of the following:
Risks in Determining Exchange Values: The principal risks a limited partner
takes in approving the Consolidation are two-fold. First, his properties may
have oil or gas reserves, or both, that are not now apparent to the Independent
Experts or the General Partner. If that is the case, he will not receive full
credit for his property interests in the Consolidated Partnership. Moreover, the
aggregation of a Partnership's holdings in the Consolidated Partnership may
reduce the possibility for extraordinary increases in value in the existing
Partnerships. Second, future events may show that the exchange value formula
itself operated to the disadvantage of his Partnership in relation to other
Partnerships participating in the Consolidation. The effect would be to reduce
his interest in the Consolidated Partnership compared to what he would have
received under a different formula.
However, the exchange valuation process is intended to take into account
the various characteristics that might affect the value of the Partnerships'
holdings. In the General Partner's judgment, this process provides a fair and
reasonable basis for dividing and allocating the Units in the Consolidated
Partnership. Greater exchange values are assigned with respect to holdings that
are considered more valuable than other holdings but any process will
necessarily fail, in some instances, to measure values accurately, and oil and
gas reservoir engineering must be recognized as something less than an exact
science. Other formulas or approaches to the valuation process, which might also
be considered fair and reasonable, could yield materially different results. The
assumptions and estimates used in the formula in valuing the assets for purposes
of the Consolidation may turn out to be incorrect, or to have operated to the
disadvantage of certain parties to the Consolidation. For example, after a
period of production, certain reserves may be found to have been over or
underestimated in the engineering studies. Price and cost estimates for
particular periods may be too high or too low. A particular mix of oil and gas
properties may benefit more from price increases than another mix; gas may
benefit more from price increases than crude oil, or vice versa. Taxes may favor
one product over another. See "TAX ASPECTS"--Possible Changes in Federal Tax
Laws and Regulations". The price escalations and the discount rates employed in
the formula may favor or disfavor longer-lived production compared to production
with shorter lives, or highly leveraged Partnerships compared to Partnerships
with lesser borrowings.
The General Partner has endeavored to value the holdings of the various
Partnerships as fairly as possible, but there can be no guaranty that it has
succeeded in that effort. The assumptions that have been made may be erroneous
and even if they are not, factors beyond the General Partner's control may
intervene to upset those assumptions and the calculations on which they are
based. See "THE PROPOSED CONSOLIDATION - Method of Determining Exchange Values."
Changes in Distributions: The Consolidation, whether or not it results in
savings in overhead or borrowing costs, is expected to have an effect on the
distributions the limited partners of participating Partnerships will receive. A
limited partner whose Partnership takes part in the transaction will in effect
exchange one set of property interests with particular depletion and cash flow
characteristics for a larger set of property interests with different depletion
and cash flow characteristics. While the General Partner has sought and
continues to seek to establish distributions at a sustainable level over a
period of time, they are subject to change if net revenues are greater or less
than expected. Because of anticipated liability repayment requirements and lower
revenues resulting from normal production declines, certain Partnerships would
not be able to sustain their current levels of distributions, irrespective of
their participation in the Consolidation. Following the Consolidation, limited
partners of most of the Partnerships will experience an increase in
distributions over the amounts that would have been sustainable by their
Partnerships while other limited partners will experience a reduction from such
levels of distributions. See Table 15 in Appendix A. It is anticipated, however,
that any such reductions in distribution levels will be offset by reductions in
expenses over the longer period during which such distributions will be
sustainable and/or the value to which such limited partners will be entitled
upon the ultimate liquidation of the Consolidated Partnership.
15
<PAGE>
Failure to Return Signed Proxy and Ballot: Limited Partners who fail to
complete, sign and return the accompanying Proxy and Ballot or otherwise fail to
qualify for admission to the Consolidated Partnership as limited partners or who
elect not to be so admitted will, if their Partnership(s) participates in the
Consolidation, acquire the status of assignees of a limited partnership interest
in the Consolidated Partnership. Such persons will not be entitled to vote their
Units or to exercise the statutory rights of a limited partner or to present
their Units for purchase by the Consolidated Partnership. As a result, such
Unitholders may also find it extremely difficult to terminate their interests in
the Consolidated Partnership if no market for the Units develops. Assignees of
Units may, however, become limited partners of the Consolidated Partnership at
any time by properly completing, signing and delivering to the General Partner a
"Request for Admission as Limited Partner" form. See "THE PROPOSED CONSOLIDATION
- -- Terms of the Consolidation -- Request for Admission as Limited Partner" and
"THE CONSOLIDATED PARTNERSHIP--Right of Presentment".
Limited Liquidity: The Consolidated Partnership is not intended to be a
publicly traded partnership, there is no public market for the Units and there
may be no such market at any time. In order to preserve the tax treatment of the
Consolidated Partnership, the General Partner reserves the right to refuse to
recognize any transfer of Units that may have occurred on a "secondary market or
the substantial equivalent thereof" within the meaning of applicable provisions
of the Internal Revenue Code. Although the Units are otherwise freely
transferable, with certain limited restrictions, a Unitholder cannot expect to
be able readily to liquidate his investment in case of emergency. The transfer
of Units by California and Missouri residents is subject to additional legal
restrictions. See "THE CONSOLIDATED PARTNERSHIP-Transfer of Units" and "TAX
ASPECTS--Participation in the Consolidated Partnership--Publicly Traded
Partnerships".
Although purchase offers for Units to be made by the Consolidated
Partnership will begin in 1997 for Units valued as of December 31, 1996, the
Consolidated Partnership will not be obligated to purchase Units representing
more than 15% of the aggregate purchase price of the Units in connection with
any annual purchase offer (see "THE CONSOLIDATED PARTNERSHIP--Right of
Presentment" for the ability of the Consolidated Partnership to purchase such
Units). If the Units are listed on a stock exchange or included for quotation on
NASDAQ or a trading market for the Units otherwise develops (none of which
events is anticipated to occur), such purchase offers will not be made at all.
See "THE CONSOLIDATED PARTNERSHIP--Right of Presentment."
Unrelated Business Taxable Income to Tax-Exempt Limited Partners. Most of
the income to be generated by the Consolidated Partnership will constitute
income from oil and gas working interests, which will be unrelated business
taxable income to tax-exempt limited partners. Tax-exempt limited partners,
including individual retirement accounts and Keogh and other employee benefit
plans, may become subject to federal income taxation on their shares of such
income to the extent unrelated business taxable income from all sources exceeds
$1,000 per year. Although certain Partnerships (i.e., Income and Retirement Fund
Partnerships) were designed to earn income that would not be characterized as
unrelated business taxable income, the income earned by the Consolidated
Partnership will consist primarily of unrelated business taxable income.
Nevertheless, it is anticipated by the General Partner, based upon its
projections of the Consolidated Partnership's income, that no limited partner of
an Income and Retirement Fund Partnership will receive allocations of unrelated
business taxable income from the Consolidated Partnership in amounts exceeding
the exempted amount of $1,000 per year. See "TAX ASPECTS--Participation in the
Consolidated Partnership--Considerations for Tax-Exempt Limited Partners". In
any event, limited partners will have the annual right to present their Units to
the Consolidated Partnership for purchase at a formula price. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" below.
ERISA - Plan Assets Regulations. The Department of Labor ("DOL") plan
assets regulations indicate that the assets of a pooled investment vehicle such
as the Consolidated Partnership will not be plan assets for purposes of the
Employee Retirement Income Security Act of 1974 ("ERISA") if the Consolidated
Partnership is primarily engaged in the production or sale of a product or
service other than the investment of capital or if equity participation in the
Consolidated Partnership by individual retirement accounts and qualified
retirement plans is less than 25%. The General Partner believes that the
Consolidated Partnership will be an operating company and anticipates that the
Consolidated Partnership will qualify under the 25% rule. There can be no
assurance, however, that the Consolidated Partnership will meet the operating
company or 25% test.
16
<PAGE>
The DOL regulations also provide that "publicly-offered securities" which
are "widely held" and "freely transferable" are not "plan assets." The Units are
intended to qualify as "publicly-offered securities". The General Partner has
obtained an opinion of Counsel that the Units will be "freely transferable" and
believes that the Units otherwise satisfy the criteria for "publicly-offered
securities". Accordingly, the Consolidated Partnership's assets will not be
"plan assets" for ERISA purposes.
Lack of Independent Review or Separate Representation: The General Partner
has not retained an unaffiliated representative to act on behalf of the limited
partners for purposes of negotiating the terms of the Consolidation. See "THE
PROPOSED CONSOLIDATION-Method of Determining Exchange Values." No state or
federal governmental authority has made any determination relating to the
fairness of the Units for public investment or recommended or endorsed the
Units. The Units will not receive the independent review customarily made when
an unaffiliated selling agent offers securities to the public. The Partnerships,
the Consolidated Partnership and the General Partner are not represented by
separate counsel. The attorneys, accountants and other experts who perform
services for the Consolidated Partnership all perform services for these and
other Affiliates of the General Partner. It is anticipated that such multiple
representation will continue in the future. However, should there be a necessity
in the future to negotiate or prepare contracts and agreements between the
Consolidated Partnership and the General Partner for services other than those
existing or contemplated on the effective date of this Prospectus/Proxy
Statement, such agreements must comply with the Articles, which require, among
other things, that such future contracts and agreements will provide that they
may be terminated at the option of the Consolidated Partnership upon sixty days
notice without penalty to the Consolidated Partnership. See "THE CONSOLIDATED
PARTNERSHIP--Conflicts of Interest".
Conflicts of Interest of the General Partner. The consideration to be
received by the Partnerships in the Consolidation and the other terms of the
Plan of Consolidation were determined by the General Partner, which has inherent
conflicts of interest stemming from its various ownership percentages owned in
each Partnership. The General Partner, as a partner in the Partnerships, will
share in the favorable aspects of the Consolidation and in its costs in the same
manner as the limited partners; however, because the General Partner holds
differing amounts of Interests in the various Partnerships, it faces a conflict
of interest in determining how to allocate costs and benefits among the
Partnerships. Measures adopted by the General Partner intended to ensure the
fairness of the terms of the Consolidation, including Gruy's engagement, cannot
remove the inherent conflicts of interest. The terms of the Consolidation may be
inferior to those that could have resulted through negotiations with third-party
bidders. See "THE PROPOSED CONSOLIDATION-Method of Determining Exchange Values"
and "-Fairness of The Transaction" and "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues." The Consolidation will not
increase the compensation of the General Partner although its interest in each
separate Partnership's revenues will be blended into a single interest in the
revenues of the Consolidated Partnership as described in "THE CONSOLIDATED
PARTNERSHIP-Compensation" and "-Participation in Costs and Revenues."
The Consolidation will not change the business plans of the Partnerships or
increase the General Partner's obligations; it is already responsible, as the
General Partner of the Partnerships, for payment of the indebtedness of each of
the Partnerships. However, by reason of the fact that the reduced annual maximum
obligation to purchase Units upon presentment will be borne by the Consolidated
Partnership, the General Partner will be relieved of its commitment to purchase
Interests pursuant to the Partnership Agreements of those Partnerships in Enex
Oil & Gas Income Program II, Enex Oil & Gas Income Program III, Enex Oil & Gas
Income Program IV, the Enex Income and Retirement Fund, and Enex 88-89 Income
and Retirement Fund and Enex 90-91 Income and Retirement Fund that participate
in the Consolidation. See "THE CONSOLIDATED PARTNERSHIP-Right of Presentment."
The General Partner also faces conflicts of interest in connection with its
future operation of the Consolidated Partnership similar to those it faces in
connection with its operation of each of the Partnerships. See "THE CONSOLIDATED
PARTNERSHIP - Conflicts of Interest."
Changes in Voting Power: Any limited partner taking part in the
Consolidation will, in effect, exchange the interest he now holds in a
Partnership for a much smaller interest in the much larger Consolidated
Partnership. This will reduce a limited partner's ability to influence the
taking of action in those instances where the Partnership Agreements provide for
the vote and consent of the limited partners. Also, as is true for the limited
partners of the thirty New Jersey Partnerships, the limited partners of the
Consolidated Partnership may, by vote of a majority
17
<PAGE>
in interest, remove the General Partner (provided that such action will not
adversely affect the tax status of the Consolidated Partnership or any of the
limited partners) and may, by a vote of two-thirds in interest, approve or
disapprove the selection of an additional or successor general partner. The
Partnership Agreements of the four Texas Partnerships (i.e., the Partnerships
formed in Enex Oil & Gas Income Program II), however, allow the limited partners
to elect additional or successor general partners by a vote of a majority in
interest but do not provide a right to vote on the removal of the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited
Partnership".
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that the Consolidation will be treated for federal income tax
purposes as a transfer of assets by the participating Partnerships to the
Consolidated Partnership in exchange for Units, followed by a liquidating
distribution of such Units to the limited partners of the participating
Partnerships. In general, such a transaction will not cause any gain or loss to
be recognized by a limited partner unless existing Partnership liabilities
exceed the sum of the adjusted tax basis in the transferred assets and the
proportionate share of the Consolidated Partnership's liabilities after the
Consolidation. It is not anticipated that any limited partners will recognize
gain as a result of such excess liabilities. The opinion of counsel is not
binding on the Internal Revenue Service (the "IRS").
Unitholders will be required to share disproportionately in deductions
attributable to properties contributed to the Consolidated Partnership and to
recognize disproportionate amounts of gain or loss on the sale of such
properties to the extent of any difference between the fair market value and the
adjusted tax basis of each property at the time of contribution. The effect of
such allocations is to place each Unitholder in approximately the same position
with respect to deductions, gain and loss relative to contributed properties as
he would have been had the contributed property been purchased from the
participating Partnership by the Consolidated Partnership. See "TAX ASPECTS--The
Proposed Consolidation" and "--Participation in the Consolidated Partnership".
State Income Tax Consequences: The transactions involved in the proposed
Consolidation may be subject to the income or other tax laws of one or more
states and other taxing jurisdictions. In addition, because state income tax
rates vary, the Consolidation of rights in a different set of oil and gas
properties may result in an increase or decrease in the amount of state income
taxes payable by a Unitholder with respect to future operations and an increase
in the number of states in which taxes are owed by him. See "TAX ASPECTS--Other
Tax Aspects". Limited partners should consult their personal tax advisers
regarding the application and effect of such state tax laws.
The Consolidated Partnership
The factors set forth below relate to holding Units of limited partnership
interest in the Consolidated Partnership. These other factors also affect the
limited partners' investments in the existing Partnerships and, in general, a
limited partner who becomes a Unitholder in the Consolidated Partnership will
not increase his exposure to these other risks.
General Industry Risks: The Consolidated Partnership's business is affected
by the general risks associated with the oil and gas industry. The availability
of a ready market for oil and gas purchased, sold and produced by the
Consolidated Partnership depends upon numerous factors beyond its control, the
exact effects of which cannot be accurately predicted. These factors include,
among other things, the level of domestic production and economic activity
generally, the availability of imported oil and gas, action taken by foreign
oil-producing nations, the availability of transportation capacity, the
availability and marketing of other competitive fuels, fluctuating and seasonal
demand for oil, gas and refined products and the extent of governmental
regulation and taxation (under both present and future legislation) of the
production, refining, transportation, pricing, use and allocation of oil,
natural gas, refined products and substitute fuels. Accordingly, in view of the
many uncertainties affecting the supply and demand for crude oil, natural gas
and refined products, it is not possible to predict accurately either the prices
or marketability of oil and gas produced from any property in which the
Consolidated Partnership may acquire an interest. See "THE CONSOLIDATED
PARTNERSHIP--Proposed Activities" below.
18
<PAGE>
Competition, Markets and Regulation. The oil and gas industry is intensely
competitive in all phases and does not have high barriers to entry. There is
also competition between the oil and gas industry and other industries in
supplying the energy and fuel requirements of industrial, commercial,
residential and other consumers. Hydrocarbon prices can be extremely volatile
and since 1982 generally have been characterized by periods of weak demand and
resulting excess total domestic and imported supplies. The unsettled nature of
the energy market, highlighted by political and military events in the Middle
East and elsewhere, and the unpredictability of action by OPEC members make it
particularly difficult to estimate future prices of natural gas and oil. The oil
and gas industry is subject to extensive regulation of natural gas distribution
and the amounts of oil and gas which may be produced and sold, any or all of
which are subject to change. In particular, the Consolidated Partnership's
operations are affected significantly by laws and regulations at the federal,
state and local levels regarding the protection of the environment. While the
Partnerships believe they are in material compliance with such laws, ordinances
and regulations, the nature of their operations is such that accidental
violations can occur which would require significant expenditures to pay fines
and the costs of remediation. See "THE CONSOLIDATED PARTNERSHIP--Competition,
Markets and Regulation--Competition and Markets".
Risks of Drilling for Oil and Gas. In some instances the Partnerships own
undeveloped acreage upon which development wells may be drilled. In addition,
during the productive lives of most oil and gas properties the reworking of
wells will be required as a matter of normal operating practice to realize the
full potential of the wells. The Consolidated Partnership reserves the right to
participate in drilling or reworking activities on such properties. Drilling for
oil and gas is speculative and involves substantial risks, including the risk of
drilling unproductive wells, the risk of equipment failures and the risk of
encountering impenetrable formations, water encroachments or unexpected
pressures and other conditions which could result in a blowout. Reworking
existing wells involves the risk that production may not be increased and that
any increased production will not compensate the Consolidated Partnership for
reworking costs. See "THE CONSOLIDATED PARTNERSHIP--Proposed Activities--Other
Partnership Operations".
Operating and Environmental Hazards. Hazards incident to the operation of
oil and gas properties, such as accidental leakage, are sometimes encountered.
Substantial liabilities to third parties or governmental entities may be
incurred, the payment of which could reduce the funds available for distribution
or result in the loss of the Consolidated Partnership's properties. Although it
is anticipated that customary insurance will be obtained, the Consolidated
Partnership may be subject to liability for pollution and other damages due to
hazards which cannot be insured against or have not been insured against due to
prohibitive premium costs or for other reasons. Environmental regulatory matters
also could increase the cost of doing business or require the modification of
operations In certain areas. See THE CONSOLIDATED PARTNERSHIP"--Competition,
Markets and Regulation--Environmental and Conservation Regulations".
Absence of Dissenter's Rights. Unitholders will not be entitled to any
statutory dissenters' or appraisal rights. Because limited partners generally
act by majority vote, individual limited partners may be required to retain
their Units even after a substantial amendment of the Articles or a sale of
substantially all the assets of the Consolidated Partnership in exchange for
securities of another company. See "THE CONSOLIDATED PARTNERSHIP--Summary of the
Articles of Limited Partnership--Voting and Other Rights of Limited Partners".
Indemnification of General Partner. Under certain circumstances and subject
to certain conditions, the General Partner, its officers, directors, employees
and affiliates will be indemnified by the Consolidated Partnership against
certain liabilities. See "THE CONSOLIDATED PARTNERSHIP--Management--Fiduciary
Obligations and Indemnification." Should the General Partner be successful in
asserting a claim for indemnification against the Consolidated Partnership, its
assets could be subject to substantial reduction. (See the Articles, Section
9.3.)
Substitution of a New General Partner. The Articles permit the General
Partner to transfer its interest and substitute as General Partner (a) another
corporation in connection with a merger or consolidation or a transfer of all or
substantially all of the assets of the General Partner under certain
circumstances or (b) a parent or subsidiary of the General Partner. In
connection with the General Partner's redemption of a controlling interest in
its shares, on April 19, 1990, the General Partner transferred to its corporate
parents all of its general and limited partner interests in Enex Program I
Partners, L.P. and several other partnerships whose assets have since been sold.
On
19
<PAGE>
August 8, 1991 the General Partner reacquired these general and limited partner
interests. These transactions are not likely to recur because the General
Partner is now an independent corporation without a corporate parent. There is a
risk, however, that if another corporation were ever substituted as the general
partner of the Consolidated Partnership, the new general partner could operate
the Partnership differently than would Enex Resources Corporation. Any such
substitute general partner would, of course, be bound by all of the terms and
conditions of the Articles.
Borrowing. The Consolidated Partnership may seek to finance further
development of producing properties by borrowing from third parties in limited
amounts. While the use of borrowed funds is intended to increase the
Consolidated Partnership's profits, such borrowing could have the effect of
causing losses. There can be no assurance that any such financing can be
arranged. See "THE CONSOLIDATED PARTNERSHIP--Proposed Activities--Financing".
Conflicts of Interest. The General Partner and its affiliates are free to
engage in oil and gas exploration and development for their own accounts and to
sponsor programs for the formation of additional limited partnerships to engage
in activities similar to those of the Consolidated Partnership and may engage in
farmout transactions with the Consolidated Partnership. As a consequence,
conflicts of interest between the Consolidated Partnership and the General
Partner or such other partnerships may arise. While certain transactions between
the General Partner or its affiliates and the Consolidated Partnership described
in Section 9.2(i) of the Articles may occur on terms no less favorable than
those which could be obtained from independent third parties, possible conflicts
of interest may nevertheless result. See "THE CONSOLIDATED PARTNERSHIP--Proposed
Activities" and "--Conflicts of Interest".
Partnership Termination. Although the General Partner has never withdrawn
from a Partnership, the General Partner may withdraw from the Consolidated
Partnership upon 120 days prior written notice to the Unitholders, which notice
will include information concerning the General Partner's nominee for election
as substituted general partner. Such a withdrawal would cause the Consolidated
Partnership's dissolution, unless the Unitholders who are limited partners elect
a substituted general partner to continue the Consolidated Partnership's
business. If the Consolidated Partnership is dissolved, the General Partner will
attempt to sell all of the assets of the Consolidated Partnership and distribute
the cash proceeds. Adverse tax consequences may result under such circumstances
and the Consolidated Partnership may not be able to realize the full value of
its assets. Such termination may occur if the General Partner determines it
unprofitable to continue to operate the Consolidated Partnership. If any
properties cannot be sold, the Unitholders will become owners of direct
interests in such proper ties without limited liability in connection therewith
and may have difficulties in coordinating their efforts to engage an operator to
conduct well operations as well as in other respects. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership-Removal or
Withdrawal of General Partner" and --"Dissolution" and "TAX
ASPECTS--Participation in the Consolidated Partnership--Liquidation and
Termination of the Consolidated Partnership".
Classification of the Consolidated Partnership. The General Partner will
not apply for a ruling from the Internal Revenue Service that the Consolidated
Partnership will, for federal income tax purposes, be taxed as a partnership.
The Consolidated Partnership will rely on a favorable opinion of counsel that
the Consolidated Partnership will be classified as a partnership for federal
income tax purposes. Such opinion is not binding on the Internal Revenue Service
or the courts. See "TAX ASPECTS--Participation in the Consolidated
Partnership--Partnership Status". See "TAX ASPECTS--Possible Changes in Federal
Tax Laws and Regulations".
Allocations of Profits and Losses for Tax Purposes. Although the General
Partner believes that the allocations of Consolidated Partnership income, gain,
loss, deduction and credit set forth in the Agreement will be recognized for
federal income tax purposes, the Internal Revenue Service may successfully
challenge allocations to the Unitholders. See "TAX ASPECTS--Participation in the
Consolidated Partnership--Partnership Deductions" and "--Allocations to
Partners".
Preparation and Audit of Tax Returns. The transmission of information
concerning the Consolidated Partnership and its operations to the Unitholders
may be delayed, requiring Unitholders to file requests for
20
<PAGE>
extensions of time within which to file their personal income tax returns. In
addition, the federal income tax returns of the Consolidated Partnership may be
audited by the Internal Revenue Service, which could result in an audit of the
federal income tax returns of the Unitholders. Any such audit of the
Unitholders' tax returns could result in adjustments of items not related to the
Consolidated Partnership as well as items related to the Consolidated
Partnership. Unitholders may also incur expenses in contesting adjustments to
the income tax returns of the Consolidated Partnership. See "TAX
ASPECTS--Participation in the Consolidated Partnership--Partnership Returns,
Audits and Tax Shelter Registration".
21
<PAGE>
THE PROPOSED CONSOLIDATION
The General Partner is proposing the Consolidation in order to combine the
operations of the Partnerships. The General Partner has formed the Consolidated
Partnership under the New Jersey Uniform Limited Partnership Law (1976) with
itself as the sole general partner. The Consolidated Partnership's business will
be to accept the assets and liabilities, except for amounts payable to the
General Partner, of the existing Partnerships and to own, operate, exchange,
purchase and sell interests in producing oil and gas properties and undeveloped
leasehold interests (properties will be considered for purchase only if their
acquisition is necessary in order to protect the Consolidated Partnership's
interest in properties already owned), and to produce, process, transport and
sell oil and gas. The Consolidated Partnership may not engage in exploratory
drilling activities but may drill replacement, secondary or tertiary recovery,
acceleration or other similar wells and may engage in development drilling
projects. Participation in the Consolidation by all of the Partnerships would
result in the Consolidated Partnership being formed with assets having an
aggregate exchange value of $17,130,128 (see Table A: Consolidation
Schedule--Composition of Exchange Values in "--The Consolidation Schedule"
below).
Partnerships Subject to Consolidation
This Prospectus/Proxy Statement is being furnished to the limited partners
of each of the Partnerships listed below in connection with the solicitation by
the General Partner of proxies for Meetings of limited partners of the
Partnerships described in the accompanying Notice of Special Meetings of Limited
Partners (the "Notice").
<TABLE>
<CAPTION>
The Partnerships
Number of Number of Limited
Limited Partners Partner Interests*
<S> <C> <C>
Enex Program I Partners, L.P............................. 4,734 193,629
Enex Oil & Gas Income Program II-7, L.P.................. 443 8,870
Enex Oil & Gas Income Program II-8, L.P.................. 1,299 5,863
Enex Oil & Gas Income Program II-9, L.P.................. 1,236 3,109
Enex Oil & Gas Income Program II-10, L.P................. 1,364 3,916
Enex Oil & Gas Income Program III, Series 1, L.P......... 940 2,978
Enex Oil & Gas Income Program III, Series 2, L.P......... 1,195 4,270
Enex Oil & Gas Income Program III, Series 3, L.P......... 1,172 6,410
Enex Oil & Gas Income Program III, Series 4, L.P......... 395 5,410
Enex Oil & Gas Income Program III, Series 5, L.P......... 1,768 10,797
Enex Oil & Gas Income Program III, Series 6, L.P......... 1,468 6,340
Enex Oil & Gas Income Program III, Series 7, L.P......... 1,377 4,527
Enex Oil & Gas Income Program III, Series 8, L.P......... 1,549 7,196
Enex Oil & Gas Income Program IV, Series 1, L.P.......... 1,363 6,472
Enex Oil & Gas Income Program IV, Series 2, L.P.......... 1,400 4,938
Enex Oil & Gas Income Program IV, Series 4, L.P.......... 431 2,520
Enex Oil & Gas Income Program IV, Series 5, L.P.......... 824 4,561
Enex Oil & Gas Income Program IV, Series 6, L.P.......... 723 4,326
Enex Oil & Gas Income Program IV, Series 7, L.P.......... 807 5,021
Enex Oil & Gas Income Program V, Series 1, L.P........... 448 4,529
Enex Oil & Gas Income Program V, Series 2, L.P........... 569 2,972
Enex Oil & Gas Income Program V, Series 3, L.P........... 710 2,020
Enex Oil & Gas Income Program V, Series 4, L.P........... 364 2,954
Enex Oil & Gas Income Program V, Series 5, L.P........... 523 2,463
Enex Oil & Gas Income Program VI, Series 1, L.P.......... 427 2,021
Enex Income and Retirement Fund, Series 1, L.P........... 189 2,736
Enex Income and Retirement Fund, Series 2, L.P........... 152 2,884
Enex Income and Retirement Fund, Series 3, L.P........... 143 2,988
Enex 88-89 Income and Retirement Fund, Series 5, L.P..... 208 2,300
Enex 88-89 Income and Retirement Fund, Series 6, L.P..... 204 2,067
22
<PAGE>
Enex 88-89 Income and Retirement Fund, Series 7, L.P..... 250 3,089
Enex 90-91 Income and Retirement Fund, Series 1, L.P..... 278 2,975
Enex 90-91 Income and Retirement Fund, Series 2, L.P..... 218 2,020
Enex 90-91 Income and Retirement Fund, Series 3, L.P..... 228 2,175
- ------------------
</TABLE>
*The aggregate amount of the limited partners' initial subscriptions divided
by $500.
The address of each Partnership is c/o Enex Resources Corporation, Three
Kingwood Place, Suite 200, 800 Rockmead, Kingwood, Texas 77339.
The single matter to be considered at each meeting of limited partners is
whether their Partnership should approve and participate in the Consolidation.
The Consolidated Partnership will then continue on a combined basis the
businesses of all of the Partnerships that take part in the transaction. The
limited partners of the participating Partnerships will become Unitholders of
the Consolidated Partnership. Because the matter to be considered is the same
for each of the Partnerships, the Meetings of Limited Partners have been
combined and will be held at the same time and place. The Meetings may be
adjourned from time to time by the General Partner for any reason.
All of the Partnerships are New Jersey limited partnerships except for four
partnerships, Enex Oil & Gas Income Program II-7, L.P., Enex Oil & Gas Income
Program II-8, L.P., Enex Oil & Gas Income Program II-9, L.P., and Enex Oil & Gas
Income Program II-10, L.P., which are Texas limited partnerships. All of the
Partnerships have completed their purchases of producing properties. Information
regarding the Partnerships' producing oil and gas properties is contained in
Appendix A to this Prospectus/Proxy Statement in Tables 6 through 11.
A copy of the Articles of Limited Partnership of the Consolidated
Partnership (the "Articles") is attached as Appendix B to this Prospectus/Proxy
Statement. For a discussion of some of the provisions of the Articles, see "THE
CONSOLIDATED PARTNERSHIP--Summary of the Articles of Limited Partnership".
Selected Financial Data
The following financial information concerning the Partnerships consists of
historical selected financial data for the two years ended December 31, 1995 and
1994 and for the three months ended March 31, 1996 and 1995. The historical
information is a summation of the individual Partnerships' selected financial
data. Although the historical selected financial data for the three months ended
March 31, 1996 and 1995 are unaudited, the General Partner believes that all
material adjustments (which include only normal recurring accruals and
adjustments) for fair presentations have been made. The results of operations
for the three months ended March 31, 1996 and 1995 should not be considered
indicative of results for annual periods. This information should be read in
conjunction with the Enex Oil & Gas Income Program and Enex Income and
Retirement Fund Limited Partnerships combined financial statements and related
notes.
23
<PAGE>
<TABLE>
<CAPTION>
COMBINED ENEX LIMITED PARTNERSHIPS
SELECTED FINANCIAL DATA
(Amounts in $000s Except per $500 Limited Partner Interest)
Three Months Ended
March Year Ended December 31,
1996 1995 1995 1994
-------- ------- -------- ------
<S> <C> <C> <C> <C>
Oil and gas sales.......................... $ 2,948 $ 2,709 $ 10,117 $ 11,316
(Loss) from operations..................... $ (1,835) $ (227) $ (580) $ (1,534)
Net (loss)................................. $ (1,819) $ (223) $ (113) $ (1,444)
Net (loss) per $500 Interest
outstanding...................(Note 1) $ (5.53) $ (.68) $ (.34) $ (4.39)
Cash distributions per $500 Interest
outstanding...................(Note 1) $ 1.93 $ 1.20 $ 5.78 $ 7.09
Selected balance sheet data as of end of
period:
Oil and gas properties-at cost............. $139,717 $ 152,208 $ 146,080 $ 152,026
Accumulated depreciation, depletion and
amortization of oil and gas properties .. $.125,037 $ 132,088 $ 128,512 $ 131,083
Total assets............................... $ 17,181 $ 22,297 $ 20,009 $ 23,168
Long-term obligations...................... $ 2,178 $ 2,968 $ 2,291 $ 2,858
Partners' capital:
Limited Partners......................... $ 11,765 $ 15,638 $ 14,320 $ 16,340
General Partner.......................... $ 1,742 $ 1,591 $ 1,665 $ 1,543
- ------------------
</TABLE>
1. Based on the weighted average units outstanding during the period.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General: This discussion should be read in conjunction with the financial
statements and the notes thereto included in this Prospectus/Proxy Statement.
Results of Operations: Oil and gas sales were 10,117,119 in 1995 as
compared to 11,315,601 in 1994. This represents a decrease of $1,198,482 or 11%.
Oil sales decreased by $195,808, or 3% from $7,287,329 in 1994 to $7,091,513 in
1995. A 3% decrease in oil production reduced sales by $191,397 while a slight
decrease in the average oil sales price reduced sales by an additional $4,411.
Gas sales decreased by $1,002,764 or 25% from $4,028,280 in 1994 to $3,025,606
in 1995. A 17% decrease in the average gas sales price reduced sales by
$608,634. A 10% decrease in gas production reduced sales by an additional
$394,040. The changes in average sales prices correspond with changes in the
overall market for the sale of oil and gas. The slight decrease in oil
production was primarily the result of natural production declines, partially
offset by the purchase of the McBride acquisition, a drilling of a replacement
well on the Charlotte acquisition and the successful recompletion of a well on
the Speary acquisition. The decrease in gas production was due to natural
production declines, partially offset by the procurement of an additional
interest from a farmout in the Barnes Estate acquisition, which achieved payout,
a successful workover on the Lake Decade acquisition and the successful
recompletion of a well on the Speary acquisition.
Oil and gas sales were $2,947,847 in the first three months of 1996 as
compared to $2,709,265 in the first three months of 1995. This represents an
increase of $238,582 or 9%. Oil sales increased by $74,080 or 4% from $1,916,620
in the first three months of 1995 to $1,990,700 in the first three months of
1996. A 14% increase in the average oil sales price increased sales by $249,821.
This increase was partially offset by a 9% decrease in oil production. Gas sales
increased by $164,502 or 21% from $792,645 in the first three months of 1995 to
$957,147 in the first three months of 1996. A 29% increase in the average gas
sales price increased sales by $216,442. This
24
<PAGE>
increase was partially offset by a 7% decrease in gas production. The changes in
average sales prices correspond with changes in the overall market for the sale
of oil and gas. The decreases in oil and gas production were primarily the
result of natural production declines, partially offset by enhanced recovery
techniques utilized on the Concord acquisition and the procurement of additional
interest in the Barnes Estate acquisition from a farmout which achieved payout
in the first quarter of 1995.
Lease Operating Expenses. Lease operating expenses decreased from
$4,613,177 in 1994 to $4,312,449 in 1995. The decrease of $300,728 or 7% was
primarily the result of the lower production noted above.
Lease operating expenses decreased to $1,112,959 in the first three months
of 1996 as compared to $1,203,630 in the first three months of 1995. The
decrease of $90,671 or 8% was primarily due to the lower production, noted
above.
Direct and Administrative Costs. Direct and Administrative Costs decreased
to $2,066,379 in 1995 from $2,349,526 in 1994. This represents a decrease of
$283,147 or 14%. This decrease was primarily a result of a $264,192, or 13%
decrease in allocated expenses. The lower amount allocated by the General
Partner was primarily the result of lower employee compensation and legal
expenses incurred by the General Partner.
Direct and Administrative expenses decreased to $533,010 in the first three
months of 1996 from $551,353 in the first three months of 1995. The decrease of
$18,343 or 3% was due to a $106,044, or 18% decrease in Administrative Costs
allocated by the General Partner, partially offset by a $87,701 increase in
Direct Costs. The decrease in allocated Administrative Costs was primarily a
result of overhead cost reductions by the General Partner in 1996. The increase
in Direct Costs was primarily due to a return of tax preparation fees to their
normal level.
Depreciation, Depletion and Amortization: Depreciation, depletion and
amortization (DD&A) expense decreased to $3,748,723 in 1995 from $4,955,008 in
1994. This represent a decrease of $1,206,285 or 24%. The changes in production,
noted above, reduced DD&A by $294,025. A 20% decrease in the depletion rate
reduced DD&A by an additional $912,260. The decrease in the depletion rate was
primarily the result of upward revisions of the oil and gas reserves in December
1995, coupled with a lower property basis resulting from the recognition of
$971,936 of impairments during December 1994.
Depreciation, depletion and amortization expense decreased to $668,161 in
the first three months of 1996 as compared to $1,033,535 in the first three
months of 1995. This represents a decrease of $365,374 or 35%. A 30% decrease in
the depletion rate reduced DD&A by $280,547. The changes in production, noted
above, reduced DD&A by an additional $84,827. The decrease in the depletion rate
was primarily the result of upward revisions of the oil and gas reserves in
December 1995, coupled with a lower property basis resulting from the
recognition of an impairment of property totaling $2,315,081 in the first
quarter of 1996.
Impairment of Properties: The Financial Acounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed
Of", which requires certain assets to be reviewed for impairment whenever
circumstances indicate the carrying amount may not be recoverable. This SFAS 121
was implemented in the first quarter of 1996 resulting in a total non-cash
impairment provision of $2,315,081 for certain oil and gas properties due to
market indications that the carying amounts were not fully recoverable.
In 1994, non-cash write-downs totalling $971,936 were made. The write-downs
were computed as the excess of the net capitalized costs over the undiscounted
future net revenue from proved oil and gas reserves.
Liquidity and Capital Resources: At March 31, 1996 the Partnerships had all
completed their producing property purchasing activities. Thus, the primary
activity of the Consolidated Partnership will be to recover the reserves
acquired and distribute to the Unitholders the net proceeds realized from the
production of oil and gas. While the General Partner has sought and continues to
seek to establish distributions at a sustainable level over a period of time,
they are subject to change if net revenues are greater or less than expected. As
such, anticipated
25
<PAGE>
debt repayment requirements can be expected to cause those Partnerships with
debt to reduce their current levels of distributions in the absence of a
consolidation.
On a combined basis, the working capital of the Partnerships improved to
$959,016 at March 31, 1996 from $650,016 at December 31, 1995 and a deficit of
$351,396 at December 31, 1994. This improvement was primarily the result of the
Partnerships paying down debt in 1995 and 1996. At March 31, 1996, the
Partnerships' combined current ratio was 1.64 and long-term debt totaled
$2,177,819.
The Consolidation Schedule
Each participating Partnership will receive a number of Units based upon
the exchange value of its net assets . The exchange values for the Consolidation
were calculated by the General Partner based upon engineering estimates of
Partnership reserves prepared by H.J. Gruy and Associates, Inc., an independent
petroleum engineering firm ("Gruy"). In determining these estimates, Gruy
applied certain assumptions regarding price and cost escalations. Estimates of
future net revenues thereby obtained were then discounted for time and risk.
Other assets less liabilities were also included as adjusted for estimated
operations through March 31, 1996. Table A below shows the exchange value for
each Partnership. See "--Method of Determining Exchange Values".
Following its receipt of such Units, each participating Partnership will be
dissolved and the limited partners and the General Partner of each participating
Partnership will receive, as a liquidating distribution, Units in accordance
with the termination and dissolution provisions of its Partnership Agreement, as
amended (see Appendix D). Units received by limited partners of the Partnerships
(including the General Partner with respect to Interests which it holds) will
represent limited partnership interests of the Consolidated Partnership and the
Units, if any, received by the General Partner in its capacity as general
partner will represent general partnership interests of the Consolidated
Partnership.
The Proxy and Ballot enclosed with each limited partner's copy of this
Prospectus/Proxy Statement shows (i) his percentage interest as a limited
partner in each Partnership on the record date for the Consolidation, and (ii)
the exchange value of each such Partnership. See "--Method of Determining
Exchange Values".
26
<PAGE>
<TABLE>
<CAPTION>
TABLE A
CONSOLIDATION SCHEDULE - COMPOSITION OF EXCHANGE VALUES
Fair Market Value Changes in
of Proved Oil and Other Assets Payabe to Total
Gas Reserves as of Less Distributions General Exchange
Partnership March 31, 1996 Liabilities From 3/31/96 Partner Value
- ----------- ----------------- ------------- ------------ -------
<S> <C> <C> <C>
Enex Program I Partners, L.P. 4,281,521 $ 809,571 $ 5,091,092
Enex Oil & Gas Income Program II-7, L.P. 845,159 55,352 900,511
Enex Oil & Gas Income Program II-8, L.P. 646,981 41,476 688,457
Enex Oil & Gas Income Program II-9, L.P. 385,609 25,830 411,439
Enex Oil & Gas Income Program II-10, L.P. 486,203 33,795 519,998
Enex Oil & Gas Income Program III-Series 1, L.P. 293,613 16,533 310,146
Enex Oil & Gas Income Program III-Series 2, L.P. 420,430 23,938 444,368
Enex Oil & Gas Income Program III-Series 3, L.P. 639,267 42,708 681,975
Enex Oil & Gas Income Program III-Series 4, L.P. 239,819 1,876 241,695
Enex Oil & Gas Income Program III-Series 5, L.P. 235,959 37,626 273,585
Enex Oil & Gas Income Program III-Series 6, L.P. 273,635 30,551 304,186
Enex Oil & Gas Income Program III-Series 7, L.P. 190,322 24,698 215,020
Enex Oil & Gas Income Program III-Series 8, L.P. 226,191 48,854 275,045
Enex Oil & Gas Income Program IV-Series 1, L.P. 146,001 31,083 177,084
Enex Oil & Gas Income Program IV-Series 2, L.P. 104,105 28,677 132,782
Enex Oil & Gas Income Program IV-Series 4, L.P. 170,807 17,622 188,429
Enex Oil & Gas Income Program IV-Series 5, L.P. 234,515 31,399 265,914
Enex Oil & Gas Income Program IV-Series 6, L.P. 155,644 28,263 183,907
Enex Oil & Gas Income Program IV-Series 7, L.P. 281,993 (13,398) 268,595
Enex Oil & Gas Income Program V-Series 1, L.P. 282,297 7,808 290,105
Enex Oil & Gas Income Program V-Series 2, L.P. 202,024 7,245 209,269
Enex Oil & Gas Income Program V-Series 3, L.P. 190,801 6,785 197,586
Enex Oil & Gas Income Program V-Series 4, L.P. 858,968 86,335 945,303
Enex Oil & Gas Income Program V-Series 5, L.P. 673,595 85,783 759,378
Enex Oil & Gas Income Program VI-Series 1, L.P. 540,925 18,031 558,956
Enex Income and Retirement Fund-Series 1, L.P. 238,745 18,614 257,359
Enex Income and Retirement Fund-Series 2, L.P. 267,512 24,003 291,515
Enex Income and Retirement Fund-Series 3, L.P. 170,472 26,177 196,649
Enex 88-89 Income and Retirement Fund-Series 5, L.P. 85,131 14,020 99,151
Enex 88-89 Income and Retirement Fund-Series 6, L.P. 117,657 10,314 127,971
Enex 88-89 Income and Retirement Fund-Series 7, L.P. 331,215 17,522 348,737
Enex 90-91 Income and Retirement Fund-Series 1, L.P. 405,979 23,088 429,067
Enex 90-91 Income and Retirement Fund-Series 2, L.P. 189,679 18,071 207,750
Enex 90-91 Income and Retirement Fund-Series 3, L.P. 546,373 90,731 637,104
------- ---------- ----------
TOTAL 15,359,147 1,770,981 0 17,130,128
========== ========= =========== ==========
</TABLE>
27
<PAGE>
Method of Determining Exchange Values
Proved Oil and Gas Reserves: For each Partnership property, Gruy,
independent engineering consultants, estimated as of December 31, 1995, the
recoverable units of oil and gas and the undiscounted and discounted future net
revenues by year commencing January 1, 1996 and continuing through the estimated
productive lives of the properties. A summary of each Partnership's property
acquisitions and quantitative information regarding each Partnership's oil and
gas reserves is included in "THE CONSOLIDATED PARTNERSHIP--Proposed
Activities--Description of Properties" and Tables 8 and 9 below. Certain oil and
gas property reserve information is also included in Tables 6, 7 and 16 in
Appendix A. Included in this information are the reserve valuations of the
properties of each Partnership prepared by Gruy. Gruy has been preparing reserve
estimates for each of the Partnerships' oil and gas reserves since the inception
of each Partnership's operations. Gruy was selected by the General Partner for
this task based upon its reputation, experience and expertise in this area. Gruy
is an international petroleum consulting firm with offices in Houston and
Dallas, Texas. Gruy's staff includes petroleum engineers and geology
consultants. Services they provide include reserve estimates, fair value
appraisals, geologic studies, expert witness testimony and arbitration. In 1995
and 1994, the Partnerships paid Gruy a total of $40,531 and 39,854,
respectively, in fees for annual reserve report valuations. In 1996, the
Partnerships paid Gruy a total of $40,703 for the valuations described in this
Prospectus/Proxy Statement. In addition, Gruy has received aggregate
compensation from the General Partner and other limited partnerships of which
Enex is the general partner during the past two years in the amount of $131,692.
The limited partners should be aware that the reserves estimated by Gruy
include, in certain cases, estimates of proved undeveloped reserves as well as
developed reserves, both producing and nonproducing, and, in any event, are
estimates only and should not be construed as being exact amounts. See "RISK
FACTORS AND OTHER CONSIDERATIONS--The Proposed Consolidation--Risks in
Determining Exchange Values". Exchange values for the Consolidation were
calculated by the General Partner utilizing Gruy's fair market valuations of the
proved oil and gas reserves.
According to Gruy, for the estimation of the fair market value of oil and
gas properties, there are basically two approaches; namely, the income approach
and the market data approach. The income approach requires the estimation of
reserves, identification of their categories (proved, probable and possible), a
detailed cash flow projection and the proper application of risk factors. The
market data approach utilizes comparable sales of properties in the area. The
fair market value was estimated using the income approach as opposed to the
market data approach because it is difficult to identify sales of oil and gas
properties that are comparable in net reserves, product prices, location,
operating expenses and operator expertise. For the proved producing properties,
the estimated discounted future net revenue was reduced to a fair market value
by multiplying by a suitable fraction that accounts for the risk associated with
such an investment. For proved developed non-producing reserves, a suitable risk
factor was applied and the present value of the capital investment required to
initiate production was subtracted from that value. This approach assumes that
the capital is invested with certainty and the resulting cash flow stream is
burdened with the uncertainty.
Gruy estimated each Partnership's oil and gas reserves, applied certain
assumptions described below regarding price and cost escalations, applied a 10%
discount factor for time and various discount factors for risk, location, type
of ownership interest, operational characteristics and other factors as follows:
Gruy applies a discount factor to all proved developed oil and gas reserves,
including all of the Partnership properties, to reflect the risk inherent in
estimating such reserves and that associated with an investment therein. Gruy
further discounts the value of oil and gas reserves to the extent it determines
appropriate based on its consideration of the particular location, type of
interest, category of reserves and operational characteristics of such reserves.
Working Interest and Net Profits Interest Ownership: The risk factors
applied to proved producing reserves ranged from a low of 19.5% to a high of
33.5%. For the proved nonproducing reserves, the risk factors ranged from a low
of 33% to a high of 67%. For the undeveloped reserves, the risk factors ranged
from 61.5% and 78.6%.
Overriding Royalty Interest Ownership: The risk factors applied to proved
producing reserves ranged from 25% to 50.9%. For proved nonproducing reserves,
the factors ranged from 35% to 82.5%.
28
<PAGE>
No fair market value was assigned to probable or possible categories of
reserves. Gruy allocated the estimates among the Partnerships on a pro rata
basis in accordance with their respective ownership interest in each of the
properties evaluated. See Table 17 in Appendix A. The amounts so determined were
then adjusted by the General Partner to take into account estimated sales of oil
and gas produced during the period January 1 through March 31, 1996.
Future net revenues were estimated by Gruy using an oil price of $18.00 per
barrel and gas prices ranging from $.70 to $3.05 per mcf as supplied by the
General Partner, such gas prices representing average prices received over the
last 12 months in each field or property. Future operating costs and capital
expenditures were estimated by the General Partner and utilized by Gruy in the
future cash flow estimates. Prices and costs were escalated as follows: Oil
prices were escalated 5.2% in 1997, 5.0% in 1998, 4.3% in 1999 and 3.2% in 2000
and 3.3% each year thereafter to a maximum of $30.69 per barrel. Natural gas
prices were escalated 7.2% in 1997, 7.3% in 1998, 4.2% in 1999, and 3.0% each
year thereafter to a maximum of $3.80 per thousand cubic feet. Operating
expenses and future capital investments were escalated at the rate of 3.0% per
year until the year in which the primary product reached its maximum price.
The present worth of the total future revenues attributable to plant
products resulting from the processing of natural gas in gas processing plants
in which certain Partnerships hold interests is included in proved oil and gas
reserves. Natural gas liquids prices were escalated in the same manner as oil
prices.
There can be no assurance that actual prices to be received in the future
will be consistent with the assumptions described above, including the maximum
oil and gas prices. It should be noted that at January 1, 1996 the estimated
average prices of oil and gas sold by the Partnerships were approximately $19.00
barrel and $2.05 per thousand cubic feet, respectively.
Upon written request by a limited partner or his representative who has
been so designated in writing, a copy of Gruy's report will be sent, without
charge, by the General Partner. Requests should be addressed to Robert E.
Densford, Vice President-Finance, Secretary & Treasurer, Enex Resources
Corporation, Suite 200, Three Kingwood Place, Kingwood, Texas 77339.
No Other Property Values: The General Partner has not assigned exchange
values to additional oil and gas that may be recoverable from such sources as
undrilled well locations where geological and engineering data indicate (but are
not considered to prove) the existence of formations that, if and when drilled,
may be productive.
Other Assets Less Liabilities: The General Partner's calculation of the
exchange values shown for the remaining Partnership assets (called "other assets
less liabilities") is derived from the Partnerships' balance sheets as of March
31, 1996 and includes, among other things, cash and short-term investments, oil
and gas sales receivables, prepaids and other assets, less liabilities, as
adjusted for distributions after March 31, 1996.
Indebtedness to the General Partner: All but two of the Partnerships have
notes and/or accounts receivable payable to the General Partner, typically for
unreimbursed expenses paid by the General Partner on such Partnership's behalf.
In order to eliminate this indebtedness and to permit the Consolidated
Partnership to operate on a debt-free basis following the Consolidation, the
General Partner is contributing its accounts and notes receivable from the
Partnerships to the Consolidated Partnership in exchange for Units. In
calculating exchange values, the amount of indebtedness owed by each Partnership
to the General Partner was added to the exchange value of its net assets and
allocated to the account of the General Partner. See Table 13 in Appendix A.
Thus the Units to be received by each Partnership upon consummation of the
Consolidation will include a number of Units attributable to the indebtedness to
the General Partner being canceled. These Units will be distributed to the
General Partner at the same time that the Units received in exchange for
Interests are distributed to limited partners (including the General Partner
with respect to the Interests it owns). In the absence of this exchange of
indebtedness for Units, the Consolidated Partnership would have to assume, if
all Partnerships participate in the Consolidation, $2.9 million of indebtedness
to the General Partner. Moreover, the General Partner will actually be
exchanging its superior interest as a creditor of the participating Partnerships
for an interest (i.e., Units) that is pari passu with the interests of the
Unitholders of the Consolidated Partnerships.
29
<PAGE>
Background and Alternatives to the Consolidation
In the fall of 1995, the General Partner began evaluating the Partnerships
to determine how they could be operated more efficiently and economically for
the benefit of all of their partners. In December of 1985, the General Partner
had consolidated the twelve separate oil and gas limited partnerships formed in
the Enex Oil and Gas Income Program I into the single Partnership, Enex Program
I Partners, L.P. The General Partner estimates that this consolidation has saved
the limited partners of that Partnership an aggregate amount in excess of $5
million in reduced Administrative Costs.
In light of the savings achieved by the earlier consolidation, the Board of
Directors of the General Partner (the "Board"), at a meeting held in December of
1995, discussed a possible consolidation of the Partnerships, and authorized and
directed the management of the General Partner to investigate the costs and
benefits of a potential consolidation and the alternatives thereto and report
their findings to the Board.
o Overhead and Operating Costs: The General Partner believes that the
Consolidation will result in substantial economies of operation and savings in
Direct, Administrative, and Operating Costs, particularly in the areas of audit
and accounting services, bookkeeping and data processing, and property record
maintenance. Management of the General Partner estimates that in the absence of
the proposed Consolidation, the separate Partnerships would incur a combined
total of approximately $1,900,000 of Administrative Costs each year, but that if
all Partnerships were to participate in the proposed Consolidation, the
Administrative Costs of the Consolidated Partnership would be reduced to
$1,100,000 per year as a result of simplified managerial and administrative
requirements.
Other benefits of the proposed Consolidation to the limited partners
considered by the General Partner include the following:
o Diversification of Interests: Limited partners who take part in the
Consolidation will exchange their indirect interests in the business and
properties of their separate Partnerships for indirect interests in the business
and properties of the Consolidated Partnership. The participating Partnerships
now hold interests in from 1 to 12 acquisitions and in a number of wells ranging
from 8 to 10,946 gross wells per Partnership. After the Consolidation, if all
Partnerships participate, a limited partner will hold an interest,
proportionately reduced on the basis of relative exchange values, in 48
acquisitions containing approximately 12,320 gross wells. In addition, certain
Partnerships own interests in other assets, such as gas processing plants, which
other Partnerships do not.
The General Partner believes that greater diversity in property holdings
will lessen dependence upon any single property or type of property. It will
reduce the risk that failure of any one property to perform as expected, or
adverse price changes or other matters affecting one type of property, will
materially reduce the value of a limited partner's interest. See, however, "RISK
FACTORS AND OTHER CONSIDERATIONS-The Proposed Consolidation-Risks in Determining
Exchange Values." The greater the number of properties in which interests are
held, the lower the risks of holding the investment. Certainty and
predictability of operations, and consequently of distributions to the Partners,
may be similarly enhanced.
o Expanded Reserve Base: Currently, the individual Partnerships' oil,
condensate and natural gas liquids reserve base ranges from 3.7 thousand barrels
to 484 thousand barrels. The range for natural gas reserves is zero in some
partnerships to 4.8 billion cubic feet in one Partnership. At January 1, 1996,
the discounted value of these reserves ranged from a low of $137,000 to a high
of $5.9 million.
The reserve base for the Consolidated Partnership, assuming all
Partnerships participate, will be expanded to 2.1 million barrels of oil,
condensate and natural gas liquids and 12.8 billion cubic feet of gas. This
represents 4.26 million equivalent barrels of oil using a conversion ratio of 6
mcf of gas to 1 barrel of oil. The combined value of these reserves at January
1, 1996, was estimated to be $22.9 million. See Tables 6 and 7 in Appendix A.
30
<PAGE>
The expanded size, both in oil and gas reserves and in the future value of
these reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide both increased strength and
flexibility in future negotiations with oil and gas purchasers and in the
participation of reserve enhancement projects in which, in some cases, the
individual Partnerships would not otherwise be able to participate. Negotiations
in the future sale of properties will also be strengthened. Marginal properties
can be sold without a material effect on cash flow. Overall, the Consolidated
Partnership will be able to compete in larger markets with the stronger,
combined asset base.
o Working Capital and Debt: The General Partner is contributing its
accounts and notes receivable from the Partnerships for Units in the
Consolidated Partnership. As a result, the Consolidated Partnership will have
essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
CONSOLIDATED PARTNERSHIP--Proposed Activities".
o General Partner's Interest at Payout: The Partnership Agreements provide
that the General Partner's interest will increase from 10% to 15% upon payout to
the limited partners. However, only two of the Partnerships are expected to
reach payout within the next 5 years, unless oil and gas prices were to double.
Nevertheless, the General Partner has decided to relinquish its right to receive
this increase in its share of participating Partnerships' revenues after payout.
Accordingly, the General Partner's share of Consolidated Partnership revenues
and costs will not increase as it should upon payout on an individual
Partnership basis. See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs and
Revenues".
o Elimination of Conflicts: By its nature, the formation of an oil and gas
partnership by a company engaged in the oil and gas business involves conflicts
of interest which cannot be totally eliminated. However, the General Partner
believes that many conflicts of interest that arise from Partnership operations
should be eliminated by the Consolidation. For example, the Consolidation will
eliminate conflicts among the participating Partnerships, although it will not
affect potential conflicts between the Consolidated Partnership and
non-participating Partnerships.
Against these benefits, the General Partner considered the costs of the
Consolidation. The costs of planning and developing the Consolidation and
presenting it to the limited partners of the Partnerships will be borne by the
Consolidated Partnership if the Consolidation is effectuated, otherwise by the
General Partner. The estimated amount of these costs is approximately $400,000
or approximately 2% of the aggregate exchange value in the Consolidated
Partnership if all the Partnerships participate. Included are legal, accounting
and engineering fees, printing and postage expenses, filing fees, a share of the
Administrative Costs of the General Partner and its affiliates, and other costs.
The General Partner estimates that if all the Partnerships participate in the
Consolidation, aggregate savings in reduced Direct, Administrative and Operating
Costs will exceed $800,000 per year.
Because the savings likely to be generated by the Consolidation would
substantially exceed its costs and in light of the other benefits of the
Consolidation set forth above, the General Partner determined that a
consolidation of all the Partnerships would be more beneficial to the
Partnerships and the limited partners than the continuation of such Partnerships
as individual entities.
The General Partner also considered as an alternative to the proposed
Consolidation, dissolving and liquidating some or all of the Partnerships. The
General Partner determined that the proposed Consolidation would provide the
limited partners of each Partnership with greater benefits than the dissolution
and liquidation of their Partnerships for several reasons. The General Partner
believes that the Partnerships will realize greater value from their properties
over the long term by operating them on a combined basis through the
Consolidated Partnership and achieving substantial cost savings than they would
realize in a liquidation sale of Partnership properties. In addition, General
Partner is owed an aggregate of $2.9 million by the Partnerships. Pursuant to a
liquidation of the Partnerships, the General Partner would be paid this amount
out of the liquidation proceeds before any proceeds would be available for
distribution to the limited partners. Pursuant to the Consolidation, however,
the General Partner will be exchanging its rights as a creditor of the
Partnerships for Units of the Consolidated Partnership, which will place the
General Partner in a pari-passu position vis-a-vis the limited partners with
respect to this indebtedness.
31
<PAGE>
The General Partner also considered consolidating some but not
all of the Partnerships and the continuation of the others. Although several
limited partnerships managed by the General Partner were, in fact, determined
not to be suitable for participation in the Consolidation, the General Partner
determined that the benefits of the proposed Consolidation with respect to a
decrease in overhead, diversification of interests and expanded reserve base
would, in each case, be greater with full participation than with only partial
participation, albeit to differing degrees.
As a result of the above-described considerations, at a meeting
of the Board on May 24, 1996, the Board approved the proposed Consolidation,
subject to the approval of the limited partners.
Fairness of the Transaction
The General Partner believes that the proposed Consolidation is
fair to and in the best interests of the limited partners of each and all of the
Partnerships. As described in "-Background and Alternatives to the
Consolidation," the General Partner considered the alternative possibilities of
dissolving and liquidating some or all of the Partnerships and continuing some
or all of the Partnerships, but determined that the proposed Consolidation would
provide the limited partners with greater overall benefits than any of these
alternatives.
The consideration to be offered to the limited partners and the
General Partner pursuant to the Consolidation in exchange for their Interests,
i.e., the number of Units of the Consolidated Partnership each would receive in
the Consolidation, will be determined in accordance with the exchange values of
such Interests, which, in turn, are based on Gruy's valuations of the
Partnership properties. See "-Method of Determining Exchange Values." The
General Partner does not believe that alternative methods of valuing the
Partnership properties, such as using current or historical market prices,
prices recently paid the General Partner for Interests in the Partnerships (see
Table 14 in Appendix A), net book value, going concern value or liquidation
value, would result in materially different valuations of Partnership properties
than those yielded by Gruy's valuations. Even were such to be the case, the
General Partner would not consider it as significant to the determination of the
fairness of the transaction to the limited partners because in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating the purchasers' and sellers' estimates of the discounted
present value of the subject oil and gas reserves. Thus, in the General
Partner's view, the Gruy estimated fair market valuations, as compared to the
other above-referenced valuation methods, represent the best estimation of the
realizable value of the Partnership properties and the fairest basis for
determining the Units to be distributed to the Partnerships (and ultimately the
holders of Interests) in consideration for the Partnerships' assets.
No director or group of directors has retained an unaffiliated
representative to act solely on behalf of the limited partners for the purposes
of negotiating the terms of the proposed plan to dissolve and liquidate the
Partnerships. No firm offer has been made by any person during the preceding 18
months regarding the merger or consolidation of any of the Partnerships, the
sale or transfer of all or any substantial part of the assets of any Partnership
or securities of any Partnership which would enable the holder thereof to
exercise control of such Partnership. The absence of the protections described
in the preceding two sentences was considered, but was judged to be immaterial,
by the General Partner in determining the fairness of the proposed transactions
to the limited partners.
Terms of the Consolidation
Partnership Voting Requirements and Rights: Approval of the
proposed Consolidation by a Partnership will require the affirmative vote of a
majority-in-interest of the limited partners of that Partnership. The required
majority-in-interest is determined by reference to the limited partners'
"Sharing Ratios" in their Partnership. As defined in the Partnership Agreements,
"Sharing Ratio" means, with respect to a Partner, the ratio between such
Partner's "Net Subscription" and capital contributions and the aggregate "Net
Subscriptions" and capital contributions of all Partners of the Partnership
(including the General Partner). "Net Subscription" refers to the amount paid
for his Interests in a given Partnership, less all commissions, selling expenses
and Offering Costs charged against the subscription. Thus, the required
majority-in-interest vote for approval of the Consolidation by each Partnership
is based upon the receipt of written approval from limited partners of each
Partnership whose Net Subscriptions and capital contributions, if any,
collectively constitute a majority of the aggregate Net Subscriptions
32
<PAGE>
and capital contributions, if any, to such Partnership. The written consent of a
limited partner evidenced by his signed Proxy and Ballot approving the proposed
Consolidation may not be withdrawn once it is received by the General Partner. A
limited partner who abstains or votes against the proposed Consolidation may
thereafter file a valid written approval by sending his signed Proxy and Ballot
voting for the proposed Consolidation.
Under the Plan of Consolidation, each of the participating
Partnerships will dissolve and terminate following the transfer of its assets to
the Consolidated Partnership. In order to facilitate the Consolidation and
resulting dissolutions and terminations, certain amendments to the Partnership
Agreements of each of the participating Partnerships are needed. These
amendments are being submitted to the limited partners for their approval as
part of the Plan of Consolidation. See Appendix D, Proposed Amendments to the
Partnership Agreements of the Partnerships. Among the changes required to
facilitate the Consolidation is a provision that will permit the participating
Partnerships' post-consolidation assets (i.e., their Units) to be distributed to
their Partners in kind rather than exclusively in cash. The Partnership
Agreement of each of the Partnerships provides for the dissolution and winding
up of the affairs of the Partnerships and the amendment of the Partnership
Agreements by the affirmative vote and receipt of written approval of a
majority-in-interest of the limited partners, determined in accordance with
their Sharing Ratios.
Limited partners should note that although they will be voting
on the Plan of Consolidation and the amendments to the Partnership Agreements,
limited partners cannot vote separately on the two items.
Only limited partners of record at the close of business on the
record date set forth in the accompanying Notice will be entitled to vote on the
proposed Consolidation. The thirty-four Partnerships had a total of
approximately 12,518 limited partners at that date. To the General Partner's
knowledge, except for Enex Resources Corporation and the limited partners listed
in Table 12 in Appendix A, there are no limited partners holding, either of
record or beneficially, a 5% or greater Sharing Ratio in any of the
Partnerships.
The amount of Interests and the Sharing Ratios attributable to
such Interests owned by the General Partner as of June 30, 1996 and the other 5%
holders are shown in Table 12 in Appendix A. The General Partner and its
affiliates will vote all Interests owned by them in favor of the Consolidation.
Thus, by virtue of the General Partner's ownership of more than 53% of the
Interests in Enex Program I Partners, L.P., participation in the Consolidation
by that Partnership is assured.
Limited partners entitled to vote may vote either by attending
the Meetings in person or by signing, completing and delivering their Proxy and
Ballot included with this Prospectus/Proxy Statement in the postage-paid
envelope provided for this purpose. With respect to each Partnership in which he
holds an interest, each limited partner will be entitled to vote separately For
or Against the proposal or Abstain from voting. Failure to specify on the Proxy
and Ballot the manner in which a Limited Partner wishes to vote his Interests on
the proposal will result in such interest being voted For the proposal. The
Meetings of the limited partners may be adjourned by the General Partner from
time to time.
Consolidation Procedure: The consolidation of the participating
Partnerships is proposed to be effected in the following manner:
1. The Consolidated Partnership is offering to acquire all of
the assets, subject to the liabilities of the Partnerships in exchange for Units
of limited partnership interest in the Consolidated Partnership.
2. The proposed transfer of assets to the Consolidated
Partnership by each of the Partnerships is being submitted to the limited
partners thereof for their approval, pursuant to which each of the participating
Partnerships will adopt and agree to the Plan of Consolidation whereby the
Partnerships will consolidate to form the Consolidated Partnership. See Appendix
C, the Plan of Consolidation. The Consolidation is subject to the satisfaction
of all the terms and conditions set forth under "--Conditions to the
Consolidation" and in the Plan of Consolidation. See "--Partnership Voting
Requirements and Rights".
33
<PAGE>
3. All of the assets, subject to the liabilities (except for the
amounts owed to the General Partner), of the Partnerships that approve the
Consolidation will be conveyed to the Consolidated Partnership in exchange for
Units of limited partnership interest in the Consolidated Partnership. The
General Partner will contribute the amounts owed to it by the participating
Partnerships to the participating Partnerships and will, consequently, receive
additional Units therefor.
4. The extent to which each limited partner will share in the
Consolidated Partnership is described under "--The Consolidation Schedule".
5. Upon transfer of their assets to the Consolidated
Partnership, the Partnerships that take part in the Consolidation will be
dissolved and liquidated. Each Partner of each participating Partnership will
receive Units of limited partnership interest in the Consolidated Partnership.
Units will be calculated to 4 decimal places. Unitholders who elect to do so
will become limited partners in the Consolidated Partnership. A limited partner
of a participating Partnership who does not choose to become a limited partner
in the Consolidated Partnership will remain an assignee of the limited
partnership interest represented by the Units distributed to him in liquidation
of his Partnership, entitled to the economic benefits of such Units but not
entitled to certain other rights of a Limited Partner. See "--Request for
Admission As Limited Partner", below.
6. The Exchange Offer. The Consolidated Partnership will also
offer, on the terms and subject to the conditions set forth in this
Prospectus/Proxy Statement, to exchange Units for validly tendered Interests of
individual limited partners in the non-participating Partnerships. The
Consolidated Partnership will accept such tendered Interests and issue Units in
exchange therefor if the Plan of Consolidation is not approved by the tendering
limited partner's Partnership and the tendering limited partner voted in favor
of the Consolidation. One Unit will be offered for each $10.00 of Exchange Value
assigned to the Interests. The Partnerships and the exchange value assigned to
the Interests therein are listed in Table A in "--The Consolidation Schedule"
above. The Exchange Offer is limited with respect to any Partnership to the
amount of Interests that may be transferred without causing a termination of the
Partnership for federal income tax purposes. See "TAX ASPECTS--Participation in
the Consolidated Partnership--Liquidation and Termination of the Consolidated
Partnership".
Conditions to the Consolidation: The principal conditions to
consummation of the Consolidation are the requirements (a) that the
Consolidation be approved by the limited partners of Partnerships whose assets
together with the exchange value of those Interests that are exchanged for Units
pursuant to the Exchange Offer, have an aggregate exchange value of $10 million
or more2; (b) that the Consolidation does not violate any order, decree or
judgment of any court or governmental body having jurisdiction; (c) that between
the date of this Prospectus/Proxy Statement and the time of closing of the
Consolidation no development or change occurs, or is discovered, in the business
or properties of one or more of the Partnerships that approve the Consolidation,
or in the applicable regulatory or tax structure, or otherwise, that would
materially adversely affect the business, properties or prospects of the
Consolidated Partnership, but that would not also affect the Partnerships
generally in the same manner or to the same extent; (d) all necessary
governmental and third party permits, consents and other approvals have been
obtained, and (e) there is no pending or threatened legal action challenging or
seeking to prevent the consummation of the Consolidation.
If condition (c) is not met with respect to one or more of the
Partnerships that approve the Plan of Consolidation, and the withdrawal of such
Partnership or Partnerships from the Consolidated Partnership would not have a
material adverse effect on the Consolidated Partnership, the General Partner
may, in its sole discretion, either form the Consolidated Partnership without
including the assets of the Partnership or Partnerships which do not meet
condition (c) or re-solicit the limited partners of such Partnership or
Partnerships and include such Partnership or Partnerships in the Consolidated
Partnership if the requisite percentage of resolicited Partners approve the
Consolidation based upon exchange values which give effect to the changed
circumstances. If the exchange value
- --------
2By reason of the General Partner's ownership of more than 53%
of the Interests in Enex Program I Partners, L.P., that Partnership's
participation in the Consolidation, with its $5.1 million exchange value, is
assured.
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of any Partnership determined at the time of transfer has changed by less than
15% from the exchange value set forth herein, such change will not be deemed
material. Conversely, any change in exchange value of 15% or more will be deemed
material. In addition, the General Partner may, in its sole discretion, elect to
cancel the Consolidation if dissenters' rights (see "-Dissenters' Rights" below)
are exercised by limited partners holding more than 10% of the aggregate
exchange value of all the Partnerships that participate in the Consolidation.
The General Partner also retains the right to terminate the
proposed Consolidation if, in its judgment, the Consolidation is rendered
impracticable or inadvisable by war or other calamity or a material adverse
change in general market or economic conditions.
Partnerships That Vote Not to Consolidate: Any Partnership whose
limited partners do not approve the Consolidation will continue its present
business unchanged and the limited partners of such Partnership who do not
participate in the Exchange Offer will continue to have all of their existing
rights and privileges. The rights and interests of the non-participating
Partnerships' limited partners will not be altered in any respect and non
participating Partnerships will not pay any part of the costs of planning and
developing the proposed Consolidation and presenting it to the limited partners
or of the costs incurred in connection with the consummation of the
Consolidation.
Plan of Solicitation: Proxies will be solicited by mail,
telephone and personal interviews by directors, officers and other employees of
the General Partner. Directors, officers and other employees of the General
Partner will use their best efforts to solicit proxies in favor of the Plan of
Consolidation. The General Partner may utilize solicitation material in addition
to this Prospectus/Proxy Statement. Such material may consist of a summary
description of the Consolidation in question and answer format or similar
material. The General Partner has not authorized the use of other solicitation
material. When used, material must be preceded or accompanied by this
Prospectus/Proxy Statement. Although the information contained in additional
solicitation material will not conflict with any of the information set forth
herein, such material will not purport to be complete. Such solicitation
material should not be considered a part of or incorporated in this
Prospectus/Proxy Statement or the Registration Statement of which this
Prospectus/Proxy Statement is a part.
No solicitation fees or other compensation will be paid to any
such persons although the General Partner will be reimbursed for actual costs
and expenses incurred in connection with such activities, including allocable
Administrative Costs. If the Consolidation is consummated, all costs of the
Consolidation will be paid by the Consolidated Partnership and allocated to the
Unitholders, including the General Partner and the limited partners.
The General Partner reserves the right to engage the services of
broker-dealers to assist it in the solicitation process. No fees or other
compensation will be paid to such broker-dealers but they will be entitled to
reimbursement for their out-of-pocket costs. The General Partner contemplates
utilizing such services only in those states, if any, in which local law
prohibits the General Partner and its subsidiary from soliciting proxies
directly.
Request For Admission As Limited Partner: Each Unitholder who
wishes to become a limited partner in the Consolidated Partnership may do so
subject to his being able to satisfy, among other things, certain suitability
standards by making the statements, promises and agreements that are set forth
in Section 10.1 of the Articles and incorporated in the "Request for Admission
as Limited Partner" form that is part of the accompanying Proxy and Ballot.
Such statements, promises and agreements are substantially
similar to those which were contained in the subscription agreement and power of
attorney signed by each limited partner at the time he subscribed for Interests
in a Partnership and include among other things, a certification that the
Unitholder's Social Security or Taxpayer Identification Number is correct and
that the Unitholder is not subject to backup withholding on interest or
dividends, and, in most cases, a representation that the Unitholder has either
(i) a net worth of not less than $90,000 or $100,000 or (ii) a net worth of not
less than $25,000 or $30,000 and an annual income of $25,000 or $30,000 or more.
Unitholders in certain states must meet different financial suitability
standards, as set forth in Section 10.1 of the Articles.
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If at any time the General Partner determines that any
statement, promise or agreement made by or requested of a Unitholder was false
when made, has been violated, or would be false if made at a later time, or that
a Unitholder is otherwise not qualified to hold interests in federal oil and gas
leases, or otherwise jeopardizes the Consolidated Partnership's tax status or
the limited liability of other Unitholders of the Consolidated Partnership, then
the General Partner will have the right, but not the obligation, to purchase the
Units of such Unitholder at a price equal to the most recent purchase price for
the Units determined pursuant to the purchase price formula described under "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" below or, if there has not yet
been such a determination, at a price equal to 95% of the exchange value of the
Units, or, if a trading market for the Units has developed, at the then current
market price for such Units. The General Partner regards this to be necessary to
protect the Consolidated Partnership and its Unitholders against any unnecessary
expense or disability that might result if a Unitholder were unable to make the
necessary statements, promises and agreements or were subject to another
disqualification.
Limited partners who fail to sign and return the Proxy and
Ballot or who indicate on the Proxy and Ballot that they do not desire to become
limited partners in the Consolidated Partnership will be deemed assignees of
limited partnership interests in the Consolidated Partnership. The General
Partner is aware of no reason why the limited partners of a participating
Partnership should not choose to become limited partners in the Consolidated
Partnership rather than assignees of a limited partnership interest therein. A
limited partner whose Partnership takes part in the Consolidation may become a
limited partner in the Consolidated Partnership no matter how he voted on the
transaction provided he meets the above described requirements. If no special
instructions are given on a properly signed Proxy and Ballot form, it will be
assumed that the limited partner has elected to become a limited partner in the
Consolidated Partnership.
Because execution of the Proxy and Ballot constitutes a request
for admission as a limited partner in the Consolidated Partnership regardless of
how the limited partner voted on the Consolidation, a limited partner who does
not wish to become a limited partner in the Consolidated Partnership must
indicate that choice when signing the Proxy and Ballot by checking the box
provided for that purpose. In that case, if his Partnership takes part in the
Consolidation, the limited partner will become an assignee of a limited
partnership interest in the Consolidated Partnership. As an assignee of a
limited partnership interest in the Consolidated Partnership, a Unitholder will
be entitled to the economic benefits resulting from ownership of the limited
partnership interest (the right to share in the profits and losses of the
Consolidated Partnership and to receive a return of the capital allocable to the
assigned limited partnership interest), will be treated as a partner for federal
income tax purposes and will be allocated his proportionate share of income,
gain, loss, deduction or credit attributable to the assigned limited partnership
interests (see "TAX ASPECTS--Participation in the Consolidated Partnership").
However, an assignee will not be entitled to vote or to exercise the statutory
rights of a limited partner or to present Units for purchase by the Consolidated
Partnership (see "THE CONSOLIDATED PARTNERSHIP--Right of Presentment"). Such a
Unitholder may find it extremely difficult to terminate his investment in the
Consolidated Partnership if no market for the Units develops. Assignees of Units
may, however, become limited partners of the Consolidated Partnership at any
time by properly completing, signing and delivering to the General Partner a
"Request for Admission as Limited Partner" form, including a "Power of Attorney"
and a "Certification as to Eligibility", such as the one set forth on the
reverse side of the accompanying Proxy and Ballot. In addition, a transferee of
Units may become a limited partner in the Consolidated Partnership whether or
not his transferor was such a limited partner. See "THE CONSOLIDATED
PARTNERSHIP--Transfer of Units".
The "Request for Admission as Limited Partner" included as part
of the Proxy and Ballot contains a power of attorney which appoints the General
Partner as attorney-in-fact for the Unitholder and, together with the power of
attorney set forth in the Articles, authorizes the General Partner, on behalf of
the Unitholder, to execute, acknowledge, swear to and file: (1) all
certifications required or permitted under the provisions of the Internal
Revenue Code and all documents for and agreements with the Internal Revenue
Service to keep open the statute of limitations with respect to any Consolidated
Partnership items under examination by the Internal Revenue Service or to
establish a Unitholder's liability for tax or withholding of tax, entitlement to
a credit or refund of tax; (ii) all stock exchange listing applications, NASDAQ
applications and other instruments and agreements relating to the possible
establishment and maintenance of a market for the Units; (iii) the Articles and
any amendments thereto made in accordance therewith; (iv) certificates of
limited partnership required by law and all amendments thereto;
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<PAGE>
(v) all certificates and other instruments necessary to qualify or continue the
Consolidated Partnership in the states where it may be doing business; (vi)
leases, assignments and other instruments required or permitted in connection
with the leasing of lands for oil, gas or other mineral exploration or
production; (vii) all assignments, conveyances or other instruments or documents
necessary to effect the dissolution and liquidation of the Consolidated
Partnership; and (viii) all other filings with agencies of the federal
government, of any state or local government, or of any other jurisdiction,
which the General Partner considers necessary or desirable to carry out the
purposes and business of the Consolidated Partnership. This power of attorney is
deemed to be coupled with an interest, is irrevocable and is intended to survive
death or incapacity, to the extent a Unitholder may legally contract for such
survival.
The General Partner will be the limited partner of record with
respect to all Units held by Unitholders who are not admitted to the
Consolidated Partnership as limited partners; provided, however, that any voting
rights to which such Unitholders would be entitled were they limited partners
will be exercised by the General Partner in proportion to the votes cast by
Unitholders who are limited partners.
Effect of Approval on Nonconsenting Limited Partners: A limited
partner will be bound by the Plan of Consolidation if it is approved by a vote
of a majority-in-interest of the limited partners of his Partnership regardless
of whether or not he voted in favor of the Plan of Consolidation. If the
conditions to the Consolidation are met, each participating Partnership will
transfer its assets to the Consolidated Partnership in exchange for Units, and
thereafter dissolve and liquidate. Unless a nonconsenting limited partner
exercises the dissenters' rights described below, as a limited partner of a
participating Partnership his Interests in the Partnership will terminate in
connection with the dissolution of the participating Partnership and will be
replaced by Units of the Consolidated Partnership. See "-- Request for Admission
as Limited Partner" above and " -- Dissenters' Rights" below.
Dissenters' Rights: A limited partner of a participating
Partnership who votes against approval of the Consolidation may demand cash in
lieu of Units in an amount equal to the exchange value of such limited partner's
Interests pursuant to the following terms and conditions. There are no statutory
dissenters' or appraisal rights afforded to limited partners who vote against or
abstain from voting on the Consolidation. Failure to take any action required
below will result in a termination or waiver of a limited partner's dissenters'
rights. It should be noted, however, that the General Partner may, in its sole
discretion, elect to cancel the Consolidation, and all dissenters' rights in
connection therewith, if dissenters' rights are exercised by limited partners
holding more than 10% of the aggregate exchange value of the participating
Partnerships.
1. A limited partner electing to exercise
dissenters' rights must (a) deliver to the General Partner,
before the limited partners vote on the Plan of Consolidation, a
written notice of intention to demand a cash payment (a
"Dissenter's Notice") that is made by or on behalf of the person
who is the limited partner of record of the Interests for which
such dissenters' rights are demanded and (b) vote AGAINST
approval of the Plan of Consolidation. The demand must be
delivered to the General Partner at its offices at 800 Rockmead
Drive, Three Kingwood Place, Kingwood, Texas 77339. A Proxy and
Ballot simply voting against approval of the Plan of
Consolidation does not constitute a Dissenter's Notice. A
limited partner intending to exercise dissenters' rights must do
so by a separate written Dissenter's Notice that reasonably
informs the General Partner of the identity of the limited
partner of record and of such limited partner's intention to
demand cash for his Interests. Because a Proxy and Ballot left
blank will be voted FOR approval of the Plan of Consolidation, a
limited partner electing to exercise dissenters' rights who
votes by proxy must not leave the Proxy and Ballot blank but
must vote AGAINST approval of the Plan of Consolidation.
2. Only the limited partner of record of
Interests is entitled to demand dissenters' rights for the
Interests registered in that limited partner's name. The
Dissenter's Notice must be executed by or for the limited
partner of record, fully and correctly, as the limited partner's
name appears on the Proxy and Ballot mailed to the limited
partner. If the Interests are owned of record in a fiduciary
capacity, such as by a trustee, guardian, or custodian, the
Dissenter's Notice should be executed in that capacity. If the
Interests are owned of record by more than one person, as in a
joint tenancy or tenancy in common, the Dissenter's Notice
should be executed by or for all owners. An authorized agent,
including one of two or more joint owners, may execute the
Dissenter's Notice for a limited partner of record; however, the
agent
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must identify the owner or owners of record and expressly
disclose the fact that, in executing the Dissenter's Notice, the
agent is acting as agent for the owner or owners of record.
3. Within thirty (30) days after the
effective date of the Consolidation, the General Partner will
send a notice of the effectiveness of the Consolidation to each
limited partner of a participating Partnership who satisfied the
foregoing conditions prior to the vote of the limited partners
at the Meetings.
4. Each such limited partner may deliver to
the General Partner a written demand for a cash payment for his
Interests (a "Dissenter's Demand") at any time thereafter and
before the expiration of 120 days after the effective date of
the Consolidation. Limited partners seeking to exercise
dissenters' rights should not assume that the General Partner
will issue a check in the absence of receipt of a Dissenter's
Demand within the permitted time period. Accordingly, LIMITED
PARTNERS SHOULD INITIATE ALL NECESSARY ACTION TO PERFECT THEIR
DISSENTERS' RIGHTS WITHIN THE TIME PERIODS PROVIDED FOR ABOVE.
5. A limited partner will lose the right to
receive cash in lieu of Units if no Dissenter's Demand from him
is received by the General Partner within 120 days after the
Effective Date, or if a limited partner delivers to the General
Partner a written withdrawal of such limited partner's
Dissenter's Demand and an acceptance of the Consolidation,
except that any such attempt to withdraw made more than 60 days
after the effective date of the Consolidation requires the
General Partner's written approval. If dissenters' rights are
not perfected or a demand for dissenters' rights is withdrawn, a
limited partner will be entitled to receive the consideration
otherwise payable pursuant to the Plan of Consolidation, (i.e.,
Units issued by the Consolidated Partnership).
Consequences to the General Partner
The General Partner, as a holder of Interests in the
Partnerships, will share in the favorable aspects and costs of the Consolidation
in the same manner as the limited partners to the extent of such Interests.
Because the General Partner holds Interests in all the Partnerships, the risks
of determining exchange values will not apply to the same extent in its case.
The Consolidation will not increase the General Partner's obligations; it is
already responsible, as the General Partner of the Partnerships, for payment of
the indebtedness of each of the Partnerships. However, by reason of the fact
that the reduced annual maximum obligation to purchase Units upon presentment
will be borne by the Consolidated Partnership rather than by the General
Partner, the General Partner will be relieved of its commitment to purchase
Interests pursuant to certain of the Partnership Agreements. In addition, the
General Partner will contribute the indebtedness it is owed by the Partnerships
in exchange for Units in the Consolidated Partnership in addition to those it
will receive in exchange for the Interests it owns.
Partner Lists
A limited partner (or his representative) of any of the four
Texas Partnerships (i.e., those formed in Enex Oil & Gas Income Program II) has
the right to inspect and copy a list of the names and addresses of all of the
other limited partners of that Partnership at the principal office of the
Partnership (which is the office of the General Partner in Kingwood, Texas)
during normal business hours. On request, a copy of such list will be furnished
to any limited partner or his representative upon payment of reproduction and
mailing costs. New Jersey law permits each limited partner of any of the other
Partnerships, at his own expense, to inspect and copy a list of the names and
addresses of all of the other limited partners of that Partnership at the
principal office of the Partnership during ordinary business hours. A limited
partner's accredited representative will be afforded the same courtesy. On
request of a limited partner of any of the Partnerships formed in one of the
following Programs, a copy of such list will be furnished to any limited partner
or his representative upon payment of reproduction and mailing costs: Enex Oil &
Gas Income Program III, Enex Oil & Gas Income Program IV, Enex Oil & Gas Income
Program V, Enex Oil & Gas Income Program VI, Enex Income and Retirement Fund,
and Enex 88-89 Income and Retirement Fund. On five (5) days written request of a
limited partner of any of the Partnerships formed in the Enex 90-91 Income and
Retirement Fund, a copy of such list will be made available for inspection and
copying (at the cost of the
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requesting limited partner) at the Partnership's registered office in the State
of New Jersey (c/o Satterlee Stephens Burke & Burke, 47 Maple St., Summit, NJ
07901).
In addition, pursuant to Securities and Exchange Commission
("SEC") rules, upon the written request of any limited partner, the General
Partner will deliver to the requesting limited partner within five business days
of receipt of the request, a list of the names, addresses and Interest holdings
of the limited partners of the Partnership(s) in which the requesting limited
partner owns Interests, as of the record date for the Meetings. The list will be
in the form requested by the limited partner to the extent that such form is
available to the General Partner without undue burden or expense. The limited
partner must reimburse the reasonable expenses incurred by the General Partner
in delivering the list. At the time of a list request pursuant to SEC rules, the
limited partner making the request must be able to comply with the requirements
of paragraph (c) of SEC Rule 14a-7, a copy of which will be supplied to a
limited partner, without charge, upon request. Requests should be addressed to
the Investor Relations Department of Enex Resources Corporation, Suite 200,
Three Kingwood Place, Kingwood, Texas 77339.
The Exchange Offer
The Consolidated Partnership will offer Units in exchange for
the Interests of individual limited partners of Partnerships that fail to
approve the Consolidation. The accompanying Proxy and Ballot provides limited
partners who vote in favor of the Plan of Consolidation the opportunity to elect
to exchange their Interests for Units of the Consolidated Partnership should
their Partnership fail to approve the Consolidation. The Interests of those
limited partners desiring to exchange them for Units will be valued for purposes
of the Exchange Offer in the same manner as they have been valued for purposes
of the Consolidation. See Table 13 in Appendix A. The Exchange Offer is
available only to the extent that the Interests transferred in any one
Partnership will not result in a deemed termination of the Partnership for
federal income tax purposes. See "TAX ASPECTS--Participation in the Consolidated
Partnership--Liquidation and Termination of the Consolidated Partnership". If
the number of Interests tendered pursuant to the Exchange Offer exceed the
maximum number that may be transferred without causing a deemed termination, the
tendered Interests will be accepted on a first-come, first-served basis. The
principal objectives of the Exchange Offer are:
Administrative Efficiencies: To effect administrative
efficiencies and cost reductions in the management and operation of the
non-participating Partnerships, particularly in the areas of bookkeeping, data
processing and records maintenance. Many limited partners own interests in more
than one Partnership. The greater the extent to which limited partners become
Unitholders of the Consolidated Partnership rather than limited partners of
multiple Partnerships, the greater the ultimate reductions in bookkeeping, data
processing and record maintenance requirements for the General Partner and the
greater the extent to which the limited partners will benefit from participation
in a larger entity than the Partnerships in which they originally invested. The
General Partner estimates that if all the Partnerships participate in the
Consolidation, aggregate savings in reduced Direct, Administrative and Operating
Costs will exceed $800,000 per year. These benefits will not be maximized unless
the limited partners' investments are consolidated in a single entity, the
Consolidated Partnership. Should some, but not all, of the Partnerships in which
a limited partner owns Interests vote to participate in the Consolidation, the
limited partner will be able, nevertheless, to consolidate his entire investment
in a single entity by means of the Exchange Offer.
Distributions: To provide individual limited partners of
non-participating Partnerships with stable quarterly cash distributions. The
cash distributions paid by the Partnerships are subject to the performance of
the particular Partnership. With its larger reserve base, the Consolidated
Partnership should generate more stable distributions than any one Partnership.
THE CONSOLIDATED PARTNERSHIP
Proposed Activities
General: The Consolidated Partnership has been formed to accept the assets
and liabilities, except for amounts payable to the General Partner, of the
participating Partnerships and to engage primarily in the operation
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of producing oil and gas properties. The Consolidated Partnership will continue,
on a combined basis, the separate businesses of the participating Partnerships.
The Consolidated Partnership will operate such businesses substantially as such
businesses have been operated in the past by the participating Partnerships. The
Consolidated Partnership does not intend to make any operational changes in the
nature of the businesses it will acquire from the participating Partnerships.
Acquisition and drilling activities are not anticipated to be substantial,
although limited development drilling is anticipated in order to preserve,
protect and increase the value of existing Partnership properties. For the same
reasons, it may be in the best interests of the Consolidated Partnership to
acquire limited amounts of additional properties.
Enex Resources Corporation will serve as general partner of
the Consolidated Partnership and will be solely responsible for the acquisition
and supervision of Consolidated Partnership properties. The General Partner has
no present plans to finance, sell, refinance or purchase any property following
the Consolidation. The General Partner does, however, reserve the right to cause
the Consolidated Partnership to engage in the types of transactions described
below in "--Other Partnership Operations," "--Reinvestment of Revenues and
Proceeds" and "--Financing" should circumstances indicate that such transactions
are necessary or appropriate.
Description of Properties: The participating Partnerships will
transfer all of their assets to the Consolidated Partnership, subject to
liabilities, except for amounts owed to the General Partner. These properties
will continue to be operated by the Consolidated Partnership as they are now
operated by the Partnerships. Presented below is a brief description of the
Partnerships' property holdings.
Enex Program I Partners, L.P. owns an interest in the CHOATE
acquisition consisting of 254 wells, three-quarters of which are oil wells and
all but two of which are located in Oklahoma, and four gas plants, of which
three are in Oklahoma and one is in Michigan; working interests in the GRASS
Island acquisition consisting of 13 oil wells located in Calhoun County, Texas;
working interests in the SHELL acquisition consisting of six individual oil
wells and two large Smackover oil units, and royalty interests in one gas and
nine oil wells in six counties in Mississippi acquired from Shell Oil Company;
working interests in the BLACKHAWK acquisition consisting of six oil wells in
the Blackhawk Field, Concordia Parish, Louisiana; overriding royalty interests
in the H.N.G. acquisition consisting of over 300 gas wells in Texas, New Mexico,
and Oklahoma; working interests in the ARNOLD AND WOOLF acquisition consisting
of 154 oil wells and 129 gas wells located in Texas, Louisiana, Mississippi,
Alabama and Florida, and one gas plant in Monroe County, Mississippi.
Enex Program I Partners, L.P. also owns overriding royalty
interests in the SECOND BAYOU AND SCHLENSKER acquisition consisting of
approximately 27,000 acres in the Second Bayou Field, Cameron Parish, Louisiana,
which included 30 gas wells; working interests in the SECOND BAYOU AND
SCHLENSKER acquisition consisting of 16 oil and 41 gas wells located in five
Texas counties and Vermilion Parish, Louisiana; royalty and working interests in
the EL TORO acquisition in Concordia Parish, Louisiana consisting of both
royalty and working interests in nine oil wells operated by El Toro Production
Company; working interests in the LAKE COCODRIE acquisition consisting of five
oil wells in Concordia Parish, Louisiana; a mineral interest and the associated
royalty interest in the Gorman Gas Unit in the EAST SEVEN SISTERS acquisition
located in the East Seven Sisters Field, Duval County, Texas; overriding royalty
interests in the COMITE acquisition consisting of four gas wells in the Comite
Field acquisition in East Baton Rouge Parish, Louisiana; and working interest in
the BURKHOLDER acquisition consisting of the Perkins 200 #1 Gas Unit in Ward
County, Texas.
Enex Oil & Gas Income Program II-7, II-8, II-9, and II-10,
Enex Oil & Gas Income Program III - Series 1, 2 and 3, Enex Oil & Gas Income
Program IV - Series 4 and 5 and Enex Oil & Gas Income Program VI - Series 1 all
have a working interest and royalty interests in the CONCORD acquisition
consisting of more than 10,600 wells in 137 counties in Texas, with very minor
interests in 12 other states.
Enex Oil & Gas Income Program III - Series 3 has working
interests and Enex Income and Retirement Fund - Series 1 has net profits royalty
interests in the LARTO LAKE acquisition consisting of twelve wells in Catahoula
Parish, Louisiana.
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Enex Oil & Gas Income Program III - Series 4 has working
interests and Enex Income and Retirement Fund - Series 1 and 2 have net profit
royalty interests in the SHANA acquisition consisting of 33 oil and gas wells
located in various counties in Texas and Louisiana.
Enex Oil & Gas Income Program III - Series 4 and 5 have
working interests in the HIGHTOWER acquisition consisting of 3 oil wells in the
Ellenburger formation in Andrews and Gaines Counties, Texas.
Enex Income and Retirement Fund - Series 1 has royalty
interests and Enex Oil & Gas Income Program III - Series 4, Enex Income and
Retirement Fund - Series 2 and 3 have mineral and royalty interests in the three
gas wells of the PECAN ISLAND acquisition located in North Pecan Island Field in
Vermillion Parish, Louisiana.
Enex Oil & Gas Income Program III - Series 4, 5, 6, 7, and 8
all have working interests in the CORKSCREW acquisition consisting of 3 oil
wells producing from the Sunniland Lime Formation in Corkscrew Field, Collier
County, Florida.
Enex Oil & Gas Income Program III - Series 5, 6, 7, and 8 and
Enex Oil & Gas Income Program IV Series 1 have working interests in the MICHIGAN
acquisition consisting of 27 wells located in 8 counties in Michigan.
Enex Oil & Gas Income Program III - Series 5, 6, 7, and 8 each
have working interests in both the RIC acquisition consisting of 69 wells
located in 8 states, primarily in Texas and Oklahoma and the ENEXCO acquisition
consisting of two wells located in Blaine County, Oklahoma and Dawson County,
Texas.
Enex Oil & Gas Income Program III - Series 7 and 8 have
working interests and Series 6, along with Enex Oil & Gas Income Program IV -
Series 1 and 2 have working and royalty interests in the CREDO acquisition which
consists of 4 oil wells located in Credo Field, Sterling County, Texas.
Enex Oil & Gas Income Program III - Series 6, 7, and 8 and
Enex Oil & Gas Income Programs IV - Series 1 and 2 each have working interests
in the BARNES ESTATE acquisition which consists of 5 oil and gas wells in
Brettchance Field, Webb County, Texas.
Enex Oil & Gas Income Program IV - Series 1, 2 and 3 have
working interests in the BRIGHTON acquisition consisting of working interests in
2 oil wells in Brighton Field, Livingston County, Michigan.
Enex Oil & Gas Income Program IV - Series 1 and 4 have working
interests and Enex Income and Retirement Fund - Series 1, 2, 3 and 4 have net
profits royalty interests in the LAKE DECADE acquisition consisting of 2 gas
wells in the Lake Decade Field, Terrebonne Parish, Louisiana.
Enex Oil & Gas Income Program IV - Series 2 has working
interests and Enex Income and Retirement Fund - Series 3 along with Enex 88-89
Income and Retirement Fund - Series 1, 3 and 4 have net profits royalty
interests in the BAGLEY acquisition consisting of 7 oil wells located in Bagley
Field, Otsego County, Michigan.
Enex Oil & Gas Income Program IV - Series 4, 5 and 6 have
working interests and Enex 88-89 Income and Retirement Fund - Series 3, 4 and 5
have net profits royalty interests in the EL MAC acquisition consisting of 3
wells in Otsego County, Michigan.
Enex Oil & Gas Income Program IV - Series 5 and 6 have working
interests and Enex 88-89 Income and Retirement Fund - Series 5, and 6 have net
profits royalty interests in SPEARY acquisition consisting of 7 wells located in
Karnes County, Texas
Enex Oil & Gas Income Program IV - Series 7 and Enex Oil & Gas
Income Program V - Series 1 each have working interests in the BINGER
acquisition which consists of 60 producing wells in Caddo County, Oklahoma.
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Enex Oil & Gas Income Program IV - Series 7 and Enex Oil & Gas
Income Program V - Series 1 and 2 each have working interests in the NUNLEY
RANCH A acquisition which consists of 3 wells located in LaSalle County, Texas.
Enex Oil & Gas Income Program IV - Series 7 and Enex Oil & Gas
Income Program V - Series 1, 2 and 3 have working interests and Enex 90-91
Income and Retirement Fund - Series 1 and 2 have net profits royalty interests
in the FEC acquisition consisting of 68 wells located in Kansas, Oklahoma and
Wyoming.
Enex Oil & Gas Income Program V - Series 4 has a working
interest in the SOUTH MIDWAY acquisition consisting of 7 wells located in San
Patricio County, Texas.
Enex Oil & Gas Income Program V - Series 4 has a working
interest and Enex 90-91 Income and Retirement Fund - Series 3 has net profits
royalty interests in the CHARLOTTE acquisition consisting of 11 wells located in
Atascosa County, Texas.
Enex Oil & Gas Income Program V - Series 5 has a working
interest in the MULDOON acquisition consisting of 24 wells located in Fayette
County, Texas.
Enex Income and Retirement Fund - Series 1 owns overriding
royalty interests in the DEAL acquisition which consists of 453 wells located in
19 counties in Texas, New Mexico and Oklahoma, of which the majority are in
Sutton County, Texas. In addition to the existing wells, the value of these
properties may be significantly enhanced in the coming years by the active
drilling program being carried on by the property operators, Enron Oil and Gas
Company and American Exploration Corporation.
Enex Income and Retirement Fund, - Series 1 and 2 own royalty
interests and Enex Income and Retirement Fund - Series 3 owns royalty and
mineral interests in the sixteen wells of the CORINNE acquisition located in
Corinne Field, Monroe County, Mississippi.
Enex Income and Retirement Fund - Series 1, 2 and 3 own an
overriding royalty interest in the EAST CAMERON acquisition's State Lease 11508
located in East Cameron Block 17, offshore Louisiana.
Enex 88-89 Income and Retirement Fund - Series 5, 6, and 7
each have overriding royalty interests in the STRALEY acquisition consisting of
the Straley I-29 well located in Grand Traverse County, Michigan.
Enex 88-89 Income and Retirement Fund - Series 5, 6 and 7 and
Enex 90-91 Income and Retirement Fund - Series 1 each have royalty interests in
the WARDNER RANCH acquisition consisting of 170 wells in Nueces County, Texas.
Enex Income and Retirement Fund - Series 3 has overriding
royalty interests in the RIGNEY acquisition consisting of 9 wells located in 4
counties in Michigan.
Enex Oil & Gas Income Program VI - Series 1 has working and
royalty interests in the MCBRIDE acquisition consisting of over 10,600 wells
located primarily in Texas.
Although certain Partnerships (i.e., the Income and Retirement
Fund Partnerships) will be exchanging their portfolios of non-operating oil and
gas interests for Units in the Consolidated Partnership, which will hold both
operating and non-operating oil and gas interests, the economic characteristics
of those interests will not change. The non-operating oil and gas interests of
the Income and Retirement Fund Partnerships that will merge into the underlying
working interests currently owned by the other Partnerships (i.e., the Oil & Gas
Income Program Partnerships) are all net profits royalties whose economic
characteristics are essentially identical to those of the underlying working
interests.
The following paragraphs refer to Tables in Appendix A to this
Prospectus/Proxy Statement in which additional information is given about the
Partnerships' properties. Estimates as of December 31, 1995 for reserves
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and future net revenues are derived from engineering reports as of December 31,
1995. No estimates of total proved net oil or gas reserves have been filed with
or included in reports to any federal authority or agency other than the
Securities and Exchange Commission since January 1, 1994.
The combined estimated net proved reserves of oil, gas and
natural gas liquids of the Partnerships as of December 31, 1995 and 1994 are
shown in Appendix A in Tables 6 and 7. The estimated present value of future net
revenues from such reserves (discounted at 10%) as of December 31, 1995 are
shown in Tables 4 and 5 in Appendix A.
The net oil and gas and natural gas liquids production of the
Partnerships, for the years ended December 31, 1995 and 1994 is shown in Table 8
in Appendix A. The gross and net productive oil and gas wells, productive
acreage and undeveloped acreage of the Partnerships, as of December 31, 1995 are
shown in Tables 10 and 11 in Appendix A.
Ownership and Management of Properties: Title to Consolidated
Partnership properties generally will be recorded in the name of the
Consolidated Partnership, but may be recorded in the name of a special nominee
entity organized for the sole purpose of holding record title. Such entity will
engage in no other business.
The General Partner will have principal direct responsibility
for management and operation of the Consolidated Partnership's properties.
Operations on Consolidated Partnership properties will generally be conducted by
operators retained by the holders of a majority of the working interests in each
of the wells in which the Consolidated Partnership owns interests. The General
Partner is now the operator of 91 properties in which 17 of the Partnerships own
interests. The General Partner anticipates that it will be the operator of those
91 properties after the Consolidated Partnership's acquisition thereof, but not
of any other properties of the Consolidated Partnership. To the extent that the
General Partner will act as the operator for a Consolidated Partnership
property, it will do so pursuant to a currently effective operating agreement
covering such property on a model form operating agreement issued by the
American Association of Petroleum Landmen and an accounting procedure for joint
operations issued by the Council of Petroleum Accountants Societies of North
America customary and usual for the geographic area in which such property is
located. Enex Resources Corporation, the General Partner, has operated oil and
gas properties for the Partnerships and on its own behalf since 1985. Currently,
the General Partner operates a total of 142 wells - 91 of which are owned by the
Partnerships - in the states of Texas, Oklahoma, Louisiana and Florida. The
operations staff consists of Manager of Operations, Craig Ledbetter, and staff
engineer, Christopher, Avra. Both have Bachelor of Science degrees in Petroleum
Engineering from Texas A&M University and are Registered Professional Engineers
in the State of Texas. Mr. Ledbetter and Mr. Avra have 26 combined years of
experience as petroleum engineers. The consideration received by the General
Partner or any person that is an affiliate of the General Partner for so acting
as operator includes a charge for Direct Costs and Administrative Costs, but is
not in excess of the competitive rate or duplicative of any consideration or
reimbursement received pursuant to the provisions of the Articles. This
arrangement is the same as is currently in effect under the Partnership
Agreements. See "--Compensation". In any event, wells acquired by the
Consolidated Partnership will continue to be operated in the same manner as they
were operated before the Consolidation.
The General Partner is of the opinion that the Partnerships'
legal title to their oil and gas properties is consistent with normal industry
standards. Title to the properties is subject to liens incident to operating
agreements and minor encumbrances, easements and restrictions, and in certain
instances to liens for current taxes, none of which, in the opinion of the
General Partner, materially detracts from the value of such properties or
materially interferes with their use.
Sale of Production: The General Partner will be responsible
for the marketing of the Consolidated Partnership's oil and gas production. The
General Partner may cause the Consolidated Partnership to enter into contracts
for the marketing or sale of oil, gas or other hydrocarbons, or other marketing
arrangements, to the extent the Consolidated Partnership's properties were not
already subjected to such contracts by a predecessor participating Partnership.
In marketing the Consolidated Partnership's natural gas, the General Partner
will attempt to obtain the highest possible price but will consider, among other
things, the rate at which the purchaser can take deliveries, its commitment to
build required pipeline connections and its ability and willingness to purchase
gas from additional
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wells in the field. The average sales price per barrel of oil, per Mcf of gas,
per barrel of natural gas liquids and per Mcf of gas plant sales gas and the
average production cost per equivalent barrel of oil production and per barrel
of natural gas liquids production for each of the participating Partnerships for
1995 and 1994 are shown in Appendix A in Table 9.
Other Partnership Operations: Although the Consolidated
Partnership will acquire primarily producing properties from the participating
Partnerships and does not intend to engage in significant drilling activities,
drilling activities may be conducted as an incidental part of the management of
such producing properties or with a view toward enhancing their value. For
example, a well may be drilled on a producing property to a deeper or shallower
formation based upon favorable geologic information, or an additional well may
be drilled on a producing property as a result of a change in legal restrictions
relating to the spacing of wells. In no event will the Consolidated Partnership
engage in exploratory drilling. See "--Financing" for a description of the
sources of funds available for development drilling activities. In no event will
the Consolidated Partnership commit to drilling activities an amount greater
than 10% of the aggregate exchange value of all the participating Partnerships'
assets.
In certain instances, Partnerships have acquired interests in
producing properties which comprise a part of larger properties including proved
undeveloped reserves (or unproved reserves which may become proved). The
Consolidated Partnership may develop the proved acreage acquired with producing
properties. If the Consolidated Partnership believes that expenditure of its own
cash for development drilling is not justified based on existing economic
factors, the Consolidated Partnership may seek to expand its reserves through
joint activities with third parties, such as joint ventures and farm-out
arrangements where the amount required to be expended will generally be
proportionately less than the Consolidated Partnership's interest in any
production obtained from the wells drilled. Based on current economic and
industry conditions and on the properties anticipated to be held by the
Partnership upon completion of the Consolidation, the Consolidated Partnership
currently intends to drill, assuming all Partnerships participate in the
Consolidation up to 12 gross wells during 1996 and 1997, at a total cost of
approximately $176,000. The Consolidated Partnership will have varying net
interests in these wells, depending on the arrangements under which it
participates in the drilling of the wells. If the wells drilled in the early
stages of any of multi-well drilling program do not achieve anticipated results,
the later wells may not be drilled. Certain Partnerships (the Income and
Retirement Fund Partnerships) may not own operating interests in their
properties, and, thus, do not themselves engage in any drilling activities.
However, development (but not exploratory) drilling activities could always have
been conducted on the properties of such Partnerships by other Partnerships that
own the underlying working interests, but only to the extent necessary to
protect or increase the value of the property.
Alternatively, unproved acreage may be sold or otherwise
disposed of, or it may be farmed out. The Consolidated Partnership will not farm
out a property unless the General Partner, exercising the standard of a prudent
operator, determines that (i) the Consolidated Partnership lacks sufficient
funds to drill a well on the property and cannot obtain suitable alternative
financing for such purposes (see "--Financing" below), or (ii) the property has
been downgraded by events occurring after its acquisition by the Consolidated
Partnership, or (iii) drilling activities on the property would result in an
excessive concentration of Consolidated Partnership funds and would create undue
risks to the Consolidated Partnership, or (iv) the best interests of the
Consolidated Partnership would be served by the farmout. If a property is farmed
out, the Consolidated Partnership will retain such economic interests and
concessions as a reasonably prudent operator would obtain under the
circumstances. The Consolidated Partnership will not farm out any properties to
the General Partner or an affiliate of the General Partner except pursuant to
transactions conforming to the restrictions described in "--Conflicts of
Interest".
Additional expenditures on producing properties may include
the acquisition or leasing of additional well machinery or equipment, gathering
systems, storage facilities or processing or refining installations or other
equipment or property associated with the production of oil or gas. Existing
wells may be reworked, recompleted or deepened to new formations, or plugged
back to exploit shallower formations. Expenditures may also be made for the
initiation of secondary or tertiary recovery techniques.
In order to avoid potential conflicts of interest and to
assure that transactions between the General Partner or its affiliates and the
Consolidated Partnership are fair and reasonable, the General Partner will
observe certain guidelines in connection with such transactions. See
"--Conflicts of Interest".
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Personnel Available: At July 1, 1996 the General Partner and
its subsidiaries had 24 employees. As is the case with the Partnerships, it is
expected that substantially all of the Consolidated Partnership's operations
will be conducted either directly by this staff or by independent consultants or
contractors having local operating capacity and acting under the supervision and
direction of members of the General Partner's staff.
Reinvestment of Revenues and Proceeds: The Consolidated
Partnership will not reinvest revenues or, unless a property is sold for the
purpose of providing funds to acquire other properties (see "--Participation in
Costs and Revenues"), proceeds from the sale or disposition of producing
properties or associated assets except as necessary to pay debts or expenditures
for other Consolidated Partnership operations. See "--Other Partnership
Operations" above and "--Financing", below. Also, unless a property is sold for
the purpose of providing funds to acquire other properties, the Consolidated
Partnership will purchase additional producing properties solely from capital
and borrowings and only if such additional property is necessary to protect or
enhance the Consolidated Partnership's holdings in properties it already owns.
The Consolidated Partnership will acquire only those leases that are reasonably
required for the purposes of the Consolidated Partnership, and no leases will be
acquired for the purpose of subsequent sale or farmout, unless the acquisition
of such leases by the Consolidated Partnership is made after a well has been
drilled to a depth sufficient to indicate that such an acquisition is believed
to be in the best interests of the Consolidated Partnership. Revenues may,
however, be utilized by the Consolidated Partnership to purchase the Units of
Unitholders who elect to sell them. See "--Right of Presentment" above.
Consolidated Partnership Distributions: As is the case with
the Partnerships, the General Partner's policy will be to distribute
substantially all Consolidated Partnership net revenues to the Unitholders. The
General Partner will review the Consolidated Partnership's accounts not less
often than quarterly, and will distribute such cash funds as the General Partner
deems unnecessary to retain in the Consolidated Partnership. Such distributions
will be net of Consolidated Partnership costs allocated to the account of each
Unitholder.
The General Partner intends to make distributions of
Consolidated Partnership cash at a rate that will be sustainable over a period
of several years. Distributions are subject to change if Consolidated
Partnership net revenues are greater or less than expected. Because of lower
revenues resulting from natural production declines, certain Partnerships would
not be able to sustain their current levels of distributions, irrespective of
their participation in the Consolidation. Following the Consolidation, limited
partners of some Partnerships will experience an increase in distributions over
the amounts that would have been sustainable by their Partnerships while other
limited partners will experience a reduction from such levels of distributions.
For information concerning cash payout by the Partnerships, see Tables 2, 2b, 3
and 3b in Appendix A.
The General Partner will not make any advances to the
Consolidated Partnership nor will the Consolidated Partnership borrow any funds
for the purpose of sustaining a regular pattern of distribution even though loan
payment requirements, unusual Operating Costs or other expenses or temporary
reductions in Consolidated Partnership revenues may reduce funds available for
distribution.
Financing: In connection with the consolidation, the
Consolidated Partnership will assume the liabilities, except for the amounts
payable to the General Partner, of the participating Partnerships. One of the
objectives of the Consolidation is to eliminate the debt owed by the
participating Partnerships to the General Partner. To accomplish this objective,
the General Partner will exchange the amounts owed to it by the participating
Partnerships for Units in the Consolidated Partnership. See "THE PROPOSED
CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to the
General Partner". Each Partnership is currently liable only for payment of its
own debts. Existing credit arrangements for the Partnerships have been in the
form of oil and gas loans from the General Partner with interest payable
quarterly at the General Partner's cost of borrowing which is currently at 3/4%
over the prime rate of interest.
Based on past experience, the General Partner is confident,
although it presently has no commitments, that it can refinance existing
Partnership loans and obtain any other financing upon more favorable terms as a
result of the increased size of the Consolidated Partnership compared to the
existing Partnerships as well as the lower transactional and administrative
costs anticipated in connection with arranging and supervising loans to the
Consolidated Partnership. Nevertheless, there can be no assurance that any such
refinancing will be obtained.
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Like the existing Partnerships, the Consolidated Partnership,
to further its business purposes, may borrow money, on either a secured or
unsecured basis, and grant security interests in its assets, including its
interests in oil and gas production and the proceeds of such production. Such
borrowings may be used for all Consolidated Partnership purposes, including the
purchase of Units and development drilling. Third party borrowing, if any, will
be sought primarily from commercial banks, although advances from gas pipeline
companies may be utilized. Such borrowing would ordinarily be secured by the
Consolidated Partnership's producing properties. Except under certain
circumstances as described under " - Proposed Activities-General," no
Consolidated Partnership borrowing will be used to fund additional property
purchases. See " --Right of Presentment", "--Proposed Activities-General" and
"--Other Partnership Operations" above.
Unitholders would not be individually liable for the repayment
of any such indebtedness. The repayment of the principal amount of such
borrowings will be allocated to the General Partner and the Unitholders in the
same manner as the cost of the operations to which the borrowed funds were
applied would have been allocated had they been paid for out of Consolidated
Partnership capital without borrowing. All interest charges and similar costs
and expenses of Consolidated Partnership borrowings will be allocated in the
same manner as Operating Costs.
If financing is unavailable on favorable terms, it may be
desirable to use Consolidated Partnership revenues for development purposes. The
use of Consolidated Partnership cash to pay such costs or to amortize
indebtedness would defer distributions of cash to the Unitholders. The extent of
such deferral will depend upon the terms of any loans actually obtained. There
can be no assurance that the Consolidated Partnership will be able to borrow
upon satisfactory terms. Moreover, during the term of such borrowings, the
Unitholders' share of the taxable income of the Consolidated Partnership may be
greater than the net cash available for distribution to them. Notwithstanding
the foregoing, the maintenance of a continuous cash flow to the Unitholders is
one of the principal objectives of the Consolidated Partnership.
Any loans made to the Consolidated Partnership by the General
Partner will bear interest at the lesser of (i) the General Partner's interest
cost from time to time during the terms of such loans, (ii) the rate which would
be charged to the Consolidated Partnership on comparable loans for the same
purpose (without reference to the General Partner's financial abilities or
guarantees) by unrelated banks or (iii) the maximum lawful rate. The General
Partner will not receive points or other financing charges or fees, regardless
of amount, on any loans made to the Consolidated Partnership. The Consolidated
Partnership will not lend money to the General Partner or its affiliates.
The General Partner may advance and disburse funds for the
payment of bills and invoices for costs of Consolidated Partnership operations,
and, in such event, will reimburse itself from the Consolidated Partnership
account for such expenditures. The General Partner also will be reimbursed for
an allocable portion of its Direct and Administrative Costs attributable to
Consolidated Partnership activities. See "--Compensation--Advances and
Disbursements".
The General Partner expects to obtain the funds to pay its
share of costs from corporate assets and profits, Consolidated Partnership
income allocated to its account and, if necessary, from the proceeds of
corporate borrowings from third parties. The General Partner may pledge its
interests in the Consolidated Partnership to secure such borrowings. However,
the General Partner may not pledge any Consolidated Partnership properties as
security for loans to it and may not pledge the Units of any Unitholder or the
Interests of any limited partner without his consent.
Transfer of Units
Consolidated Partnership Units may only be transferred in
accordance with the terms of the Articles and applicable federal and state
securities laws. Except for gifts and transfers by operation of law or to the
General Partner, no transfer may be made unless the transferor assigns all of
his Units or both the transferor and the transferee will own Units having an
original exchange value of $2,500 ($2,000 for IRAs and Keogh Plans) after such
transfer. (See Article 8 of the Articles.) In addition, the General Partner has
the right to refuse to recognize any transfer of Units if it believes that such
transfer occurred on a secondary market or the substantial equivalent
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thereof. The General Partner will recognize an assignment of Units as of the
last day of the calendar quarter following receipt of notice of such assignment
and any required documentation, including documents providing information
required under the Internal Revenue Code such as the name, address and taxpayer
identification number of the transferee; the amount of Units to be acquired by
the transferee; the date on which such Units are to be acquired; and whether or
not the transferee can make the representations, warranties, certifications,
covenants, agreements and designations set forth in Section 10.1 of the
Articles.
The transferee of Units may become a substituted or additional
limited partner of the Consolidated Partnership with the consent of the General
Partner whether or not his transferor was such a limited partner, but must
reimburse the Consolidated Partnership for filing fees and other expenses of the
substitution or addition. While the General Partner may withhold such consent in
certain circumstances (e.g., if the Consolidated Partnership's tax status would
be jeopardized), the economic benefits of ownership of Units may, in general, be
transferred or assigned without regard to whether the General Partner has
consented, unless the transfer occurred on a secondary market or the substantial
equivalent thereof. (See Section 8.3 of the Articles.) The General Partner may
refuse to recognize any transfer of Units if it believes that such transfer
occurred on a secondary market or the substantial equivalent thereof. See "TAX
ASPECTS--Participation in the Consolidated Partnership--Publicly Traded
Partnerships." California and Missouri limited partners are now and will
continue to be subject to the following additional restrictions on transfer.
In California:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR AN INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
LIMITED PARTNERS SHOULD BE AWARE THAT THE VOTING RIGHTS
GRANTED TO LIMITED PARTNERS PURSUANT TO THE PROVISIONS OF ARTICLE 8 OF THE
ARTICLES OF LIMITED PARTNERSHIP ANNEXED HERETO AS APPENDIX B ARE NOT IDENTICAL
TO THE VOTING RIGHTS OF LIMITED PARTNERS DESCRIBED IN RULE 260.140.128.2
PROMULGATED BY THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA.
In Missouri:
THESE SECURITIES ARE NOT ELIGIBLE FOR ANY TRANSACTIONAL
EXEMPTION UNDER THE MISSOURI UNIFORM SECURITIES ACT (SECTION 409.402(b)). UNLESS
THESE SECURITIES ARE REGISTERED UNDER THE ACT THEY MAY NOT BE REOFFERED FOR SALE
OR RESOLD IN THE STATE OF MISSOURI (SECTION 409.301).
Right of Presentment
Limited partners of the Consolidated Partnership, but not
other Unitholders, will have the right to present their Units to the
Consolidated Partnership for purchase at the times described below and subject
to the following conditions and limitations. The Consolidated Partnership will
not purchase less than all of a limited partner's Units, but may waive this
requirement in the General Partner's sole discretion.
Beginning in 1997, not later than April 30th of every year the
General Partner will mail a notice setting forth the purchase price for Units to
each limited partner who has, since the previous January 1st, notified the
General Partner of a desire to present his Units to the Consolidated Partnership
for purchase. The notice will include a summary of the reports of the
Independent Experts referred to below, the asset and liability items considered
in determining the purchase price, an explanation of how the purchase price was
calculated and a form of assignment. A limited partner may elect to sell his
Units by returning an executed form of assignment to the General Partner within
30 days after the mailing date of the notice. Units will be paid for in cash
within 60 days following receipt by the General Partner of the executed and
completed form of assignment and such purchases will
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be considered effective upon payment of the purchase price. A limited partner
may rescind the sale of his Units within 15 days from the date his form of
assignment is mailed by giving a written rescission notice to the General
Partner.
The purchase price will be based upon the limited partners'
indirect interest in a share of the net assets and liabilities of the
Consolidated Partnership calculated as of the preceding December 31st (the
"Determination Date"), which will include the sum of (i) an amount based on the
discounted present value of future net revenues from the Consolidated
Partnership's proved developed reserves and proved undeveloped reserves, as
described below, plus (ii) cash on hand, plus (iii) prepaid expenses and
accounts receivable (discounted, if appropriate), less a reasonable amount for
doubtful accounts, plus (iv) the estimated market value of all assets not
separately specified above, determined in accordance with standard industry
valuation procedures. Proved developed reserves are those quantities of crude
oil, natural gas and natural gas liquids which can be expected, with little
doubt, to be recovered from existing wells using existing equipment and
operating methods and include proved developed producing reserves, which are
expected to be produced from one or more existing completion zones open for
production in an existing well, and proved developed non-producing reserves,
which exist behind the casing or at minor depths below the present depth of such
wells, which are expected to be produced through these wells in the predictable
future, where the cost of making such oil and gas available for production is
relatively small compared to the cost of a new well. Proved undeveloped reserves
are reserves which are expected to be recovered from new wells on undrilled
acreage or from existing wells where a relatively major expenditure is required
for recompletion. All such classifications are included within the broader
definition of proved reserves.
An amount equal to all debts, obligations and other
liabilities, including accrued expenses, of the Consolidated Partnership,
attributable to the capital accounts of the Unitholders will be deducted from
the foregoing sum. Any distributions to Unitholders between the Determination
Date and the date of the calculation will also be deducted; provided, however,
that if any cash distributed was derived from the sale of oil or gas production
or a producing property subsequent to the Determination Date, such distributions
shall be discounted at the same rate used to take into account the risk factors
employed to determine the value of the Consolidated Partnership's proved
reserves, as set forth below.
The Consolidated Partnership will engage an Independent Expert
to estimate the future net revenues attributable to the Consolidated
Partnership's interest in proved developed reserves and proved undeveloped
reserves. The Independent Expert may employ price and cost data and assumptions
furnished by the General Partner in making these estimates. The existing
Partnership Agreements currently provide that the Independent Expert estimates
performed for each Partnership will include either those properties generating a
significant amount (i.e., 80%) of the Partnership's aggregate revenues or
substantially all of such revenues. The independently prepared estimate of
Consolidated Partnership properties will evaluate those Consolidated Partnership
properties generating substantially all of the Consolidated Partnership's
aggregate revenues. The General Partner's staff engineers will estimate the
future net revenues attributable to the balance of the Consolidated
Partnership's properties employing the same parameters as are employed by the
Independent Expert.
As in the Partnership Agreements, the amount attributable to
Consolidated Partnership reserves will be deemed to be 70% of the estimated
future net revenues of proved developed producing reserves and the "appraised
value" of all other proved reserves. A discount for risk reasonably determined
by the Independent Expert after review and approval by the General Partner and
after taking into account the nature and quality of such oil and gas interests
will be applied to the Consolidated Partnership's proved developed non-producing
reserves and proved undeveloped reserves in arriving at "appraised value". It is
the General Partner's policy that the discount for risk will not exceed 30%
except in those instances in which the General Partner and the Independent
Expert determine that a higher discount rate is appropriate because (a) such
non-producing reserves were originally acquired by a participating Partnership
at a price which included a discount in excess of 30%, or (b) generally accepted
industry practice would require a higher discount rate because of the geographic
area in which such non-producing reserves are located or the nature of the wells
from which such non-producing reserves would be produced. The amount so
determined will be adjusted by the General Partner for estimated changes from
the Determination Date to the date of the calculation of the purchase price to
account for (a) production or sale of, or additions to, reserves and lease and
well equipment, the sale or abandonment of leases and similar matters occurring
after the Determination
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Date, and (b) the occurrence of any of the following events prior to the
calculation: changes in well performance, increases or decreases in the market
price of oil or gas, revision of regulations relating to oil imports, changes in
income, ad valorem and other tax laws (e.g., material variations in the
provisions for depletion or minimum tax payments) and similar matters. The share
of the amount attributable to Consolidated Partnership future net revenues
allocable to a particular Unitholder's Units will then be determined, taking
into account the changes in the allocation of Consolidated Partnership costs and
revenues described in "--Participation in Costs and Revenues". The result will
then be discounted to present worth using an interest rate not in excess of 1%
over the then prime interest rate announced by Texas Commerce Bank to its most
preferred commercial customers.
Because of the difficulty in accurately estimating oil and gas
reserves, the purchase price may not reflect the full value of the properties to
which it relates. Such estimates are merely appraisals of value and may not
correspond to realizable value. Furthermore, the sale of Units will be a taxable
event, and gain or loss generally will be recognized for federal income tax
purposes.
The Consolidated Partnership's obligation to purchase
presented Units shall be limited to 15% of the aggregate purchase price of the
Units, per year. The Consolidated Partnership proposes to meet its obligation
with internally generated funds and with borrowings secured by Consolidated
Partnership assets. Although this obligation constitutes a binding contractual
commitment (subject to the limitations described above), the Consolidated
Partnership's ability to meet it will, as a practical matter, depend upon its
available working capital and its ability to arrange financing for such
purposes. Thus, there can be no assurance that the Consolidated Partnership will
have sufficient liquid assets and borrowing capacity available to meet its
obligation. If, for any reason, less than all Units presented at any one time
are to be purchased, the Units to be purchased will be selected by lot.
Upon a purchase of Units by the Consolidated Partnership, such
Units of limited partnership interest in the Consolidated Partnership will not
be cancelled unless the General Partner determines otherwise. The shares of
Consolidated Partnership costs and revenues of the General Partner and the
remaining Unitholders will be adjusted to take into account the costs and
revenues attributable to any Units purchased that are cancelled by the
Consolidated Partnership.
Under the Articles, should the obligation of the Consolidated
Partnership to purchase Units pursuant to the foregoing right of presentment be
determined to be in violation of any existing or future laws or legislation or
to jeopardize the classification of the Consolidated Partnership under federal
tax laws, such obligation will be eliminated to the extent inconsistent
therewith.
Under the Articles, the Consolidated Partnership's obligation
to purchase Units pursuant to the limited partners' right of presentment may be
discharged by payment of the purchase price to a presenting limited partner by
the General Partner, by an affiliate of the General Partner or by a
broker-dealer or other person. The Units of the presenting limited partner will
be transferred to the party selected by the General Partner who pays for them.
Only the Partnership, however, is obligated to purchase Units presented by
limited partners. The General Partner or other party paying for presented Units
will participate in the Consolidated Partnership to the extent of its purchase
of such Units in the same manner as if the General Partner or such other party
were a substituted limited partner holding such Units. See "-Transfer of Units,"
above.
If the Units are listed on a stock exchange or included for
quotation on NASDAQ or a trading market otherwise develops (none of which events
is anticipated to occur or is likely to occur in the absence of a vote to amend
the Articles), no further purchase offers for Units will be made by the
Consolidated Partnership and no Units presented by limited partners will be
accepted for purchase by the Consolidated Partnership.
The Partnership Agreements of all but six Partnerships give
their limited partners the right to present their Interests for purcThe
Partnershiptially the same terms and conditions as those set forth above.
Agreements of each of the other six Partnerships (i.e., those formed in Enex Oil
& Gas Income Programs V and VI) instead provide that during the sixth year after
the commencement of Partnership operations and at least every two years
thereafter during the term of the Partnership, the General Partner will submit
to a vote of the limited partners a proposal to sell all of the Partnership's
properties and to dissolve and liquidate the Partnership. The
49
<PAGE>
Consolidated Partnership right of presentment will, however, provide the limited
partners of those Partnerships with more frequent opportunities to cash in their
investment on substantially the same basis as provided in their original
Partnership Agreements because they will be given the annual opportunity to
present their Units to the Consolidated Partnership for purchase at the price
determined by the presentment formula. In the General Partner's opinion, the
prices yielded by the presentment formula closely approximate the estimated fair
market values of Partnership properties as determined by Gruy (which is intended
to be an approximation of the prices for which Partnership properties could be
sold), since Gruy's valuation methods also include escalated oil and gas prices,
discounted present values of oil and gas reserves, and a flat 25% discount for
all proved, developed reserves, with additional discounts based on the
particular features of the property being evaluated.
No Assessments
No calls or assessments for funds will be sought from the
Unitholders and expenses of the Consolidated Partnership will be paid from the
capital of the Consolidated Partnership, Consolidated Partnership revenues and
the financing arrangements the General Partner makes for the Consolidated
Partnership. See "Proposed Activities--Financing" above.
Participation in Costs and Revenues
General Cost and Revenue Sharing Percentages: Under the
existing Partnership Agreements, net revenues earned by the Partnerships (i.e.,
after payment of Direct Costs, Administrative Costs, Operating Costs, interest
on loans and other costs and expenses incurred by the Partnerships) are
generally allocated 10% to the General Partner and 90% to the limited partners
(including the General Partner with respect to the Interests it owns). With
respect to the following Partnerships, however, such revenues and costs are
allocated 100% to the limited partners (including the General Partner with
respect to the Interests it owns): Enex Program I Partners, L.P., Enex Oil & Gas
Income Program II-7, L.P., Enex Oil & Gas Income Program II-8, L.P., Enex Oil &
Gas Income Program II-9 L.P. and Enex Oil & Gas Income Program II-10, L.P. In
order to provide for a single blended sharing percentage for the General Partner
in the Consolidated Partnership, the General Partner has caused the 10% net
revenue interests it owns to be valued in the same manner as the outstanding
Interests in the affected Partnerships. The exchange values of the General
Partner's percentage shares of Partnership net revenues are as follows:
50
<PAGE>
<TABLE>
<CAPTION>
TABLE B
EXCHANGE VALUE ATTRIBUTABLE TO GENERAL PARTNER'S REVENUE INTERESTS
Exchange Value "General
Percentage of Attributable to GP's Percentage Partner's
Exchange Total Exchange GP's Revenue of Partnership's Percentage
Partnership Value Value Interest Exchange Value Share"
- ------------ ------------- -------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
100 $5,091,092 29.72% - 0.00% 0.00%
207 900,511 5.26% - 0.00% 0.00%
208 688,457 4.02% - 0.00% 0.00%
209 411,439 2.40% - 0.00% 0.00%
210 519,998 3.04% - 0.00% 0.00%
301 310,146 1.81% $7,612 2.45% 0.04%
302 444,368 2.59% 12,020 2.71% 0.07%
303 681,975 3.98% 19,436 2.85% 0.11%
304 241,695 1.41% 2,300 0.95% 0.01%
305 273,585 1.60% 12,147 4.44% 0.07%
306 304,186 1.78% 13,606 4.47% 0.08%
307 215,020 1.26% 9,630 4.48% 0.06%
308 275,045 1.61% 12,555 4.56% 0.07%
401 177,084 1.03% 11,290 6.38% 0.07%
402 132,782 0.78% 8,498 6.40% 0.05%
404 188,429 1.10% 9,340 4.96% 0.05%
405 265,914 1.55% 17,247 6.49% 0.10%
406 183,907 1.07% 13,039 7.09% 0.08%
407 268,595 1.57% 15,140 5.64% 0.09%
051 290,105 1.69% 29,010 10.00% 0.17%
052 209,269 1.22% 20,926 10.00% 0.12%
053 197,586 1.15% 19,758 10.00% 0.12%
054 945,303 5.52% 94,530 10.00% 0.55%
055 759,378 4.43% 75,937 10.00% 0.44%
601 558,956 3.26% 55,895 10.00% 0.33%
501 257,359 1.50% 3,577 1.39% 0.02%
502 291,515 1.70% 4,046 1.39% 0.02%
503 196,649 1.15% 4,813 2.45% 0.03%
525 99,151 0.58% 5,604 5.65% 0.03%
526 127,971 0.75% 5,419 4.23% 0.03%
527 348,737 2.04% 12,254 3.51% 0.07%
531 429,067 2.50% 19,749 4.60% 0.12%
532 207,750 1.21% 13,424 6.46% 0.08%
533 637,104 3.72% 34,218 5.37% 0.20%
------------ ------------- ------------ ---------
Totals $17,130,128 100% $563,020 3.29%
============ ============= ============ =========
</TABLE>
51
<PAGE>
For each participating Partnership, the exchange value of the General Partner's
net revenue sharing percentage will be converted into a proportionate allocation
of Consolidated Partnership net revenues to the General Partner rather than into
Units. For example, if Enex Oil & Gas Income Program V - Series 3, L.P. is a
participating Partnership and the exchange value of its net assets (exclusive of
its liabilities to the General Partner) represents 1.15% of the aggregate
exchange value of the assets received by the Consolidated Partnership in the
Consolidation (exclusive of the exchange value of liabilities to the General
Partner and Interests acquired pursuant to the Exchange Offer), then the General
Partner will receive a .12% sharing percentage in the Consolidated Partnership's
revenues and expenses (10% of 1.15%).
If all of the Partnerships participate in the Consolidation,
the Consolidated Partnership's net revenues will be allocated 3.29% to the
General Partner and 96.7% to the Unitholders (including the General Partner with
respect to the Units it owns). The share of the Consolidated Partnership's net
revenues to be allocated to the General Partner in accordance with the foregoing
explanation is referred to in this Prospectus/Proxy Statement as the "General
Partner's Percentage Share."
The existing Partnership Agreements provide that upon the
limited partners' receipt of aggregate Partnership distributions equal to (or in
certain cases equal to twice) their subscriptions to the Partnership, the
general revenue and cost sharing ratios as between the limited partners and
General Partner will shift from 90%-10% to 85%-15%. Although there is little
likelihood of the increase occurring in the forseeable future, the General
Partner has decided to forego this potential increase in its share of
Partnership net revenues in order to provide further benefit to the limited
partners of those Partnerships. Accordingly, no exchange value has been assigned
to the General Partner's right to a potential increase in its share of the net
revenues of certain Partnerships. Following the Consolidation, costs and
revenues will no longer be allocated to each Partnership. Instead each
Unitholder will receive a pro rata share of the Unitholders' share of the net
revenues of the Consolidated Partnership.
Particular Allocations: The costs of planning and developing
the Consolidation and presenting it to the limited partners of the Partnerships,
as well as the costs of organizing the Consolidated Partnership and the costs of
the Consolidation itself, shall be borne by the Consolidated Partnership and
allocated in accordance with the general cost and revenue sharing percentages
described above. Included are legal, accounting and engineering fees, a share of
the Administrative Costs of the General Partner and its affiliates, duplicating,
printing and mailing costs, filing fees and other incidental costs and expenses.
Direct Costs, Administrative Costs, Operating Costs, expenses
of drilling, completing and equipping (or plugging and abandoning) development
wells, other expenses incurred in connection with Consolidated Partnership
business and revenues (other than proceeds of sales of properties) will also be
allocated in accordance with the general cost and revenue sharing percentages
described above.
Anything to the contrary notwithstanding, the repayment of
borrowing (exclusive of interest) assumed by the Consolidated Partnership upon
the acceptance of the assets and liabilities of the participating Partnerships
and borrowing (exclusive of interest), the proceeds of which are used to acquire
producing properties (see "-Proposed Activities-Reinvestment of Revenues and
Proceeds"), shall be made exclusively out of the share of Consolidated
Partnership net revenues allocated to the Unitholders (including the General
Partner with respect to the Units it owns).
Generally, gain from the sale of a Consolidated Partnership
property shall first be allocated to the General Partner in such amount, if it
is available, as will result in the General Partner having been allocated the
General Partner's Percentage Share of the aggregate net proceeds from all sales
of Consolidated Partnership property allocated to such point. The balance of the
gain, if any, shall be allocated to the General Partner and the Unitholders,
(including the General Partner with respect to the Units it owns) in accordance
with the general cost and revenue sharing percentages described above. Losses
incurred by the Consolidated Partnership in connection with sales of property
will be allocated to the Unitholders (including the General Partner with respect
to the Units it owns) in proportion to their respective interests in the book
value of the property sold (i.e., generally in proportion to capital account
balances).
52
<PAGE>
If there is a loss on a sale or insufficient gain from a sale
to permit the General Partner's Percentage Share of the aggregate amount of net
proceeds of the sale to be allocated to the General Partner, the General Partner
will be specially allocated additional gain from subsequent sales of
Consolidated Partnership property, if any, to make up the difference. If the
General Partner is allocated additional gain from a subsequent sale to make up
any such difference, the General Partner will be allocated more than the General
Partner's Percentage Share of the net proceeds from such subsequent transaction,
but only to the extent necessary to eliminate any cumulative difference between
the General Partner's Percentage Share of aggregate Consolidated Partnership net
proceeds of sale through such time and the amount actually allocated to the
General Partner through such time.
However, if property is sold for the purpose of providing
funds to acquire other properties and prior to the closing for the sale of such
property the General Partner has earmarked the property to be sold for such
purposes, then any gain resulting from the sale of such property will be
allocated exclusively to the Unitholders.
The General Partner will be allocated the costs and revenues
attributable to the Units it owns, determined in the same manner as for other
Unitholders.
All allocations described above are subject to adjustment upon
the withdrawal of properties by the owner of a selling Unitholder's Units as
described in "--Exchange for Assets" or upon the cancellation by the
Consolidated Partnership of Units purchased from a presenting Unitholder, as
described in "--Right of Presentment".
The General Partner may reduce the General Partner's
Percentage Share and correspondingly increase the net revenue interest of the
Unitholders if required by law in order for the General Partner or its
affiliates to participate in transactions with the Consolidated Partnership.
Allocation of Costs and Revenues Among Unitholders: The
General Partner and the limited partners of each participating Partnership will
be allocated a pro rata portion of the exchange value of their Partnership's net
assets based upon the balances in the Partners' capital accounts in accordance
with the dissolution provisions of the Partnership Agreement of each
Partnership. The General Partner's capital account will also be credited with an
amount equal to the amount owed it by such Partnership in exchange for the
General Partner's cancellation of the indebtedness. The resulting values will be
used in determining each Partner's share of the Consolidated Partnership's
capital and the amount of Units distributable to him. Except for the special
allocations described in the next paragraph, the Unitholders' share of revenues,
gains, costs, expenses, losses and other charges and liabilities will be
credited and charged among them pro rata according to their holdings of Units.
The Articles provide for the special allocation of cost
recovery (depletion and depreciation) deductions and of taxable gain or loss to
the Unitholders contributing property to the Consolidated Partnership (i.e., the
assets of their participating Partnership) to take into account, generally, the
difference between the fair market value of the property and the adjusted tax
basis of such property at the time of contribution. As part of this special
allocation, any recaptured income resulting from the sale of such properties
will be allocated first to the contributing Unitholders to the extent of the
special allocation of gain referred to in the previous sentence and the balance,
if any, will be allocated among all Unitholders in accordance with the
allocations described above. See "TAX ASPECTS--Participation in the Consolidated
Partnership--Allocations to Partners" for a discussion of such special
allocations.
Estimated Expenses: The General Partner estimates that Direct
Costs and Administrative Costs allocable to the Consolidated Partnership for its
first 12 months of operation will be approximately $775,000 if the minimum
number of Partnerships participate in the Consolidation (representing
approximately 59% of aggregate Consolidated Partnership exchange value) and
approximately $1,100,000 if all of the Partnerships participate in the
Consolidation (representing 100% of aggregate Consolidated Partnership exchange
value). (If more than the minimum number of Partnerships participate, costs and
expenses will be higher on an absolute basis, but in view of economies of scale,
not proportionately so.) The General Partner estimates that the components of
such allocable amounts for a Consolidated Partnership formed with $10,000,000
and $17,130,128 of exchange value (exclusive of the exchange value attributable
to Interests exchanged for Units pursuant to the Exchange Offer), respectively,
will be as follows:
53
<PAGE>
Minimum Maximum
Administrativ Costs Program Program
--------- -------
Accounting $126,000 $179,000
Administration 100,000 142,000
Data Processing 25,000 36,000
Engineering 122,000 173,000
Investor Relations 19,000 27,000
Land 30,000 43,000
Directors' Fees 31,000 44,000
Equipment & Maintenance 30,000 42,000
Insurance 2,000 3,000
Office Expenses 19,000 27,000
Postage 16,000 22,000
Phone 7,000 10,000
Printing 12,000 17,000
Rent 62,000 88,000
Taxes & Fees 37,000 53,000
Travel & Entertainment 8,000 11,000
--------- ----------
Subtotal - allocated expenses 646,000 917,000
-------- ----------
Direct Costs:
Audit & Tax Fees 60,000 85,000
Filing Fees 2,000 3,000
Legal Fees 35,000 50,000
Reserve Reports 32,000 45,000
-------- ----------
Subtotal - direct expenses 129,000 183,000
-------- ----------
TOTAL $775,000 $1,100,000
======== ==========
See "--Compensation--Direct and Administrative Costs," below for a discussion of
the procedures followed to determine the amounts of Administrative Costs to be
allocated to the Consolidated Partnership. Although the General Partner has
prior experience in organizing and operating income program partnerships, the
Direct Costs and Administrative Costs to be allocated and incurred by the
Consolidated Partnership, as indicated above, are only estimates and actual
results may vary.
Compensation
For its management services, the General Partner has received,
from all Partnerships, partnership revenue interests, reimbursement of offering
costs and reimbursement of Direct and Administrative Costs actually incurred.
Such amounts are shown in Tables 3 and 3b in Appendix A.
After commencement of the Consolidated Partnership's
operations, the General Partner or its affiliates will receive compensation from
the Consolidated Partnership substantially identical to the corresponding items
of compensation the General Partner currently receives from the Partnerships,
except that the General Partner's share of costs and revenues will be a blended
sharing percentage as described above in "--Participation in Costs and
Revenues--General Cost and Revenue Sharing Percentages" and will not increase at
payout. These compensation arrangements may be considered to be less favorable
to the General Partner than the provisions of certain of the Partnership
Agreements in that the General Partner's right to an increase in its general
partnership revenue interest upon payout to the limited partners (although not
anticipated to occur in the foreseeable future) is being waived, and this
potential increase will be given no value in determining the amount of Units to
which the General Partner will be entitled pursuant to the Consolidation.
54
<PAGE>
Interest in Properties: The General Partner will receive the
percentages of the revenues derived from the sale of production from oil and gas
properties, including any development wells drilled by the Consolidated
Partnership and the proceeds from the sale of Consolidated Partnership property
and will be allocated the percentages of Operating Costs, Direct Costs,
Administrative Costs, the cost of development wells drilled by the Consolidated
Partnership and associated interest expenses and other costs and revenues
described in "--Participation in Costs and Revenues". To the extent that the
General Partner's share of revenues and proceeds of sale exceeds its share of
costs and expenses, the General Partner will have received compensation.
Direct and Administrative Costs: The General Partner will be
reimbursed for the Unitholders' share (including the portion thereof
attributable to Units owned by the General Partner) of all Direct Costs and
Administrative Costs incurred on behalf of the Consolidated Partnership. The
portion of Administrative Costs allocable to the Consolidated Partnership will
be computed on a cost basis in accordance with generally accepted accounting
principles or standard industry practices which may be in effect by allocating
the time spent by the General Partner's personnel among all projects conducted
by the General Partner for its own account, joint ventures or other affiliated
limited partnerships, and by allocating rent and other overhead on the basis of
relative direct time charges.
The Articles require that the Consolidated Partnership obtain
annually from its independent public accountants, for inclusion in its annual
report, a written attestation that the method used to make such allocations was
consistent with the method described in this Prospectus/Proxy Statement and that
the total amount of costs allocated did not materially exceed the amounts
actually incurred by the General Partner. The accountants will not opine on
either the necessity of any costs incurred by the General Partner or the
fairness of the allocation of such costs to the Consolidated Partnership.
Reimbursement of such costs to the General Partner will include
a portion of the salaries of its officers and employees allocated as described
above. Salaries of "controlling persons" of the General Partner (directors,
executive officers and 5% shareholders) will not be reimbursed as Administrative
Costs. To the extent that such persons provide actual professional services to a
Partnership (i.e., property selection or management, preparation of reserve or
financial information, etc.) directly related to Partnership operations,
salaries of certain executive officers, excluding the President of the General
Partner, may be reimbursed as a Direct Cost; provided, however, that the total
annual reimbursement for all such officers' salaries shall not exceed an amount
equal to .4% of aggregate capital contributions to the Partnerships that
participate in the Consolidation. The reimbursement described above is without
regard to the profitability of the Consolidated Partnership, and, to the extent
it includes a portion of such salaries, may be deemed compensation to the
General Partner. Direct Costs and Administrative Costs shall not include any
item of expense incurred by the General Partner acting as operator of producing
Partnership properties. See "Operating Costs", below.
Operating Costs: When acting as the operator of Consolidated
Partnership properties, the General Partner will not receive any compensation
but will be reimbursed for actual costs and expenses incurred in providing such
services, including a charge for allocable Direct Costs and Administrative
Costs. In circumstances in which the General Partner does not act as operator of
a Consolidated Partnership property, the General Partner will not charge the
Consolidated Partnership any direct fees for monitoring well operators, but will
be entitled to reimbursement only of those related expenses, including Direct
Costs and Administrative Costs, actually incurred by it.
Advances and Disbursements: In many instances, the General
Partner will advance and disburse monies for the payment of Direct Costs
incurred in connection with Consolidated Partnership operations, and will be
reimbursed by the Consolidated Partnership for such expenditures. Such
procedures are consistent with standard oil industry practice and will be
reviewed by a firm of independent public accountants in connection with their
examination of the financial statements of the Consolidated Partnership and the
provision of the attestation described above. The General Partner will be
reimbursed for an allocable portion of its Administrative Costs attributable to
such activities, as described above.
55
<PAGE>
Other Benefits: To the extent the General Partner incurs
expenses for which it is reimbursed by the Consolidated Partnership, it may be
deemed to have received a benefit. Any interest charged on loans to the
Consolidated Partnership by the General Partner may be considered additional
compensation.
Management
The General Partner was reincorporated under the laws of the
State of Delaware on June 30, 1992, and maintains a principal operating office
at Suite 200, Three Kingwood Place, Kingwood, Texas 77339; telephone (713)
358-8401. At July 1, 1996, the General Partner and its subsidiary, Enex
Securities Corporation, had 24 full-time employees.
Officers, Directors and Key Employees: The officers, directors and key
employees of the General Partner are:
Gerald B. Eckley. Mr. Eckley, age 69, has served as a director,
President and Chief Executive Officer of the General Partner since its formation
in 1979. He was employed by Shell Oil Company from 1951 to 1967 and served in
managerial capacities from 1959 to 1967. From 1967 to 1969, he was Director of
Fund Raising at the University of Oklahoma and from 1969 to 1971, was Vice
President of Land and Operations for Imperial American Management Company. In
1971, Mr. Eckley was a petroleum consultant and in 1972-1973 was General Counsel
and Executive Director of the Oil Investment Institute. From 1973 to 1974, he
was Manager of Oil Properties, Inc. and from 1974 to 1976, was Vice President,
Land and Joint Ventures for Petro-Lewis Corporation. From 1977 to August of
1979, Mr. Eckley was President of Eckley Energy, Inc., a company engaged in
purchasing and selling oil and gas properties. Mr. Eckley received an LLB degree
from the University of Oklahoma in 1951 and a Juris Doctor degree from the
University of Oklahoma in 1970.
Robert E. Densford. Mr. Densford, age 38, was appointed a director of the
General Partner on September 11, 1991. He joined the General Partner as
Controller on May 1, 1985 and became Vice President-Finance, Secretary and
Treasurer on March 1, 1989. From January 1983 to April 1985, he was a Senior
Accountant for Deloitte Haskins & Sells in Houston, Texas, auditing both closely
held and publicly owned oil and gas companies. From September 1981 to December
1982, he was a staff accountant for Coopers & Lybrand in Houston. Mr. Densford
is a C.P.A. and holds a B.B.A. degree in Accounting and an M.S. degree in Oil
and Gas Accounting, Magna Cum Laude, from Texas Tech University and is a member
of the American Institute of Certified Public Accountants and the Texas Society
of Certified Public Accountants.
Robert D. Carl, III. Mr. Carl, age 42, was appointed a director
of the General Partner on July 30, 1991, and is a member of the General
Partner's Audit Committee. He is President, Chief Executive Officer and Chairman
of the Board of Health Images, Inc., a public company whose securities are
traded on NYSE, which provides fixed site magnetic resonance imaging ("MRI")
services. Mr. Carl is also President of Life Funding Corporation, a firm engaged
in the viatical settlements business. He is a trustee of Franklin and Marshall
College in Lancaster, Pennsylvania. From 1978 to 1981, Mr. Carl also served as
President of Carl Investment Associates, Inc., a registered investment advisor.
In 1981 Mr. Carl joined Cardio-Tech, Inc., as general counsel and as an officer
and director. Upon the sale and reorganization of Cardio-Tech, Inc. into
Cardiopul Technologies in 1982, he served as its Executive Vice President and as
a director. In March, 1985 he was elected President, Chief Executive Officer and
Chairman of Cardiopul Technologies which spun off its non-imaging medical
services business and changed its name to Health Images, Inc. Mr. Carl received
a B.A. in History from Franklin and Marshall College, Lancaster, Pennsylvania in
1975 and a J.D. from Emory University School of Law, Atlanta, Georgia in 1978.
Mr. Carl is a Trustee of Franklin and Marshall College and is a member of the
State Bar of Georgia.
On January 4, 1996, the Securities and Exchange Commission
("SEC") filed a complaint in the United States District Court for the District
of Columbia against Mr. Carl alleging that Mr. Carl violated Section 16(a) of
the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 16a-2 and 16a-3
(and former Rule 16a-1) thereunder, by failing to timely file reports concerning
thirty-eight securities transactions in his mother's brokerage accounts
involving shares of Health Images, Inc. stock. Although Mr. Carl's mother
apparently did not live in his household, the SEC took the position that because
Mr. Carl (1) provided substantial financial support to his mother,
56
<PAGE>
(2) commingled his mother's assets with his own, (3) provided a substantial
portion of the funds used to purchase the shares in question, and (4) received
from his mother a substantial portion of the sales proceeds, he, therefore, had
a pecuniary interest in, and was a beneficial owner of, the shares in question.
In response to the SEC's action, Mr. Carl disgorged to Health
Images, Inc. approximately $92,400 in short-swing profits from the trading in
his mother's account, plus interest thereon of approximately $52,600. The SEC
further requested the court to impose a $10,000 civil penalty against Mr. Carl
pursuant to Section 21(d)(3) of the Exchange Act. Without admitting or denying
the allegations in the complaint, Mr. Carl consented to the entry of a final
judgment imposing the $10,000 penalty. On January 12, 1996, a federal judge
entered the final judgment in this matter, and Mr. Carl has since filed amended
reports on Forms 4 and 5 reflecting these transactions in his mother's accounts.
In relation to the same matter, the SEC has issued an
administrative order pursuant to Section 21C of the Exchange Act against Mr.
Carl, finding that he violated Section 16(a) and the rules thereunder and
requiring him to cease and desist from committing or causing any violation or
future violation of those provisions. Without admitting or denying allegations
in the SEC's Order, Mr. Carl consented to the entry of the Order.
Martin J. Freedman. Mr. Freedman, age 71, was one of the
General Partner's founders and a member of its Board of Directors as well as a
board member of Enex Securities Corporation until June 1986. He was reappointed
to the Board on April 19, 1990 to fill a vacancy. He is a member of the General
Partner's Compensation and Options Committee. He is currently President of
Freedman Oil & Gas Company, engaged primarily in the management of its
exploration and producing properties, and the managing partner of Martin J.
Freedman & Company which has an interest in approximately one hundred producing
oil and/or gas wells. Mr. Freedman is a lifetime member of the Denver Petroleum
Club as well as being a lifetime member of the Denver Association of Petroleum
Landmen. He was an officer and director and/or founder of several former private
and public companies, among which were Valex Petroleum and Kissinger Drilling
and Exploration. Mr. Freedman entered the oil and gas business in 1954 when he
joined Mr. Marvin Davis of the Davis Oil Company. In 1956, he became President
of Central Oil Corporation, a company engaged in oil and gas exploration. From
1958 on, Mr. Freedman operated as Martin J. Freedman Oil Properties and was
President of Oil Properties, Inc., a private corporation. Mr. Freedman attended
Long Island University and New York University. He received a bachelor's degree
in Psychology and also attended New York University's graduate school.
William C. Hooper, Jr. Mr. Hooper, age 58, has been a director
of the General Partner since its formation in 1979 and is a member of the
General Partner's Audit and Compensation and Options Committees. In 1960 he was
a staff engineer in the Natural Gas Department of the Railroad Commission of
Texas, with principal duties involving reservoir units and gas proration. In
1961 he was employed by the California Company as a Drilling Engineer and
Supervisor. In 1963 he was employed as a Staff Engineer by California Research
Corporation and in 1964 rejoined the California Company as a project manager
having various duties involving drilling and reservoir evaluations. In 1966 he
was Executive Vice President for Moran Bros. Inc., coordinating and managing all
company activities, drilling operations, bidding and engineering. From 1970
until the present, he has been self-employed as a consulting petroleum engineer
providing services to industry and government and engaged in business as an
independent oil and gas operator and investor. From 1975 to 1987 he was also a
director and President of Verna Corporation, a drilling contractor and service
organization. He received a B.S. degree in Petroleum Engineering in 1960 from
the University of Texas and an M.S. degree in Petroleum Engineering from that
same University in 1961.
James Thomas Shorney. Mr. Shorney, age 70, has been a director
of the General Partner since 1990 and is a member of the General Partner's
Compensation and Options Committee. He has been a petroleum consultant and
Secretary and Treasurer of the Shorney Company, a privately held oil and gas
exploration company, from 1970 to date. From 1970 to 1976, he also served as
petroleum consultant in Land and Lease Research Analysis Studies for the GHK
Company. He was an oil and gas lease broker from 1962 to 1970 and employed by
Shell Oil Company in the Land Department from 1954 to 1962. Before joining Shell
Oil Company, he served as Public Information Officer in the U.S. Army Air Force
from 1950 to 1953, including 1952 in Georgetown University Graduate School. Mr.
Shorney graduated from the University of Oklahoma with a B.A. degree in
Journalism in
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1950. From 1943 to 1945, he served in the U.S. Army Air Force as an air crew
member on a B-24 Bomber. Mr. Shorney is a member of the Oklahoma City
Association of Petroleum Landmen on which he has served as Director and
Secretary/Treasurer. He is an active member of the American Association of
Petroleum Landmen. In 1975, Mr. Shorney was first listed in the London Financial
Times' Who's Who in World Oil and Gas.
Stuart Strasner. Mr. Strasner, age 66, was a director of the
General Partner from its formation until October 1986. He was reappointed to the
Board on April 19, 1990 to fill a vacancy. He is a member of the General
Partner's Audit Committee. He is a professor of business law at Oklahoma City
University and was Dean of the law school at Oklahoma City University from July
1984 until June 1991. Prior to July 1984, Mr. Strasner was an attorney in
private practice of counsel to McCollister, McCleary, Fazio and Holliday in
Oklahoma City, Oklahoma. From 1959 to 1974, he was employed by various banks,
bank holding companies and an insurance company in executive capacities. From
1974 to 1978, he was a consultant to various corporations such as insurance
companies, bank holding companies and small business investment companies. From
1978 until late 1981, he was Executive Director of the Oklahoma Bar Association
and from 1981 to 1983 was a director and President of PRST Enterprises, Inc., a
real estate development company. Mr. Strasner holds an A.B. degree from
Panhandle A&M College, Oklahoma and a J.D degree from the University of
Oklahoma. He is a member of the Fellows of the American Bar Association and a
member of the Oklahoma Bar Association. Mr. Strasner is also a director of
Health Images, Inc., a public company which provides fixed site magnetic
resonance imaging services.
James A. Klein. Mr. Klein, age 33, joined the General Partner as Controller
in February 1991. In June 1993, he was appointed President and Principal of Enex
Securities Corporation. From June 1988 to February 1991, he was employed by
Positron Corporation in Houston. From July 1987 to May 1988, he was employed by
Transworld Oil Company in Houston and from September 1985 until July 1987, he
was an accountant with Deloitte Haskins & Sells in Houston, Texas, auditing oil
and gas and oil service companies. Mr. Klein is a certified public accountant
and holds a B.A. in Accounting (1985) from the University of Iowa. He is a
member of the American Institute of Certified Public Accountants and the Iowa
Society of Certified Public Accountants.
It is not anticipated that the Consolidated Partnership will
have any employees since it will be operated entirely by the General Partner.
Executive Compensation: There is shown below information
concerning the annual and long-term compensation for services in all capacities
to the General Partner for the fiscal years ended December 31, 1993, 1994, and
1995, of those persons who were the chief executive officer and the other
executive officers of the General Partner (collectively, the "Named Officers")
who earned at least $100,000 during the fiscal year ended December 31, 1995:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
---------------------- ------------------------
Awards Payouts
------ -------
Name Shares All
and Underlying Other
Principal Position Year Salary Bonus Options Compensation (1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gerald B. Eckley 1995 $ 240,000 $ 32,400 - 0 - $ 21,175
President, Chief 1994 $ 240,000 $ 36,000 - 0 - $ 4,000
Executive Officer 1993 $ 240,000 $ 52,800 10,000 $ 17,000
Robert E. Densford 1995 $ 112,000 $ 15,120 - 0 - $ 20,562
Vice President - 1994 $ 112,000 $ 16,800 - 0 - $ 19,500
Finance, Secretary 1993 $ 112,000 $ 24,640 10,000 $ 17,000
Treasurer
- ------------
</TABLE>
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<PAGE>
(1) The General Partner's Employee Stock Purchase Program (the "Program"),
in which all officers, directors and full-time employees are eligible to
participate, provides for the monthly contribution of shares of the General
Partner's common stock equal to 50% of a participant's open market purchases of
the General Partner's common stock for the preceding month (the "Stock
Contribution"). The Stock Contribution, on which dividends are paid, is limited
to a maximum of 2,500 shares per participant per Program year. Each Stock
Contribution, although immediately vested, is held in escrow for a six-month
holding period prior to its distribution to the participant, and will be
forfeited if, during such six-month period, the participant ceases to be an
employee or director of the General Partner for any reason other than
retirement, death or disability. The values shown in the table represent 2,500
shares contributed to Mr. Eckley and 2,500 shares contributed to Mr. Densford
during 1995. No Named Officer held any other unvested restricted stock at
December 31, 1995.
Option Grants: No options were granted under the General Partner's 1991
Non-Qualified Stock Option Plan during 1995.
Option Exercises and Year-End Values: Shown below is information concerning
the exercise and year-end values of the options to purchase the General
Partner's common stock granted in prior years to the Named Officers and held by
them at December 31, 1995.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
Number of Value of
Shares Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Number of December 31, 1995 December 31, 1995
----------------- -----------------
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable (1) Unexercisable (1)
- ---- --------------- -------- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Gerald B. Eckley -0- $0 70,000 - $265,000 $0
Robert E. Densford -0- $0 40,000 - $132,500 $0
</TABLE>
- ------------
(1) The dollar values are calculated by determining the difference between
the fair market value of the securities underlying the options and the exercise
price of the options at fiscal year-end.
Compensation of Directors: During 1995, each non-employee director received
$1,200 as compensation for each meeting which he attended in person and $1,800
per calendar quarter. Under the terms of the Employee Stock Purchase Program
described above, 2,500 shares (having an aggregate value of $20,625 calculated
on the applicable contribution dates) were contributed by the General Partner to
Mr. Freedman in 1995. At December 31, 1995 all of these shares had been
distributed.
Security Ownership of Certain Beneficial Owners and Management: The
following table sets forth the ownership of the General Partner's common stock
held by (i) each person who owns of record or who is known by the General
Partner to own beneficially more than 5% of such stock, as of December 31, 1995,
(ii) each of the directors and nominees for election as directors of the General
Partner, as of March 1, 1996, (iii) each of the Named Officers, as of March 1,
1996, and (iv) all of the General Partner's directors and executive officers as
a group, as of March 1, 1996. As of March 1, 1996, the General Partner had
1,372,297 shares of common stock issued and outstanding. The number of shares
and the percentage of the class beneficially owned by the persons named in the
table and by all directors and executive officers as a group is presented in
accordance with SEC Rule 13d-3 and includes, in addition to shares actually
issued and outstanding, unissued shares which are subject to
59
<PAGE>
issuance upon exercise of options within 60 days. Except as otherwise indicated,
the persons named in the table have sole voting and dispositive power with
respect to all securities listed.
<TABLE>
<CAPTION>
Number
of Shares
Beneficially Percent
Names and Addresses of Beneficial Owners Owned of Class
---------------------------------------- ------------ --------
FMR Corp.
82 Devonshire Street
<S> <C> <C>
Boston, MA 02109............................................144,300(1) 10.52%
Franklin/Templeton
Group of Funds
777 Mariners Island Blvd.
San Mateo, CA 94404..........................................105,100(2) 7.66%
Directors and Executive Officers (3)
Gerald B. Eckley.............................................289,900 20.10%
Robert D. Carl, III.......................................... 87,500 6.35%
Robert E. Densford........................................... 69,960 4.95%
William C. Hooper, Jr. ...................................... 8,000 .58%
Martin J. Freedman........................................... 32,000 2.32%
James Thomas Shorney......................................... 5,000 .36%
Stuart Strasner.............................................. 5,000 .36%
Directors and Executive Officers as a group (8 persons)......522,260 34.18%
</TABLE>
---------
(1) FMR Corp. ("FMR") is a holding company one of whose principal assets is
the capital stock of Fidelity Management and Research Company ("Fidelity"), the
investment advisor to a large number of investment companies (the "Fidelity
Funds"), including the Fidelity Low-Priced Stock Fund, which owns the shares
shown in the table. FMR, through its control of Fidelity, and the Chairman of
FMR each has sole power to dispose of such shares. Neither FMR nor its principal
shareholder has the sole power to vote or direct the voting of such shares,
which power resides with the Fidelity Funds' Board of Trustees. Fidelity carries
out the voting of the shares under written guidelines established by the
Fidelity Funds' Board of Trustees. All information regarding FMR was obtained
from Amendment No. 4 to Schedule 13G filed by FMR with the SEC on February 14,
1996.
(2) Franklin Resources, Inc. ("FRI"), a holding company whose subsidiaries
include a bank, broker-dealers, and the investment advisors to a large number of
investment companies (the "Franklin/Templeton Funds"), has reported that the
above shares are held for the benefit of the Franklin Balance Sheet Investment
Fund ("FBSIF"), which has the right to receive dividends on and the proceeds
from the sale of such shares. FRI has reported that it has the sole power to
vote, and shares with Franklin Advisors, Inc. (the investment advisor to FBSIF)
the power to dispose of, such shares. All information regarding FRI was obtained
from Amendment No. 2 to Schedule 13G filed by FRI with the SEC on February 8,
1996.
(3) 800 Rockmead, Three Kingwood Place, Suite 200, Kingwood, TX 77339 is
the address for all directors and executive officers. Actual ownership of
outstanding shares, excluding unissued shares subject to options is as follows:
Mr. Eckley - 219,900 shares, 16.02%; Mr. Carl - 82,500 shares, 6.01%; Mr.
Densford - 29,960 shares, 2.18%; Mr. Freedman - 27,000 shares, 1.97%; all
directors and executive officers as a group - 366,760 shares, 26.73%.
In addition, Mr. Eckley owns the following interests as a limited partner
in the Partnerships: $2,000 in Enex Program I Partners, L.P., $2,000 in Enex Oil
& Gas Income Program II-10, L.P., $2,000 in Enex Income and Retirement Fund,
Series 1, L.P., $1,000 in Enex 90-91 Income and Retirement Fund, Series 2, L.P.,
$25,619
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<PAGE>
in Enex Oil & Gas Income Program V, Series 3, L.P. and $53,000 in Enex Oil & Gas
Income Program VI, Series 1, L.P. Additionally, Mr. Shorney owns a $7,500
interest as a limited partner in Enex Oil & Gas Income Program VI, Series 1,
L.P.
Fiduciary Obligations and Indemnification: A general partner
is accountable to a limited partnership as a fiduciary and consequently must
handle partnership affairs with trust, confidence and good faith, may not obtain
any secret advantage or benefit from the partnership and must share with it all
business opportunities clearly related to the subject of its operations. In
contrast to the relatively well developed state of the law concerning fiduciary
duties owed by officers and directors to the shareholders of a corporation, the
law concerning the duties owed by general partners to the other partners and to
the partnership is relatively undeveloped. The New Jersey Uniform Limited
Partnership Law (1976) (the "Act") permits New Jersey limited partnerships to
restrict or expand in their partnership agreements, the liabilities of general
partners to their partnerships and their limited partners. In order to induce
the General Partner to manage the businesses of the Consolidated Partnership,
Sections 9.2 and 9.6 of the Articles contains various provisions that are
designed to mitigate possible conflicts of interest (see "-Conflicts of
Interest"), which may have the effect of restricting the fiduciary duties that
might otherwise be owed by the General Partner to the Consolidated Partnership
and its limited partners or which waive or consent to conduct by the General
Partner that might otherwise raise issues as to compliance with fiduciary
duties. Because this a rapidly developing and changing area of the law and there
is little case law on the subject, the General Partner has not obtained an
opinion of counsel covering the provisions of the Articles which purport to
waive or restrict fiduciary duties of the General Partner. Limited Partners who
have questions concerning the duties of the General Partner should consult with
their counsel.
Because the General Partner will make all decisions relating
to the Consolidated Partnership and the Consolidated Partnership will not have
any employees, the officers of the General Partner will make such decisions. The
directors and officers of the General Partner have fiduciary duties to manage
the General Partner, including its investments in its subsidiaries and
affiliates, in a manner beneficial to the shareholders of the General Partner.
Because the General Partner has a fiduciary duty to manage the Consolidated
Partnership in a manner beneficial to its limited partners and owes a similar
duty to the limited partners of every partnership it manages, certain conflicts
of interest could arise. Section 9.2 of the Articles contains many provisions
that restrict the General Partner's freedom of action in order to mitigate
possible conflicts of interest.
Not every possible conflict can be foreseen, however.
Therefore, the Articles provide that whenever a conflict of interest arises
between the General Partner or its affiliates, on the one hand, and the
Consolidated Partnership or any of its limited partners, on the other hand, for
which no express standard is contained in the Articles, the General Partner
will, in resolving such conflict or determining such action, consider the
relative interests of the parties involved in such conflict or affected by such
action, any customary or accepted industry practices, and, if applicable,
generally accepted accounting practices or principles. Thus, unlike the strict
duty of a trustee who must act solely in the best interests of his beneficiary,
the Articles permit the General Partner to consider the interests of all parties
to a conflict of interest, including the interests of the General Partner and
its affiliates and other partnerships to which the General Partner or its
affiliates owe a fiduciary duty, provided that the General Partner acts in a
manner that is fair and reasonable to the Consolidated Partnership or the
limited partners.
The Act provides that a limited partner may institute legal
action on behalf of the Consolidated Partnership (a limited partner derivative
action) to recover damages from the General Partner or from a third party when
the General Partner has refused to institute the action or when an effort to
cause the General Partner to do so is not likely to succeed. In addition, the
statutory or case law of certain jurisdictions may permit a limited partner to
institute legal action on behalf of all other similarly situated limited
partners (a class action) to recover damages from the General Partner for
violations of its fiduciary duties to the limited partners.
The Act provides that a limited partnership is permitted to
indemnify a general partner against expenses incurred in the defense of a
limited partner derivative action if the general partner acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the limited partnership. No indemnification is permitted if the general partner
was liable for negligence or misconduct unless a court orders that
61
<PAGE>
under all the circumstances indemnity is proper. The Articles make this
indemnification mandatory and extend it to affiliates of the General Partner.
Because the Act authorizes but is otherwise silent on additional indemnification
rights, the Articles also provide for indemnification of the General Partner and
its affiliates by the Consolidated Partnership against losses and liabilities
sustained by them in connection with the Consolidated Partnership, provided that
the same were not the result of negligence or a failure to act in good faith or
misconduct on the part of the General Partner or its affiliates.
Notwithstanding the above, and subject to the provisions of
the Act, the General Partner and its affiliates and any person acting as a
broker-dealer will not be indemnified for any losses, liabilities or expenses
arising from or out of an alleged violation of federal or state securities laws
unless (1) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee and
the court approves indemnification of the litigation costs, or (2) such claims
have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee and the court approves
indemnification of the litigation costs or (3) a court of competent jurisdiction
approves a settlement of the claims against a particular indemnitee and the
court finds that indemnification of the settlement and related costs should be
made. Moreover, in any claim for indemnification for federal or state securities
law violations, the party seeking indemnification shall place before the court
the position of the SEC, the Massachusetts Securities Division and any other
applicable regulatory authority (including, in the case when a limited partner
has filed the claim as plaintiff, the state in which such limited partner was
offered or sold Units) with respect to the issue of indemnification for
securities law violations. It is the position of the SEC that to the extent that
indemnification provisions purport to include indemnification for liabilities
arising under the Securities Act of 1933, such indemnification is contrary to
public policy and, therefore, unenforceable.
See Section 9.3 of the Articles for further information
regarding indemnification.
Conflicts of Interest
Transactions between the Consolidated Partnership and the
General Partner or its affiliates will involve various conflicts of interest.
With respect to these and all other areas of conflict, the General Partner will
act in accordance with its fiduciary duties owed to the Consolidated
Partnership. See "--Management--Fiduciary Obligations and Indemnification."
Prospective Unitholders should consider the disclosures relating to conflicts of
interest set forth elsewhere in this Prospectus/Proxy Statement, as well as the
following matters.
The General Partner will be free to engage independently of
the Consolidated Partnership in all aspects of the oil and gas business for its
own account and for the accounts of others, subject to certain express
limitations contained in the Articles prohibiting it from conducting certain
operations or obtaining services or facilities for the Consolidated Partnership
in a manner or in areas in which such operations, services or facilities might
benefit the General Partner or its affiliates. The General Partner does not
intend to conduct any operations or obtain any services or facilities in a
manner designed to benefit it or its affiliates at the expense of the
Consolidated Partnership.
The General Partner and its affiliates are continually
acquiring oil and gas leases and other mineral interests and are presently
engaged and intend to continue to engage in the oil and gas business for their
account, for other affiliated oil and gas limited partnerships and with and for
third party limited partners. The General Partner and its affiliates have the
right to explore, develop, acquire and engage in the production of oil, gas and
other mineral properties at any time.
Interests in producing properties may be transferred among
limited partnership affiliates with a view toward achieving the investment
objectives of the various participants so long as no profit accrues to the
General Partner or its affiliates at the expense of any limited partnership
affiliate. However, no substantial conflict should arise from such activities.
See "--Proposed Activities". In general, the conflicts which would exist among
the Consolidated Partnership on the one hand and limited partnership affiliates
on the other hand also exist among the Partnerships.
62
<PAGE>
The General Partner or its affiliates will act as operator of
some of the Consolidated Partnership's properties and, in such cases, will be
reimbursed for its costs, including allocable Direct Costs and Administrative
Costs in accordance with industry practice. The General Partner will also
provide management supervision and geological and related services for the
Consolidated Partnership, but will be entitled to reimbursement only for
expenses, including Direct Costs and Administrative Costs, actually incurred by
it in connection with such activities. See "--Compensation". As operator of
Consolidated Partnership properties, the General Partner will have the exclusive
right to sell Consolidated Partnership production and will endeavor to obtain
the highest competitive price. The General Partner is not prevented from
engaging in other business transactions with purchasers of production. Such
transactions may be facilitated by the sale of Consolidated Partnership
production.
The General Partner will not take any action with respect to
the assets or property of the Consolidated Partnership which does not primarily
benefit the Consolidated Partnership. The General Partner will not use
Consolidated Partnership funds as compensating balances for its own benefit
although Consolidated Partnership banking relationships may result in favorable
loans or services by lending banks to the General Partner or its affiliates,
directors, officers or other employees.
Since the General Partner will own only such Units as are
attributable to the Interests it owns and the participating Partnerships'
indebtedness to the General Partner, but will receive up to 3.29% of the
proceeds of any sale of a producing property in addition to the share
attributable to the Units it will own, the decision to sell a property may
create a conflict of interest, unless the proceeds of such a sale are intended
to provide funds to acquire other properties, in which case the General Partner
will be allocated only such proceeds as are attributable to the Units it owns.
See "--Participation in Costs and Revenues". In all cases, properties will be
sold only if the General Partner believes their sale is in the best interests of
the Unitholders.
The decision to farm out and the terms of any farmout
agreement may present a conflict of interest for the General Partner insofar as
it may benefit from cost savings and a reduction of risk. However, the
Consolidated Partnership will not farm out any properties to the General Partner
or any affiliate except upon terms consistent with and no less favorable to the
Consolidated Partnership than the terms of farmouts prevalent in the geographic
area for similar arrangements. Moreover, neither the General Partner nor any
affiliate (except other affiliated limited partnerships sponsored by the General
Partner) shall enter into any other agreement with the Consolidated Partnership
where an interest in production is payable to the General Partner or an
affiliate in consideration for services to be rendered.
Certain transactions between an oil and gas program and its
sponsor or its affiliates are prohibited or restricted by guidelines adopted by
the North American Securities Administrators Association, Inc. ("NASAA") and
enforced by the securities administrators of states which are either members of
that organization or which have adopted standards which are the same as or
similar to the NASAA guidelines.
The General Partner has agreed to prohibitions and
restrictions in several areas of possible conflict involving the interests of a
general partner and its affiliates and the interests of the partnerships it
manages and their limited partners. Included are prohibitions or restrictions
relating to the safekeeping or commingling of funds, sales of property to a
partnership by a general partner or its affiliates, or purchases of property
from a partnership by them; formulas for determining the cost of property either
sold to a partnership or purchased from it by a general partner or its
affiliates; conditions regarding the sale of a partnership's undeveloped
leasehold interests to a general partner or its affiliates, including the method
of allocating the purchase price between producing properties and undeveloped
leasehold interests under circumstances where an affiliated drilling partnership
has joined with a production purchase partnership in acquiring property;
restrictions on the Consolidated Partnership's ability to purchase properties
from affiliated limited partnerships, or to sell its properties to other
partnerships; prohibitions regarding the sale by a general partner of less than
its interest in all properties comprising a prospect area and limitations on the
type and amount of interest in such property which may be retained by a general
partner following sale; restrictions and limitations regarding farmouts of the
general partner's retained interest in partnership property; limitations on
farmouts of partnership property generally; and prohibitions against the use of
partnership funds to prove up properties in geological prospect areas belonging
to the general partner or its affiliates.
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<PAGE>
The General Partner has agreed to prohibitions and
restrictions in all these and other areas. Limited partners are encouraged to
review Section 9.2 of the Articles for a comprehensive statement of these
limitations.
All operating and other agreements entered into on behalf of
Consolidated Partnership with the General Partner or its affiliates shall be in
writing, shall precisely describe the services to be rendered and all
compensation to be paid and, excluding the Articles and agreements with
affiliated limited partnerships, shall be subject to cancellation by the General
Partner or its affiliates without penalty on 60 days prior written notice and,
if permitted by law by a majority in interest of the limited partners of the
Consolidated Partnership without penalty on 60 days prior written notice,
subject to certain conditions set forth in the Articles; provided such action
will not cause the Unitholders to lose their limited liability or adversely
affect the federal income tax status of the Consolidated Partnership. See
"--Summary of the Agreement of Limited Partnership--Voting and Other Rights of
Limited Partners" and "TAX ASPECTS--Participation in the Consolidated
Partnership--Partnership Status". Neither the General Partner nor any affiliate
(except other limited partnership affiliates sponsored by the General Partner)
shall enter into any agreement with the Consolidated Partnership pursuant to
which an interest in production is payable to the General Partner or an
affiliate in consideration for services to be rendered. No loans or advance
payments will be made by the Consolidated Partnership to the General Partner or
its affiliates. All benefits derived from marketing or other relationships
affecting property of the Consolidated Partnership and the General Partner shall
be fairly and equitably apportioned according to the respective interests of
each.
The General Partner's Articles of Incorporation provide that
no contracts or other transactions between it and any of its directors or other
entities in which the directors are financially or otherwise interested shall be
automatically invalidated by the fact that one or more of the General Partner's
directors or officers is interested in or is a director or officer of such other
entity, or by the fact that any director or officer of the General Partner,
individually or jointly with others, may be a party to or may be interested in
any such contract or transaction. The Agreement of Incorporation relieve these
persons from any liability that might automatically arise by reason of contracts
with the General Partner for their benefit or the benefit of any other firm in
which they have an interest. The Agreement of Incorporation do not prevent such
contracts from being invalidated if entered into or preceded by a breach of
fiduciary duty to the General Partner by any officer or director, nor do they
relieve any officer or director from liability for breach of fiduciary duty.
Such liability may be enforced only by the General Partner, however, or by a
shareholder on behalf of the General Partner, in accordance with Delaware law.
As a consequence of the foregoing, the officers and directors
of the General Partner generally are not limited from competing with the General
Partner or the Consolidated Partnership in the oil and gas business, but must
exercise their business judgment consistent with their fiduciary
responsibilities to those entities. These arrangements and the prior activities
of the executive officers, directors and some present shareholders of the
General Partner may constitute conflicts of interest with the General Partner
and the Consolidated Partnership. The General Partner proposes to have a
majority of the non-interested members of its board of directors evaluate and
authorize any transactions in which any other officer or director has a direct
or material indirect interest, if such evaluation is in the best interests of
the General Partner and the Consolidated Partnership.
Competition, Markets and Regulation
Competition and Markets: The oil and gas industry is highly
competitive in all of its aspects. In addition to the oil and gas marketing
problems described in "RISK FACTORS AND OTHER CONSIDERATIONS--The Consolidated
Partnership--General Industry Risks", operators of wells in which the
Consolidated Partnership will own interests may encounter delays in putting such
wells on production and in marketing such production because of the
inaccessibility or lack of capacity of natural gas pipelines.
The availability of a ready market for oil and gas produced by
the Consolidated Partnership will depend upon numerous factors beyond its
control, the exact effects of which cannot be accurately predicted. There is
significant uncertainty associated with the supply of crude oil and natural gas
inventories stemming from economic conditions, energy conservation efforts,
world crude oil production levels and other factors. The gas surplus, combined
with the deregulation of gas pricing, has increased competition among producers
for markets and made it more difficult for producers to market their gas.
Additionally, conversion by major pipelines to open access
64
<PAGE>
transportation has given purchasers the opportunity, in most cases, to purchase
from more gas producers. Therefore, gas producers are now competing for both
transportation space on open access pipelines and for end-users. The increased
competition has resulted, in many instances, in lower gas prices. In addition to
the foregoing, factors affecting the availability of a market for the oil and
gas produced by the Consolidated Partnership may also include fluctuating supply
and demand, state and federal regulation of oil and gas production, crude oil
imports and related fees and the marketing of competitive fuels.
Price Regulation: Currently, essentially all of the
Partnerships' natural gas and crude oil sales are deregulated. As a result, the
price paid for such gas and oil is expected to reflect market conditions and
contractual arrangements existing at the time the gas and oil is sold and could
vary widely depending on such criteria as location, quality, quantity and
proximity to an end market.
Environmental and Conservation Regulations: Federal statutes
impose clean-up costs and penalties upon the owners and operators of onshore and
offshore facilities and vessels for certain oil discharges into navigable
waters. Penalties are also assessed for failing to notify the proper authorities
immediately of an oil spill. Although operations in navigable waters are not
generally anticipated, the Consolidated Partnership could be subject to these
statutes and penalties. It is possible that other developments, such as
increasingly strict environmental laws, regulations and enforcement policies
thereunder, and claims for damages to property or persons or the costs of
remediation of environmental damage resulting from such operations, could result
in substantial costs and liabilities to the Consolidated Partnership. For
example, as a result of the issuance of the Environmental Protection Agency's
toxicity characteristic regulations, petroleum-contaminated wastewater from
soils and other materials contaminated as a result of a crude oil spill, may
require handling and disposal as hazardous waste. The costs of treatment or
disposal of petroleum-contaminated soils would increase substantially if such
soil from a spill were classified as hazardous waste.
The Consolidated Partnership will conduct operations on
federal leases and be subject to numerous federal restrictions regarding the
conduct of oil and gas operations on such leases. Certain operations on federal
leases must be conducted pursuant to onsite security regulations and other
appropriate permits issued by the Bureau of Land Management. In addition, with
regard to certain federal leases, prior approval of drill site locations by the
Environmental Protection Agency must be obtained. The Department of the Interior
is authorized to suspend any operation which threatens immediate or serious harm
to life, property or the environment. State regulatory authorities in the states
in which the Consolidated Partnership may own producing properties are empowered
to make and enforce regulations to prevent waste of oil and gas and to protect
correlative rights and opportunities to produce oil and gas as between owners of
a common reservoir. Each of such regulatory authorities also regulates the
amount of oil and gas produced by assigning allowable rates of production, which
may be increased or decreased in accordance with supply and demand. The costs,
if any, that the Consolidated Partnership may incur in this regard cannot be
predicted.
The existence of such environmental regulations has to date
had no material adverse effect of the operations of the Partnerships, and the
cost of compliance has not been material to date. Currently, there are no
administrative or judicial proceedings arising under such laws or regulations
pending against the General Partner or its affiliates or any of the
Partnerships. The General Partner is unable to assess or predict the impact that
compliance with environmental and pollution control laws may have on future
Consolidated Partnership operations, capital expenditures, earnings or
competitive position.
Pending Legislation: There are often bills pending in the
United States Congress and in various state legislatures relating to the oil and
gas industry. Included among such bills have been widely divergent proposals.
Similarly, there are always rules, regulations and orders, as well as statutory
provisions, relating to the oil and gas industry pending before the Federal
Energy Regulatory Commission or other agencies or under court review. It is
impossible to predict the effect any additional legislation, regulation or court
orders may have on the Consolidated Partnership's operations, the prices the
Consolidated Partnership will receive for its natural gas production or the
Consolidated Partnership's future earnings.
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Summary of the Articles of Limited Partnership
The business and affairs of the Consolidated Partnership and
the respective rights and obligations of the Partners are governed by the
Articles of Limited Partnership. The following is a summary of certain
significant provisions of the Articles which have not been discussed elsewhere
in this Prospectus/Proxy Statement. The summary is not complete. Each
prospective Unitholder should carefully review the Articles in their entirety.
See Appendix B.
Voting and Other Rights of Limited Partners: Under the New
Jersey Uniform Limited Partnership Law (1976) (the "Act"), the general partner
of a limited partnership is subject to the restrictions of, and, except as
provided in the Act or in the partnership agreement, has the rights and powers
of, a partner in a partnership without limited partners. As the sole general
partner, Enex will have the exclusive right to manage the business and affairs
of the Consolidated Partnership. A general partner does not have authority,
without the consent of all limited partners, to assign the partnership property
in trust for creditors or on the assignee's promise to pay the partnership
debts, to dispose of the goodwill of the business, to do any other act which
would make it impossible to carry on the ordinary business of a partnership, to
confess a judgment against the partnership, to submit a partnership claim or
liability to arbitration or reference, or to possess partnership property for
other than a partnership purpose or to assign rights in specific partnership
property, except in connection with the assignment of the rights of all the
partners in the same property. A general partner does not generally have the
authority to admit a person as a general partner in the absence of the consent
of two-thirds in interest of the limited partners.
The Act also provides that a limited partner has the right to
inspect and copy all partnership records required to be maintained by the
partnership pursuant to the Act, to have on reasonable demand true and full
information regarding the state of the business and financial condition of the
partnership, and to have dissolution by court order if it is not reasonably
practicable to carry on the business of the partnership in conformity with the
partnership agreement.
The Articles provide additional rights. The limited partners
of the Consolidated Partnership (i.e., all Unitholders other than those who
cannot or fail to qualify as limited partners in accordance with the
requirements described in "THE PROPOSED CONSOLIDATION--Terms of the
Consolidation--Request for Admission as a Limited Partner") may by vote of a
majority in interest (i) amend certain provisions of the Articles; (ii) dissolve
the Consolidated Partnership; (iii) approve or disapprove the sale of all or
substantially all of the assets of the Consolidated Partnership other than in
the ordinary course of the Consolidated Partnership's business; (iv) remove the
General Partner, (provided that a ruling from the Internal Revenue Service or an
opinion of counsel to the limited partners to the effect that such action will
not adversely affect the tax status of the Consolidated Partnership or any of
the limited partners is obtained); (v) cancel any contract for services (other
than the Articles themselves) between the Consolidated Partnership and the
General Partner or an affiliate of the General Partner without penalty upon 60
days notice (provided that in the opinion of counsel to the limited partners
such action will not violate the Act, result in the loss of any limited
partner's limited liability or adversely affect the federal income tax status of
the Partnership); and (vi) elect a liquidator in the event of the dissolution of
the Consolidated Partnership by reason of an event of withdrawal (as defined in
the Act) of the General Partner. By a vote of two-thirds in interest of the
limited partners, the limited partners may approve or disapprove the selection
of an additional or successor general partner. The Partnership Agreements of the
four Texas Partnerships (i.e., the Partnerships formed in Enex Oil & Gas Income
Program II) allow the limited partners by a vote of a majority in interest to
elect additional general partners or, in the event of the withdrawal of the
General Partner as general partner, to elect a successor general partner and
continue the Partnership, however, these Partnership Agreements provide no right
to vote on the removal of the General Partner. The Partnership Agreements of the
thirty New Jersey Partnerships, on the other hand, already contain the voting
rights described above.
The General Partner will abstain from voting certain of the
Units it holds as a limited partner on any such selection, on the removal of the
General Partner and on the cancellation of a contract for services between the
Consolidated Partnership and the General Partner or its affiliates. The Units to
which such restriction applies are those that are received in the Consolidation
for Interests in a participating Partnership whose Partnership Agreement
contained a similar restriction (i.e., Partnerships formed in Enex Oil & Gas
Income Program IV and Enex 88-89
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Income and Retirement Fund. The General Partner will also abstain from voting on
any matter those Units it receives in the Consolidation in exchange for
Interests in Partnerships formed in Enex Oil & Gas Income Programs V and VI and
Enex 90-91 Income and Retirement Fund, but only to the extent such Interests
were acquired within two years from the date of commencement of operations of
such Partnership if such participating Partnership had a similar restriction in
its Partnership Agreement. Cancellation of a contract under clause (v) will not
relieve the Partnership of liability for damages resulting from such
cancellation.
Within ninety (90) days following such an event of withdrawal
of the General Partner, all of the remaining partners may, in lieu of electing a
liquidator, agree in writing to continue the Consolidated Partnership's business
and to the appointment of a successor general partner. Under the Act, events of
withdrawal include, among other things, the removal, withdrawal, dissolution or
bankruptcy of the General Partner.
On any matter requiring a vote of the limited partners of the
Consolidated Partnership, the limited partners' respective interests will be
determined in accordance with their sharing ratios; provided, however, that if
the General Partner is required to abstain from voting any of its Units on any
matter pursuant to the provisions described in the second preceding paragraph,
then for the purpose of determining the limited partners' respective interests
for that matter, the limited partners' sharing ratios shall be determined by
treating such Units as though they were not owned by any partner of the
Consolidated Partnership.
If any approval of action by vote of a majority or two-thirds
in interest of the limited partners of the Consolidated Partnership would
violate the Act or adversely affect the Unitholder's limited liability or the
Consolidated Partnership's tax status but, in the opinion of the aforementioned
counsel, the same approval upon unanimous consent would not, such action may be
taken upon receipt of such unanimous approval.
The Act does not provide individual limited partners who
dissent from actions approved by a majority in interest of the limited partners
the right to have their Units appraised and repurchased by the Partnership at
the appraised price.
The General Partner will be the limited partner of record with
respect to all Units held by Unitholders who are not admitted to the Partnership
as limited partners; provided, however, that any voting rights to which such
Unitholders would be entitled were they limited partners will be exercised by
the General Partner in proportion to the votes cast by Unitholders who are
limited partners.
Within fifteen (15) days after receipt of a written request
from more than 10% in interest of all the limited partners for a vote on a
matter as to which limited partners of the Consolidated Partnership have voting
rights, the General Partner will call a meeting of limited partners for the
purpose of acting on such matter. The meeting will be held on a date not less
than thirty (30) nor more than sixty (60) days after the mailing of the notice
of meeting.
See Sections 8.6 and 8.7 of the Articles.
Dissolution: The Consolidated Partnership will continue for a
term extending to December 31, 2015, which is the earliest termination date of
any of the Partnerships. The Consolidated Partnership may be sooner terminated
by action of a majority in interest of the limited partners, by agreement of the
General Partner and a majority in interest of the limited partners that all or
substantially all of the Consolidated Partnership assets should be sold or
otherwise disposed of, upon the entry of a court order or judgment of
dissolution or upon the occurrence of an event of withdrawal (as described in
the Act) unless within ninety (90) days after the event of withdrawal all
remaining partners agree in writing to continue the business of the Consolidated
Partnership and to the appointment of one or more additional general partners. A
successor general partner selected by the limited partners will not, however,
acquire any interest in the Consolidated Partnership's profits, losses,
deductions or credits, or any distributive interest in its properties on
dissolution, solely by reason of becoming a successor general partner. In the
event that a successor general partner is selected, Enex may retain all of its
Units and, as its general partner's interest, that portion of the General
Partner's Percentage Share represented by a fraction having as its numerator the
total funds expended by the Consolidated Partnership and the Predecessor
Partnerships and allocated to the General Partner and as its denominator the
total funds expended by the Consolidated Partnership and the Predecessor
Partnerships. The remainder of the General Partner's Percentage Share, but in
any event not less than 20% thereof, shall be offered
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for sale to the successor general partner and the Consolidated Partnership. The
purchase price shall be based upon an evaluation by an Independent Expert
selected by mutual agreement of the General Partner and the successor general
partner. Provided that no trading market for the Units has developed, the
purchase price of the interest to be sold shall be determined on the same basis
as that used in determining the purchase price for Units presented for purchase
to the Consolidated Partnership described in "-Right of Presentment," above.
Once dissolved, an accounting of Consolidated Partnership
assets, liabilities and operations to the date of dissolution will be made. If
the business of the Consolidated Partnership is not to be continued by a
successor general partner, the General Partner, or, if an event of withdrawal is
the cause of the dissolution, such person as the limited partners shall
designate as Consolidated Partnership liquidator, will wind up and terminate the
business and affairs of the Consolidated Partnership. All assets will, to the
extent practicable, be sold and the proceeds credited to the accounts of the
General Partner and the Unitholders as set forth in the Articles. The
Consolidated Partnership's debts will be paid and the balances in the capital
accounts of the General Partner and the Unitholders will then be distributed to
them in cash. See "RISK FACTORS AND OTHER CONSIDERATIONS--The Consolidated
Partnership--Partnership Termination" and "TAX ASPECTS--Participation in the
Consolidated Partnership--Liquidation and Termination of the Consolidated
Partnership". The General Partner may purchase Consolidated Partnership
properties at the greater of the highest possible bona fide offer received or
their independently determined value, provided the Unitholders have been given
at least 15 days advance written notice of the proposed sale. See Article 11 of
the Articles.
Removal or Withdrawal of General Partner: As mentioned above,
the limited partners will have the right to remove the General Partner from the
Consolidated Partnership. However, such action shall be ineffective until a
favorable ruling shall have been received from the Internal Revenue Service to
the effect that such action will not adversely affect the tax status of the
Consolidated Partnership or any of the Unitholders or counsel for the limited
partners shall have delivered an opinion to the same effect. Also, the General
Partner has the right to withdraw voluntarily on 120 days prior written notice.
The General Partner shall pay all expenses incurred by the Consolidated
Partnership but shall have no liability on account of such withdrawal. Upon the
removal of the General Partner by the limited partners or the sending of notice
of withdrawal by the General Partner, which notice will include information
concerning the General Partner's nominee for election as successor general
partner, the limited partners shall have the right to elect a successor general
partner and continue the business of the Consolidated Partnership. In the event
no successor general partner is elected within ninety (90) days following Enex's
removal or withdrawal, the Consolidated Partnership will dissolve.
In the event that following such removal or withdrawal the
Consolidated Partnership business is continued, Enex may retain all of its Units
and that portion of its general partner's interest equal to the percentage of
the total funds expended by all of the participating Partnerships and the
Consolidated Partnership that were allocated to it. The remainder of Enex's
general partner's interest in the Consolidated Partnership, but in any event not
less than 20% of such interest, shall be offered for sale to the successor
general partner and to the Consolidated Partnership. The purchase price will be
based upon an evaluation by an Independent Expert and shall be determined by
such expert on the same basis as that used in determining the purchase price for
Units under "--Right of Presentment". Enex shall be entitled to receive in lieu
of its general partner's interest in the net revenues of the Consolidated
Partnership a fractional undivided working interest in all Consolidated
Partnership producing properties equal to its percentage interest in
Consolidated Partnership net revenues, subject to the General Partner's
allocable portion of the mortgages or other burdens on such properties, and an
amount in cash equal to its percentage interest in Consolidated Partnership net
revenues multiplied by the value of all other Consolidated Partnership assets
then on hand, less a proportionate share of unsecured Consolidated Partnership
indebtedness, with the value of such assets being determined on the same basis
as the purchase price of Units (see "--Right of Presentment"). If the successor
General Partner and/or the Consolidated Partnership has purchased a portion of
Enex's general partner's interest, then the percentage working interests and the
percentage of cash distributable to Enex upon its withdrawal shall be reduced
proportionately. See Section 11.1 of the Articles.
Records, Reports and Returns: The General Partner will
maintain adequate books, records, accounts and files for the Consolidated
Partnership and will keep the Unitholders informed by means of written reports
rendered within 120 days after the close of the Consolidated Partnership's
fiscal year (on December 31) containing such
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audited financial statements as are considered necessary or advisable by the
General Partner to advise all Unitholders properly about their investments in
the Consolidated Partnership. The annual reports shall contain such financial
information prepared in accordance with generally accepted accounting principles
as may be required or permitted from time to time by the SEC. The Unitholders
shall also receive necessary income tax reporting information by March 15th of
each year.
Such annual reports shall also include reports of operations
including information regarding the Consolidated Partnership's proved oil and
gas reserves, the value thereof at then existing prices, and each limited
partner's interest therein and a statement of all transactions between the
Consolidated Partnership and the General Partner and its affiliates during the
preceding fiscal year, showing the amounts and the consideration involved and a
written attestation from the Consolidated Partnership's independent public
accountants that the method used to allocate Direct Costs and Administrative
Costs was consistent with the method described in the Articles and that the
total amount of such costs allocated did nor materially exceed the amounts
actually incurred by the General Partner.
The General Partner will also furnish to the limited partners
quarterly cash receipts and disbursement statements and will make available to
any Unitholder, upon request, a copy of any report filed by the Consolidated
Partnership with the Securities and Exchange Commission pursuant to the
provisions of the Securities Exchange Act of 1934, as amended, and will permit
access to all records of the Consolidated Partnership, after adequate notice,
during normal business hours, to any limited partner and/or his accredited
representatives. The General Partner may, however, keep logs, well reports and
other drilling data confidential for a reasonable period of time.
Exchange for Assets: Transferees of Units that have been
presented by a limited partner will have the right, at the sole option of the
General Partner and at such time as the General Partner shall approve, to
surrender such Units in exchange for the pro rata share of Consolidated
Partnership net assets attributable to such Units. The pro rata share of the
assets attributable to Units shall be assigned subject to a pro rata share of
all liens and other encumbrances burdening such properties. Such pro rata share
shall be that percentage of the net assets that would have been distributed to
the holder of such Units if the Consolidated Partnership had been liquidated
pursuant to the provisions of the Articles immediately prior to the exchange. If
25% or more of the Units are exchanged for a pro rata share of net assets, the
General Partner will submit to a vote of limited partners a proposal to dissolve
and liquidate the Consolidated Partnership.
Purchase of Units by General Partner: If at any time the
General Partner determines that any representation, warranty, certification,
covenant, agreement or designation made by a Unitholder was false when made, has
been breached, or would be false if made at a later time, or that a Unitholder
is otherwise not qualified to hold interests in federal oil and gas leases, or
otherwise jeopardizes the Consolidated Partnership's tax status or the limited
liability of other Unitholders, then the General Partner, or any party
designated by the General Partner, will have the right, but not the obligation,
to purchase his Units at a price equal to the most recent presentment purchase
price or, if a trading market for the Units has developed such that no such
price has been determined as of the preceding December 31, at the then current
market price for such Units.
Appraisal and Compensation: In connection with a proposed
roll-up, the appraised value of all Consolidated Partnership properties and
other assets will be determined by an Independent Expert, the limited partners
who vote "no" on the proposal will, in most cases, be given either the right to
remain as limited partners in the Consolidated Partnership or the right to
receive cash for their Units instead of accepting the roll-up entity's
securities, the limited partners' democracy rights and access to information
will be preserved, the accumulation by any purchaser of the securities of the
roll-up entity will not be frustrated (except to the minimum extent necessary to
preserve the tax status of the roll-up entity) and no costs of the transaction
will be borne by the Consolidated Partnership if the roll- up is not approved by
the limited partners. See Section 8.10 of the Articles.
Applicability of the New Jersey Act [This Section is material only to limited
partners in Partnerships formed under Texas law (i.e., in Enex Oil & Gas Income
Program II).]
The affairs of the Consolidated Partnership will be governed
not only by the Articles, but also by the provisions of the Act itself, not all
of which have been discussed above. Discussed below are those differences
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between the Act and the Texas Revised Limited Partnership Act (the "Texas Act"),
under which four of the participating Partnerships, Enex Oil & Gas Income
Program II-7, II-8, II-9 and II-10, were formed, that may have an effect on the
operations of the Consolidated Partnership or on the rights of its partners.
The New Jersey Act requires that a limited partnership keep at
a registered office within the State of New Jersey for inspection by all
partners a current list of the names and addresses of all partners, copies of
the limited partnership agreement and the certificate of limited partnership and
all amendments thereto and income tax returns for the three most recent years.
The Texas Act requires that a limited partnership shall keep in its registered
office in Texas and make available to partners on reasonable request the street
address of its principal United States office in which the records described
below are maintained or will be available. The Texas Act requires that a limited
partnership maintain the following records in its principal office or make them
available in that office within five days after the date of receipt of a written
request:
(1) a current list that states:
(i) the name and mailing address of each partner, and (ii) the percentage
or other interest in the partnership owned by each partner;
(2) copies of the limited partnership's federal, state, and local
information or income tax returns for each of the partnership's six most recent
tax years;
(3) a copy of the partnershp agreement and certificate of limited
partnership;
(4) a written statement of:
(i) the amount of cash contribution and a description and statement of the
agreed value of any other contribution made by each partner;
(ii) the times at which additional contributions are to be made or events
requiring additional contributions to be made;
(iii) events requiring the limited partnership to be dissolved and its
affairs wound up and
(iv) the date on which each partner in the limited partnership became a
partner; and
(5) books and records of account of the limited partnership.
The New Jersey Act establishes a procedure whereby a person
who erroneously, but in good faith, makes a contribution to a partnership
believing that he has become a limited partner, can correct the mistake and
relieve himself of liability to third persons. Such a person may either renounce
his interest in the limited partnership or cause a certificate of limited
partnership or an amendment to an existing certificate to be filed. Under the
Texas Act such a person has an additional option to file a statement that he has
made an effort to cause the general partner to file an accurate certificate of
limited partnership and the general partner has failed or refused to do so.
The New Jersey Act provides that after the filing of the
original certificate of limited partnership, additional general partners may be
admitted to a partnership pursuant to its partnership agreement, but in no event
may an additional general partner be admitted without the consent of at least
two thirds in interest of the limited partners. In order to admit a new general
partner to an existing partnership under the Texas Act, the unanimous consent of
all other partners is required.
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TAX ASPECTS
Federal Income Tax Introduction
The following discussion contains a summary of those tax
aspects of the proposed Consolidation, the Exchange Offer, and participation in
the Consolidated Partnership that are considered to be of material interest to a
limited partner of a participating Partnership. The following discussions are
based upon existing provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Department regulations promulgated thereunder (the
"Regulations" or "Treas. Reg."), current published rulings and procedures of the
Internal Revenue Service (the "Service") and existing court decisions.
There is no assurance that currently effective law or
regulations will not be changed by new legislation or regulations, which may or
may not apply retroactively to transactions entered into or completed prior to
the date of the change, or that there will not be differences of opinion as to
the interpretation of present laws and regulations and their application to the
Partnerships, the limited partners, and the Consolidated Partnership.
This summary is directed primarily to individual limited
partners who are citizens of the United States and does not discuss federal
income tax consequences peculiar to nonresident alien individuals, foreign
corporations, insurance companies, banking institutions, regulated investment
companies, real estate investment trusts, or other persons or entities that are
limited partners to which special rules apply by virtue of the nature of their
specific activities. Specific consideration is given, however, to entities that
are exempt from federal income taxation in "Participation in the Consolidated
Partnership--Considerations for Tax-Exempt Limited Partners" below. This summary
is not intended as a substitute for careful tax planning and no limited partner,
and in particular no tax-exempt limited partner, should vote on the
Consolidation without first consulting a qualified tax advisor.
The Consolidated Partnership will be formed for the purpose of
operating all of the producing oil and gas properties owned by the participating
Partnerships on a consolidated basis. It is not expected that the Consolidated
Partnership will generate significant federal income tax benefits. Limited
partners should recognize that the Consolidated Partnership will not provide
limited partners with the benefits of a "tax shelter."
The Proposed Consolidation
Summary of the Tax Effects of the Consolidation: The formation
of the Consolidated Partnership and the exchange of Interests for Units will, in
the opinion of Satterlee Stephens Burke & Burke LLP, counsel to the General
Partner ("Counsel"), be characterized in the following manner for federal income
tax purposes: (1) each of the participating Partnerships will be considered to
have contributed all of its assets and liabilities to the Consolidated
Partnership in exchange for Units in the Consolidated Partnership; and (2) each
of the participating Partnerships will be considered to have terminated and to
have distributed the Units in the Consolidated Partnership to its partners in
liquidation of all Interests in the participating Partnership. The discussion
set forth below is based on that opinion. A ruling from the Service will not be
requested. Notwithstanding the opinion of Counsel, in the absence of a ruling,
the Service may challenge all or some of the tax consequences resulting from the
Consolidation. If any such challenge were successful, the federal income tax
consequences resulting from the Consolidation could be different from those
described below. Upon written request by a limited partner or his representative
who has been so designated in writing, a copy of the opinion of Satterlee
Stephens Burke & Burke LLP will be sent, without charge, by the General Partner.
Requests should be addressed to Robert E. Densford, Vice President-Finance,
Secretary & Treasurer, Enex Resources Corporation, Suite 200, Three Kingwood
Place, Kingwood, Texas 77339.
Formation of the Consolidated Partnership: Section 721 of the
Code will apply to the formation of the Consolidated Partnership and the
transfer of the participating Partnerships' assets. As a result, a participating
Partnership will not recognize gain or loss upon its contribution of properties
in exchange for Units, except to the extent the liabilities of a participating
Partnership exceed the sum of such Partnership's adjusted basis in its assets
and its share of the Consolidated Partnership's liabilities. A participating
Partnership's share of the Consolidated Partnership's liabilities will be
dependent upon the exchange values established for purposes of the
Consolidation.
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Based upon the exchange values set forth in this Prospectus/Proxy Statement, the
General Partner anticipates that none of the participating Partnerships will
recognize gain taxable to their respective limited partners. If gain is
recognized as a result of the Consolidation, such gain would be characterized as
ordinary income to the extent of any potential recapture amount (such as
depreciation deductions or intangible drilling and development expense
deductions), and otherwise as capital gain. Such capital gain will be long-term
if the participating Partnership held the contributed assets for more than one
year. Any gain recognized by a participating Partnership as a result of the
Consolidation will be taxable only to the limited partners of such Partnership.
The amount of such Partnership gain, if any, recognized by a limited partner
will result in an increase in his adjusted basis in his Partnership Interest
and, as described below, an increase in his adjusted basis in his Units.
The Consolidated Partnership will not recognize gain or loss
as a result of the receipt of a participating Partnership's assets and
liabilities and will take over such Partnership's adjusted basis in contributed
assets. The Consolidated Partnership's holding period for assets received from a
participating Partnership will include the period during which such assets were
held by such Partnership.
Liquidation of Participating Partnerships; Close of Taxable
Year: Participating Partnerships will terminate as of the effective date of the
Consolidation and will distribute all of their assets, consisting solely of
Units, in liquidation of outstanding Interests. Upon liquidation of the
participating Partnerships, Section 731 (a) of the Code will apply to the
limited partners who receive Units in liquidation of their Interests, with the
result that no gain or loss will be recognized by such limited partners. A
limited partner's adjusted basis in such Units will be equal to his adjusted
basis in his liquidated Interests, and the holding period for such Units will
include the period during which he held his Interests in the participating
Partnership.
The participating Partnerships will not recognize gain or loss
as a result of the liquidating distribution of Units. Upon termination of a
participating Partnership, the taxable year of such Partnership will close and a
partnership information return must be filed with the Service on or before the
fifteenth day of the fourth month following the close of the taxable year.
Limited partners will receive necessary income tax reporting information from
the General Partner relating to the final taxable year at such time as the
partnership return is prepared. A limited partner of a participating Partnership
will be required to report income, gain, loss and deductions resulting from
Partnership operations through the date of termination on his personal income
tax return for the tax year within which the termination occurs.
The Exchange Offer
Limited partners of Partnerships that do not approve the Plan
of Consolidation will be given the opportunity to exchange their Interests for
Units in the Consolidated Partnership subject to the conditions described above
under "THE PROPOSED CONSOLIDATION--The Exchange Offer". The transfer of an
interest in one partnership to a second partnership in exchange for an interest
in the second partnership generally is a tax-free exchange. To the extent that a
limited partner's share of Partnership liabilities exceed his basis in the
transferred Interest and the limited partner's share of liabilities of the
Consolidated Partnership, the limited partner will recognize gain. A portion of
this gain may be treated as ordinary income to the extent of any recapture
amount with respect to the assets of the transferred Partnership. The General
Partner anticipates that limited partners who participate in the Exchange Offer
will not recognize gain.
The Units received in the Exchange Offer will have the same
adjusted basis to the limited partner as the Interests transferred. The
Consolidated Partnership will hold the Interests with the same adjusted basis as
the Interests had in the hands of the exchanging limited partner prior to the
exchange. To the extent that the fair market value of the transferred Interests
differs from the adjusted basis of such Interests, the Consolidated Partnership
will be required to allocate items of income, gains, losses, and deductions
among the Partners of the Consolidated Partnership to account for such
disparity. See "Participation in the Consolidated Partnership--Allocations to
Partners".
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Participation in the Consolidated Partnership
The following discussions are, with certain exceptions
specifically set forth below, equally applicable to the ownership of Interests
in participating Partnerships and to the ownership of Units in the Consolidated
Partnership.
Partnership Status: In the opinion of Counsel, the
Consolidated Partnership will be classified as a partnership for federal income
tax purposes, and not as an association taxable as a corporation. The opinion of
Counsel as to partnership status is based in part upon certain representations
made by the General Partner and upon the satisfaction of certain conditions
throughout the existence of the Consolidated Partnership. If the General Partner
fails or is unable to comply with any representations required to be made in
obtaining the opinion or if any conditions of the opinion are not satisfied, the
opinion will become inapplicable retroactive to the date of its issuance and the
Consolidated Partnership may be treated as an association taxable as a
corporation. The opinion of Counsel is in no way binding on the Service, and it
might be necessary to resort to litigation to sustain Counsel's conclusions. The
likelihood or outcome of such litigation cannot be predicted with certainty.
If the Consolidated Partnership is classified as an
association, it will be treated as an entity taxable as a corporation, the
Unitholders will be treated as shareholders and distributions by the
Consolidated Partnership, if and when made, will be taxable to the distributees
as dividends. There will be no flow through of items of Consolidated Partnership
income, gain, deduction, loss or credit to the Unitholders under such
circumstances.
The following discussion generally is based upon the
assumption that the Consolidated Partnership will be classified as a partnership
for federal income tax purposes.
Publicly Traded Partnerships: Under Section 7704 of the Code,
certain "publicly traded partnerships" are taxed as corporations unless at least
ninety percent of their income is "qualifying income." Publicly traded
partnerships include any partnership that is traded on an established securities
market or on a secondary market or the substantial equivalent thereof. The Units
will not be traded on an established securities market and the Articles contain
a restriction on transfers of Units on a secondary market or the substantial
equivalent thereof as those terms are defined for purposes of Section 7704 of
the Code. Accordingly, the Consolidated Partnership will not be publicly traded
for purposes of Section 7704 of the Code.
Qualifying income includes, among other things, interest as
well as income and gains from the exploration, development, mining or
production, processing, refining, transportation or marketing of any mineral or
natural resource. In addition, gains from the sale of an asset used in the
production of such income will be qualifying income. Although there is little
guidance, it appears that qualifying income should include income from all of
the various interests in oil and gas properties to be acquired by the
Consolidated Partnership, including royalties, net profits royalties, and
production payments (the income from which generally is taxed as interest).
Therefore, the Consolidated Partnership should not be taxed as a corporation,
because (i) it will not be publicly traded and (ii) substantially all of its
income will be temporary investment interest and qualifying income derived from
its oil and gas activities.
Partnership Returns, Audits and Tax Shelter Registration: A
partnership must file a federal income tax return each year, but is not required
to pay federal income tax. Instead, each partner reports his distributive share
of partnership income, gain, loss, deduction and credit on his federal income
tax return for the taxable year in which or with which the partnership's taxable
year ends, regardless of any actual cash distributions made to such partner
during his taxable year. Each Unitholder's distributive share of such items will
be determined in accordance with allocations set forth in the Articles, provided
such allocations are recognized for federal income tax purposes.
The Consolidated Partnership intends to file tax returns based
on the accrual method of accounting and its taxable year will be the calendar
year. It is currently anticipated that the General Partner will distribute all
necessary income tax reporting information to each Unitholder by March 15th of
each year. Information concerning the Consolidated Partnership and its
operations may be delayed, however, requiring the Unitholders to file requests
for extensions of time within which to file their personal income tax returns.
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The Consolidated Partnership's information returns may be
subject to audit by the Service. Any such audit may lead to adjustments, in
which event Unitholders may be required to file amended personal income tax
returns. In addition, any such audit could lead to an audit of the Unitholders'
tax returns which may, in turn, lead to adjustments other than those relating to
an investment in the Consolidated Partnership.
The Code provides that tax adjustments of partnership items
will generally be made in a unified partnership proceeding at the partnership
level, rather than at the partner level. The Code requires, with certain
exceptions, that the reporting of partnership items by individual partners
correspond to the treatment of such items on the partnership return. In
addition, any resolution of the appropriate tax treatment of a partnership item
of income, deduction or credit will be accomplished through the appointment of a
"Tax Matters Partner" (as defined in the Code), who will usually be the general
partner and who will act as the primary liaison between the Service and the
partnership and its members. The Articles provide that the General Partner shall
be appointed as such Tax Matters Partner. The Tax Matters Partner is empowered
to receive notice of the commencement of administrative proceedings and
adjustments, may extend the statute of limitations for assessments of
deficiencies with respect to all partners regarding partnership items, and may
pursue judicial review of administrative determinations or make requests for
administrative adjustments on behalf of the partnership. The Code also provides
for situations when other partners may participate in the partnership proceeding
or may commence administrative and judicial proceedings on their own behalf.
Although certain "tax shelters" must register with the Service
on or before the date interests in such shelters are first offered for sale, the
General Partner believes that the Consolidated Partnership is not a "tax
shelter" because the Consolidated Partnership is not expected to generate
significant tax losses.
Partnership Income, Gains and Losses: Income from the sale of
oil and gas (and other mineral products) produced and sold by the Consolidated
Partnership will be taxable to the Unitholders as ordinary income subject to
depletion. Such income should qualify as "passive income" which generally may be
utilized to offset passive losses from a Unitholder's other passive activities.
See "-Passive Loss Rules" below.
Gains and losses from sales of oil and gas properties (and/or
any equipment) held for more than one year and not held primarily for sale to
customers, except to the extent of ordinary income recapture (see "--Partnership
Deductions" below), will be gains and losses described in Section 1231 of the
Code (in general, from sales or exchanges of real or depreciable property used
in a trade or business). Under current law, a Unitholder's allocable share of
the Consolidated Partnership's net gain or loss described in Section 1231 of the
Code is, in general, combined with any other Section 1231 gains or losses of the
Unitholder, and a net gain will be treated as a long term capital gain and a net
loss will be treated as an ordinary loss. However, net ordinary losses resulting
from the application of Section 1231 of the Code must be recaptured as ordinary
income to the extent of subsequent Section 1231 gains in the five taxable years
following the loss year. Other gains and losses on sales of oil and gas
properties will result in ordinary income and deductions.
Unitholders should be aware that they will be required to
report income from the Consolidated Partnership even though such income may be
in excess of cash distributions to them from the Consolidated Partnership. This
could occur, for example, in those instances when the Consolidated Partnership
repays the principal amount of its indebtedness (including any reimbursements to
the General Partner of costs, including Direct and Administrative Costs,
incurred during the Consolidation) or pays other nondeductible expenses.
Passive Loss Rules: The Code contains certain passive loss
rules, which generally prevent a taxpayer from deducting losses from "passive
activities" in an amount greater than the taxpayer's income derived from such
activities. Similarly, credits from passive activities are limited to the tax
allocable to the passive activities. Losses and credits disallowed under the
passive loss rules may generally be carried over to reduce passive income and
the tax allocable to passive activities, respectively, in the next tax year. The
disposition in a taxable transaction of a taxpayer's entire interest in an
activity conducted by a limited partnership will, in general, give rise to the
allowance of any remaining suspended deductions (but not credits).
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It should be noted that the Consolidated Partnership is not organized to
provide tax benefits and thus it is not anticipated that the passive loss rules
will have a material effect on Unitholders in this regard. If the Consolidated
Partnership produces income, however, such income should generally qualify as
passive income which may be utilized to offset losses from any of a Unitholder's
other passive activities. To the extent that the Consolidated Partnership
acquires royalty interests, income will be portfolio income which will not be
available to offset a Unitholder's passive losses.
Income from "publicly traded partnerships" that are not taxed as
corporations may not be treated as passive income. The Consolidated Partnership
will not be a publicly traded partnership (see "-Publicly Traded Partnerships"),
however, and passive income produced by the Consolidated Partnership will not be
recharacterized under this rule.
Partnership Deductions:
General: Expenses incurred to acquire mineral interests in oil and gas
properties and to drill or produce oil and gas will be treated in one of the
following manners for federal income tax purposes: (a) intangible drilling and
development costs ("IDC") may be deducted when paid or capitalized at the
taxpayer's election; (b) ordinary and necessary business expenses may be
deducted when paid; (c) in the case of a dry hole or other worthless property,
an ordinary loss deduction may be claimed; and (d) all other expenditures made
by the Consolidated Partnership with respect to the acquisition, development or
operation of its properties which do not qualify under (a), (b) or (c) above
(such as the purchase prices of properties) must be capitalized and recovered,
if at all, through depletion or depreciation.
Deductions: IDC is defined to include "expenditures made by an operator for
wages, fuel, repairs, hauling, supplies, etc., incident to and necessary for the
drilling of wells and the preparation of wells for the production of oil or gas
. . . which in themselves do not have a salvage value." Limited partners in oil
and gas drilling partnerships may either deduct IDC or capitalize it and recover
such costs through depletion. Limited partners who elect to deduct IDC generally
will be subject to recapture on disposition of the property. The Consolidated
Partnership will not incur significant IDC, because it will expend substantially
all of its funds for the maintenance of producing properties contributed by
participating Partnerships and the acquisition of operating equipment installed
thereon.
Ordinary and necessary business expenses, such as Direct Costs,
Administrative Costs, and Operating Costs, will generally qualify for deduction
in the year accrued to the extent such expenditures do not result in the
creation of assets having useful lives in excess of one year.
Taxpayers are entitled to a loss deduction equal to the adjusted basis of
worthless or abandoned property in the year in which such property (in the case
of oil and gas interests, each separate unit of property) becomes worthless or
is abandoned. Whether and when property becomes worthless or is abandoned is a
question of fact which must be determined independently in each case.
Depreciation: The cost of equipment acquired after December 31, 1986 and
used in a trade or business is recoverable under the Modified Accelerated Cost
Recovery System ("MACRS"). Under MACRS, the cost of eligible recovery property
other than real property is generally recovered over a 3-20 year period
depending on the type of property, unless a longer recovery period is elected.
The cost of equipment to be contributed to or acquired by the Consolidated
Partnership will most likely be recovered over a 5-7 year period.
In the case of recovery property contributed to a partnership in a
transaction such as the Consolidation, the partnership will be bound by the
transferor's recovery period and method of computing available depreciation
deductions with respect to so much of the adjusted basis of contributed property
as is carried over to the partnership from the transferor. As a result, the
Consolidated Partnership will step into the position of a participating
Partnership-transferor for purposes of computing available depreciation with
respect to contributed property. In the year property is contributed to the
Consolidated Partnership, depreciation deductions will be allocated to the
Consolidated Partnership based upon the number of months, including the month in
which the transfer occurs (unless
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the transfer occurs on the last day of any calendar month), during the calendar
year in which the recovery property is owned by the Consolidated Partnership.
Depreciation deductions claimed with respect to Consolidated Partnership
property are generally subject to recapture as ordinary income to the extent
gain is realized upon the disposition of such property or an interest in such
property, or upon disposition of Units in the Consolidated Partnership should it
own property having recapture potential at the time of such disposition. See
"-Sale of Consolidated Partnership Units".
Depletion: Generally, the costs and expenses of acquiring partnership
properties that are not otherwise deductible or recoverable through depreciation
are capitalized and may be recovered through depletion. Consolidated Partnership
oil and gas properties eligible for depletion will consist primarily of
properties contributed by participating Partnerships. The depletion deduction is
computed separately by each partner and not by the partnership, and the
determination of whether cost or percentage depletion is applicable is to be
made at the partner level. Under the Treasury Regulations, a partnership is
required to provide each partner with all information necessary to determine the
amount of his depletion allowable with respect to partnership properties. Each
partner is required separately to keep records of his share of the adjusted
basis in each oil and gas property, adjust such basis for any depletion taken,
and use such adjusted basis each year in the computation of his cost depletion
or in the computation of his gain or loss on the disposition of such property by
the partnership.
The partnership must allocate to each partner his proportionate share of
the adjusted basis of each producing partnership property so that the partner
may compute his depletion deduction. The manner in which the adjusted basis of
such property will be allocated among Unitholders will depend upon whether there
is a variation between the adjusted basis of such property and its fair market
value at the time of the Consolidation. To the extent of any such variation, a
special allocation of adjusted basis will be required. See "--Allocations to
Partners" below. To the extent any portion of the adjusted basis of contributed
property is not subject to a special allocation, the General Partner shall, in
accordance with Treasury Regulations, allocate to each Unitholder his
proportionate share of the adjusted basis of each Consolidated Partnership oil
and gas property, determined pursuant to the provisions of the Articles, in
proportion to the Unitholder's capital interest in the Consolidated Partnership.
The depletion deduction allowable with respect to each oil and gas property
is the greater of the deduction computed under the cost or percentage depletion
method. Cost depletion is computed by dividing the taxpayer's adjusted basis in
the property at the end of a taxable year (without taking into account depletion
for that year) by the sum of the units of production sold during the year and
the total number of units of production reasonably expected to be recovered in
the future (as determined at the end of the year) to determine the per unit
allowance, and then multiplying the per unit allowance by the number of units
sold during the year. Cost depletion cannot exceed the adjusted tax basis of the
property to which it relates.
The percentage depletion allowance is available only to those taxpayers who
qualify under statutory exemptions, the most frequently applicable of which is
the "independent producer" exemption. Such exemption does not apply, however, to
property acquired prior to October 11, 1990 if such property was "proven" at the
time the property (or an interest in the partnership holding such property) was
acquired. Since most of the participating Partnerships' producing properties
were acquired before October 11, 1990 and were classified as "proven" properties
for this purpose, percentage depletion is not generally available to limited
partners on the income from such properties and, likewise, would not be
available to Unitholders after the transfer of such properties to the
Consolidated Partnership. To the extent that percentage depletion was available
with respect to properties of a participating Partnership prior to the
Consolidation, it will continue to be available after the Consolidation.
Depletion deductions claimed with respect to Consolidated Partnership
properties will be subject to recapture as ordinary income to the extent gain is
realized upon disposition of such property by the Consolidated Partnership or
upon disposition of Consolidated Partnership Units by a Unitholder. See "-Sale
of Consolidated Partnership Units".
Oil and Gas Tax Credits: Limited partners in certain oil and gas projects
may claim tax credits for producing fuels from nonconventional sources and for
enhanced oil recovery. The Consolidated Partnership will
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not be producing fuels from nonconventional sources (e.g., oil from shale and
tar sands, or gas from geopressurized brine, Devonian shale, coal seams, or a
tight formation). Limited partners, therefore, will not be eligible to claim the
credit for producing fuel from nonconventional sources. The enhanced oil
recovery credit is available with respect to enhanced oil recovery projects
begun or significantly expanded after December 31, 1991, for enhanced oil
recovery costs incurred after that date. The General Partner does not anticipate
that the Consolidated Partnership will incur significant amounts of enhanced oil
recovery costs. Accordingly, the enhanced oil recovery credit, if available at
all, will not be material.
Expenses of Organizing the Consolidated Partnership: Expenses
will be incurred in organizing the Consolidated Partnership and in issuing the
Units. In general, such organization and syndication fees must be capitalized by
the Consolidated Partnership. Fees classified as organization expenses (i.e.,
expenses which (i) are incident to the creation of the Consolidated Partnership,
(ii) are chargeable to the capital account and (iii) are of a character which,
if expended incident to the creation of a partnership having an ascertainable
life, would be amortized over such life) are permitted to be amortized over a
period of not less than 60 months. Expenses associated with the Consolidation of
the Partnerships into the Consolidated Partnership generally must be capitalized
and will not be subject to amortization as organization expenses or recovered
through depreciation or depletion.
Allocations to Partners: Section 704 of the Code provides that
allocations among the partners of any items of partnership income, gain, loss,
deduction or credit will be determined by the partnership agreement unless
either the partnership agreement does not provide for an allocation or, if it
does, the allocation does not have substantial economic effect. Section 704(c)
of the Code also requires that special allocations be made in the case of items
relating to contributed property. As set forth in "THE CONSOLIDATED
PARTNERSHIP-Participation in Costs and Revenues--Allocation of Costs and
Revenues Among Unitholders" above, the Articles provide for allocations of items
of Consolidated Partnership income, gain, loss and deduction. Allocations of
income, gain, loss, and deduction made in accordance with the Articles should be
recognized as having substantial economic effect for federal income tax
purposes.
In the case of property contributed by the participating
Partnerships to the Consolidated Partnership, special allocations of income,
gain, loss and deduction will be made to the extent of any variation between the
fair market value and adjusted basis of such property at the time of
contribution. Any such variation will be accounted for on a property by property
basis. Any such special allocations may not exceed the amount actually available
to or reportable by the Consolidated Partnership. Although such special
allocations will be implemented to comply with Section 704(c) of the Code, no
assurance can be given to that effect, and it is possible that the Service would
seek to reallocate items of Partnership income, gains, losses, or deduction.
Basis and "At Risk" Rules: A Unitholder's basis in his Units
is used to determine gain on the disposition of his Units and to determine
whether gain is recognized when cash is distributed to him by the Consolidated
Partnership. A Unitholder may also deduct his share of Consolidated Partnership
tax losses only to the extent of the adjusted basis of his Units.
Generally, each Unitholder's basis in his Units will equal the
adjusted basis of his Interests in a participating Partnership at the time of
its liquidation. Each Unitholder's basis in his Units will be increased by his
allocable share of Consolidated Partnership taxable income, depletion deductions
claimed by him in excess of his share of the basis of the depletable property,
and any further monetary contributions or increases in the amount included in
his proportionate share of nonrecourse liabilities of the Consolidated
Partnership. A Unitholder's basis in his Units will be decreased (but not below
zero) by his share of Consolidated Partnership losses and distributions and by
depletion claimed by him. Any decrease in a Unitholder's share of nonrecourse
liabilities of the Consolidated Partnership is treated for tax purposes as a
distribution of cash to the Unitholder (even though he may actually receive no
cash) and therefore reduces a Unitholder's basis in his Units. Such a decrease
will occur, for example, by amortization or other discharge of such liabilities,
reduction of a Unitholder's interest in the Consolidated Partnership, sale of or
foreclosure on property subject to nonrecourse debt, or sale or other
disposition of his Units.
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Unitholders who are individuals or certain closely-held
corporations may claim tax losses from the Consolidated Partnership on their
respective returns only to the extent they are "at risk" with respect to the oil
and gas activities of the Consolidated Partnership at the close of the taxable
year. The Unitholders should not be affected by these limitations, because the
Consolidated Partnership is not anticipated to generate tax losses.
Liquidation and Termination of the Consolidated Partnership.
Upon liquidation of the Consolidated Partnership, it is likely that all of its
assets will be sold and the cash proceeds distributed. (See " THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Dissolution".) A
sale of any Consolidated Partnership property by the Consolidated Partnership
will have the tax consequences described earlier under "--Partnership Income,
Gains and Losses" and, with respect to recapture, under "--Partnership
Deductions". The distribution of cash proceeds from such sale will result in
taxable income to a Unitholder only to the extent the amount distributed exceeds
his adjusted basis in his Units. A loss will be recognized by a Unitholder to
the extent that the cash received is less than his adjusted basis in his Units.
The character of such gain or loss is discussed below under "--Sale of
Consolidated Partnership Units".
The sale or exchange (including a sale or exchange to the
General Partner or another Unitholder) of 50% or more of the total interest in
Consolidated Partnership capital and profits within a 12-month period will
result in a deemed termination of the Consolidated Partnership for tax purposes.
This could occur if enough Unitholders transferred their Units (see "THE
CONSOLIDATED PARTNERSHIP--Transfer of Units") other than by gift, bequest or
inheritance, or if they exercised their rights of presentment to the General
Partner (see "THE CONSOLIDATED PARTNERSHIP--Right of Presentment"), or both
within any 12-month period. For this purpose, the transfer of Consolidated
Partnership Units to the participating Partnerships and the subsequent transfer
of such Units by the participating Partnerships to Interest holders will not be
treated as a sale or exchange causing a termination of the Consolidated
Partnership. If a deemed termination were to occur, all Consolidated Partnership
property will be deemed to have been distributed pro rata to the General Partner
and the Unitholders in kind and previously claimed depreciation deductions and
tax credits may be recaptured. If the Consolidated Partnership is continued
after it is terminated, it will be treated as a second partnership for tax
purposes with Unitholders' bases in their Units and the Consolidated
Partnership's basis in its properties being determined anew.
Sale of Consolidated Partnership Units: Generally, gain or
loss realized upon the sale of Units held for more than one year will be taxed
as long-term capital gain or loss. However, that portion of realized gain
allocable to "unrealized receivables," including recapturable IDC, depreciation,
and depletion deductions, and "substantially appreciated inventory" of the
Consolidated Partnership, will be taxed as ordinary income. Furthermore, the
amount realized upon such a sale will include the amount of liabilities to which
the Units are subject.
If a partnership interest includes unrealized receivables or
substantially appreciated inventory items, the transferor of such interest must
notify the partnership within thirty days of the transfer or by January 15 of
the following year, if earlier, and file a statement with his tax return. Most
Limited Partners who transfer their Units will be required to comply with such
notification requirement, because the Consolidated Partnership's properties are
expected to include property subject to recapture. The Consolidated Partnership
will then be required to file Form 8308 with the Service, containing information
identifying the transferor and transferee, and to provide each such transferor
and transferee with a copy of the Form 8308 so filed with the Service.
Tax Consequences to Transferees of Units: The Articles provide
that in the event of a sale or assignment of Units (other than by reason of a
partner's death), the income, loss, deduction and credits of the Consolidated
Partnership will be allocated pro rata between the assignor and assignee of such
Units based on the periods of time during the Consolidated Partnership fiscal
year that such Units were owned by each, without regard to the periods during
such fiscal year in which such income, loss, deduction, and credits were
actually realized. The Articles also provide, however, that certain "cash basis
items" (i.e., interest, taxes and payments for services or for the use of
property) must be allocated between the transferor and transferee by assigning
the appropriate portion of such items to each day in the period to which they
are attributable and by allocating such assigned portion based upon the
transferor's or transferee's interest in the Consolidated Partnership as of the
close of such day. Furthermore, transferees of Units will be entitled to claim
cost depletion, depreciation and losses and will be required to report gain with
respect to Consolidated Partnership property based only on their pro rata share
of their bases therein (and
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not the price paid for such Units), unless the Consolidated Partnership elects
to make the election under Section 754 of the Code to adjust the basis of
Consolidated Partnership property with respect to the transferee. As a result of
the inherent tax accounting complexities and the substantial expense that would
be incurred in making the election to adjust the tax basis of Consolidated
Partnership property under Sections 734, 743 and 754 of the Code, the General
Partner does not presently intend to make such elections on behalf of the
Consolidated Partnership, although it is empowered to do so by the Articles. The
absence of any such election may in some circumstances result in a reduction in
the value of the Units to be acquired by a potential transferee.
Alternative Minimum Tax: The alternative minimum tax,
applicable to all taxpayers other than Subchapter C corporations, is equal to 26
percent of so much of the "alternative minimum taxable income" as exceeds the
exemption amount (e.g., $45,000 in the case of a joint return $33,750 for single
taxpayers, and $22,500 for married taxpayers filing separately), reduced
generally by the regular tax paid by the taxpayer for the taxable year. The tax
rate is increased to 28 percent to the extent that alternative minimum taxable
income exceeds the exemption amount by more than $175,000. The exemption amount
described above is reduced by 25 percent of the amount by which alternative
minimum taxable income exceeds $150,000 in the case of a joint return ($112,500
for single taxpayers and $75,000 for married taxpayers filing separately).
For this purpose, "alternative minimum taxable income"
generally is equal to taxable income determined with certain adjustments and
increased by specified items of tax preference. Among the adjustments made are
(i) depreciation taken on assets placed in service after December 31, 1986
generally must be reduced, and (ii) certain itemized deductions are not allowed
(i.e., miscellaneous itemized deductions and state or local income taxes) or are
limited (i.e. medical expenses and interest expenses). Included among the
specified items of tax preference are percentage depletion in excess of the
adjusted basis of the property (other than percentage depletion claimed by
independent producers) and a portion of the IDC deduction (other than IDC
deductions claimed by independent producers, except to the extent that such
deductions would reduce alternative minimum taxable income by more than 40
percent).
The effect of the alternative minimum tax on a Unitholder may
depend upon a number of factors peculiar to such Unitholder. It is unlikely that
a Unitholder's ownership of Units will subject the Unitholder to alternative
minimum tax, however, because the Consolidated Partnership's operations will not
generate significant amounts of alternative minimum tax adjustments or
preference items.
Investment Interest: Restrictions on the deductibility of
"investment interest" may result in the disallowance of a portion of a
Unitholder's share of the Consolidated Partnership's deduction for interest on
its obligations. Investment interest (i.e., interest paid or accrued on
indebtedness incurred or continued to purchase or carry property held for
investment) is deductible by non-corporate taxpayers only to the extent it does
not exceed "net investment income" (i.e., investment income less investment
expenses). Investment income and investment interest do not include income from
or interest paid with respect to an investment that is a passive activity. See
"-Passive Loss Rules". Investment interest which is not allowable as a deduction
in one year pursuant to this limitation may be carried over to subsequent years
within certain limits. The characterization of interest as investment interest
in the case of borrowings by a partnership must be determined at the partnership
level. Although most interest expense incurred by the Consolidated Partnership
will not be investment interest, some portion of such interest expense may be
treated as investment interest to the extent that it relates to investment
income (i.e., interest and royalties) earned by the Consolidated Partnership.
Unitholders who had borrowed to finance the purchase of their Interests in a
participating Partnership should be aware that interest on such borrowing may
also constitute investment interest and would be subject to the above-described
limitations.
Considerations for Tax-Exempt Limited Partners: Unitholders
that are tax-exempt entities, including charitable corporations, pension,
profit-sharing or stock bonus plans, Keogh Plans, Individual Retirement Accounts
and certain other employee benefit plans are subject to federal income tax on
unrelated business taxable income (i.e., net income derived from the conduct of
a trade or business regularly carried on by the tax-exempt entity or by a
partnership in which it is a partner). A $1,000 special deduction is allowed in
determining the amount of unrelated business taxable income subject to tax.
Tax-exempt entities taxed on their unrelated business taxable income are also
subject to the alternative minimum tax for items of tax preference which enter
into the computation of unrelated
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business taxable income. Income derived from ownership of a working interest in
oil or gas properties has been held to constitute unrelated business taxable
income, even though ownership is in the form of a limited partnership interest.
For this reason, substantially all of a tax-exempt Unitholder's share of
Consolidated Partnership income will constitute unrelated business taxable
income. Based on its financial projections, however, the General Partner
believes that no tax-exempt Unitholder will receive more than $1,000 of
unrelated business taxable income from the Consolidated Partnership (assuming no
change in the number of Units held), and, thus, no tax-exempt Unitholder would
be subject to tax unless such a Unitholder also receives unrelated business
taxable income from other sources. Unrelated business taxable income may also
arise from "debt-financed property" which may result in the case of Consolidated
Partnership property subject to "acquisition indebtedness" or when a tax-exempt
Unitholder incurs debt in connection with the acquisition of its Units.
The General Partner will provide each Unitholder that is a
tax-exempt entity with a statement as to what portion of Consolidated
Partnership income for the previous fiscal year constitutes, in its opinion,
unrelated business taxable income, assuming that such Unitholder did not incur
debt in connection with its acquisition of Units. Such information will be
included as part of the regular annual tax information provided to all
Unitholders.
Other Tax Aspects
The Consolidated Partnership is anticipated to operate in a
greater number of jurisdictions than any of the participating Partnerships.
Thus, the following discussions may have added significance for certain limited
partners.
State and Local Income Taxes: An investment in the
Consolidated Partnership may subject a Unitholder to income taxes imposed by the
states and localities in which the Consolidated Partnership operates as well as
any other jurisdictions in which a Unitholder resides or does business and,
accordingly, may require a Unitholder to file one or more state or local income
tax returns reflecting such income from Consolidated Partnership operations.
Federal and State Death Taxes: A Unitholder may be subject to
federal estate tax or death taxes imposed by the state of his domicile (and/or
residence), and/or by certain jurisdictions where the Consolidated Partnership
operates, on the value of his Units at the date of his death, or an alternative
valuation date. The Units, however, may not be producing revenues at that time
in amounts sufficient to pay such taxes.
Possible Changes in Federal Tax Laws and Regulations
The General Partner cannot predict what changes may be
effected in the Code by Congress or what revisions in existing Regulations or
Internal Revenue Service rulings, procedures or other policy may occur, or
whether any of such changes or revisions would be applied retroactively.
Consequently, no assurance can be given that the federal income tax consequences
of the ownership of Units in the Consolidated Partnership will not be altered.
THE FOREGOING ANALYSIS OF THE FEDERAL INCOME TAX
CONSIDERATIONS TO THE LIMITED PARTNERS IS NOT INTENDED AS A SUBSTITUTE FOR
CAREFUL TAX PLANNING. ACCORDINGLY, IF A LIMITED PARTNER CONTEMPLATES APPROVING
THE CONSOLIDATION, IT IS URGED TO CONSULT ITS TAX ADVISORS WITH SPECIFIC
REFERENCE TO ITS OWN TAX SITUATION.
EMPLOYEE RETIREMENT INCOME SECURITY ACT
The Employee Retirement Income Security Act of 1974 ("ERISA")
applies to investments by pension, profit-sharing, stock bonus, Keogh and other
employee benefit plans, and by IRAs (collectively referred to as "Benefit
Plans"). ERISA does not prohibit Benefit Plans from investing in any specific
type of investment but does require that plan fiduciaries give appropriate
consideration to the facts and circumstances relevant to a particular
investment, including whether the investment is reasonably designed, as part of
the investment portfolio, to further the purposes of the Benefit Plan, taking
into consideration risk of loss and opportunity for gain. ERISA also requires
fiduciaries to take into account factors such as composition of the portfolio
with regard to diversification,
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liquidity, current return relative to anticipated cash flow requirements and
projected return relative to funding objectives, and the need to value plan
assets annually. ERISA prohibits certain transactions between a Benefit Plan and
a "party in interest" as defined by ERISA or a "disqualified person" as defined
in Section 4975(e)(2) of the Code. Although IRAs are not generally subject to
the fiduciary rules of ERISA, such accounts are subject to Section 4975 of the
Code which imposes a 5% excise tax on any fiduciary or "disqualified person" (as
defined therein) who engages in certain transactions similar to those
transactions prohibited under ERISA. The excise tax may increase to 100% if
violations are not timely corrected after notice. Whether or not assets of the
Consolidated Partnership will be deemed to be assets of an IRA for purposes of
Section 4975 of the Code will be determined in accordance with the "plan asset"
regulations discussed below. Benefit Plan fiduciaries should carefully consider
whether an investment in the Consolidated Partnership is consistent with their
responsibilities under ERISA.
Under the Department of Labor plan assets regulations, the
assets of a pooled investment vehicle such as the Consolidated Partnership will
not be plan assets of a Benefit Plan for ERISA purposes (and will not be subject
to requirements regarding fiduciary responsibility and the holding of plan
assets in trust) if the issuer is an "operating company" (i.e., "an entity that
is primarily engaged in the production or sale of a product or service other
than the investment of capital") or if equity participation in the entity by
Benefit Plan limited partners is not significant (i.e., less than 25% of the
value of any class of equity interests in a partnership is held by Benefit Plan
investors). The General Partner believes that the Consolidated Partnership will
be an operating company and anticipates that Benefit Plan participation in the
Consolidated Partnership will be less than 25%. There can be no absolute
assurance, however, that the Consolidated Partnership will meet the operating
company or 25% test.
Alternatively, the plan assets regulations provide that the
assets of a partnership will not be treated as plan assets if equity interests
in the partnership are "publicly offered securities" (i.e., a security that is
widely held, freely transferable, not offered primarily to tax-exempt limited
partners, and either registered under the Securities Exchange Act of 1934 or
sold pursuant to a registration statement under the Securities Act of 1933 and
the class of securities is registered under the 1934 Act within 120 days after
the end of the issuer's fiscal year during which the public offering occurred).
The regulations provide that securities are "widely held" only if they are part
of a class of securities purchased and held by 100 or more persons who are
independent of the issuer and of one another. The Consolidated Partnership will
have a minimum of more than 4,000 Unitholders, the overwhelming majority of the
Units will be held by limited partners who are not tax-exempt limited partners,
the Units are being offered pursuant to a registration statement under the
Securities Act of 1933, and the Consolidated Partnership will be registered
under Section 12(g) of the Securities Exchange Act of 1934 within the applicable
period because it will have more than 500 limited partners and total assets
exceeding $5,000,000. Based on these facts, the General Partner believes that
the Units satisfy all criteria for "publicly offered securities" other than the
free transfer requirement.
The plan assets regulations do not define the term "freely
transferable" but provide that the determination of whether a security is freely
transferable depends on all the facts and circumstances. In cases of offerings
with a minimum investment of $10,000 or less (such as the Partnerships and the
Consolidated Partnership), however, certain enumerated restrictions, including
restrictions against transfers that would result in a termination or
reclassification of a partnership for federal tax purposes, ordinarily will not,
alone or in combination, affect the finding that securities are freely
transferable. In order to prevent the Partnerships from being taxed as "publicly
traded partnerships" (see "TAX ASPECTS--Participation in the Consolidated
Partnership--Publicly Traded Partnerships"), the Articles contain a restriction
which allows the General Partner to refuse its consent to any transfer that it
believes occurred through a secondary market or the substantial equivalent
thereof (as defined for purposes of Section 7704 of the Code). The Department of
Labor has ruled in at least one instance that a substantially similar
restriction against transfers which was drafted to avoid reclassification of a
partnership as a publicly traded partnership qualified as a permitted
restriction under the plan assets regulations. It is Counsel's opinion that this
restriction should not cause the Units not to be freely transferable under the
facts and circumstances because it is necessary to ensure that the Consolidated
Partnership continues to be treated as a partnership for federal tax purposes.
Accordingly, based on all the facts and circumstances described above and on
Counsel's opinion regarding free transfer of the Units, the General Partner
believes that the Units will be "publicly offered securities" and that the
assets of the Consolidated Partnership will not be plan assets for ERISA
purposes under the regulations.
81
<PAGE>
GENERAL INFORMATION
Legal Opinion
The legality of the Units offered hereby will be passed upon
for the Consolidated Partnership by Satterlee Stephens Burke & Burke LLP, 230
Park Avenue, New York, New Jersey 10169-0079.
Experts
The balance sheet of Enex Consolidated Partners, L.P. as of
December 31, 1995, the combined balance sheets of the Partnerships as of
December 31, 1995 and 1994 and the related combined statements of operations,
partners capital and changes in cash flows for each of the two years in the
period ended December 31, 1995 and the consolidated balance sheet of Enex
Resources Corporation as of December 31, 1995, included in this Prospectus/Proxy
Statement have been examined by Deloitte & Touche, LLP. independent auditors, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. Representatives of Deloitte & Touche, LLP. are expected to be present
at the Meetings and to be available to respond to appropriate questions.
Legal matters in connection with the Consolidated Partnership
discussed under "TAX ASPECTS" and "EMPLOYEE RETIREMENT INCOME SECURITY ACT" have
been passed upon by Satterlee Stephens Burke & Burke LLP, 230 Park Avenue, New
York, New York 10169-0079, and are included herein in reliance upon the
authority of said firm as experts in such matters.
Estimates of oil and gas reserves appearing herein were based
upon independently prepared engineering studies by the petroleum consulting firm
of H.J. Gruy and Associates, Inc. of Houston, Texas and are included in reliance
upon the authority of such firm as experts in such matters.
ADDITIONAL INFORMATION
Reports, proxy material and other information filed by the
Partnerships and the General Partner with the SEC can be inspected and copied at
prescribed rates at the public reference facilities maintained by the SEC at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
The General Partner has filed a Registration Statement with
the SEC (Reg. No. xx-xxxxx) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby (the
"Registration Statement") . This Prospectus/Proxy Statement does not contain all
of the information set forth or incorporated by reference in the Registration
Statement. References in this Prospectus/Proxy Statement to various documents,
statutes, regulations and agreements do not purport to be complete and are
qualified in their entirety by such documents, statutes, regulations and
agreements. Certain of the information contained in the Registration Statement
on file with the Securities and Exchange Commission has been omitted pursuant to
rules and regulations of the Commission. Copies of the Registration Statement
and the exhibits thereto, including the information so omitted, are on file at
the offices of the SEC and may be obtained upon payment of a prescribed fee or
any be examined without charge at the public reference facility of the SEC in
Washington, D.C.
82
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Enex Consolidated Partners, L.P. Page
Unaudited Pro Forma Combined Balance Sheets F-2
Unaudited Pro Forma Combined Statements of Operations . . . . . . . F-4
Unaudited Pro Forma Combined Statements of Cash Flows . . . . . . . F-5
Notes to Unaudited Pro Forma Combined Financial Statements . . . . . F-7
Opinion of Independent Certified Public Accountants . . . . . . . . . F-8
Enex Oil & Gas Income Program and Enex Income and Retirement Fund Limited
Partnerships
Opinion of Independent Certified Public Accountants . . . . . . . . . F-10
Combined Balance Sheets . . . . . . . . . . . . . . . . . . . . . . F-11
Combined Statements of Operations . . . . . . . . . . . . . . . . . F-12
Combined Statements of Changes in Partners' Capital . . . . . . . . . F-13
Combined Statements of Cash Flows . . . . . . . . . . . . . . . . . . F-14
Notes to Combined Financial Statements . . . . . . . . . . . . . . . F-15
Supplementary Oil and Gas Information . . . . . . . . . . . . . . . F-19
Enex Resources Corporation
Opinion of Independent Certified Public Accountants . . . . . . . . F-23
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . F-24
Notes to Consolidated Balance Sheets . . . . . . . . . . . . . . . . F-26
Supplementary Oil and Gas Information . . . . . . . . . . . . . . . . F-31
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P. - UNAUDITED PRO FORMA
ENEX OIL AND GAS PROGRAM LIMITED PARTNERSHIPS
The following unaudited pro forma balance sheets and pro forma
statements of operations of Enex Consolidated Partners, L.P. give effect to the
issuance of General Partner and Limited Partner interests pursuant to the terms
of the proposed consolidation transaction assuming that the proposed
consolidation was consummated at March 31, 1996 for purposes of the pro forma
balance sheets and at January 1, 1995 for purposes of the pro forma statements
of operations. Due to the affiliation of the predecessor Partnerships, the
combined pro forma financial information has been presented as a reorganization
of affiliated entities similar to the pooling of interests method of accounting;
therefore, the combined pro forma financial statements have been reported based
on the Predecessor Partnerships' historical costs. The pro forma balance sheets
have been presented on the basis of an assumed maximum level of acceptance by
all Predecessor Partnerships and an assumed minimum acceptance level. For the
assumed minimum acceptance level, only those partnerships that on a combined
basis have the lowest combined net cash provided by operating activities for the
fiscal year ended December 31, 1995 which together have an exchange basis
greater than $10,000,000 were included in the presentation.
The unaudited pro forma balance sheets and pro forma statements of
operations should be read in conjunction with the accompanying historical
financial statements and related notes of the Combined Enex Oil and Gas Income
Program Limited Partnerships included elsewhere in the Prospectus/Proxy
Statement.
F-1
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
Pro forma Pro forma
(Assumed (Assumed
ASSETS March 31, Maximum Minimum
1996 Adjustments Acceptance) Acceptance)
-------------- ------------ ------------- -----------
CURRENT ASSETS:
<S> <C> <C> <C> <C> <C>
Cash $ 409,561 $ (200,000) (2) $ 209,561 $ 66,420
Accounts receivable - oil & gas sales 1,514,570 1,514,570 929,230
Receivable from litigation settlement 280,050 280,050 280,050
Other current assets 250,970 250,970 218,582
-------------- ------------ ------------- ------------
Total current assets 2,455,151 (200,000) 2,255,151 1,494,282
-------------- ------------ ------------- ------------
OIL & GAS PROPERTIES
(Successful efforts accounting method)
Proved mineral interests and related
equipment & facilities 139,717,028 139,717,028 115,255,027
Less accumulated depreciation
and depletion 125,036,849 125,036,849 107,284,321
-------------- ------------ ------------- ------------
Property, net 14,680,179 14,680,179 7,970,706
-------------- ------------ ------------- ------------
ORGANIZATION COSTS, NET 45,541 45,541 672
-------------- ------------ ------------- ------------
TOTAL $ 17,180,871 $ (200,000) $ 16,980,871 $ 9,465,660
============== ============ ============= ============
LIABILITIES AND
PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 693,127 $ 200,000 (2) $ 893,127 $ 675,065
Notes payable to general partner 23,383 (23,383) (3) 0 0
Payable to general partner 779,625 (779,625) (3) 0 0
-------------- ------------ ------------- ------------
Total current liabilities 1,496,135 (603,008) 893,127 675,065
-------------- ------------ ------------- ------------
NONCURRENT LIABLITIES:
Noncurrent portion of payable to
general partner 2,177,819 (2,177,819) (3) 0 0
-------------- ------------ ------------- ------------
PARTNERS' CAPITAL:
Limited partners 11,765,141 4,322,603 (4) 16,087,744 8,790,595
General partner 1,741,776 (1,741,776) (4) 0 0
-------------- ------------ ------------- ------------
Total partners' capital 13,506,917 2,580,827 16,087,744 8,790,595
-------------- ------------ ------------- ------------
TOTAL $ 17,180,871 $ (200,000) $ 16,980,871 $ 9,465,660
============== ============ ============= ============
Book Value per $500 L.P.Unit $ 35.51 $ 48.55 $ 32.13
============== ============ ============
</TABLE>
See notes to pro forma financial statements.
- --------------------------------------------
F-2
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1996
Pro forma Pro forma
(Assumed (Assumed
Pro forma Maximum Minimum
Unadjusted Adjustments Acceptance Pro forma
----------- ----------- ----------- -----------
REVENUES:
<S> <C> <C> <C> <C>
Oil and gas sales $ 2,947,847 $ $ 2,947,847 $ 1,754,868
------------ ---------- -------------- -------------
EXPENSES:
Depreciation, depletion and amortization 668,161 668,161 348,888
Impairment of property 2,315,081 2,315,081 1,579,403
Lease operating expenses 1,112,959 1,112,959 689,674
Production taxes 154,081 154,081 90,992
General and administrative:
Allocated from general partner 481,916 (193,000)(5) 288,916 ) 264,588
Direct expense 51,094 (13,000)(5) 38,094 ) 34,004
------------ ---------- -------------- -------------
Total expenses 4,783,292 206,000 4,577,292 3,007,549
------------ ---------- -------------- -------------
LOSS FROM OPERATIONS (1,835,445) (206,000) (1,629,445) (1,252,681)
------------ ---------- -------------- -------------
OTHER INCOME (EXPENSE):
Interest income 7,545 7,545 5,695
Interest expense (338) 338 (5) 0 0
Gain on sale of property 9,155 9,155 7,153
------------ ---------- -------------- -------------
Other income (expense), net 16,362 338 16,700 12,848
------------ ---------- -------------- -------------
NET LOSS $(1,819,083) $(206,338) $ (1,612,745) $(1,239,833)
============ ========== ============== =============
Net income (loss) per $500 L.P. Unit $ (5.49) $ 0.62 $ (4.87) $ (4.53)
============ ========== ============== =============
</TABLE>
See notes to pro forma financial statements.
- --------------------------------------------
F-3
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
For the year ended December 31, 1995
Pro forma Pro forma
(Assumed (Assumed
Pro forma Maximum Minimum
Unadjusted Adjustments Acceptance) Acceptance)
---------- ----------- ----------- -----------
REVENUES:
<S> <C> <C> <C> <C>
Oil and gas sales $ 10,117,119 $ $10,117,119 $5,813,351
------------- ----------- ------------- -----------
EXPENSES:
Depreciation, depletion and amortization 3,748,723 3,748,723 2,163,101
Lease operating expenses 4,312,449 4,312,449 2,509,722
Production taxes 569,321 569,321 326,290
General and administrative:
Allocated from general partner 1,695,475 (772,000)(5) 923,475 867,362
Direct expense 370,904 (52,000)(5) 318,904 280,576
Consolidation expense - 400,000 (2) 400,000 400,000
------------- ----------- ------------- -----------
Total expenses 10,696,872 (424,000) 10,272,872 6,547,050
------------- ----------- ------------- -----------
LOSS FROM OPERATIONS (579,753) 424,000 (155,753) (733,699)
------------- ----------- ------------- -----------
OTHER INCOME (EXPENSE):
Interest income 41,795 41,795 41,292
Interest expense (8,141) 8,141(5) 0 0
Gain on sale of property 659,326 659,326 659,326
------------- ----------- ------------- -----------
Other income (expense), net 692,980 8,141 701,121 700,618
------------- ----------- ------------- -----------
NET LOSS $ 113,227 $ 432,141 $ 545,368 $ (33,081)
============= =========== ============= ===========
Net income(loss) per $500 L.P. Unit $ 0.34 $ 1.30 $ 1.65 $ (0.12)
============= =========== ============= ===========
</TABLE>
See notes to pro forma financial statements.
- --------------------------------------------
F-4
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1996 Pro forma Pro forma
(Assumed (Assumed
CASH FLOWS FROM Pro forma Maximum Minimum
OPERATING ACTIVITIES: Unadjusted Adjustments Acceptance) Acceptance)
------------ ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Net (loss) $(1,819,083) $ 206,338 $ (1,612,745) $(1,239,833)
------------ ------------- ----------------- -------------
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation, depletion and amortization 2,983,242 2,983,242 1,928,291
Gain on sale of property (9,155) (9,155) (7,153)
(Increase) in:
Accounts receivable - oil & gas sales (333,521) (333,521) (240,330)
Other current assets (35,849) (35,849) (49,340)
Increase (decrease) in:
Accounts payable (178,692) (178,692 (181,122)
Payable to general partner (162,749) 162,749 (3) 0 0
------------ ------------- ----------------- -------------
Total adjustments 2,263,276 162,749 2,426,025 1,450,346
------------ ------------- ----------------- -------------
Net cash provided by operating activities 444,193 369,087 813,280 210,513
------------ ------------- ----------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 107,600 107,600 105,598
Acquisition of proved oil & gas properties (165,816) (165,816) -
Property additions - development costs (16,116) (16,116) (55,885)
------------ ------------- ----------------- -------------
Net cash (used) by investing activities (74,332) 0 (74,332) 49,713
------------ ------------- ----------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable to general partner (8,525) 8,525 (3) 0 -
Cash distributions (658,697) (658,697) (426,693)
------------ ------------- ----------------- -------------
Net cash provided (used) by financing activities (667,222) 8,525 (658,697) (426,693)
------------ ------------- ----------------- -------------
NET INCREASE (DECREASE) IN CASH (297,361) 377,612 80,251 (166,467)
CASH AT BEGINNING OF YEAR 706,922 706,922 455,782
------------ ------------- ----------------- -------------
CASH AT END OF PERIOD $ 409,561 $ 377,612 $ 787,173 $ 289,315
============ ============= ================= =============
Cash paid during the period for interest $ 338 $ (338) $ - -
============ ============= ================= =============
</TABLE>
See notes to pro forma financial statements.
- --------------------------------------------
F-5
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
For the year ended December 31, 1995 Pro forma Pro forma
(Assumed (Assumed
CASH FLOWS FROM Pro forma Maximum Minimum
OPERATING ACTIVITIES: Unadjusted Adjustments Acceptance) Acceptance)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 113,227 $ 432,141(7)$ 545,368 $ (33,081)
------------ ------------ ------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 3,748,723 3,748,723 2,163,101
Gain on sale of property (659,326) (659,326) (659,326)
(Increase) decrease in:
Accounts receivable - oil & gas sales 34,932 34,932 44,888
Other current assets (72,070) (72,070) (64,088)
Increase (decrease) in:
Accounts payable 73,510 200,000(2) 273,510 404,225
Payable to general partner (1,268,777) 1,268,777(6) 0 0
------------ ------------ ------------ ------------
Total adjustments 1,856,992 1,468,777 3,325,769 1,888,800
------------ ------------ ------------ ------------
Net cash provided by operating activities 1,970,219 1,900,918 3,871,137 1,855,719
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 1,011,465 1,011,465 1,011,465
Property additions - development costs (577,125) (577,125) (312,854)
Acquisition of proved oil & gas properties (57,045) (57,045) -
------------ ------------ ------------ ------------
Net cash provided by investing activities 377,295 0 377,295 698,611
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable to general partner (66,434) 66,434(6) 0 0
Cash distributions (2,011,376) (2,011,376) (1,086,768)
------------ ------------ ------------ ------------
Net cash provided (used) by financing activities (2,077,810) 66,434 (2,011,376) (1,086,768)
------------ ------------ ------------ ------------
NET INCREASE IN CASH 269,704 1,967,352 2,237,056 1,467,562
CASH AT BEGINNING OF YEAR 437,218 437,218 123,472
------------ ------------ ------------ ------------
CASH AT END OF PERIOD $ 706,922 $ 1,967,352 $ 2,674,274 $ 1,591,034
============ ============ ============ ============
Cash paid during the period for interest $ 17,328 $ (17,328) $ - $ -
============ ============ ============ ============
</TABLE>
See notes to pro forma financial statements.
- --------------------------------------------
F-6
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Basis of Presentation
Due to the affiliation of the Consolidating Partnerships, the pro forma
information of Enex Oil and Gas Income Program and Enex Income and Retirement
Fund Limited Partnerships has been presented as a reorganization of affiliated
entities similar to the pooling of interests method of accounting; therefore,
the combined financial statements have been reported based on the predecessor
Partnerships' historical costs. Such costs do not represent exchange values. The
pro forma financial statements were prepared assuming that the proposed
consolidation was consummated at March 31, 1996 for purposes of the pro forma
balance sheets and at January 1, 1995 for purposes of the pro forma statements
of operations.
The pro forma balance sheets have been presented on the basis of an
assumed maximum level of acceptance by all Consolidating Partnerships and an
assumed minimum acceptance level including only those partnerships that have the
lowest cash flow from operating activities for the fiscal year ended December
31, 1995, which in the aggregate have an exchange value greater than
$10,000,000.
Net income allocated to limited partner interests was computed in
accordance with the Articles of Limited Partnership. The net income per $500
Limited Partner unit outstanding was computed for each period based on weighted
average units outstanding since inception of each partnership.
(2) Costs of Consolidation
This pro forma adjustment represents an estimate of the costs of the
consolidation of approximately $400,000. These costs are allocated to the
General Partner and Limited Partners in accordance with the consolidated expense
sharing ratio (as computed using the weighted average of the expense allocation
percentage allocated to the General Partner in the participating partnerships).
Amounts not payed in cash will be financed by short-term payables to vendors.
(3) Conversion of Debt Payable to General Partner and General Partner Capital
Balance to Limited Partner Units.
The General Partner will convey the amounts owed to it by the
Partnerships that approve the consolidation and the corresponding General
Partner's capital balances in exchange for additional units of limited
partnership interest. See "the Proposed Consolidation - Terms of the
Consolidation".
(4) Overhead and Operating Cost Savings.
The General Partner believes that the Consolidation will result in
substantial economies of operation and savings in Direct, Administative and
Operating Costs of $824,000 per year assuming maximum acceptance and $387,599
per year assuming minimum acceptance. See "Summary - Objectives of the
Consolidation".
(5) Book Value per $500 Limited Partner Unit.
The book value per $500 limited partner unit may not be meaningful to an
individual partner since their relative exchange value assigned in the
consolidation will not coincide with their individual capital accounts.
F-7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Enex Consolidated Partners, L.P.
We have audited the accompanying balance sheet of Enex Consolidated Partners,
L.P. (a New Jersey limited partnership) as of July 31, 1996. This financial
statement is the responsibility of the general partner of Enex Consolidated
Partners, L.P. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material repects, the
financial position of Enex Consolidated Partners, L.P. at July 31, 1996 in
accordance with generally accepted accounting principles.
DELOITTE & TOUCHE, LLP
Houston, Texas
July 31, 1996
F-8
<PAGE>
<TABLE>
<CAPTION>
ENEX CONSOLIDATED PARTNERS, L.P.
BALANCE SHEET
July 31, 1996
<S> <C>
ASSETS - Cash . . . . . . . . . . . $ 1,000
============
PARTNERS' CAPITAL:
General partner . . . . . . . . . . $ 900
Limited partner . . . . . . . . . . 100
------------
TOTAL . . . . . . . . . . . . . . . $ 1,000
============
</TABLE>
1. Organization
Enex Consolidated Partners, L.P. (the "Consolidating Partnership")
is a New Jersey limited partnership which was formed on July 31, 1996 for the
purpose of combining with the Enex Oil and Gas Income Program and Enex Income
and Retirement Fund Limited Partnerships (the "Partnerships"). Enex Resources
Corporation ("Enex") is the General Partner. See the Unaudited Pro Forma Enex
Consolidated Partners, L.P. financial statements and the Enex Oil & Gas Income
Program and Enex Income and Retirement Fund Limited Partnerships combined
financial statements included elsewhere in the Prospectus/Proxy Statement for
information regarding the proposed consolidation.
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of Enex Oil & Gas
Income Program and Enex Income
and Retirement Fund Limited Partnerships:
We have audited the combined balance sheets of Enex Oil & Gas Income
Program and Enex Income and Retirement Fund Limited Partnerships (as identified
in Note 1 to the combined financial statements) as of December 31, 1995 and
1994, and the related combined statements of operations, changes in partners'
capital and cash flows for each of the two years in the period ended December
31, 1995. These financial statements are the responsibility of the general
partner of Enex Oil & Gas Income Program and Enex Income and Retirement Fund
Limited Partnerships. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting priniciples used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above
present fairly the combined financial position of the Enex Oil & Gas Income
Program and Enex Income and Retirement Fund Limited Partnerships as of December
31, 1995 and 1994, and the combined results of their operations and the changes
in cash flows for each of the two years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles applied on a consistent
basis.
DELOITTE & TOUCHE, LLP
Houston, Texas
July 31, 1996
F-10
<PAGE>
<TABLE>
<CAPTION>
ENEX OIL & GAS INCOME PROGRAMS AND INCOME AND RETIREMENT FUNDS
COMBINED BALANCE SHEETS
March 31, December 31,
-------------------------
ASSETS 1996 1995 1994
--------------- ------------ -----------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C> <C>
Cash $ 409,561 $ 706,922 437,218
Accounts receivable - oil & gas sales 1,514,570 1,181,049 1,215,661
Receivable from litigation settlement 280,050 280,050 254,589
Other current assets 250,970 215,121 168,832
-------------- -------------- ------------
Total current assets 2,455,151 2,383,142 2,076,300
-------------- -------------- ------------
OIL & GAS PROPERTIES
(Successful efforts accounting method) - Proved
mineral interests and related equipment & facilities 139,717,028 146,079,503 152,025,931
Less accumulated depreciation and depletion 125,036,849 128,511,790 131,082,972
-------------- -------------- ------------
Property, net 14,680,179 17,567,713 20,942,959
-------------- -------------- ------------
ORGANIZATION COSTS, NET 45,541 57,763 149,198
-------------- -------------- ------------
TOTAL $ 17,180,871 $ 20,008,618 23,168,457
============== ============== ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable $ 693,127 $ 863,620 789,352
Current portion of notes payable to general partner 23,383 42,260 144,214
Payable to general partner 779,625 827,246 1,494,359
-------------- -------------- ------------
Total current liabilities 1,496,135 1,733,126 2,427,925
-------------- -------------- ------------
NONCURRENT PAYABLE TO GENERAL PARTNER 2,177,819 2,290,794 2,857,696
-------------- -------------- ------------
PARTNERS' CAPITAL:
Limited partners 11,765,141 14,319,792 16,339,605
General partner 1,741,776 1,664,906 1,543,231
-------------- -------------- ------------
Total partners' capital 13,506,917 15,984,698 17,882,836
-------------- -------------- ------------
TOTAL $ 17,180,871 $ 20,008,618 23,168,457
============== ============== ============
</TABLE>
See accompanying notes to Combined Financial Statements.
- ---------------------------------------------------------------------------
F-11
<PAGE>
<TABLE>
<CAPTION>
ENEX OIL & GAS INCOME PROGRAMS AND INCOME AND RETIREMENT FUNDS
COMBINED STATEMENTS OF OPERATIONS
Three Months Ended March 31, Year Ended December 31,
----------------------------- -------------------------
1996 1995 1995 1994
------------ -------------- ---------------------------
(UNAUDITED)
REVENUES:
<S> <C> <C> <C> <C>
Oil and gas sales $ 2,947,847 $2,709,265 $ 10,117,119 $ 11,315,601
------------ ----------- ------------- -------------
EXPENSES:
Depreciation, depletion
and amortization 668,161 1,033,535 3,748,723 4,955,008
Impairment of property 2,315,081 - - 971,936
Lease operating expenses 1,112,959 1,203,630 4,312,449 4,613,177
Production taxes 154,081 147,662 569,321 627,229
General and administrative:
Allocated from general partner 481,916 587,960 1,695,475 1,959,667
Direct expense 51,094 (36,607) 370,904 389,859
Litigation contingency - - - (667,369)
------------ ----------- ------------- -------------
Total expenses 4,783,292 2,936,180 10,696,872 12,849,507
------------ ----------- ------------- -------------
(LOSS) FROM OPERATIONS (1,835,445) (226,915) (579,753) (1,533,906)
------------ ----------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income 7,545 6,656 41,795 120,375
Interest expense to a bank - - - (17,727)
Interest expense to general partner (338) (3,233) (8,141) (19,505)
Gain on sale of property 9,155 - 659,326 6,937
------------ ----------- ------------- -------------
Other income (expense), net 16,362 3,423 692,980 90,080
------------ ----------- ------------- -------------
NET INCOME (LOSS) $(1,819,083) $ (223,492) $ 113,227 $ (1,443,826)
============ =========== ============= =============
Net Income (loss) Per
$500 L.P.Unit $ (5.49) $ (0.67) $ 0.34 $ (4.36)
============ =========== ============= =============
</TABLE>
See accompanying notes to Combined Financial Statements.
- --------------------------------------------------------------------------
F-12
<PAGE>
<TABLE>
<CAPTION>
ENEX OIL & GAS INCOME PROGRAMS AND INCOME AND RETIREMENT FUNDS
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE TWO YEARS ENDED DECEMBER 31, 1995 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1996
- ----------------------------------------------------------------------------- PER $500
GENERAL LIMITED L.P. Unit
TOTAL PARTNER PARTNERS OUTSTANDING
--------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $ 20,920,051 $ 1,471,330 $ 19,448,721 $ 587
Contributions 1,010,380 - 1,010,380 30
Cash Distributions (2,556,166) (222,686) (2,333,480) (70)
Commissions and Syndication Fees (47,603) - (47,603) (1)
Net Income (Loss) (1,443,826) 294,587 (1,738,413) (52)
--------------- ------------- -------------- ----------
Balance, December 31, 1994 17,882,836 1,543,231 16,339,605 493
Cash Distributions (2,011,376) (109,351) (1,902,025) (57)
Net Income (Loss) 113,238 231,048 (117,810) (4)
--------------- ------------- -------------- ---------
Balance, December 31, 1995 15,984,698 1,664,928 14,319,770 432
Cash Distributions (658,697) (22,570) (636,127) (19)
Net Income (Loss) (1,819,083) 75,391 (1,894,474) (57)
--------------- ------------- -------------- ---------
Balance, March 31, 1996 $ 13,506,918 $ 1,717,749 $ 11,789,169 (1) 356
=============== ============= ============== =========
</TABLE>
(1) Includes 124,118 units purchased by the general partner as a limited
partner.
See accompanying notes to Combined Financial Statements.
- -----------------------------------------------------------------------------
F-13
<PAGE>
<TABLE>
<CAPTION>
ENEX OIL & GAS INCOME PROGRAMS AND INCOME AND RETIREMENT FUNDS
COMBINED STATEMENTS OF CASH FLOWS
CASH FLOWS FROM Three Months Ended March 31, Year Ended December 31,
---------------------------- -----------------------------
OPERATING ACTIVITIES: 1996 1995 1995 1994
------------- ------------ ------------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
Net income (loss) $ (1,819,083) $ (223,492) $ 113,227 $(1,443,826)
------------- ------------ ------------- ------------
Adjustments to reconcile net
(loss) to net cash provided
by operating activities:
Depreciation, depletion and amortization 2,983,242 1,033,535 3,748,723 5,926,944
Litigation contingency accrual - - - (758,938)
Gain on sale of property (9,155) - (659,326) (6,937)
(Increase) decrease in:
Accounts receivable - oil & gas sales (333,521) (55,884) 34,932 112,559
Other current assets (35,849) 15,627 (72,070) 45,256
Increase (decrease) in:
Accounts payable (178,692) 48,602 73,510 (198,393)
Payable to general partner (162,749) (235,728) (1,268,777) 156,309
------------- ------------ ------------- ------------
Total adjustments 2,263,276 806,152 1,856,992 5,276,800
------------- ------------ ------------- ------------
Net cash provided by
operating activities 444,193 582,660 1,970,219 3,832,974
------------- ------------ ------------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of property 107,600 - 1,011,465 139,043
Acquisition of proved oil & gas properties (165,816) (159,462) (577,125) (610,749)
Property additions - development costs (16,116) (22,262) (57,045) (1,064,213)
------------- ------------ ------------- ------------
Net cash provided (used)
by investing activities (74,332) (181,724) 377,295 (1,535,919)
------------- ------------ ------------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayment of note payable to bank - - - (410,000)
Repayment of note payable
to general partner (8,525) (15,219) (66,434) (226,708)
Proceed's from partners' contributions - - - 1,010,380
Commissions and syndication fees - - - (47,603)
Organization costs - - - (40,415)
Cash distributions (658,697) (430,658) (2,011,376) (2,556,166)
------------- ------------ ------------- ------------
Net cash (used) by financing activities (667,222) (445,877) (2,077,810) (2,270,512)
------------- ------------ ------------- ------------
NET INCREASE
(DECREASE) IN CASH (297,361) (44,941) 269,704 26,543
CASH AT BEGINNING OF YEAR 706,922 437,218 437,218 410,675
------------- ------------ ------------- ------------
CASH AT END OF PERIOD $ 409,561 $ 392,277 $ 706,922 $ 437,218
============= ============ ============= ============
Cash paid during the period for interest $ 338 $ 894 $ 17,328 $ 21,985
============= ============ ============= ============
</TABLE>
See accompanying notes to Combined Financial Statements.
- ------------------------------------------------------------------------------
F-14
<PAGE>
ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND LIMITED PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
(Data subsequent to December 31, 1995, is unaudited)
1. Partnership Organization
Enex Oil and Gas Income Program I Partners, L.P., Enex Oil & Gas
Income Programs II, III, IV, V, VI, Enex Income and Retirement Fund, Enex 88-89
Income and Retirement Fund, and Enex 90-91 Income and Retirement Fund
(collectively, the "Partnerships") are limited partnerships which were organized
for the purpose of acquiring proved oil and gas properties. Enex Resources
Corporation ("ENEX") is the general partner for the Partnerships.
The financial statements of the Partnerships have been presented as
a single entity because of the proposed consolidation explained elsewhere in the
Prospectus/Proxy Statement. No adjustments were made to the individual
partnership financial statements in combination other than the elimination of
interpartnership receivables and payables.
These statements combine the financial statements of the following
Partnerships:
<TABLE>
<CAPTION>
Limited
Partners'
Date of Initial
Formation Subscriptions
--------------------- --------------
<S> <C> <C>
Enex Program I Partners, L.P. January 1, 1986 $ 96,814,500
Enex Oil & Gas Income Program II -
Series 7, L.P. . . . . . . . . . . . . . . . July 16, 1985 4,434,757
Series 8, L.P. . . . . . . . . . . . . . . . October 10, 1985 2,931,653
Series 9, L.P. . . . . . . . . . . . . . . . January 9, 1986 1,554,262
Series 10, L.P. . . . . . . . . . . . . . . May 8, 1986 1,958,206
Enex Oil & Gas Income Program III -
Series 1, L.P. . . . . . . . . . . . . . . . August 8, 1986 1,488,778
Series 2, L.P. . . . . . . . . . . . . . . . November 20, 1986 2,135,224
Series 3, L.P. . . . . . . . . . . . . . . . February 10, 1987 3,204,790
Series 4, L.P. . . . . . . . . . . . . . . . May 1, 1987 2,704,880
Series 5, L.P. . . . . . . . . . . . . . . . August 11, 1987 5,398,602
Series 6, L.P. . . . . . . . . . . . . . . . November 12, 1987 3,170,003
Series 7, L.P. . . . . . . . . . . . . . . . February 11, 1988 2,263,383
Series 8, L.P. . . . . . . . . . . . . . . . May 11, 1988 3,598,188
Enex Oil & Gas Income Program IV -
Series 1, L.P. . . . . . . . . . . . . . . . September 8, 1988 3,236,182
Series 2, L.P. . . . . . . . . . . . . . . . December 28, 1988 2,468,972
Series 4, L.P. . . . . . . . . . . . . . . . August 15, 1989 1,260,210
Series 5, L.P. . . . . . . . . . . . . . . . November 9, 1989 2,280,449
Series 6, L.P. . . . . . . . . . . . . . . . February 13, 1990 2,162,887
Series 7, L.P. . . . . . . . . . . . . . . . May 16, 1990 2,510,445
F-15
<PAGE>
Enex Oil & Gas Income Program V -
Series 1, L.P. . . . . . . . . . . . . . . . September 11, 1990 2,264,552
Series 2, L.P. . . . . . . . . . . . . . . . November 27, 1990 1,486,190
Series 3, L.P. . . . . . . . . . . . . . . . April 25, 1991 1,010,101
Series 4, L.P. . . . . . . . . . . . . . . . September 6, 1991 1,477,116
Series 5, L.P. . . . . . . . . . . . . . . . April 30, 1992 1,231,732
Enex Income and Retirement Fund -
Series 1, L.P. . . . . . . . . . . . . . . . June 17, 1987 1,367,780
Series 2, L.P. . . . . . . . . . . . . . . . September 15, 1987 1,441,909
Series 3, L.P. . . . . . . . . . . . . . . . December 30, 1987 1,493,792
Enex 88-89 Income and Retirement Fund -
Series 5, L.P. . . . . . . . . . . . . . . . August 28, 1989 1,150,169
Series 6, L.P. . . . . . . . . . . . . . . . November 9, 1989 1,033,402
Series 7, L.P. . . . . . . . . . . . . . . . February 28, 1990 1,544,485
Enex 90-91 Income and Retirement Fund -
Series 1, L.P. . . . . . . . . . . . . . . . September 11, 1990 1,487,600
Series 2, L.P. . . . . . . . . . . . . . . . February 8, 1991 1,010,101
Series 3, L.P. . . . . . . . . . . . . . . . October 4, 1991 1,087,546
Enex Oil & Gas Income Program VI -
Series 1, L.P. . . . . . . . . . . . . . . . April 29, 1994 1,010,380
</TABLE>
In connection with their formation the Partnerships paid commissions
for solicited subscriptions to a subsidiary of ENEX, and reimbursed ENEX for
organizational expenses as shown in the accompanying combined financial
statements.
Information relating to the allocation of costs and revenues between
ENEX, as general partner, and the limited partners is as follows:
<TABLE>
<CAPTION>
LIMITED
ENEX PARTNERS
------- ---------
<S> <C> <C>
Commissions and selling expenses . . . . . . . . . . . . . . -- 100%
Partnership reimbursement of organization expenses . . -- 100%
General and administrative costs . . . . . . . . . . . . . . . 10% 90%
Costs of drilling and completing exploratory and
development wells . . . . . . . . . . . . . . . . . . . . . . 10% 90%
Revenues from temporary investment of partnership
capital . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 100%
Property acquisitions . . . . . . . . . . . . . . . . . . . . -- 100%
Revenues from producing properties . . . . . . . . . . 10% 90%
Operating costs (including general and administrative
costs associated with operating producing properties). 10% 90%
</TABLE>
If, after certain time periods, the aggregate purchase price of the
interests in certain programs plus cumulative distributions to the limited
partners does not equal limited partner subscriptions (the "Deficiency"), the
general partner will forego its 10% share of such Program's net revenues. The
foregone net revenues will be allocated to the limited partners until such time
as no Deficiency exists. During 1995, the general partner's 10% share of Program
I and II net revenues, totaling $72,949, was allocated to the limited partners.
F-16
<PAGE>
2. Summary of Significant Accounting Policies
Oil and Gas Properties
The Partnerships use the successful efforts method of accounting for
their oil and gas operations. Under this method, the costs of all development
and successful exploratory wells are capitalized. The costs of unsuccessful
exploratory wells are charged to earnings. Capitalized costs are amortized on
the units-of-production method based on estimated total proved reserves.
In accordance with the Financial Accounting Standards Board
Statement of Financial Accounting Standard No. 121, "Accounting for the
Impairment of Long-Lived Assets, and for Long-Lived Assets to be Disposed of"
certain assets are reviewed for impairment whenever events or circumstances
indicated the carrying amount may not be recoverable. See Note 8 for further
discussion of the impairment provision.
Organization Costs
Organization costs are being amortized on a straight-line basis over
a five-year period.
Commissions and Syndications Fees
Commissions and syndication fees paid to the general partner for
solicited subscriptions are charged to partners' capital.
Cash Flows
The cash flows are presented using the indirect method with all
highly liquid investments with an original maturity of three months or less
considered to be cash equivalents.
Uses of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from these
estimates.
3. Federal Income Taxes
The Partnerships are not taxable entities for federal income tax
purposes. Such taxes are liabilities of the individual partners and the amounts
thereof will vary depending on the individual situation of each partner.
Accordingly, there is no provision for income taxes in the accompanying
financial statements.
4. Payable to the General Partner
The payable to the general partner primarily consists of general and
administrative expenses allocated to the Partnerships by the General Partner.
5. Repurchase of Limited Partner Interests
In accordance with each partnership agreement, except for Enex Oil &
Gas Income Programs I, V and VI, the general partner is required to purchase
limited partner interests (at option of the limited partners) at annual
intervals beginning after the second year following the formation of each
partnership. The purchase price as specified in each agreement is based
primarily on reserve reports prepared by independent petroleum engineers as
reduced by a specified risk factor.
F-17
<PAGE>
6. Notes Payable
In 1993, five managed limited partnerships borrowed a total of
$438,168 from the General Partner to repay bank debt and finance workover costs.
The General Partner received monthly principal payments from the partnerships on
the resulting demand notes plus interest at the General Partner's borrowing rate
of prime plus three-fourths of one percent on the unpaid principal. In 1994, an
additional $39,281 was borrowed by two limited partnerships to finance workover
costs. Principal payments of $322,345 were made during 1994. At December 31,
1994, the total outstanding principal balance of the notes was $28,694. The
notes were completely repaid in the first half of 1995.
On December 29, 1994, in order to partially finance the purchase of
a property acquisition, Enex Oil & Gas Income Program VI, Series 1, L.P.
borrowed a net $60,572 from the Gemeral Partner. The resulting note receivable
bears interest at the General Partner's borrowing rate of prime plus
three-fourths of one percent, or a weighted average of 9.76% during 1995 and
9.00% in the first quarter of 1996 (9.25% and 9.00% at December 31, 1995 and
March 31, 1996, respectively.). Principal payments of $9,484 and $31,049 were
made on the note payable in the first quarter of 1996 and the year ended
December 31, 1995, respectively.
7. Litigation
Enex Program I Partners, L.P. ("Program I") was named as a party to
a suit filed by Texas Crude, Inc. ("Texas Crude"). In the suit, Texas Crude
sought to recover legal and other fees totaling $600,000. In August 1993, a
judgement was granted in favor of Texas Crude for $414,203 plus interest by the
101st Judicial District Court of Texas. During the third quarter of 1993 Program
I accrued a liability for $504,350 related to this judgement.
Program I appealed the verdict and filed a counterclaim for funds
that were wrongfully withheld by Texas Crude. In December 1994, the Fifth
District Court of Appeals reversed the judgement of the trial court and rendered
judgement in favor of Program I. Program I will recover $163,019 from Texas
Crude, plus interest. Accordingly, the contingent liability, initially
recognized in 1993, was reversed in December 1994 and Program I established a
receivable for $254,588.
Both Program I and Texas Crude have filed Motions for Rehearing,
which have been pending for more than a year. The accrued receivable balance at
December 31, 1995 was $280,050, including $25,462 of additional interest earned
during 1995.
8. Impairment of Property
Until 1996, ceiling tests were performed wherein total capitalized
costs could not exceed future undiscounted net revenues on a partnership basis.
In 1994, noncash write-downs totaling $971,936 were made. The Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires certain assets to be
reviewed for impairment whenever circumstances indicate the carrying amount may
not be recoverable on a property by property basis. This SFAS 121 was
implemented in the first quarter of 1996 resulting in a total non-cash
impairment of $2,315,081 for certain oil and gas properties due to market
indications that the carrying amounts were not fully recoverable.
9. Unaudited Financial Information
The financial information as of March 31, 1996 and for the three month
periods ended March 31, 1996 and 1995 is unaudited; however, such information
reflects all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the results for the interim period.
F-18
<PAGE>
Independent Auditors' Report
Enex Resources Corporation
We have audited the accompanying consolidated balance sheet of Enex Resources
Corporation and its subsidiaries as of December 31, 1995. This financial
statement is the responsibility of Enex Resources Corporation's management. Our
responsibility is to express an opinion on this financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provide a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet present fairly, in all material
respects, the financial position of Enex Resources Corporation and its
subsidiaries at December 31, 1995, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE, LLP
Houston, Texas
March 18, 1996
F-23
<PAGE>
<TABLE>
<CAPTION>
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
ASSETS 1996 1995
--------------- -------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and certificates of deposit $ 178,862 $ 806,196
Accounts receivable:
Managed limited partnerships 763,260 756,741
Oil and gas sales 769,531 684,609
Joint owner 171,567 325,816
Receivable from property sales - 123,202
Other accounts receivable 1,293,437 1,298,698
Notes receivable from managed limited
partnerships 20,039 29,523
Federal income tax receivable 98,614 98,614
Prepaid expenses & other current assets 425,481 505,206
Deferred tax asset - current portion 109,706 112,174
--------------- -------------
Total current assets 3,830,497 4,740,779
--------------- -------------
PROPERTY:
Oil & gas properties (Successful efforts
accounting method) Proved mineral
interests and related equipment & facilities:
Direct ownership 7,219,786 8,134,074
Derived from investment in managed
limited partnerships 5,869,775 6,707,824
Furniture, fixtures and other (at cost) 342,835 341,507
--------------- -------------
Total property 13,432,396 15,183,405
--------------- -------------
Less accumulated depreciation,
depletion and amortization 6,851,998 5,602,987
--------------- -------------
Property, net 6,580,398 9,580,418
--------------- -------------
OTHER ASSETS:
Receivable from managed limited
partnerships for start-up costs 1,770,496 2,171,636
Deferred tax asset 565,326 536,256
Deferred organization expenses and other 6,894 8,233
--------------- -------------
Total other assets 2,342,716 2,716,125
--------------- -------------
TOTAL $ 12,753,611 $ 17,037,322
=============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
- ------------------------------------------------------------------------------
F-24
<PAGE>
<TABLE>
<CAPTION>
ENEX RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
(Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 246,650 $ 725,110
Current portion of long-term debt 145,000 850,000
Total current liabilities 391,650 1,575,110
COMMITMENTS AND
CONTINGENT LIABILITIES
TOTAL LIABILITIES 391,650 1,575,110
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
$5,000,000 shares authorized;
no shares issued
Common stock, $.05 par value;
10,000,000 shares authorized;
1,676,342 shares issued at March 31, 1996 and
1,642,859 shares issued at December 31, 1995 83,817 82,143
Additional paid-in capital 10,077,611 9,944,967
Retained earnings 3,741,159 7,041,773
Less cost of treasury stock;
302,186 shares at March 31, 1996 and
315,136 shares at December 31, 1995 (1,540,626) (1,606,671)
TOTAL STOCKHOLDERS' EQUITY 12,361,961 15,462,212
TOTAL $ 12,753,611 $ 17,037,322
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
ENEX RESOURCES CORPORATION
NOTES TO CONSOLIDATED BALANCE SHEETS
(Data subsequent to December 31, 1995 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General - Enex Resources Corporation (the "Company") acquires
interests in producing oil and gas properties and manages investment limited
partnerships. As of March 31, 1996, the Company served as managing general
partner for the 41 publicly offered limited partnerships of Enex Program I
Partners, L.P., Enex Oil & Gas Income Programs II, III, IV, V, VI, Enex Income
and Retirement Fund, Enex 88-89 Income and Retirement Fund, and Enex 90-91
Income and Retirement Fund (collectively, the "Partnerships"). The Partnerships
own $156 million, at cost, of proved oil and gas properties in which the Company
normally has a 10% interest as the general partner in addition to its
proportional interest as a limited partner of approximately 4% to 53%.
Accumulated depreciation and depletion for such oil and gas properties at March
31, 1996 was $141 million.
In addition to Partnership activities, the Company owns interests in
378 productive oil and gas wells for its own account, and is the operator of 161
wells. The total properties managed for its own account and the Partnerships
include interests in more than 12,000 producing wells in 14 states.
Principles of Consolidation - The accompanying consolidated balance
sheets include the accounts of the Company, its wholly-owned subsidiaries, ENEX
Securities Corporation and Gulf-Tex Maintenance Corporation and the Company's
pro-rata share of the assets and liabilities of the managed limited partnerships
in which it participates as the general partner. All intercompany balances and
transactions have been eliminated in consolidation.
Uses of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from these estimates.
Oil and Gas Properties - The Company uses the successful efforts
method of accounting for its oil and gas operations. Under this method, the
costs of all development wells are capitalized. The costs of unsuccessful
exploratory wells are charged to earnings. Capitalized costs are amortized on
the units-of- production method based on production and estimated total proved
reserves. The Company has not capitalized any internal costs into property.
Until 1996, ceiling tests were performed wherein total capitalized costs could
not exceed future undiscounted net revenues on a company-wide basis.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires certain assets to be reviewed for impairment whenever events or
circumstances indicate the carrying amount may not be recoverable. This standard
requires the evaluation of oil and gas assets on an individual property basis
versus a company-wide basis. In the first quarter of 1996, the Company
implemented SFAS 121 and recognized a non-cash impairment provision of
$3,581,603 for certain oil and gas properties and other assets.
Furniture, Fixtures and Other - The Company records expenditures for
furniture and fixtures at cost. Expenditures for improvements are capitalized.
Expenditures for maintenance and repairs are charged to operations as incurred.
The Company provides for depreciation of its furniture, fixtures and other
equipment using the straight-line method over an estimated useful life not to
exceed five years.
F-26
<PAGE>
Deferred Organization Expenses - The Company's pro rata share of the
organization costs of the managed limited partnerships is being amortized on a
straight-line basis over a five-year period.
Unaudited financial information - The financial information as of March 31,
1996 and for the three month periods ended March 31, 1996 and 1995 is unaudited;
however, such information reflects all adjustments (consisting soley of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of the results for the interim period.
Managed Limited Partnerships - The Company serves as the general partner to
the Partnerships and also participates as a limited partner to the extent of
limited partnership interests purchased directly by the Company.
The Company is entitled as general partner to 10% of the partnerships'
production revenues less 10% of partnership expenses, other than costs of
acquiring partnership properties. In most instances, at such time as the limited
partners receive distributions in total equal to their aggregate subscriptions,
the Company is entitled to 15% of such net revenues. However, upon consolidation
the Company has elected to forego this 5 percent increase in its share of
participating partnerships' revenue. The Company recognizes its share of these
net revenues as they are sold.
If, after certain time periods, the aggregate purchase price of the
interests in certain programs plus cumulative distributions to the limited
partners does not equal limited partner subscriptions (the "Deficiency"), the
general partner will forego its 10% share of such Program's net revenues. The
foregone net revenues will be allocated to the limited partners until such time
as no Deficiency exists. During 1995, the general partner's 10% share of Program
I and II net revenues, totaling $72,949, was allocated to the limited partners.
In addition to the above, the Company is reimbursed for direct expenditures
made on behalf of the partnership operations.
2. COSTS REIMBURSABLE BY MANAGED LIMITED PARTNERSHIPS
During the start-up phase of partnership operations, certain general and
administrative costs are incurred by the Company on behalf of the partnerships.
These start-up costs are allocated to the newly formed partnerships with
remaining unspent acquisition funds and are reimbursed to the Company over a
period generally not to exceed five years.
3. DEBT
The long-term debt at December 31, 1995 consisted of a $850,000 loan from a
bank under a $2.8 million revolving line of credit collaterized by substantially
all of the assets of the Company. At March 31, 1996, the bank loan balance was
$145,000. The bank loan bore interest at an average rate of 9.63% in 1995. The
bank loan bears interest at a rate of prime plus three-quarters of one percent
(3/4%) or an average rate of 9.29% and 9.63% in the first quarter of 1996 and
during 1995, respectively. Principal payments of $705,000 were made in the first
quarter of 1996. The debt was completely repaid in May, 1996.
4. NOTES RECEIVABLE FROM MANAGED LIMITED PARTNERSHIPS
On December 29, 1994, in order to partially finance the purchase of a
property acquisition Enex Oil & Gas Income Program VI, Series I, L.P. borrowed a
net $60,572 from the Company. The resulting note receivable bears interest at
the Company's borrowing rate of prime plus three-fourths of one percent, or a
weighted average of 9.76% during 1995 (9.25% at both December 31, 1994 and
1995.). Principal payments of $9,484 and $31,049 were received on the note
receivable in 1996 and 1995, respectively.
F-27
<PAGE>
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amount used for income tax purposes. The tax effects
of significant items comprising the Company's net deferred tax asset as of March
31, 1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
---------------- ------------------
<S> <C> <C>
Difference between tax and book net property basis $ 432,729 $ 4,613
Difference between basis in managed limited
partnerships for financial reporting purposes and
income tax purposes 4,308,259 3,796,403
Intangible drilling costs which remain capitalized
for financial reporting
purposes which were deducted
for federal income tax purposes (77,928) (74,483)
Net operating loss carryforward
(expires 2009-2010) 602,248 478,565
Timing difference from lawsuit contingency (50,683) (50,683)
Other, net 61,999 -
----------- ---------------
Gross deferred tax asset 5,276,624 4,154,415
Valuation allowance (4,601,592) (3,505,985)
------------ ---------------
Net deferred tax asset recognized $ 675,032 $ 648,430
============== ===============
</TABLE>
The valuation allowance reserves the net deferred tax asset due to
uncertainties inherent in the oil and gas market.
6. COMMON STOCK OPTIONS
The Company has an incentive stock option plan and a nonqualified
stock option plan, which authorize the issuance of options to purchase up to
362,000 shares of common stock to directors, officers and key employees. The
Company has also granted options not covered by a plan. The options expire at
various dates through 2003 and are exercisable at prices ranging from $3 - $8
per share. The exercise price of any options granted may not be less than the
fair market value of the Company's stock at the date of the grant. The following
table summarizes the Company's stock option activity for the years ended
December 31, 1995 and 1994 and the three months ended March 31, 1996.
<TABLE>
<CAPTION>
Three Months Year Ended December 31,
Ended
March 31, 1996 1995 1994
-------------- ----------------- -------------------
Number Average Number Average Number Average
of shares price of shares price of shares price
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 194,000 $ 4.81 209,000 $ 4.69 237,000 $ 4.52
Exercised (22,500) 4.36 (15,000) 3.10 (28,000) 3.26
------------------------------------------------------------------
Outstanding, end of year 171,500 $ 4.86 194,000 $ 4.81 209,000 $ 4.69
==================================================================
</TABLE>
F-28
<PAGE>
On May 19, 1992, the Company's shareholders approved the Enex
Resources Corporation Employee Stock Purchase Program (the "SPP"). All full-time
employees, officers and directors are eligible for participation in the SPP,
which provides for the monthly contribution of shares of the Company's common
stock equal to 50% of a participant's open market purchases of the Company's
common stock for the preceding month (the "Stock Contribution"). The Stock
Contribution is limited to a maximum of 2,500 shares per participant per SPP
year. Each Stock Contribution, although immediately vested, is held in escrow
for a six month holding period prior to its distribution to the participant.
This plan was discontinued in 1996.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which sets forth accounting and disclosure
requirements for stock based compensation arrangements. As allowed by SFAS 123,
the Company has elected an option which will have no effect on the Company's
financial condition or results of operations when it is implemented.
7. LEASE COMMITMENTS
The Company is the lessee under noncancelable operating leases for office space
and equipment. The following is a schedule of the Company's remaining future
rental requirements under the leases as of December 31, 1995:
1996 $ 213,558
1997 176,109
1998 13,368
1999 8,912
--------
Total payments required $ 411,947
--------
8. LITIGATION SETTLEMENTS
The Company and one of its managed limited partnerships, Enex
Program I Partners, L.P. ("Program I"), in which the Company owns general and
limited partnership interests, were named as parties to a lawsuit filed by Texas
Crude, Inc. ("Texas Crude"). Texas Crude sought to recover legal and other fees
totaling $600,000. In August 1993, a judgement was granted in favor of Texas
Crude for $414,203, plus interest by the 101st Judicial District Court of Texas.
During the third quarter of 1993 Program I accrued a liability for $504,350
related to this judgement, of which $243,274 was the Company's share.
The Company appealed the verdict and filed a counterclaim for funds
that were wrongfully withheld by Texas Crude. In December 1994, the Fifth
District Court of Appeals reversed the judgement of the trial court and rendered
judgement in favor of the Company and Program I. Accordingly, the contingent
liability, initially recognized in 1993, was reversed in 1994 and Program I
established a receivable for $254,588, of which the Company's share is $133,180.
Both Program I and Texas Crude have filed Motions for Rehearing, which have been
pending for more than a year. The accrued receivable balance at December 31,
1995 was $280,050, including $25,462 of additional interest earned during 1995.
F-29
<PAGE>
9. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is committed to offer to repurchase the limited
partners' interests in its managed limited partnerships formed under the
Programs (except for Programs I,V and VI) at annual intervals. The purchase
price is based primarily on reserve reports prepared by independent petroleum
engineers, reduced by a risk factor. During the first quarter of 1996 and the
year ended December 31, 1995 and 1994, the Company paid cash to repurchase
limited partner interests as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- -----------
<S> <C> <C> <C>
Program I $ 15,000 $ 43,409 $ 750,019
Program II 2,752 23,607 130,441
Program III 22,376 8,544 66,061
Program IV 13,701 7,847 98,351
Program V 1,657 13,875 63,730
Program VI 1,705 393 7,222
Income and Retirement Fund - 12,232 73,264
88-89 Income and Retirement Fund 6,938 5,987 43,022
90-91 Income and Retirement Fund - 10,653 39,267
-------- --------- -----------
TOTAL $ 64,129 $ 126,547 $ 1,271,377
======== ========= ===========
</TABLE>
As general partner, the Company is contingently liable for all
debts and actions of the managed limited partnerships. However, in management's
opinion, the existing assets of the limited partnerships are sufficient to
satisfy any such partnership indebtedness.
The Company has an employment agreement with its founder and
President, Gerald B. Eckley. The agreement, which was amended on May 19, 1992,
provides that Mr. Eckley will be paid a minimum salary of $240,000 per year for
a five year term. As long as Mr. Eckley is employed by the Company, the
agreement will be automatically extended every May 19th for an additional year.
The agreement provides for compensation continuation benefits in the event of
Mr. Eckley's death or disability. If Mr. Eckley terminates the agreement
following a change of control of the Company or because of a breach of the
material provisions of the agreement or because performance of his duties
becomes hazardous to his health, he will remain entitled to the full base
compensation then in effect as severance pay until the normal expiration of the
agreement.
F-30
<PAGE>
ENEX RESOURCES CORPORATION
SUPPLEMENTARY OIL AND GAS INFORMATION
Capitalized Costs
The following presents the Company's capitalized costs at December
31, 1995 relating to its oil and gas activities.:
Proved mineral interest and related equipment and facilities . . . $14,841,898
Accumulated depreciation, depletion and amortization . . . . . . . 5,319,460
Proved Oil and Gas Reserve Quantities (Unaudited)
The following presents an estimate of the Company's proved oil and
gas reserve quantities. Oil reserves are stated in barrels and natural gas in
thousand cubic feet (Mcf). All of the Company's reserves are located within the
United States.
<TABLE>
<CAPTION>
Oil Natural Gas
--------- -------------
(Barrels) (Mcf)
PROVED DEVELOPED AND UNDEVELOPED RESERVES
<S> <C> <C>
January 1, 1995 971,209 9,330,481
Revisions of previous estimates . . . . . . . (3,773) 806,043
Purchases of minerals in place . . . . . . . 33,552 774,475
Sales of minerals in place . . . . . . . . . (6,708) (371,884)
Production . . . . . . . . . . . . . . . . . (172,306) (1,341,540)
--------- -------------
December 31, 1995 821,974 9,197,575
========= =============
PROVED DEVELOPED RESERVES:
January 1, 1995 877,659 9,174,506
========= =============
December 31, 1995 723,934 9,034,234
========= =============
</TABLE>
F-31
<PAGE>
ENEX RESOURCES CORPORATION
SUPPLEMENTARY OIL AND GAS INFORMATION
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves at December 31, 1995 (Unaudited)
The following presents the Company's standardized measure of
discounted future net cash flows as of December 31:
<TABLE>
<CAPTION>
1995
---------------
<S> <C>
Future cash inflows $ 33,355,412
Future production and development costs (13,801,763)
---------------
Future net cash flows before income taxes 19,553,649
10% annual discount (7,157,636)
---------------
Discounted future net cash flows before
income taxes 12,396,013
Future income taxes, net of 10% annual
discount -
---------------
Standardized measure of future discounted
net cash flows of proved oil and gas
reserves $ 12,396,013
===============
</TABLE>
The future net cash flows were computed using year-end prices and
costs and year-end statutory tax rates that relate to proved oil and gas
reserves in which the Company has an interest.
In addition to the above presented oil and gas reserves, the
Company also has interests in certain gas processing plants and gas gathering
systems. The total estimated future production of plant products is 176,699
barrels. The discounted future net cash flows (net of estimated future income
taxes) relating to the Company's interests in these facilities are estimated to
be approximately $407,136.
This valuation procedure does not purport to represent the fair
market value of the Company's oil and gas properties. An estimate of fair market
value would also take into account, among other factors, anticipated changes in
future prices of oil and gas and related development and production costs and
the likelihood of future recoveries of oil and gas quantities different form the
current estimate of proved reserves.
F-32
<PAGE>
<TABLE>
<CAPTION>
TABLE 1 APPENDIX A
GENERAL INFORMATION REGARDING PARTNERSHIPS
Number of
Jurisdiction Investments Limited
Partnership Abbreviated of by Limited Partners at
Name Organization Partners 3/31/96
<S> <C> <C> <C>
Enex Program I Partners, L.P. 100 New Jersey $96,814,500 4,734
Enex Oil & Gas Income Program II-7, L.P. 207 Texas $4,434,757 443
Enex Oil & Gas Income Program II-8, L.P. 208 Texas $2,931,653 1,299
Enex Oil & Gas Income Program II-9, L.P. 209 Texas $1,554,262 1,236
Enex Oil & Gas Income Program II-10, L.P. 210 Texas $1,958,206 1,364
Enex Oil & Gas Income Program III- Series 1, L.P. 301 New Jersey $1,488,778 940
Enex Oil & Gas Income Program III- Series 2, L.P. 302 New Jersey $2,135,224 1,195
Enex Oil & Gas Income Program III- Series 3, L.P. 303 New Jersey $3,204,790 1,172
Enex Oil & Gas Income Program III- Series 4, L.P. 304 New Jersey $2,704,880 395
Enex Oil & Gas Income Program III- Series 5, L.P. 305 New Jersey $5,398,602 1,768
Enex Oil & Gas Income Program III- Series 6, L.P. 306 New Jersey $3,170,003 1,468
Enex Oil & Gas Income Program III- Series 7, L.P. 307 New Jersey $2,263,383 1,377
Enex Oil & Gas Income Program III- Series 8, L.P. 308 New Jersey $3,598,188 1,549
Enex Oil & Gas Income Program IV- Series 1, L.P. 401 New Jersey $3,236,182 1,363
Enex Oil & Gas Income Program IV- Series 2, L.P. 402 New Jersey $2,468,972 1,400
Enex Oil & Gas Income Program IV- Series 4, L.P. 404 New Jersey $1,260,210 431
Enex Oil & Gas Income Program IV- Series 5, L.P. 405 New Jersey $2,280,449 824
Enex Oil & Gas Income Program IV- Series 6, L.P. 406 New Jersey $2,162,887 723
Enex Oil & Gas Income Program IV- Series 7, L.P. 407 New Jersey $2,510,445 807
Enex Oil & Gas Income Program V- Series 1, L.P. 051 New Jersey $2,264,552 448
Enex Oil & Gas Income Program V- Series 2, L.P. 052 New Jersey $1,486,190 569
Enex Oil & Gas Income Program V- Series 3, L.P. 053 New Jersey $1,010,101 710
Enex Oil & Gas Income Program V- Series 4, L.P. 054 New Jersey $1,477,116 364
Enex Oil & Gas Income Program V- Series 5, L.P. 055 New Jersey $1,231,732 523
Enex Oil & Gas Income Program VI- Series 1, L.P. 601 New Jersey $1,010,380 427
Enex Income and Retirement Fund - Series 1, L.P. 501 New Jersey $1,367,780 189
Enex Income and Retirement Fund - Series 2, L.P. 502 New Jersey $1,441,909 152
Enex Income and Retirement Fund - Series 3, L.P. 503 New Jersey $1,493,792 143
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 525 New Jersey $1,150,169 208
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 526 New Jersey $1,033,402 204
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 527 New Jersey $1,544,485 250
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 531 New Jersey $1,487,600 278
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 532 New Jersey $1,010,101 218
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 533 New Jersey $1,087,546 228
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
NET REVENUES AND CASH DISTIBUTIONS TO LIMITED PARTNERS
Cumulative from inception through March 31, 1996
The following tables summarize for each of the partnerships the limited
partner's (including the General Partner with respect to limited partnerships
interests it owns) operating results through March 31, 1996 and during the three
months then ended.
Cumulative Cumulative
Cumulative Change in Cash Flow
Cumulative Cumulative Cumulative Cumulative Net Revenues Operating Provided by
Cumulative Operating Administrative Direct Interest Exp. From Assets & Operating Cumulative
Partnership* Revenues Costs Costs Costs & Other Costs Operations Liabilities Activities Distributions
- ----------- -------- ----- ----- ----- ------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $109,569,902 $30,958,658 $11,234,175 $2,129,393 $5,974,061 $59,273,615 $324,637 $59,598,252 $49,869,262
207 5,487,575 1,363,811 618,245 88,384 650 3,416,485 17,458 3,433,943 2,695,799
208 3,798,449 996,012 540,382 94,134 101 2,167,820 86,602 2,254,422 1,821,270
209 2,011,603 563,508 457,257 85,349 50 905,439 127,159 1,032,598 962,384
210 2,492,382 711,767 481,026 87,611 72 1,211,906 131,611 1,343,517 1,170,322
301 2,470,094 1,224,358 447,097 89,578 36,630 672,431 283,763 956,194 679,569
302 3,518,431 1,758,100 436,062 95,022 48,254 1,180,993 356,590 1,537,583 945,473
303 3,862,876 1,179,322 530,755 90,841 25,679 2,036,279 139,797 2,176,076 1,721,071
304 3,266,368 1,260,351 422,659 64,364 4,834 1,514,160 178,571 1,692,731 1,442,363
305 6,100,356 2,080,729 524,850 107,515 6,632 3,380,630 165,385 3,546,015 3,034,550
306 4,789,760 1,762,162 496,198 100,855 24,360 2,406,185 134,796 2,540,981 1,937,911
307 3,305,846 1,254,403 404,689 85,301 15,578 1,545,875 142,655 1,688,530 1,330,435
308 4,317,042 1,517,756 418,042 111,522 27,852 2,241,870 122,351 2,364,221 1,846,853
401 3,099,298 840,725 363,052 81,040 26,442 1,788,039 82,540 1,870,579 1,405,125
402 2,474,893 694,098 334,644 71,850 23,178 1,351,123 36,756 1,387,879 1,006,121
404 931,380 245,519 271,748 40,035 1,851 372,227 74,382 446,609 388,586
405 2,687,568 1,452,456 266,738 48,183 1,853 918,338 (1,211) 917,127 696,823
406 1,665,496 635,673 245,066 30,648 620 753,489 21,963 775,452 656,079
407 2,549,069 1,074,758 328,270 41,910 1,804 1,102,327 33,449 1,135,776 948,253
051 2,543,228 1,260,638 285,505 30,698 1,182 965,205 14,815 980,020 770,948
052 1,196,935 426,647 231,543 32,428 2,324 503,993 87,116 591,109 516,904
053 895,047 357,954 199,389 25,815 - 311,889 45,696 357,585 306,476
054 3,738,741 2,517,528 215,793 16,708 1,360 987,352 (58,233) 929,119 755,109
055 1,658,890 693,605 252,944 12,175 - 700,166 (42,184) 657,982 555,541
601 588,170 322,769 77,774 21,444 9,970 156,213 120,329 276,542 75,764
501 1,154,935 40,692 308,417 61,004 451 744,371 129,397 873,768 851,063
502 1,551,152 70,471 327,224 46,753 2,413 1,104,291 5,232 1,109,523 1,093,659
503 1,566,614 65,652 317,252 45,058 1,874 1,136,778 57,952 1,194,730 1,166,521
525 515,637 20,201 171,538 24,149 1,683 298,066 42,796 340,862 339,731
526 437,132 38,265 167,903 23,020 1,164 206,780 77,171 283,951 278,719
527 844,221 93,919 189,484 19,279 1,749 539,790 18,979 558,769 557,252
531 898,014 93,807 176,918 27,301 - 599,988 28,493 628,481 595,959
532 514,659 1 172,099 20,282 - 322,277 46,276 368,553 360,214
533 760,228 750 147,737 20,839 - 590,902 (72,511) 518,391 495,090
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
A-2
<PAGE>
<TABLE>
<CAPTION>
TABLE 2b
NET REVENUES AND CASH DISTIBUTIONS TO LIMITED PARTNERS
From January 1, 1996 through March 31, 1996
Interest Net Change in Cash Flow
Operat- Adminis- Exp. & Revenues Operating provided by
Part ing trative Direct Other From Assets & operating
ner Revenues Costs Costs Costs Costs OperationsLiabilities activities Distributions
ship*
<C> <C> <C> <C> <C> <C> <C> <C> <C>
100$852,156 $399,291 $224,603 $24,531 $0 $203,731 $220,971 $424,702 $382,158
207 114,362 24,617 11,171 2,472 0 76,102 (46,981) 29,121 19,366
208 87,546 18,844 9,761 1,821 0 57,120 (34,384) 22,736 15,267
209 52,179 11,233 7,913 1,275 0 31,758 (20,495) 11,263 6,813
210 65,790 14,162 8,618 1,460 0 41,550 (26,432) 15,118 9,506
301 33,755 12,410 6,034 1,038 0 14,273 (10,883) 3,390 0
302 48,321 17,802 7,091 1,226 0 22,202 (17,350) 4,852 0
303 80,921 20,916 7,787 1,669 0 50,549 (28,558) 21,991 14,593
304 29,847 22,215 5,641 720 0 1,271 (722) 549 0
305 83,269 53,256 9,661 1,537 0 18,815 (19,042) (227) 0
306 89,367 52,413 10,114 1,477 (590) 25,953 (35,727) (9,774) 0
307 62,346 37,073 8,392 1,292 (354) 15,943 (22,156) (6,213) 0
308 86,188 45,961 7,545 1,599 (1,268) 32,351 (53,667) (21,316) 0
401 54,042 19,750 5,766 353 (2,006) 30,179 (64,356) (34,177) 0
402 47,363 16,143 4,859 184 (1,681) 27,858 (55,188) (27,330) 0
404 25,564 6,101 4,496 887 0 14,080 (12,425) 1,655 0
405 67,160 37,847 4,526 742 0 24,045 (17,441) 6,604 5,813
406 38,143 16,423 4,798 181 0 16,741 (11,345) 5,396 5,397
407 79,447 42,600 9,639 494 (959) 27,673 38,977 66,650 15,496
051 86,428 53,580 8,929 553 (842) 24,208 27,458 51,666 8,508
052 38,448 17,685 6,782 519 (538) 14,000 18 14,018 5,132
053 36,191 16,614 6,420 466 0 12,691 (132) 12,559 4,168
054 211,460 129,002 10,260 227 0 71,971 (22,022) 49,949 49,949
055 96,858 46,800 13,342 167 0 36,549 (7,244) 29,305 40,564
601 83,918 46,081 6,311 1,350 304 29,872 (11,079) 18,793 2,677
501 14,449 603 6,750 23 0 7,073 (7,073) 0 0
502 19,065 1,090 7,446 (96) 0 10,625 (10,625) 0 0
503 25,558 1,134 7,686 (41) 0 16,779 (16,779) 0 0
525 9,914 300 2,743 346 0 6,525 (6,524) 1 0
526 10,984 696 2,803 323 0 7,162 (7,162) 0 0
527 28,264 2,153 3,739 237 0 22,135 (11,227) 10,908 10,908
531 34,816 2,348 3,220 (104) 0 29,352 (15,335) 14,017 14,017
532 19,551 0 5,761 (18) 0 13,808 (7,654) 6,154 6,728
533 61,719 0 9,900 233 0 51,586 (32,519) 19,067 19,067
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
A-3
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
NET REVENUES AND CASH DISTIBUTIONS TO GENERAL PARTNER
Cumulative from inception through March 31, 1996
The following tables summarize for each of the partnerships, the general partner's operating reults through
March 31, 1996 and during the three months then ended.
Cumula- Cumulative Cumulative
tive Cumulative Change in Cash Flow
Part Cumulative Admini- Cumulative Cumulative NetRevenues Operating Provided by
nerCumulative Operating strative Direct Interest Exp. From Assets & Operating Cumulative
ship*Revenues Costs Costs Costs & Other Costs Operations Liabilities Activities Distributions
- ---- -------- ----- ----- ----- ------------- ---------- ----------- ---------- -------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $11,041,533 $3,130,240 $1,085,076 $204,828 $661,258 $5,960,131 ($997,542) $4,962,589 $4,960,474
207 408,613 115,059 58,302 7,928 (1,044) 228,368 (37,630) 190,738 190,209
208 289,909 82,742 51,190 8,081 (817) 148,713 (26,277) 122,436 121,699
209 155,874 46,082 43,713 7,201 (15,758) 74,636 (28,069) 46,567 46,360
210 196,614 58,092 45,444 7,326 (10,455) 96,207 (27,800) 68,407 68,028
301 261,818 136,040 49,678 9,953 (14,460) 80,607 (45,610) 34,997 34,973
302 375,830 195,344 48,451 10,558 (161) 121,638 (51,834) 69,804 69,764
303 417,471 131,036 58,973 10,093 316 217,053 (36,153) 180,900 180,792
304 340,321 140,039 46,962 7,152 476 145,692 (11,476) 134,216 134,612
305 633,512 231,192 58,317 11,946 737 331,320 (29,568) 301,752 306,610
306 501,869 195,796 55,133 11,206 2,707 237,027 (57,882) 179,145 185,283
307 355,239 139,379 44,966 9,478 1,731 159,685 (32,883) 126,802 131,166
308 459,752 168,640 46,449 12,391 3,095 229,177 (47,604) 181,573 183,796
401 327,985 93,414 40,339 9,004 2,938 182,290 (45,316) 136,974 137,213
402 265,656 77,123 37,183 7,983 2,575 140,792 (37,079) 103,713 103,916
404 98,452 27,280 30,194 4,448 (1,825) 38,355 (7,278) 31,077 30,992
405 293,364 161,385 29,638 5,354 (139) 97,126 (27,810) 69,316 69,275
406 183,460 70,631 27,230 3,405 69 82,125 (14,839) 67,286 67,292
407 269,129 119,417 36,474 4,657 200 108,381 (20,051) 88,330 88,440
051 274,214 140,071 31,723 3,411 131 98,878 (22,623) 76,255 76,348
052 129,207 47,405 25,727 3,603 258 52,214 (4,779) 47,435 47,491
053 99,338 39,773 22,154 2,868 - 34,543 (4,585) 29,958 29,956
054 412,018 279,725 23,977 1,857 151 106,308 (27,427) 78,881 78,879
055 182,215 77,068 28,105 1,353 - 75,689 (17,892) 57,797 57,799
601 64,337 35,863 8,642 2,383 1,108 16,341 (13,770) 2,571 4,155
501 116,945 4,521 34,269 6,778 4,135 67,242 (10,148) 57,094 65,925
502 160,267 7,830 36,358 5,195 4,019 106,865 (8,792) 98,073 104,541
503 164,064 7,295 35,250 5,006 (98) 116,611 (4,986) 111,625 111,624
525 51,090 2,245 19,060 2,683 (1,143) 28,245 (5,783) 22,462 22,462
526 43,358 4,252 18,656 2,558 (341) 18,233 (5,517) 12,716 12,717
527 85,033 10,436 21,054 2,142 194 51,207 (8,541) 42,666 42,667
531 95,832 10,423 19,658 3,033 - 62,718 (8,149) 54,569 54,568
532 55,692 0 19,122 2,254 - 34,316 (2,681) 31,635 31,635
533 81,729 83 16,415 2,315 - 62,916 (13,402) 49,514 49,514
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
A-4
<PAGE>
<TABLE>
<CAPTION>
TABLE 3b
NET REVENUES AND CASH DISTIBUTIONS TO GENERAL PARTNER
From January 1, 1996 through March 31, 1996
Interest Net Change in Cash Flow
Part- Admini- Exp. & Revenues Operating Provided by
ner- Operating stative Direct Other From Assets & Operating Distri-
ship*Revenues Costs Costs Costs Costs Operations Liabilities Activities butions
100 - - - - - - - - -
207 - - - - - - - - -
208 - - - - - - - - -
209 - - - - - - - - -
210 - - - - - - - - -
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
301 $3,751 $1,378 $670 $115 - $1,588 ($1,588) - -
302 5,369 1,978 788 136 - 2,467 (2,465) - -
303 8,991 2,324 865 185 - 5,617 (3,997) $1,620 $1,620
304 3,316 2,468 627 80 - 141 (141) 0 0
305 9,252 5,917 1,074 171 - 2,090 (2,091) (1) 0
306 9,930 5,824 1,124 164 (66) 2,884 (2,885) (1) 0
307 6,927 4,121 932 144 (39) 1,769 (1,768) 1 0
308 9,577 5,108 838 178 (141) 3,594 (3,593) 1 0
401 6,005 2,196 641 39 (223) 3,352 (3,352) 0 0
402 5,263 1,794 540 19 (187) 3,097 (3,096) 1 0
404 2,841 678 500 97 - 1,566 (1,564) 2 0
405 7,462 4,206 503 81 - 2,672 (2,024) 648 648
406 4,238 1,825 533 19 - 1,861 (1,261) 600 600
407 8,828 4,733 1,071 54 (107) 3,077 (1,355) 1,722 1,722
051 9,603 5,954 992 62 (94) 2,689 (1,744) 945 945
052 4,272 1,966 754 58 (60) 1,554 (984) 570 570
053 4,021 1,846 713 52 - 1,410 (946) 464 464
054 23,496 14,334 1,140 25 - 7,997 (2,448) 5,549 5,549
055 10,947 5,200 1,482 19 - 4,246 261 4,507 4,507
601 9,324 5,121 701 150 34 3,318 (3,020) 298 298
501 1,605 67 750 3 - 785 (785) 0 0
502 2,118 121 827 (11) - 1,181 (1,180) 1 0
503 2,840 126 854 (4) - 1,864 (1,864) 0 0
525 1,102 34 305 38 - 725 (725) 0 0
526 1,220 77 312 36 - 795 (795) 0 0
527 3,141 239 415 26 - 2,461 (1,247) 1,214 1,214
531 3,869 261 358 (11) - 3,261 (1,704) 1,557 1,557
532 2,172 - 1,289 (112) - 995 (848) 147 750
533 6,858 - 1,100 26 - 5,732 (3,613) 2,119 2,119
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
A-5
<PAGE>
<TABLE>
<CAPTION>
TABLE 4
ESTIMATED FUTURE NET REVENUES AND PRESENT VALUE OF
FUTURE NET REVENUES TO LIMITED PARTNERS AS OF DECEMBER 31, 1995
Estimated Future Net Revenues(1) Present Value of Future Net Revenues
--------------------------------- ------------------------------------
Proved Total Proved Total
Developed Reserves Proved Reserves Developed Reserves Proved Reserves
------------------ ---------------- -----------------------------------
Part- Per $500 Per $500 Per $500 Per $500 Weighted
ner- Invest- Invest- Invest- Invest- Average Prices
ship* Total ment Total ment Total ment Total ment Oil Gas
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100$11,526,471 $60 $11,526,471 $60 $6,727,191 $35 $6,727,191 $35 $19.09 $2.10
207 1,914,856 216 1,914,856 216 1,198,895 135 1,198,895 135 19.00 2.05
208 1,456,849 248 1,456,849 248 917,771 157 917,771 157 19.00 2.05
209 873,665 281 873,665 281 547,004 176 547,004 176 19.00 2.05
210 1,101,578 281 1,101,578 281 689,700 176 689,700 176 19.00 2.05
301 598,708 201 598,708 201 374,852 126 374,852 126 19.00 2.05
302 857,302 201 857,302 201 536,758 126 536,758 126 19.00 2.05
303 1,301,771 203 1,301,771 203 817,300 128 817,300 128 19.00 2.05
304 918,071 170 918,071 170 360,897 67 360,897 67 13.27(2) 2.24
305 432,737 40 432,737 40 330,920 31 330,920 31 12.84(2) 1.99
306 542,442 86 542,442 86 415,387 66 415,387 66 14.07(2) 2.03
307 370,395 82 370,395 82 283,617 63 283,617 63 14.09(2) 2.03
308 491,283 68 491,283 68 382,177 53 382,177 53 12.38(2) 2.07
401 369,104 57 430,800 67 293,508 45 341,720 53 19.01 2.14
402 273,091 55 273,091 55 218,928 44 218,928 44 19.00 2.14
404 344,016 137 502,662 199 222,867 88 346,842 138 19.02 2.32
405 455,809 100 455,809 100 340,767 75 340,767 75 19.00 2.07
406 292,228 68 292,228 68 231,462 54 231,462 54 19.00 2.10
407 536,384 107 536,384 107 375,351 75 375,351 75 18.98 1.32
051 532,121 117 532,121 117 367,528 81 367,528 81 18.97 1.41
052 376,299 127 376,299 127 256,855 86 256,855 86 18.95 1.56
053 355,394 176 355,394 176 242,586 120 242,586 120 18.95 1.56
054 1,989,191 673 1,989,191 673 1,139,882 386 1,139,882 386 19.00 2.23
055 1,039,062 422 1,173,879 477 803,302 326 897,291 364 19.00 -
601 1,026,677 508 1,148,999 569 695,025 344 770,729 382 19.00 2.05
501 737,845 270 737,845 270 340,238 124 340,238 124 19.14 2.19
502 904,659 314 904,659 314 410,565 142 410,565 142 19.14 2.18
503 499,662 167 499,662 167 281,305 94 281,305 94 19.14 2.12
525 177,770 77 177,770 77 123,933 54 123,933 54 19.00 2.07
526 276,121 134 276,121 134 164,369 80 164,369 80 19.00 2.05
527 817,202 269 817,202 265 445,309 144 445,309 144 19.00 2.05
531 983,928 331 983,928 331 543,143 183 543,143 183 18.98 2.01
532 353,304 175 353,304 175 241,158 119 241,158 119 18.95 1.56
533 1,098,419 505 1,098,419 505 691,389 318 691,389 318 19.00 -
--------- ---------- ---------- ----------
Totals$35,824,414 $36,301,895 $22,011,939 $22,353,819
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(1) The estimated future net revenues were calculated using the price for oil
and gas as of January 1, 1996, applied to the estimate of future reserves.
Revenue from properties not currently producing were included as of the time the
properties were expected to be placed in production, which may occur either
earlier or later than anticipated. Current operating costs, transportation
costs, production and ad valorem taxes and future development and workover costs
(based on current costs) have been deducted in arriving at the estimated future
net revenues. No deduction has been made for depletion, depreciation or income
taxes. In addition, indirect costs such as interest expense and general
corporate overhead have not been considered. While it may reasonably be
anticipated that the prices received from the sale of production may be higher
or lower than the prices used in the estimates above, and the operating and
other costs relating to such production may also increase or decrease in
relation to existing levels, such changes in prices and costs have been omitted
from consideration in making these evaluations in accordance with rules adopted
by the Securities and Exchange Commission.
(2) Price is lower than expected due to lower prices received for sour oil from
the Corkscrew acquisition.
A-6
<PAGE>
<TABLE>
<CAPTION>
TABLE 5
ESTIMATED FUTURE NET REVENUES AND PRESENT VALUE OF
FUTURE NET REVENUES TO GENERAL PARTNER OF DECEMBER 31, 1995
Part- Estimated Future Net Revenues(1)Present Value of Future Net Revenues
ner- Proved Developed Total Proved Proved Developed Total Proved
ship* Reserves Reserves Reserves Reserves Weighted
Average Prices
<C> <C> <C> <C> <C> <C> <C>
100 - - - - - -
207 - - - - - -
208 - - - - - -
209 - - - - - -
210 - - - - - -
301 $66,523 $66,523 $41,650 $41,650 $19.00 $2.05
302 95,255 95,255 59,639 59,639 19.00 2.05
303 144,641 144,641 90,811 90,811 19.00 2.05
304 102,007 102,007 40,099 40,099 13.27(2)2.24
305 48,081 48,081 36,768 36,768 12.84(2)1.99
306 60,271 60,271 46,154 46,154 14.07(2)2.03
307 41,155 41,155 31,513 31,513 14.09(2)2.03
308 54,587 54,587 42,464 42,464 12.38(2)2.07
401 41,011 47,866 32,612 37,968 19.01 2.14
402 30,343 30,343 24,325 24,325 19.00 2.14
404 38,224 55,851 24,763 38,538 19.02 2.32
405 50,645 50,645 37,863 37,863 19.00 2.07
406 32,469 32,469 25,718 25,718 19.00 2.10
407 59,598 59,598 41,705 41,705 18.98 1.32
051 59,124 59,124 40,836 40,836 18.97 1.41
052 41,811 41,811 28,539 28,539 18.95 1.56
053 39,488 39,488 26,954 26,954 18.95 1.56
054 221,021 221,021 126,653 126,653 19.00 2.23
055 115,451 130,431 89,255 99,699 19.00 -
601 114,075 127,666 77,225 85,636 19.00 2.05
501 81,982 81,982 37,804 37,804 19.14 2.19
502 100,517 100,517 45,618 45,618 19.14 2.18
503 55,518 55,518 31,256 31,256 19.14 2.12
525 19,752 19,752 13,770 13,770 19.00 2.07
526 30,680 30,680 18,263 18,263 19.00 2.05
527 90,800 90,800 49,478 49,478 19.00 2.05
531 109,325 109,325 60,349 60,349 18.98 2.01
532 39,256 39,256 26,795 26,795 18.95 1.56
533 122,046 122,046 76,821 76,821 19.00 -
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(1) The estimated future net revenues were calculated using the price for oil
and gas as of January 1, 1996, applied to the estimate of future reserves.
Revenue from properties not currently producing were included as of the time the
properties were expected to be placed in production, which may occur either
earlier or later than anticipated. Current operating costs, transportation
costs, production and ad valorem taxes and future development and workover costs
(based on current costs) have been deducted in arriving at the estimated future
net revenues. No deduction has been made for depletion, depreciation or income
taxes. In addition, indirect costs such as interest expense and general
corporate overhead have not been considered. While it may reasonably be
anticipated that the prices received from the sale of production may be higher
or lower than the prices used in the estimates above, and the operating and
other costs relating to such production may also increase or decrease in
relation to existing levels, such changes in prices and costs have been omitted
from consideration in making these evaluations in accordance with rules adopted
by the Securities and Exchange Commission.
(2) Price is lower than expected due to lower prices received for sour oil from
the Corkscrew acquisition.
<PAGE>
<TABLE>
<CAPTION>
TABLE 6
PROVED RESERVES ATTRIBUTABLE TO
LIMITED PARTNERS AS OF DECEMBER 31, 1995
OIL (BBLS) GAS (MCF)
Proved Total Proved Total
Part- Developed Reserves Proved Reserves Developed Reserves Proved Reserves
ner- Per $500 Per $500 Per $500 Per $500
ship* BBLS Investment BBLS Investment MCF Investment MCF Investment
<C> <C> <C> <C> <C> <C> <C> <C> <C>
100 513,472 3 513,472 3 5,074,789 26 5,074,789 26
207 124,035 14 124,035 14 164,350 19 164,350 19
208 94,950 16 94,950 16 125,812 21 125,812 21
209 56,592 18 56,592 18 74,986 24 74,986 24
210 71,355 18 71,355 18 94,547 24 94,547 24
301 38,781 13 38,781 13 51,386 17 51,386 17
302 55,531 13 55,531 13 73,581 17 73,581 17
303 84,617 13 84,617 13 110,973 17 110,973 17
304 24,743 5 24,743 5 338,372 63 338,372 63
305 69,919 6 69,919 6 89,457 8 89,457 8
306 61,091 10 61,091 10 177,277 28 177,277 28
307 43,875 10 43,875 10 113,580 25 113,580 25
308 52,013 7 52,013 7 187,337 26 187,337 26
401 10,205 2 10,205 2 189,981 29 216,448 33
402 7,277 1 7,277 1 148,115 30 148,115 30
404 22,232 9 23,641 9 33,012 13 101,069 40
405 23,927 5 23,927 5 203,479 45 203,479 45
406 15,073 3 15,073 3 145,239 34 145,239 34
407 43,010 9 43,010 9 468,070 93 468,070 93
051 30,966 7 30,966 7 416,172 92 416,172 92
052 12,493 4 12,493 4 247,327 83 247,327 83
053 11,799 6 11,799 6 233,586 116 233,586 116
054 168,140 57 168,140 57 589,446 200 589,446 200
055 91,929 37 105,052 43 - - - -
601 91,530 45 109,233 54 65,606 32 65,606 32
501 10,819 4 10,819 4 284,405 104 284,405 104
502 10,665 4 10,665 4 368,730 128 368,730 128
503 4,039 1 4,039 1 236,806 79 236,806 79
525 5,480 2 5,480 2 87,105 38 87,105 38
526 3,078 1 3,078 1 126,624 61 126,624 61
527 3,393 1 3,393 1 328,843 106 328,843 106
531 5,670 2 5,670 2 410,562 138 410,562 138
532 11,729 6 11,729 6 232,212 115 232,212 115
533 198,031 91 198,031 91 - - - -
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
A-8
<PAGE>
<TABLE>
<CAPTION>
TABLE 7
PROVED RESERVES ATTRIBUTABLE TO
GENERAL PARTNER AS OF DECEMBER 31, 1995
OIL (BBLS) GAS (MCF)
Part- Proved Total Proved Total
ner- Developed Proved Developed Proved
ship* Reserves Reserves Reserves Reserves
<C> <C> <C> <C> <C>
100 0 0 0 0
207 0 0 0 0
208 0 0 0 0
209 0 0 0 0
210 0 0 0 0
301 4,309 4,309 5,709 5,709
302 6,170 6,170 8,175 8,175
303 9,401 9,401 12,330 12,330
304 2,749 2,749 37,596 37,596
305 7,768 7,768 9,939 9,939
306 6,787 6,787 19,697 19,697
307 4,875 4,875 12,620 12,620
308 5,779 5,779 20,815 20,815
401 1,133 1,194 21,109 24,049
402 808 808 16,457 16,457
404 2,470 2,626 3,668 11,229
405 2,658 2,658 22,608 22,608
406 1,674 1,674 16,137 16,137
407 4,778 4,778 52,007 52,007
051 3,440 3,440 46,241 46,241
052 1,388 1,388 27,480 27,480
053 1,311 1,311 25,954 25,954
054 18,682 18,682 65,494 65,494
055 10,214 11,672 - -
601 10,170 12,137 7,289 7,289
501 1,202 1,202 31,600 31,600
502 1,185 1,185 40,970 40,970
503 448 448 26,311 26,311
525 608 608 9,678 9,678
526 342 342 14,069 14,069
527 377 377 36,538 36,538
531 630 630 45,618 45,618
532 1,303 1,303 25,801 25,801
533 22,003 22,003 - -
Totals 134,662 138,304 661,910 672,411
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
A-9
<PAGE>
<TABLE>
<CAPTION>
TABLE 8
OIL AND GAS PRODUCTION
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996
OIL (Bbls) GAS (Mcf)-
Part- For the year ended For the Three For the year ended For the Three
ner- December 31, Months Ended Ended December 31, Months Ended
ship* 1994 1995 March 31, 1996 1994 1995 March 31, 1996
<C> <C> <C> <C> <C> <C> <C>
100 111,318 96,456 23,323 956,219 936,419 199,873
207 18,876 19,711 5,371 22,710 26,849 8,851
208 14,453 15,089 4,112 17,389 20,553 6,775
209 8,612 8,993 2,451 10,362 12,250 4,038
210 10,863 11,339 3,090 13,069 15,445 5,092
301 7,401 6,848 1,602 7,888 9,327 3,074
302 10,609 9,805 2,292 11,302 13,356 4,402
303 14,363 15,399 4,117 17,038 20,143 6,640
304 8,246 6,545 1,697 14,419 5,502 1,146
305 25,352 19,400 5,655 38,971 32,430 8,280
306 20,880 16,363 4,730 76,433 58,340 16,333
307 15,033 11,815 3,396 49,066 38,306 10,487
308 16,625 12,792 4,302 81,701 57,504 17,982
401 6,130 4,946 1,303 87,908 57,674 18,699
402 5,015 3,927 1,251 66,587 44,640 14,733
404 4,909 5,036 1,170 16,193 10,013 2,947
405 10,003 10,095 1,640 75,058 59,073 11,520
406 7,748 7,305 1,194 56,385 44,890 9,096
407 14,426 13,267 3,288 99,209 100,732 19,504
051 12,494 11,222 2,869 84,952 81,273 15,333
052 6,821 6,058 1,622 47,741 40,544 7,192
053 6,431 5,701 1,532 32,908 31,502 6,726
054 27,533 25,492 6,578 65,918 72,377 17,136
055 32,021 27,711 5,761 - - -
601(1) 13,563 31,075 4,621 5,904 22,210 5,676
501 3,935 3,988 488 27,575 18,868 5,644
502 1,500 2,249 294 56,019 34,625 10,364
503 1,448 915 368 67,094 44,632 14,302
525 2,952 2,419 472 28,017 22,485 4,582
526 2,093 1,810 340 30,065 24,478 5,306
527 2,794 2,638 560 57,479 49,000 12,214
531 4,004 3,751 861 69,549 59,836 14,834
532 6,039 5,409 1,474 31,863 30,502 6,512
533 33,561 30,330 7,937 - - -
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(1) Program VI - Series 1 was formed on April 29, 1994.
A-10
<PAGE>
<TABLE>
<CAPTION>
TABLE 9
AVERAGE SALES PRICES AND PRODUCTION COSTS
FOR THE TWO YEARS ENDED DECEMBER 31, 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1996
AVERAGE PRODUCTION COST
Average Oil Sales Price (per bbl) Average Gas Sales Price (per mcf) Average Production Cost (per BOE)(1)
For the year ended For the Three For the year ended For the Three For the year ended For the Three
December 31, Months Ended Ended December 31, Months Ended December 31, Months Ended
Partnership* 1994 1995 March 31, 1996 1994 1995 March 31, 1996 1994 1995 March 31, 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $14.73 $16.24 $18.18 $2.01 $1.71 $2.56 $4.24 $5.04 $4.24
207 15.22 15.67 18.34 1.76 1.60 1.98 4.38 4.91 3.49
208 15.21 15.67 18.34 1.76 1.60 1.98 4.38 4.91 3.49
209 15.22 15.67 18.34 1.76 1.60 1.98 4.27 4.91 3.49
210 15.22 15.67 18.34 1.76 1.60 1.98 4.38 4.91 3.49
301 14.31 15.67 20.07 1.77 1.60 1.98 9.36 5.75 6.40
302 14.31 15.67 20.08 1.76 1.60 1.98 9.34 5.75 6.42
303 (2) 17.02 16.53 18.98 1.77 1.60 1.98 5.51 5.67 4.34
304 (2) 14.18 17.65 13.90 2.86 2.30 2.34 8.41 13.16 13.07
305 11.97 13.42 13.12 1.82 1.61 2.21 6.53 8.41 8.41
306 12.43 13.95 13.94 1.83 1.57 2.04 5.99 7.70 7.81
307 12.45 13.98 13.96 1.83 1.59 2.08 6.12 7.77 8.00
308 10.96 12.52 12.83 2.13 1.99 2.25 6.20 7.83 6.99
401 15.52 16.75 18.48 1.87 1.64 1.92 5.55 6.80 4.96
402 15.71 16.99 18.27 1.89 1.66 2.01 5.76 7.42 4.83
404 15.85 16.30 18.42 2.17 2.01 2.42 4.19 4.59 4.00
405 (2) 17.02 19.04 21.20 2.98 2.58 3.47 8.87 9.07 11.79
406 15.64 16.78 18.48 2.00 1.77 2.23 5.02 5.28 6.73
407 15.12 16.32 18.12 1.52 1.25 1.47 7.35 6.18 7.27
051 (2) 17.04 20.61 20.81 2.20 1.83 2.38 10.10 8.66 11.07
052 14.78 16.03 17.65 1.74 1.44 1.96 6.09 5.59 7.05
053 14.78 16.03 17.64 1.69 1.42 1.96 6.43 5.44 7.04
054 (2) 30.22 30.56 29.42 1.95 1.64 2.41 17.20 16.57 15.19
055 15.57 16.99 18.68 - - - 6.28 7.70 9.02
601 16.52 16.45 18.55 0.70 0.96 1.46 10.38 8.12 8.22
501 (3) 9.38 9.03 9.40 2.05 2.01 2.03 0.42 0.37 0.46
502 (3) 10.32 8.88 11.75 2.33 1.64 1.71 0.56 0.62 0.59
503 (3) 13.16 14.70 15.69 2.16 1.23 1.58 0.47 0.61 0.45
525 (3) 11.73 11.43 12.77 1.08 0.92 1.09 0.29 0.38 0.27
526 (3) 11.40 10.24 10.69 1.40 1.20 1.57 0.74 0.99 0.63
527 11.85 12.18 18.23 1.81 1.52 1.97 1.31 1.74 0.92
531 (3) 11.54 11.15 14.14 1.70 1.41 1.85 1.12 1.50 0.78
532 (3) 11.12 8.30 12.86 0.30 0.21 0.42 - - -
533 (3) 3.79 5.31 8.64 - - - - - -
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
1) Average production costs are reflected per barrel of oil equivalent or BOE
using a ratio of 6 MCF to one barrel of oil.
2) This partnership pays a net profits royalty. The average oil and gas prices
and production costs per equivalent barrel are higher than average market
prices and costs due to the payment of net profits royalties. The payment
of such royalties has no impact on the partnership's net revenues or cash
flows.
3) This partnership receives a net profits royalty. The average oil and gas
prices and production costs are lower than the average market prices and
costs due to the receipt of net profits royalties. The receipt of such
royalties has no impact on the partnership's net revenues or cash flows.
A-11
<PAGE>
<TABLE>
<CAPTION>
TABLE 10
GROSS AND NET PRODUCTIVE ACREAGE
AND UNDEVELOPED ACREAGE (3)
Developed Developed
Working Interest (1) Royalty Interest
------------------------ ----------------------
Gross Net Gross Net
PARTNERSHIP Acres (2) Acres Acres (2) Acres
---------------------- -----------------------
<S> <C> <C> <C> <C>
Enex Program I Partners, L.P. 27,588 1,686.01 61,079 1991.65
Enex Oil & Gas Income Program II-7, L.P. 279,940 177.23 475,962 288.98
Enex Oil & Gas Income Program II-8, L.P. 279,940 135.67 475,962 221.22
Enex Oil & Gas Income Program II-9, L.P. 279,940 80.86 475,962 131.85
Enex Oil & Gas Income Program II-10, L.P. 279,940 101.96 475,962 166.25
Enex Oil & Gas Income Program III- Series 1, L.P. 279,940 61.57 475,962 100.39
Enex Oil & Gas Income Program III- Series 2, L.P. 279,940 88.17 474,410 143.76
Enex Oil & Gas Income Program III- Series 3, L.P. 280,700 159.27 475,962 216.81
Enex Oil & Gas Income Program III- Series 4, L.P. 3,847 85.32 794 5.09
Enex Oil & Gas Income Program III- Series 5, L.P. 12,852 1,210.69 80 1.00
Enex Oil & Gas Income Program III- Series 6, L.P. 14,532 1,590.73 1,120 3.84
Enex Oil & Gas Income Program III- Series 7, L.P. 14,532 1,113.73 1,120 2.06
Enex Oil & Gas Income Program III- Series 8, L.P. 14,532 944.18 1,120 8.14
Enex Oil & Gas Income Program IV- Series 1, L.P. 5,584 570.84 643 11.14
Enex Oil & Gas Income Program IV- Series 2, L.P. 2,758 472.30 1,120 8.90
Enex Oil & Gas Income Program IV- Series 4, L.P. 281,006 43.91 475,962 49.10
Enex Oil & Gas Income Program IV- Series 5, L.P. 281,012 365.62 475,962 23.37
Enex Oil & Gas Income Program IV- Series 6, L.P. 1,072 259.36 - -
Enex Oil & Gas Income Program IV- Series 7, L.P. 27,034 548.88 1,662 1.22
Enex Oil & Gas Income Program V- Series 1, L.P. 26,794 509.03 1,662 1.40
Enex Oil & Gas Income Program V- Series 2, L.P. 26,474 327.45 1,662 1.10
Enex Oil & Gas Income Program V- Series 3, L.P. 25,994 248.26 1,662 1.04
Enex Oil & Gas Income Program V- Series 4, L.P. 5,791 1,398.80 320 0.10
Enex Oil & Gas Income Program V- Series 5, L.P. 1,791 1,160.14 1,079 41.13
Enex Oil & Gas Income Program VI- Series 1, L.P. 280,219 167.35 475,991 128.50
Enex Income and Retirement Fund - Series 1, L.P. - - 6,161 70.76
Enex Income and Retirement Fund - Series 2, L.P. - - 10,933 139.62
Enex Income and Retirement Fund - Series 3, L.P. - - 54,603 202.13
Enex 88-89 Income and Retirement Fund - Series 5, L.P. - - 10,620 119.23
Enex 88-89 Income and Retirement Fund - Series 6, L.P. - - 10,430 94.81
Enex 88-89 Income and Retirement Fund - Series 7, L.P. - - 9,548 73.28
Enex 90-91 Income and Retirement Fund - Series 1, L.P. - - 36,404 113.65
Enex 90-91 Income and Retirement Fund - Series 2, L.P. - - 27,656 247.84
Enex 90-91 Income and Retirement Fund - Series 3, L.P. - - 4,311 1496.78
--------- --------- --------- ---------
Totals (4) 370,079 13,507.33 558,154 6,106.14
========= ========= ========= =========
</TABLE>
See accompanying notes to Table 10 at A-13.
A-12
<PAGE>
NOTES TO TABLE 10 - ACREAGE SUMMARY TABLE
(1) Developed acres are acres spaced or assigned to productive wells.
(2) A gross acre is an acre in which an interest is owned. The number of gross
acres is the total number of acres in which such interest is owned. A net
working interest acre is deemed to exist when the sum of fractional
ownership of working interests owned in gross acres equals one. The number
of net working working interest acres is the sum of fractional working
interests owned in gross acres expressed as whole numbers and fractions
thereof. A net royalty acre is deemed to exist when the sum of fractional
ownership of royalty interests owned in gross acres equals one. The number
of net royalty acres is the sum of the fractional royalty interest owned in
gross acres expressed as whole numbers and fractions thereof.
(3) Undeveloped acres are those lease acres on which wells have not been
drilled or completed to a point that permits the production of commercial
quantities of oil and gas, regardless of whether such acreage contains
proved reserves. Enex Program I Partners, L.P. owns 16,400 Gross
Undeveloped Royalty Acres and 780.90 Net Undeveloped Royalty Acres. No
other limited partership owns any undeveloped acreage.
(4) Totals for gross acres have been reduced to adjust for ownership by more
than one Partnership.
A-13
<PAGE>
<TABLE>
<CAPTION>
TABLE 11
GROSS AND NET PRODUCTIVE OIL AND GAS WELLS
Productive Oil Wells (1) Productive Gas Wells (1)
---------------------------- --------------------------
Net Working Net Net Working Net
Gross Interest Royalty Gross Interest Royalty
PARTNERSHIP Wells Wells Wells Wells Wells Wells
------- ------------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Enex Program I Partners, L.P. 131 9.181 0.545 562 3.759 16.978
Enex Oil & Gas Income Program II-7, L.P. 10,725 4.874 1.375 176 0.004 0.014
Enex Oil & Gas Income Program II-8, L.P. 10,725 3.731 1.052 176 0.003 0.011
Enex Oil & Gas Income Program II-9, L.P. 10,725 2.224 0.627 176 0.002 0.006
Enex Oil & Gas Income Program II-10, L.P. 10,725 2.804 0.791 176 0.002 0.008
Enex Oil & Gas Income Program III- Series 1, L.P. 10,725 1.693 0.478 176 0.001 0.005
Enex Oil & Gas Income Program III- Series 2, L.P. 10,725 2.424 0.684 176 0.002 0.007
Enex Oil & Gas Income Program III- Series 3, L.P. 10,738 3.929 1.031 189 0.003 0.011
Enex Oil & Gas Income Program III- Series 4, L.P. 11 0.462 0.016 11 0.133 0.076
Enex Oil & Gas Income Program III- Series 5, L.P. 61 3.285 0.125 17 1.260 0.000
Enex Oil & Gas Income Program III- Series 6, L.P. 67 4.470 - 24 1.733 0.012
Enex Oil & Gas Income Program III- Series 7, L.P. 67 3.070 - 24 1.209 0.006
Enex Oil & Gas Income Program III- Series 8, L.P. 67 4.062 - 24 1.037 0.025
Enex Oil & Gas Income Program IV- Series 1, L.P. 31 3.732 - 14 0.629 0.031
Enex Oil & Gas Income Program IV- Series 2, L.P. 17 3.120 - 10 0.425 0.024
Enex Oil & Gas Income Program IV- Series 4, L.P. 10,728 0.925 0.234 178 0.014 0.002
Enex Oil & Gas Income Program IV- Series 5, L.P. 10,738 2.161 0.111 177 0.410 0.001
Enex Oil & Gas Income Program IV- Series 6, L.P. 7 1.386 - 1 0.290 0.000
Enex Oil & Gas Income Program IV- Series 7, L.P. 92 3.290 0.006 35 0.989 0.530
Enex Oil & Gas Income Program V- Series 1, L.P. 89 2.958 0.007 32 0.939 0.604
Enex Oil & Gas Income Program V- Series 2, L.P. 39 1.793 0.006 32 0.646 0.477
Enex Oil & Gas Income Program V- Series 3, L.P. 39 1.693 0.005 29 0.229 0.451
Enex Oil & Gas Income Program V- Series 4, L.P. 63 16.934 - 7 1.094 0.003
Enex Oil & Gas Income Program V- Series 5, L.P. 47 16.829 0.654 - - 0.000
Enex Oil & Gas Income Program VI- Series 1, L.P. 10,770 20.949 0.655 176 0.230 0.006
Enex Income and Retirement Fund - Series 1, L.P. 7 - 0.128 33 - 0.227
Enex Income and Retirement Fund - Series 2, L.P. 7 - 0.283 43 - 0.536
Enex Income and Retirement Fund - Series 3, L.P. 23 - 0.583 33 - 1.271
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 8 - 0.559 176 - 0.385
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 5 - 0.35 176 - 0.825
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 1 - 0.033 175 - 2.578
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 39 - 0.27 199 - 3.003
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 39 - 0.005 29 - 0.676
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 63 - - - - 0.347
------ -------- ------- ------ -------- --------
Totals (2) 11,226 120.950 10.613 1,094 15.043 40.124
====== ======== ======= ====== ======== ========
</TABLE>
(1) Productive wells are producing wells and wells capable of production,
including shut-in wells. A gross well is a well in which an interest is
held. The number of gross wells is the total number of wells in which an
interest is owned. A net working interest (W.I.) well is deemed to exist
when the sum of the fractional ownership interests in gross W.I. wells,
equals one. The number of net W.I. wells is the sum of the fractional owned
in gross W.I. wells, expressed as whole numbers and fractions thereof. A
net royalty well is deemed to exist when the sum of gross royalty wells
equals one. The number of net royalty wells is the sum of the fractional
interests owned in gross royalty wells, expressed as whole numbers and
fractions thereof.
(2) Totals for gross wells have been reduced to adjust for ownership by more
than one Partnership.
A-14
<PAGE>
<TABLE>
<CAPTION>
TABLE 12
VOTING PERCENTAGE IN PARTNERSHIPS
OWNED BY GENERAL PARTNER, ITS AFFILIATES
AND OTHER 5% OWNERS Voting Percentage
As of March 31, 1996 Voting Percentage Owned by
Owned by Affliates(1)of the
Partnership General Partner General Partner
(%) (%)
<S> <C>
Enex Program I Partners, L.P. 53.2683 0.0022
Enex Oil & Gas Income Program II-7, L.P. 23.4900 -
Enex Oil & Gas Income Program II-8, L.P. 27.7774 -
Enex Oil & Gas Income Program II-9, L.P. 26.0347 -
Enex Oil & Gas Income Program II-10, L.P. 21.3753 0.1111
Enex Oil & Gas Income Program III- Series 1, L.P. 17.0170 -
Enex Oil & Gas Income Program III- Series 2, L.P. 18.1342 -
Enex Oil & Gas Income Program III- Series 3, L.P. 15.2495 -
Enex Oil & Gas Income Program III- Series 4, L.P. 12.6027 -
Enex Oil & Gas Income Program III- Series 5, L.P. 16.9960 -
Enex Oil & Gas Income Program III- Series 6, L.P. 15.4511 -
Enex Oil & Gas Income Program III- Series 7, L.P. 15.8887 -
Enex Oil & Gas Income Program III- Series 8, L.P. 15.6780 -
Enex Oil & Gas Income Program IV- Series 1, L.P. 14.5104 -
Enex Oil & Gas Income Program IV- Series 2, L.P. 13.0612 -
Enex Oil & Gas Income Program IV- Series 4, L.P. 10.4679 -
Enex Oil & Gas Income Program IV- Series 5, L.P. 9.6742 -
Enex Oil & Gas Income Program IV- Series 6, L.P. 6.9678 -
Enex Oil & Gas Income Program IV- Series 7, L.P. 12.5305 -
Enex Oil & Gas Income Program V- Series 1, L.P. 11.1826 -
Enex Oil & Gas Income Program V- Series 2, L.P. 5.2599 -
Enex Oil & Gas Income Program V- Series 3, L.P. 19.6012 2.7231
Enex Oil & Gas Income Program V- Series 4, L.P. 8.8121 -
Enex Oil & Gas Income Program V- Series 5, L.P. 4.1850 -
Enex Oil & Gas Income Program VI- Series 1, L.P. 22.9208 6.2839
Enex Income and Retirement Fund - Series 1, L.P. 9.5068 0.1623
Enex Income and Retirement Fund - Series 2, L.P. 27.0154 -
Enex Income and Retirement Fund - Series 3, L.P. 14.5395 -
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 4.4729 -
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 8.2022 -
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 9.4620 -
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 16.4519 -
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 14.7194 0.1083
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 3.8901 -
</TABLE>
In addition to the General Partner, the following persons are believed to have
beneficial ownership of more than 5% of the interests in any of the
Partnerships:
<TABLE>
<CAPTION>
Name Address City State Zip P'ship #* % of P'ship
<S> <C> <C> <C> <C> <C>
Supreme Parts U 1255 21st St. Oakland, CA 94607 055 8.03%
Tomoo Okada R Tr 6185 Darby Ave. Las Vegas, NV 89102 407 7.91%
R Floyd Parks Tr 118 Commons Dr. Sacramento, CA 95825 503 6.68%
R T Peterson Tr P O Box 6274 Laguna Niguel, CA 92677 307 6.56%
E F Daniels 450 Circle Dr. Santa Fe , NM 87501 407 5.93%
Gerald B. Eckley 3 Kingwood Place, St 200 Kingwood, Tx 77339 601 5.50%
M & S Goldstein 2703 Mallard Landing Ave Henderson, NV 89014 054 5.05%
</TABLE>
*See Table 1 for a list of the full names of the Partnerships.
(1) Includes Mr. Gerald B. Eckley, the General Partner's president, and eight
other officers and directors of the General Partner.
A-15
<PAGE>
<TABLE>
<CAPTION>
TABLE 13
EXCHANGE VALUE ATTRIBUTABLE TO INTERESTS
Attributable to Attributable to
Attributable to General Partner's General Partner's Attributable to Receivable
Limited Partners(1) Capital Balance(2) Revenue Interest(3) from Partnerships(4) Aggregate
% of
Partner- Exchange Units Exchange Units Exchange Consolidated Exchange Units Exchange Units
ship Value Offered Value Offered Value Revenues Value Offered Value Offered
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 $3,956,884 395,688 $997,542 99,754 - 0.00% $136,666 13,667 $5,091,092 509,109
207 827,701 82,770 37,630 3,763 - 0.00% 35,180 3,518 900,511 90,051
208 560,379 56,038 26,277 2,628 - 0.00% 101,801 10,180 688,457 68,846
209 258,450 25,845 28,069 2,807 - 0.00% 124,920 12,492 411,439 41,144
210 354,592 35,459 27,800 2,780 - 0.00% 137,606 13,761 519,998 52,000
301 2,238 224 45,610 4,561 $7,612 0.04% 254,686 25,469 310,146 30,253
302 51,820 5,182 51,834 5,183 12,020 0.07% 328,694 32,869 444,368 43,235
303 480,034 48,003 36,153 3,615 19,436 0.11% 146,352 14,635 681,975 66,254
304 58,947 5,895 11,476 1,148 2,300 0.01% 168,972 16,897 241,695 23,940
305 58,427 5,843 29,568 2,957 12,147 0.07% 173,443 17,344 273,585 26,144
306 125,233 12,523 57,882 5,788 13,606 0.08% 107,465 10,747 304,186 29,058
307 38,037 3,804 32,883 3,288 9,630 0.06% 134,470 13,447 215,020 20,539
308 91,285 9,129 47,604 4,760 12,555 0.07% 123,601 12,360 275,045 26,249
401 52,171 5,217 45,316 4,532 11,290 0.07% 68,307 6,831 177,084 16,580
402 58,851 5,885 37,079 3,708 8,498 0.05% 28,354 2,835 132,782 12,428
404 87,085 8,709 7,278 728 9,340 0.05% 84,726 8,473 188,429 17,910
405 218,479 21,848 27,810 2,781 17,247 0.10% 2,378 238 265,914 24,867
406 120,642 12,064 14,839 1,484 13,039 0.08% 35,387 3,539 183,907 17,087
407 233,404 23,340 20,051 2,005 15,140 0.09% 0 0 268,595 25,345
051 238,472 23,847 22,623 2,262 29,010 0.17% 0 0 290,105 26,109
052 93,982 9,398 4,779 478 20,926 0.12% 89,582 8,958 209,269 18,834
053 125,347 12,535 4,585 459 19,758 0.12% 47,896 4,790 197,586 17,784
054 822,671 82,267 27,427 2,743 94,530 0.55% 675 68 945,303 85,078
055 639,842 63,984 17,892 1,789 75,937 0.44% 25,707 2,571 759,378 68,344
601 364,701 36,470 13,770 1,377 55,895 0.33% 124,590 12,459 558,956 50,306
501 105,771 10,577 10,148 1,015 3,577 0.02% 137,863 13,786 257,359 25,378
502 258,234 25,823 8,792 879 4,046 0.02% 20,443 2,044 291,515 28,746
503 107,707 10,771 4,986 499 4,813 0.03% 79,143 7,914 196,649 19,184
525 36,731 3,673 5,783 578 5,604 0.03% 51,033 5,103 99,151 9,354
526 35,067 3,507 5,517 552 5,419 0.03% 81,968 8,197 127,971 12,256
527 299,982 29,998 8,541 854 12,254 0.07% 27,960 2,796 348,737 33,648
531 357,737 35,774 8,149 815 19,749 0.12% 43,432 4,343 429,067 40,932
532 129,979 12,998 2,681 268 13,424 0.08% 61,666 6,167 207,750 19,433
533 584,666 58,467 13,402 1,340 34,218 0.20% 4,818 482 637,104 60,289
Totals
$11,835,548 1,183,555 $1,741,776 174,178 $563,020 3.30% $2,948,784 298,980 $17,130,128 1,656,712
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
1.) See "THE PROPOSED CONSOLIDATION - Method of Determining Exchange
Values" for the methodolgy used to determine the exchange value attributable to
limited partners.
2.) The General Partner will convert its capital balance in the
Partnerships that approve the consolidation in exchange for additional Units.
See "THE PROPOSED CONSOLIDATION - Terms of the Consolidation".
3.) In accordance with the existing Partnership Agreements, net revenues
earned by the Partnerships are generally allocated 10% to the General Partner
and 90% to the limited partners. Certain Partnerships have such net revenues
allocated 100% to the limited partners and certain other Partnerships will
likely have such net revenues allocated 100% to the limited partners in the
future. In order to provide a single blended sharing percentage for the General
Partner in the Consolidated Partnership, the General Partner has caused the 10%
net revenue interests, it owns to be valued in the same manner as the
outstanding Interests in the affected Partnerships. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues".
4.) The General Partner will contribute the amounts owed to it by the
Partnerships that approve the Consolidation in exchange for addtional Units. As
a result, at its formation the Consolidated Partnership will not owe the General
Partner any amount and will have essentially no debt. See "THE PROPOSED
CONSOLIDATION - Terms of the Consolidation".
A-16
<PAGE>
<TABLE>
<CAPTION>
TABLE 14
COMPARISION OF ESTIMATED EXCHANGE OFFER PRICES
1995 1996(1) Estimated
Presentment Presentment Exchange
Offer Offer Value
Partnership Price per Price per Per $500
$500 unit $500 unit unit
<C> <C> <C> <C>
Enex Program I Partners, L.P. $19.59 $22.03 $20.44
Enex Oil & Gas Income Program II-7, L.P. 41.96 85.57 93.32
Enex Oil & Gas Income Program II-8, L.P. 36.95 79.80 95.57
Enex Oil & Gas Income Program II-9, L.P. 21.08 67.32 83.16
Enex Oil & Gas Income Program II-10, L.P. 26.51 73.76 90.54
Enex Oil & Gas Income Program III- Series 1, L.P. - - 0.75
Enex Oil & Gas Income Program III- Series 2, L.P. - 5.16 12.13
Enex Oil & Gas Income Program III- Series 3, L.P. 23.42 57.99 74.89
Enex Oil & Gas Income Program III- Series 4, L.P. 3.44 - 10.90
Enex Oil & Gas Income Program III- Series 5, L.P. 8.84 6.84 5.41
Enex Oil & Gas Income Program III- Series 6, L.P. 18.03 21.98 19.75
Enex Oil & Gas Income Program III- Series 7, L.P. 8.45 11.46 8.40
Enex Oil & Gas Income Program III- Series 8, L.P. 19.16 13.17 12.68
Enex Oil & Gas Income Program IV- Series 1, L.P. 6.84 7.19 8.06
Enex Oil & Gas Income Program IV- Series 2, L.P. 9.12 9.85 11.92
Enex Oil & Gas Income Program IV- Series 4, L.P. 18.85 27.82 34.55
Enex Oil & Gas Income Program IV- Series 5, L.P. 23.66 48.37 47.90
Enex Oil & Gas Income Program IV- Series 6, L.P. 8.02 30.29 27.89
Enex Oil & Gas Income Program IV- Series 7, L.P. 32.20 50.03 46.49
Enex Oil & Gas Income Program V- Series 1, L.P. 41.81 57.05 52.65
Enex Oil & Gas Income Program V- Series 2, L.P. 23.05 30.98 31.62
Enex Oil & Gas Income Program V- Series 3, L.P. 45.11 59.62 62.05
Enex Oil & Gas Income Program V- Series 4, L.P. 181.08 271.08 278.49
Enex Oil & Gas Income Program V- Series 5, L.P. 162.11 242.25 259.78
Enex Oil & Gas Income Program VI- Series 1, L.P. 176.58 182.16 180.54
Enex Income and Retirement Fund - Series 1, L.P. - 26.47 38.67
Enex Income and Retirement Fund - Series 2, L.P. 48.44 65.74 89.547
Enex Income and Retirement Fund - Series 3, L.P. 21.43 31.18 36.05
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 3.15 19.38 15.97
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 4.03 20.47 16.97
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 66.07 91.33 97.14
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 81.95 112.70 120.24
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 41.31 54.08 64.34
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 208.32 235.45 268.81
</TABLE>
1) The purchase price for such units were determined using reserve
estimates from H.J. Gruy and Associates, Inc. as of January 1, discounted by 30%
for risk and subject to subsequent distributions. Such a value does not purport
to reflect the fair value of the Partnerships. See "THE CONSOLIDATED PARTNERSHIP
- - Right of Presentment" for a description of the right of presentment provided
by the Consolidated Partnership.
A-17
<PAGE>
<TABLE>
<CAPTION>
TABLE 15
COMPARISION OF HISTORICAL PARTNERSHIP
DISTRIBUTIONS TO PROPOSED DISTRIBUTIONS
Distributions
to Limited Partners
Estimated Estimated
Partnership Most recent upon without
1994 1995 four quarters Consolidation Consolidation
(1) (2)
<S> <C> <C> <C> <C> <C>
Enex Program I Partners, L.P. $3.77 $5.75 $5.12 $1.50
Enex Oil & Gas Income Program II-7, L.P. 12.51 6.94 9.28 23.40 21.80
Enex Oil & Gas Income Program II-8, L.P. 11.29 8.12 10.35 23.96 11.69
Enex Oil & Gas Income Program II-9, L.P. 13.73 7.12 9.53 20.85 12.32
Enex Oil & Gas Income Program II-10, L.P. 12.02 5.78 9.40 22.70 16.96
Enex Oil & Gas Income Program III- Series 1, L.P. - - - 0.19 -
Enex Oil & Gas Income Program III- Series 2, L.P. - - - 3.04 -
Enex Oil & Gas Income Program III- Series 3, L.P. 9.81 1.90 2.53 18.78 10.94
Enex Oil & Gas Income Program III- Series 4, L.P. 7.32 0.31 - 2.73 -
Enex Oil & Gas Income Program III- Series 5, L.P. 8.08 0.95 - 1.36 -
Enex Oil & Gas Income Program III- Series 6, L.P. 15.06 1.67 0.39 4.95 2.07
Enex Oil & Gas Income Program III- Series 7, L.P. 13.16 1.51 0.44 2.11 -
Enex Oil & Gas Income Program III- Series 8, L.P. 14.53 0.57 - 3.18 -
Enex Oil & Gas Income Program IV- Series 1, L.P. 17.73 1.26 - 2.02 0.04
Enex Oil & Gas Income Program IV- Series 2, L.P. 16.35 1.72 - 2.99 4.40
Enex Oil & Gas Income Program IV- Series 4, L.P. 9.46 7.32 7.11 8.66 5.64
Enex Oil & Gas Income Program IV- Series 5, L.P. 14.00 7.14 7.98 12.01 17.25
Enex Oil & Gas Income Program IV- Series 6, L.P. 11.78 6.78 8.28 6.99 5.64
Enex Oil & Gas Income Program IV- Series 7, L.P. 18.27 5.55 6.76 11.66 16.14
Enex Oil & Gas Income Program V- Series 1, L.P. 16.37 3.69 6.57 13.20 17.87
Enex Oil & Gas Income Program V- Series 2, L.P. 24.92 5.37 6.23 7.93 8.29
Enex Oil & Gas Income Program V- Series 3, L.P. 19.34 5.96 7.85 15.56 10.54
Enex Oil & Gas Income Program V- Series 4, L.P. 42.05 62.18 64.42 69.82 56.26
Enex Oil & Gas Income Program V- Series 5, L.P. 60.23 61.64 59.55 65.13 56.96
Enex Oil & Gas Income Program VI- Series 1, L.P. 19.37 16.80 7.65 45.26 31.99
Enex Income and Retirement Fund - Series 1, L.P. 24.50 3.33 - 9.69 -
Enex Income and Retirement Fund - Series 2, L.P. 40.98 7.71 - 22.45 3.30
Enex Income and Retirement Fund - Series 3, L.P. 39.76 9.11 - 9.04 -
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 12.56 2.96 - 4.00 -
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 12.72 2.26 - 4.26 -
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 29.54 11.95 11.94 24.35 12.99
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 38.88 16.47 16.13 30.15 16.04
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 27.96 11.06 8.90 16.13 10.72
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 32.10 51.38 56.32 67.39 45.30
</TABLE>
See accompanying notes to Table 15 at A-19.
A-18
<PAGE>
NOTES TO TABLE 15 - COMPARISON OF PARTNERSHIP DISTRIBUTIONS
1) The amounts shown reflect an estimate of the distribution amounts
assuming that all Partnerships participate in the Consolidation. Such amounts
were determined using of future net revenues as determined by H.J. Gruy and
Associates, Inc. ("Gruy") and the allocation of Units shown in Table 13 -
"Exchange Value Attributable to Interests". The amounts also reflect an estimate
of Direct Costs, Administrative Costs and other expenses and of overhead savings
which are expected to result from the Consolidation. As such amounts are merely
estimates, the actual distributions paid will not necessarily coincide with
these estimated amounts.
2) The amount of distributions if a Partnership is not included in the
Consolidation was estimated using Gruy's estimates of future net revenues less
an estimate of the amount of debt to be repaid based upon historical repayment
patterns and less an estimate of the amount of Direct Costs, Administrative
Costs and other expenses expected to be incurred based upon historical expenses.
As such amounts are merely estimates, the actual distribution amounts will not
necessarily coincide with the estimated amounts.
3) The amount of distributions estimated in the first year after
Consolidation is lower than the estimated amount of distributions without
Consolidation due to the relatively shorter weighted average life of the oil and
gas properties in the Partnership as compared to the weighted average life of
6.99 years for the oil and gas properties in the Consolidated Partnership. The
weighted average life of the oil and gas properties in each of these
partnerships is as follows:
Enex Oil & Gas Income Program IV-Series 2, L.P. 3.23 years
Enex Oil & Gas Income Program IV-Series 5, L.P. 4.13 years
Enex Oil & Gas Income Program IV-Series 7, L.P. 5.28 years
Enex Oil & Gas Income Program V-Series 1, L.P. 5.52 years
Enex Oil & Gas Income Program V-Series 2, L.P. 5.72 years
A-19
<PAGE>
<TABLE>
<CAPTION>
TABLE 16
PERCENTAGE OF PROVED RESERVES AND FUTURE
REVENUES ATTRIBUTABLE TO OIL AND GAS
Percentage of Proved Percentage of Future Gross
Reserves Attributable to Revenues Attributable to
OIL GAS OIL GAS
<S> <C> <C> <C> <C>
Enex Program I Partners, L.P. 37.78% 62.22% 47.21% 52.79%
Enex Oil & Gas Income Program II-7, L.P. 81.91% 18.09% 87.49% 12.51%
Enex Oil & Gas Income Program II-8, L.P. 81.91% 18.09% 87.49% 12.51%
Enex Oil & Gas Income Program II-9, L.P. 81.91% 18.09% 87.49% 12.51%
Enex Oil & Gas Income Program II-10, L.P. 81.91% 18.09% 87.49% 12.51%
Enex Oil & Gas Income Program III- Series 1, L.P. 81.91% 18.09% 87.49% 12.51%
Enex Oil & Gas Income Program III- Series 2, L.P. 81.91% 18.09% 87.49% 12.51%
Enex Oil & Gas Income Program III- Series 3, L.P. 82.06% 17.94% 87.52% 12.48%
Enex Oil & Gas Income Program III- Series 4, L.P. 30.50% 69.50% 30.24% 69.76%
Enex Oil & Gas Income Program III- Series 5, L.P. 82.42% 17.58% 83.43% 16.57%
Enex Oil & Gas Income Program III- Series 6, L.P. 67.40% 32.60% 70.45% 29.55%
Enex Oil & Gas Income Program III- Series 7, L.P. 69.86% 30.14% 72.86% 27.14%
Enex Oil & Gas Income Program III- Series 8, L.P. 62.49% 37.51% 62.38% 37.62%
Enex Oil & Gas Income Program IV- Series 1, L.P. 22.96% 77.04% 32.68% 67.32%
Enex Oil & Gas Income Program IV- Series 2, L.P. 22.77% 77.23% 30.37% 69.63%
Enex Oil & Gas Income Program IV- Series 4, L.P. 58.39% 41.61% 85.95% 14.05%
Enex Oil & Gas Income Program IV- Series 5, L.P. 41.37% 58.63% 51.91% 48.09%
Enex Oil & Gas Income Program IV- Series 6, L.P. 38.37% 61.63% 48.42% 51.58%
Enex Oil & Gas Income Program IV- Series 7, L.P. 35.54% 64.46% 57.01% 42.99%
Enex Oil & Gas Income Program V- Series 1, L.P. 30.86% 69.14% 50.05% 49.95%
Enex Oil & Gas Income Program V- Series 2, L.P. 23.26% 76.74% 38.03% 61.97%
Enex Oil & Gas Income Program V- Series 3, L.P. 23.26% 76.74% 38.03% 61.97%
Enex Oil & Gas Income Program V- Series 4, L.P. 63.12% 36.88% 70.85% 29.15%
Enex Oil & Gas Income Program V- Series 5, L.P. 100.00% 0.00% 100.00% 0.00%
Enex Oil & Gas Income Program VI- Series 1, L.P. 90.90% 9.10% 95.05% 4.95%
Enex Income and Retirement Fund - Series 1, L.P. 18.58% 81.42% 21.23% 78.77%
Enex Income and Retirement Fund - Series 2, L.P. 14.79% 85.21% 20.22% 79.78%
Enex Income and Retirement Fund - Series 3, L.P. 9.28% 90.72% 13.32% 86.68%
Enex 88-89 Income and Retirement Fund - Series 5, L.P. 27.40% 72.60% 36.57% 63.43%
Enex 88-89 Income and Retirement Fund - Series 6, L.P. 12.73% 87.27% 18.39% 81.61%
Enex 88-89 Income and Retirement Fund - Series 7, L.P. 5.83% 94.17% 8.73% 91.27%
Enex 90-91 Income and Retirement Fund - Series 1, L.P. 7.65% 92.35% 11.56% 88.44%
Enex 90-91 Income and Retirement Fund - Series 2, L.P. 23.26% 76.74% 38.03% 61.97%
Enex 90-91 Income and Retirement Fund - Series 3, L.P. 100.00% 0.00% 100.00% 0.00%
</TABLE>
A-20
<PAGE>
<TABLE>
<CAPTION>
TABLE 17
Calculation of Exchange Value
As of March 31, 1996
Fair Market Value of
Oil & Gas Reserves (1) PARTNERSHIP *
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Property Name: 100 207 208 209 210 301 302
Dent $207,817
Choate 554,119
Grass Island 61,923
Blackhawk 10,131
Shell 204,655
Arnold & Woolf 118,315
Second Bayou 417,707
Schlensker 176,031
Esperance Point 11,904
Lake Cocodrie 211,042
East Seven Sisters 723,171
HNG 1,579,960
Comite 4,746
Concord $845,159 $646,981 $385,609 $486,203 $293,613 $420,430
------------ ----------- ---------- ---------- --------- ---------- ----------
Subtotal - Property 4,281,521 845,159 646,981 385,609 486,203 293,613 420,430
Cash & cash equivalents 50,097 17,755 12,810 8,926 12,359 3,777 5,469
Accounts receivable 476,224 46,317 35,458 21,133 26,645 16,092 23,043
Other current assets 470,504 3,462 2,651 1,579 1,993 1,202 1,723
------------ ----------- ---------- ---------- --------- ---------- ----------
Subtotal - assets 5,278,346 912,693 697,900 417,247 527,200 314,684 450,665
Less:
Liabilities to third parties 187,254 12,182 9,443 5,808 7,202 4,538 6,297
------------ ----------- ---------- ---------- --------- ---------- ----------
Partnership Exchange Value 5,091,092 900,511 688,457 411,439 519,998 310,146 444,368
Less:
Liability to General Partner 136,666 35,180 101,801 124,920 137,606 254,686 328,694
GP's Capital Balance 997,542 37,630 26,277 28,069 27,800 45,610 51,834
Attributable to GP's
revenue interest - - - - - 7,612 12,020
------------ ----------- ---------- ---------- --------- ---------- ----------
Exchange value attributable
to Limited Partners 3,956,884 827,701 560,379 258,450 354,592 2,238 51,820
============ =========== ========== ========== ========= ========== ==========
Exchange value per $500
Interests $28.68 $93.32 $95.57 $83.14 $90.54 $0.75 $12.13
============ =========== ========== ========== ========= ========== ==========
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the Prospectus/Proxy
Statement.
A-21
<PAGE>
<TABLE>
<CAPTION>
TABLE 17
Calculation of Exchange Value
As of March 31, 1996
Fair Market Value of
Oil & Gas Reserves (1) PARTNERSHIP *
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Property Name: 303 304 305 306 307 308 401
Concord $634,084
Larto Lake 5,183
Shana $20,419
Pecan Island 189,149
Corkscrew 30,251 $90,752 $63,526 $45,376 $72,602
Michigan 21,354 16,426 14,930 18,890 $13,643
Enexco 8,242 10,303 7,359 3,532
RIC 115,611 144,514 103,224 49,548
Barnes Estate 38,866 19,433 81,619 101,053
Brighton 31,305
----------- --------- --------- --------- --------- --------- ---------
Subtotal - Property 639,267 239,819 235,959 273,635 190,322 226,191 146,001
Cash & cash equivalents 17,283 - 10,022 115 1,727 1,860 408
Accounts receivable 36,949 19,850 38,790 43,924 30,492 53,145 33,328
Other current assets 2,597 4,343 3,283 3,134 2,202 2,845 1,150
----------- --------- --------- --------- --------- --------- ---------
Subtotal - assets 696,096 264,012 288,054 320,808 224,743 284,041 180,887
Less:
Liabilities to third parties 14,121 22,317 14,469 16,622 9,723 8,996 3,803
----------- --------- --------- --------- --------- --------- ---------
Partnership Exchange Value 681,975 241,695 273,585 304,186 215,020 275,045 177,084
Less:
Liability to General Partner 146,352 168,972 173,443 107,465 134,470 123,601 68,307
GP's Capital Balance 36,153 11,476 29,568 57,882 32,883 47,604 45,316
Attributable to GP's
revenue interest 19,436 2,300 12,147 13,606 9,630 12,555 11,290
----------- --------- --------- --------- --------- --------- ---------
Exchange value attributable
to Limited Partners 480,034 58,947 58,427 125,233 38,037 91,285 52,171
=========== ========= ========= ========= ========= ========= =========
Exchange value per $500
Interests $74.89 $10.90 $5.41 $19.75 $8.40 $12.68 $8.06
=========== ========= ========= ========= ========= ========= =========
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the Prospectus/Proxy
Statement.
A-22
<PAGE>
<TABLE>
<CAPTION>
TABLE 17
Calculation of Exchange Value
As of March 31, 1996
Fair Market Value of
Oil & Gas Reserves (1) PARTNERSHIP *
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Property Name: 402 404 405 406 407 051 052
Barnes Estate $77,733
Bagley 12,285
Brighton 14,087
Concord $143,582 $68,352
El Mac 27,225 35,601 $63,295 $8,495
Speary 130,562 92,349
Binger 49,026 $26,399
FEC 224,472 255,898 $202,024
----------- --------- ---------- -------- -------- --------- ----------
Subtotal - Property 104,105 170,807 234,515 155,644 281,993 282,297 202,024
Cash & cash equivalents 2,660 7,992 18,103 8,887 16,731 26,844 1,622
Accounts receivable 28,829 11,533 50,318 21,758 40,051 55,955 19,865
Other current assets 529 1,048 2,431 1,195 2,104 4,224 1,793
----------- --------- ---------- -------- -------- --------- ----------
Subtotal - assets 136,123 191,380 305,367 187,484 340,879 369,320 225,304
Less:
Liabilities to third parties 3,341 2,951 39,453 3,577 72,284 79,215 16,035
----------- --------- ---------- -------- -------- --------- ----------
Partnership Exchange Value 132,782 188,429 265,914 183,907 268,595 290,105 209,269
Less:
Liability to General Partner 28,354 84,726 2,378 35,387 - - 89,582
GP's Capital Balance 37,079 7,278 27,810 14,839 20,051 22,623 4,779
Attributable to GP's
revenue interest 8,498 9,340 17,247 13,039 15,140 29,010 20,926
----------- --------- ---------- -------- -------- --------- ----------
Exchange value attributable
to Limited Partners 58,851 87,085 218,479 120,642 233,404 238,472 93,982
=========== ========= ========== ======== ======== ========= ==========
Exchange value per $500
Interests $11.92 $34.55 $47.90 $27.89 $46.49 $52.65 $31.62
=========== ========= ========== ======== ======== ========= ==========
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the Prospectus/Proxy
Statement.
A-23
<PAGE>
<TABLE>
<CAPTION>
TABLE 17
Calculation of Exchange Value
As of March 31, 1996
Fair Market Value of
Oil & Gas Reserves (1) PARTNERSHIP *
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Property Name: 053 054 055 601 501 502 503
FEC $190,801
South Midway $435,969
Charlotte 422,999
Muldoon $673,595
Concord $374,862
McBride 166,063
Larto Lake $15,550
Deal 87,071
Shana 40,838 $40,838
Pecan Island 89,597 159,284 $59,731
Corinne 5,689 19,913 20,624
East Cameron 28,044 28,044
Barnes Estate 19,433 50,526
Rigney 5,098
Bagley 6,449
----------- ---------- --------- --------- --------- --------- ----------
Subtotal - Property 190,801 858,968 673,595 540,925 238,745 267,512 170,472
Cash & cash equivalents 1,479 39,354 54,748 13,423 661 726 2,346
Accounts receivable 18,763 121,956 39,175 35,066 136 23,735 24,273
Other current assets 1,693 10,201 2,847 151 18,246 - -
----------- ---------- --------- --------- --------- --------- ----------
Subtotal - assets 212,736 1,030,479 770,365 589,565 257,788 291,973 197,091
Less:
Liabilities to third parties 15,150 85,176 10,987 30,609 429 458 442
----------- ---------- --------- --------- --------- --------- ----------
Partnership Exchange Value 197,586 945,303 759,378 558,956 257,359 291,515 196,649
Less:
Liability to General Partner 47,896 675 25,707 124,590 137,863 20,443 79,143
GP's Capital Balance 4,585 27,427 17,892 13,770 10,148 8,792 4,986
Attributable to GP's
revenue interest 19,758 94,530 75,937 55,895 3,577 4,046 4,813
----------- ---------- --------- --------- --------- --------- ----------
Exchange value attributable
to Limited Partners 125,347 822,671 639,842 364,701 105,771 258,234 107,707
=========== ========== ========= ========= ========= ========= ==========
Exchange value per $500
Interests $62.05 $278.47 $259.73 $180.48 $38.67 $89.55 $36.05
=========== ========== ========= ========= ========= ========= ==========
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the Prospectus/Proxy
Statement.
A-24
<PAGE>
<TABLE>
<CAPTION>
TABLE 17
Calculation of Exchange Value
As of March 31, 1996
Fair Market Value of
Oil & Gas Reserves (1) PARTNERSHIP *
<S> <C> <C> <C> <C> <C> <C>
Property Name: 525 526 527 531 532 533
-----------------------------------------------------------------------------------------------
El Mac $16,752
Speary 38,213 $25,476
Baywood II 1,268 1,358 $951
Wardner Ranch 28,898 90,823 330,264 $375,675
FEC 30,304 $189,679
Charlotte $546,373
-------- ------- ------- ------- ------- -------
Subtotal - Property 85,131 117,657 331,215 405,979 189,679 546,373
Cash & cash equivalents 2,155 2,369 9,537 11,964 1,195 44,157
Accounts receivable 12,036 8,089 8,052 11,467 17,292 46,721
Other current assets - - - - - -
------- ------- ------- ------- ------- -------
Subtotal - assets 99,322 128,115 348,804 429,410 208,166 637,251
Less:
Liabilities to third parties 171 144 67 343 416 147
------- ------- ------- ------- ------- -------
Partnership Exchange Value 99,151 127,971 348,737 429,067 207,750 637,104
Less:
Liability to General Partner 51,033 81,968 27,960 43,432 61,666 4,818
GP's Capital Balance 5,783 5,517 8,541 8,149 2,681 13,402
Attributable to GP's
revenue interest 5,604 5,419 12,254 19,749 13,424 34,218
------ ------- ------- ------- ------- -------
Exchange value attributable
to Limited Partners 36,731 35,067 299,982 357,737 129,979 584,666
====== ======= ======= ======= ======= =======
Exchange value per $500
Interests $15.97 $16.97 $97.11 $120.24 $64.34 $268.80
====== ======= ======= ======= =======
</TABLE>
* See Table 1 for a list of the full names of the Partnerships.
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the Prospectus/Proxy
Statement.
A-25
TABLE 18
RATIO OF EARNINGS TO FIXED CHARGES
For the three
months ended For the Year Ended December 31,
Partnership* March 31, 1996 1995 1994 1993 1992 1991
100 - - 35 (1) 8 8
207 - 568 - - - -
208 - 368 - - - -
209 - 344 - - - -
210 - 353 - - - -
301 - 11 (21) (73) 13 (12)
302 - 19 (21) (69) (22) (11)
303 - - - - - -
304 - - - - - -
305 - - - (1,506) (3,111) (5,465)
306 - - - (376) (61) (3)
307 - - - (875) (80) (16)
308 - - - (333) (51) (52)
401 - - - (14,165)(13) (112)
402 - - - (345) (20) (98)
404 - - - - - -
405 - - 11 (95) - -
406 - - 50 (197) - -
407 - - - - - -
051 - - - - - -
052 - - - - - -
053 - - - - - -
054 - - 119 18 - -
055 - - - - - -
601 (589) (8) (10)
501 - - - - - -
502 - - - - - -
503 - - - - - -
525 - - - - - -
526 - - - - - -
527 - - - - - -
531 - - - - - -
532 - - - - - -
533 - - - - - -
* See Table 1 for a list of the full names of the Partnerships.
A-26
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
ARTICLES OF LIMITED PARTNERSHIP
TABLE OF CONTENTS
ARTICLE PAGE NO.
------- --------
<S> <C> <C>
ARTICLE 1 -- CERTAIN DEFINITIONS ...................................................B-1
ARTICLE 2 -- STATUS AND BUSINESS OF PARTNERSHIP ....................................B-6
ARTICLE 3 -- CONTRIBUTIONS OF THE PARTNERS .........................................B-8
ARTICLE 4 -- ALLOCATION OF COSTS AND REVENUES; DISTRIBUTIONS........................B-9
ARTICLE 5 -- TAX MATTERS ...........................................................B-13
ARTICLE 6 -- RIGHT TO PRESENT UNITS FOR PURCHASE ...................................B-16
ARTICLE 7 -- BOOKS OF ACCOUNT, FISCAL YEAR AND REPORTS..............................B-18
ARTICLE 8 -- RIGHTS AND OBLIGATIONS OF THE UNITHOLDERS..............................B-21
ARTICLE 9 -- RIGHTS AND OBLIGATIONS OF THE GENERAL PARTNER..........................B-27
ARTICLE 10-- REPRESENTATIONS AND WARRANTIES OF THE PARTNERS AND POWER OF ATTORNEY...B-34
ARTICLE 11-- DISSOLUTION, LIQUIDATION AND TERMINATION OF THE PARTNERSHIP............B-37
ARTICLE 12-- RIGHT OF THE GENERAL PARTNER TO CONDUCT SIMILAR OPERATIONS.............B-40
ARTICLE 13-- AMENDMENTS.............................................................B-40
ARTICLE 14-- MISCELLANEOUS PROVISIONS...............................................B-42
</TABLE>
B-i
<PAGE>
AMENDED ARTICLES OF LIMITED PARTNERSHIP
OF
ENEX CONSOLIDATED PARTNERS, L.P.
(A NEW JERSEY LIMITED PARTNERSHIP)
AMENDED ARTICLES OF LIMITED PARTNERSHIP ("ARTICLES"), MADE BY AND
AMONG ENEX RESOURCES CORPORATION, A DELAWARE CORPORATION ("ENEX" OR THE "GENERAL
PARTNER"), THE "ORIGINAL LIMITED PARTNER" (AS HEREINAFTER DEFINED) AND THE
"LIMITED PARTNERS" (AS HEREINAFTER DEFINED) AMENDING AND RESTATING IN ITS
ENTIRETY THE CERTIFICATE (AS HEREINAFTER DEFINED) FILED UNDER THE ACT (AS
HEREINAFTER DEFINED) OF ENEX CONSOLIDATED PARTNERS, L.P. (THE "PARTNERSHIP") IN
ORDER, AMONG OTHER THINGS, TO ADMIT TO THE PARTNERSHIP AS ADDITIONAL LIMITED
PARTNERS THOSE CERTAIN PERSONS WHOSE NAMES ARE SET FORTH ON SCHEDULE A HERETO
(WHO ARE THE "LIMITED PARTNERS" REFERRED TO ABOVE); TO REFLECT THE WITHDRAWAL
FROM THE PARTNERSHIP OF THE ORIGINAL LIMITED PARTNER AND THE ASSIGNMENT OF THE
ORIGINAL LIMITED PARTNER'S INTEREST IN THE PARTNERSHIP TO ENEX; AND TO REFLECT
THE FACT THAT THE PARTNERSHIP HAS COMMENCED OPERATIONS.
ARTICLE 1
CERTAIN DEFINITIONS
SECTION 1.1. DEFINED TERMS:
"ACT" MEANS THE NEW JERSEY UNIFORM LIMITED PARTNERSHIP LAW (1976).
"ADMINISTRATIVE COSTS" MEANS ALL CUSTOMARY AND ROUTINE EXPENSES INCURRED BY
THE GENERAL PARTNER FOR THE CONDUCT OF PARTNERSHIP ADMINISTRATION, INCLUDING;
LEGAL, FINANCE, ACCOUNTING, SECRETARIAL, TRAVEL, OFFICE RENT, TELEPHONE, DATA
PROCESSING AND OTHER ITEMS OF A SIMILAR NATURE.
WITH RESPECT TO THE GENERAL PARTNER, "AFFILIATE" MEANS (A) ANY PERSON
DIRECTLY OR INDIRECTLY OWNING, CONTROLLING OR HOLDING WITH POWER TO VOTE 10% OR
MORE OF THE OUTSTANDING VOTING SECURITIES OF THE GENERAL PARTNER; (B) ANY PERSON
10% OR MORE OF WHOSE OUTSTANDING VOTING SECURITIES ARE DIRECTLY OR INDIRECTLY
OWNED, CONTROLLED OR HELD WITH POWER TO VOTE BY THE GENERAL PARTNER; (C) ANY
PERSON DIRECTLY OR INDIRECTLY CONTROLLING, CONTROLLED BY OR UNDER COMMON CONTROL
WITH THE GENERAL PARTNER; (D) ANY OFFICER, DIRECTOR OR PARTNER OF THE GENERAL
PARTNER; AND (E) IF THE GENERAL PARTNER IS AN OFFICER, DIRECTOR OR PARTNER, ANY
COMPANY FOR WHICH THE GENERAL PARTNER ACTS IN SUCH CAPACITY. NOTWITHSTANDING THE
FOREGOING, FOR THE PURPOSES OF SECTION 9.3 BELOW, THE TERM "AFFILIATES" SHALL
INCLUDE ONLY THOSE PERSONS PERFORMING SERVICES ON BEHALF OF THE PARTNERSHIP.
"AFFILIATED LIMITED PARTNERSHIP" MEANS A LIMITED PARTNERSHIP OR OTHER
ENTITY THAT IS AN AFFILIATE OF THE GENERAL PARTNER.
"CAPITAL ACCOUNT" MEANS THE SEPARATE CAPITAL ACCOUNT MAINTAINED FOR EACH
PARTNER AND UNITHOLDER PURSUANT TO ARTICLE 7.
"CAPITAL CONTRIBUTIONS" MEANS, WITH RESPECT TO A PREDECESSOR PARTNERSHIP,
THE TOTAL CAPITAL INVESTED IN SUCH PREDECESSOR PARTNERSHIP BY THE GENERAL AND
LIMITED PARTNERS THEREOF.
"CERTIFICATE" REFERS TO THE PARTNERSHIP'S CERTIFICATE OF LIMITED
PARTNERSHIP FILED WITH THE SECRETARY OF STATE OF THE STATE OF NEW JERSEY, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME.
B-1
<PAGE>
"CODE" MEANS THE INTERNAL REVENUE CODE OF 1986, AS THE SAME MAY BE AMENDED
FROM TIME TO TIME.
"CONSOLIDATION" MEANS THE CONSOLIDATION OF THE PREDECESSOR PARTNERSHIPS
DESCRIBED IN THE PROSPECTUS/PROXY STATEMENT OF THE PARTNERSHIP DATED , 1996.
"COST", WHEN USED WITH RESPECT TO PARTNERSHIP PROPERTY, MEANS THE COST OF
SUCH PROPERTY ON THE BOOKS OF THE ENTITY OWNING IT. WITH RESPECT TO PROPERTY
ACQUIRED FROM THE GENERAL PARTNER OR ITS AFFILIATES (EXCLUDING AFFILIATED
LIMITED PARTNERSHIPS WHEN THE INTEREST OF THE GENERAL PARTNER IS IDENTICAL TO OR
LESS THAN ITS INTEREST IN THE PARTNERSHIP), COST INCLUDES (1) THE SUM OF THE
PRICES PAID BY THE GENERAL PARTNER OR ITS AFFILIATES TO AN UNAFFILIATED PERSON
FOR SUCH PROPERTY, INCLUDING BONUSES; (2) TITLE INSURANCE OR EXAMINATION COSTS,
BROKERS' COMMISSIONS, FILING FEES, RECORDING COSTS, TRANSFER TAXES, IF ANY, AND
LIKE CHARGES IN CONNECTION WITH THE ACQUISITION OF SUCH PROPERTY; (3) A PRO RATA
PORTION OF THE GENERAL PARTNER'S OR ITS AFFILIATES' ACTUAL, NECESSARY AND
REASONABLE EXPENSES FOR SEISMIC AND GEOPHYSICAL SERVICES; (4) RENTALS AND AD
VALOREM TAXES PAID BY THE GENERAL PARTNER OR ITS AFFILIATES TO THE DATE OF
TRANSFER, AND INCOME TAXES INCURRED IN CONNECTION WITH THE TRANSACTIONS, IF ANY;
(5) INTEREST AND POINTS ACTUALLY INCURRED ON FUNDS USED BY THE GENERAL PARTNER
OR ITS AFFILIATES TO ACQUIRE OR MAINTAIN SUCH PROPERTY; AND (6) SUCH PORTION OF
THE REASONABLE, NECESSARY AND ACTUAL EXPENSES FOR GEOLOGICAL, GEOPHYSICAL,
ENGINEERING, DRAFTING, ACCOUNTING, LEGAL AND OTHER LIKE SERVICES ALLOCATED TO
THE PROPERTY COST IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND INDUSTRY STANDARDS. COST WILL NOT INCLUDE EXPENSES OF THE GENERAL PARTNER OR
ITS AFFILIATES IN CONNECTION WITH THE PAST DRILLING OF WELLS WHICH, IN THE
OPINION OF THE GENERAL PARTNER, ARE NOT PRODUCERS OF SUFFICIENT QUANTITIES OF
OIL OR GAS TO MAKE COMMERCIALLY REASONABLE THEIR CONTINUED OPERATIONS, AND WILL
NOT INCLUDE ANY EXPENSES SET FORTH IN (4), (5) AND (6) ABOVE INCURRED MORE THAN
36 MONTHS PRIOR TO THE PURCHASE OF THE PROPERTY BY THE PARTNERSHIP. WHEN USED
WITH REFERENCE TO SERVICES, COST MEANS THE REASONABLE, NECESSARY AND ACTUAL
EXPENSE INCURRED BY THE GENERAL PARTNER OR ITS AFFILIATES ON BEHALF OF THE
PARTNERSHIP IN PROVIDING SUCH SERVICES, DETERMINED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES. WHEN USED WITH RESPECT TO PROPERTY ACQUIRED
FROM, OR SERVICES PROVIDED BY, A PARTY OTHER THAN THE GENERAL PARTNER OR ITS
AFFILIATES, THE TERM "COST" MEANS THE PRICE PAID FOR SUCH PROPERTY OR SERVICES
IN AN ARM'S LENGTH TRANSACTION.
"DEVELOPMENT WELL" REFERS TO A WELL DRILLED AS AN ADDITIONAL WELL TO THE
SAME RESERVOIR AS OTHER PRODUCING WELLS ON A LEASE, OR DRILLED ON AN OFFSET
LEASE USUALLY NOT MORE THAN ONE LOCATION AWAY FROM A WELL PRODUCING FROM THE
SAME RESERVOIR. "DEVELOPMENT DRILLING" REFERS TO THE DRILLING OF DEVELOPMENT
WELLS.
"DIRECT COSTS" MEANS ALL ACTUAL AND NECESSARY COSTS DIRECTLY INCURRED FOR
THE BENEFIT OF THE PARTNERSHIP AND GENERALLY ATTRIBUTABLE TO THE GOODS AND
SERVICES PROVIDED TO THE PARTNERSHIP BY PARTIES OTHER THAN THE GENERAL PARTNER
OR ITS AFFILIATES. DIRECT COSTS SHALL NOT INCLUDE ANY COST OTHERWISE CLASSIFIED
AS ADMINISTRATIVE COSTS, OPERATING COSTS OR PROPERTY COSTS. DIRECT COSTS MAY
INCLUDE THE COST OF SERVICES PROVIDED BY THE GENERAL PARTNER OR ITS AFFILIATES
(OTHER THAN THE PRESIDENT OF THE GENERAL PARTNER) IF SUCH SERVICES ARE PROVIDED
PURSUANT TO WRITTEN CONTRACTS AND IN COMPLIANCE WITH ARTICLE 9 OF THIS
AGREEMENT. DIRECT COSTS WILL BE BILLED DIRECTLY TO AND PAID BY THE PARTNERSHIP
TO THE EXTENT PRACTICABLE.
A "FARMOUT" IS AN AGREEMENT WHEREBY THE OWNER OF A LEASEHOLD OR WORKING
INTEREST AGREES TO ASSIGN HIS INTEREST IN SPECIFIC ACREAGE TO AN ASSIGNEE,
RETAINING SOME INTEREST SUCH AS AN OVERRIDING ROYALTY INTEREST, AN OIL AND GAS
PAYMENT, OFFSETTING ACREAGE OR OTHER TYPE OF INTEREST, SUBJECT TO THE DRILLING
OF ONE OR MORE SPECIFIC WELLS OR OTHER PERFORMANCE BY THE ASSIGNEE AS A
CONDITION OF THE ASSIGNMENT.
THE "FISCAL YEAR" OF THE PARTNERSHIP IS THE TWELVE MONTH PERIOD ENDING
DECEMBER 31.
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"GENERAL PARTNER" REFERS TO ENEX RESOURCES CORPORATION, A DELAWARE
CORPORATION, THE SPONSOR OF THE PARTNERSHIP, AND ANY SUCCESSOR TO IT IN THAT
CAPACITY. A "SPONSOR" IS ANY PERSON DIRECTLY OR INDIRECTLY INSTRUMENTAL IN
ORGANIZING THE PARTNERSHIP OR ANY PERSON WHO WILL MANAGE OR PARTICIPATE IN THE
MANAGEMENT OF THE PARTNERSHIP, INCLUDING THE GENERAL PARTNER AND ANY OTHER
PERSON WHO REGULARLY PERFORMS OR SELECTS THE PERSON WHO PERFORMS 25% OR MORE OF
THE EXPLORATORY, DEVELOPMENTAL OR PRODUCING ACTIVITIES OF THE PARTNERSHIP, OR
SEGMENT THEREOF. "SPONSOR" DOES NOT INCLUDE WHOLLY INDEPENDENT THIRD PARTIES
SUCH AS ATTORNEYS, ACCOUNTANTS, PLACEMENT AGENTS AND UNDERWRITERS WHOSE ONLY
COMPENSATION IS FOR PROFESSIONAL SERVICES RENDERED IN CONNECTION WITH THE
OFFERING OF INTERESTS.
"INDEPENDENT EXPERT" MEANS A PERSON WITH NO MATERIAL RELATIONSHIP TO THE
GENERAL PARTNER WHO IS QUALIFIED AND WHO IS IN THE BUSINESS OF RENDERING
OPINIONS REGARDING THE VALUE OF OIL AND GAS PROPERTIES BASED UPON THE EVALUATION
OF ALL PERTINENT ECONOMIC, FINANCIAL, GEOLOGIC AND ENGINEERING INFORMATION
AVAILABLE TO THE GENERAL PARTNER.
A "LEASE" IS A FULL OR PARTIAL INTEREST IN AN OIL AND GAS LEASE, LICENSE,
CONCESSION, OR OTHER RIGHT AUTHORIZING THE OWNER TO EXPLORE FOR AND PRODUCE OIL
AND GAS, AND ANY CONTRACTUAL RIGHT TO ACQUIRE ANY OF SUCH INTERESTS.
"LIMITED PARTNERS" ARE UNITHOLDERS WHO HAVE BEEN ADMITTED TO THE
PARTNERSHIP AS LIMITED PARTNERS IN ACCORDANCE WITH THESE ARTICLES AND THE ACT.
PARTNERSHIP "NET REVENUES" REFERS TO THE EXCESS OF AGGREGATE PARTNERSHIP
REVENUES, INCOME AND GAINS IN ANY PARTICULAR TIME PERIOD OVER THE AGGREGATE
OPERATING COSTS, DIRECT COSTS AND ADMINISTRATIVE COSTS AND OTHER PARTNERSHIP
COSTS AND EXPENSES (INCLUDING THE REPAYMENT OF PARTNERSHIP BORROWINGS, BUT
EXCLUDING THE COSTS OF ACQUIRING PARTNERSHIP PROPERTIES), IN SUCH TIME PERIOD.
"OPERATING COSTS" REFERS TO EXPENDITURES MADE AND COSTS INCURRED IN
PRODUCING AND MARKETING OIL OR GAS FROM COMPLETED WELLS, INCLUDING, IN ADDITION
TO LABOR, FUEL, REPAIRS, HAULING, MATERIALS, SUPPLIES, UTILITY CHARGES AND OTHER
COSTS INCIDENT THERETO OR THEREFROM, AD VALOREM AND SEVERANCE TAXES, INSURANCE
AND CASUALTY LOSS EXPENSE, AND COMPENSATION TO WELL OPERATORS OR OTHERS FOR
SERVICES RENDERED IN CONDUCTING SUCH OPERATIONS. OPERATING COSTS INCLUDE THAT
PORTION OF THE DIRECT COSTS AND ADMINISTRATIVE COSTS WHICH IS ALLOCABLE TO THE
WORKING INTEREST IN AN OIL AND GAS PROPERTY.
"ORIGINAL LIMITED PARTNER" REFERS TO THE PERSON WHO, AS A LIMITED PARTNER,
EXECUTED THE PARTNERSHIP'S CERTIFICATE AS ORIGINALLY FILED WITH THE SECRETARY OF
STATE OF THE STATE OF NEW JERSEY.
AN "OVERRIDING ROYALTY" IS A ROYALTY INTEREST CREATED FROM A LEASE WHICH
DOES NOT SURVIVE THE TERMINATION OF SUCH LEASE.
"PARTNERS" REFERS TO THE GENERAL PARTNER AND THE LIMITED PARTNERS,
COLLECTIVELY.
"PARTNERSHIP" MEANS ENEX CONSOLIDATED PARTNERS, L.P., THE LIMITED
PARTNERSHIP FORMED PURSUANT TO THE ACT AND ORGANIZED PURSUANT TO THESE ARTICLES.
"PARTNERSHIP PROPERTY(IES)" INCLUDES ALL INTERESTS, PROPERTIES AND RIGHTS
OF ANY TYPE OWNED BY THE PARTNERSHIP AND INCLUDES WELL MACHINERY AND EQUIPMENT,
GATHERING SYSTEMS, STORAGE FACILITIES, PIPELINES, REFINING, PROCESSING AND OTHER
DOWNSTREAM FACILITIES, AND ANY OTHER EQUIPMENT AND PROPERTY ASSOCIATED WITH THE
PRODUCTION, PROCESSING OR MARKETING OF OIL AND GAS, OTHER THAN OIL, GAS AND
OTHER MINERALS
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PRODUCED BY THE PARTNERSHIP. INTERESTS IN OIL AND GAS PROPERTIES MAY INCLUDE
WORKING INTERESTS, PRODUCTION PAYMENTS, ROYALTIES OR OVERRIDING ROYALTIES AND
OTHER NON-WORKING AND NON-OPERATING INTERESTS.
"PERSON" MEANS ANY INDIVIDUAL, PARTNERSHIP, CORPORATION, TRUST OR OTHER
ENTITY.
"PREDECESSOR PARTNERSHIP" MEANS A LIMITED PARTNERSHIP OF WHICH THE GENERAL
PARTNER WAS THE GENERAL PARTNER WHICH DISSOLVED AND TERMINATED FOLLOWING THE
TRANSFER OF ITS ASSETS TO THE PARTNERSHIP.
"PRODUCING PROPERTY" IS PROPERTY PRODUCING OIL AND GAS IN COMMERCIAL
QUANTITIES OR PROPERTY WITH SHUT-IN WELLS DEEMED CAPABLE BY THE GENERAL PARTNER
OF PRODUCING OIL OR GAS IN COMMERCIAL QUANTITIES.
A "PRODUCTION PAYMENT" IS AN INTEREST WHICH ENTITLES THE HOLDER TO RECEIVE
A SPECIFIED SHARE OF GROSS PRODUCTION OF OIL, GAS OR OTHER MINERALS, OR THE
PROCEEDS FROM THE SALE OF SUCH SHARE OF PRODUCTION (WHICH PROCEEDS MAY, IN SOME
CASES, BE MEASURED BY A PERCENTAGE OF THE NET PROFITS REALIZED BY THE HOLDER OF
THE UNDERLYING WORKING INTEREST), FREE OF THE COSTS OF PRODUCTION, HAVING AN
EXPECTED ECONOMIC LIFE (AT TIME OF CREATION) OF SHORTER DURATION THAN THE
ECONOMIC LIFE OF ONE OR MORE OF THE MINERAL PROPERTIES BURDENED THEREBY.
A "PRODUCTION PURCHASE PARTNERSHIP" IS ANY PARTNERSHIP WHOSE INVESTMENT
OBJECTIVE IS TO DIRECTLY ACQUIRE, HOLD, OPERATE, AND/OR DISPOSE OF PRODUCING OIL
AND GAS PROPERTIES. SUCH A PARTNERSHIP MAY ACQUIRE ANY TYPE OF OWNERSHIP
INTEREST IN A PRODUCING PROPERTY, INCLUDING, BUT NOT LIMITED TO, WORKING
INTERESTS, ROYALTIES OR PRODUCTION PAYMENTS. A PARTNERSHIP WHICH SPENDS AT LEAST
90% OF CAPITAL CONTRIBUTIONS AND FUNDS BORROWED (EXCLUDING ORGANIZATION AND
OFFERING COSTS) IN THE ABOVE-DESCRIBED ACTIVITIES IS PRESUMED TO BE A PRODUCTION
PURCHASE PARTNERSHIP.
A "PROSPECT" IS AN AREA COVERING LANDS WHICH ARE BELIEVED BY THE GENERAL
PARTNER TO CONTAIN SUBSURFACE STRUCTURAL OR STRATIGRAPHIC CONDITIONS MAKING IT
SUSCEPTIBLE TO THE ACCUMULATIONS OF HYDROCARBONS IN COMMERCIALLY PRODUCTIVE
QUANTITIES AT ONE OR MORE HORIZONS. THE AREA, WHICH MAY BE DIFFERENT FOR
DIFFERENT HORIZONS, SHALL BE DESIGNATED BY THE GENERAL PARTNER IN WRITING PRIOR
TO THE CONDUCT OF PARTNERSHIP OPERATIONS AND SHALL BE ENLARGED OR CONTRACTED
FROM TIME TO TIME ON THE BASIS OF SUBSEQUENTLY ACQUIRED INFORMATION TO DEFINE
THE ANTICIPATED LIMITS OF THE ASSOCIATED HYDROCARBON RESERVES AND TO INCLUDE ALL
ACREAGE ENCOMPASSED THEREIN. A "PROSPECT" WITH RESPECT TO A PARTICULAR HORIZON
MAY BE LIMITED TO THE MINIMUM AREA PERMITTED BY STATE LAW OR LOCAL PRACTICE,
WHICHEVER IS APPLICABLE, TO PROTECT AGAINST DRAINAGE FROM ADJACENT WELLS IF THE
WELL TO BE DRILLED BY THE PROGRAM IS TO A HORIZON CONTAINING PROVED RESERVES.
"PROVED RESERVES" ARE THOSE QUANTITIES OF CRUDE OIL, NATURAL GAS AND
NATURAL GAS LIQUIDS WHICH UPON ANALYSIS OF GEOLOGIC AND ENGINEERING DATA APPEAR
WITH REASONABLE CERTAINTY TO BE RECOVERABLE IN THE FUTURE FROM KNOWN OIL AND GAS
RESERVOIRS UNDER EXISTING ECONOMIC AND OPERATING CONDITIONS. PROVED RESERVES ARE
LIMITED TO THOSE QUANTITIES OF OIL AND GAS WHICH CAN BE EXPECTED, WITH LITTLE
DOUBT, TO BE RECOVERABLE COMMERCIALLY AT CURRENT PRICES AND COSTS, UNDER
EXISTING REGULATORY PRACTICES AND WITH EXISTING CONVENTIONAL EQUIPMENT AND
OPERATING METHODS. PROVED RESERVES INCLUDES BOTH PROVED DEVELOPED RESERVES,
WHICH CAN BE EXPECTED, WITH LITTLE DOUBT, TO BE RECOVERED FROM EXISTING WELLS
USING EXISTING EQUIPMENT AND OPERATING METHODS AND PROVED UNDEVELOPED RESERVES,
WHICH ARE RESERVES WHICH ARE EXPECTED TO BE RECOVERED FROM NEW WELLS ON
UNDRILLED ACREAGE OR FROM EXISTING WELLS WHERE A RELATIVELY MAJOR EXPENDITURE IS
REQUIRED FOR RECOMPLETION. RESERVES ON UNDRILLED ACREAGE SHALL BE LIMITED TO
THOSE DRILLING UNITS OFFSETTING PRODUCTIVE UNITS, WHICH ARE VIRTUALLY CERTAIN OF
PRODUCTION WHEN DRILLED AND, FOR OTHER UNDRILLED UNITS, ONLY WHERE IT CAN BE
DEMONSTRATED WITH CERTAINTY THAT THERE IS CONTINUITY OF PRODUCTION FROM EXISTING
PRODUCTIVE FORMATION. PROVED DEVELOPED RESERVES ALSO INCLUDES TWO SUBCATEGORIES:
PROVED
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DEVELOPED PRODUCING RESERVES, WHICH ARE EXPECTED TO BE PRODUCED FROM ONE OR MORE
EXISTING COMPLETION ZONES NOW OPEN FOR PRODUCTION IN AN EXISTING WELL, AND
PROVED DEVELOPED NON-PRODUCING RESERVES, WHICH EXIST BEHIND THE CASING OR AT
MINOR DEPTHS BELOW THE PRESENT DEPTH OF AN EXISTING WELL, WHICH ARE EXPECTED TO
BE PRODUCED THROUGH THESE WELLS IN THE PREDICTABLE FUTURE, WHERE THE COST OF
MAKING SUCH OIL AND GAS AVAILABLE FOR PRODUCTION IS RELATIVELY SMALL COMPARED TO
THE COST OF A NEW WELL. ADDITIONAL OIL AND GAS EXPECTED TO BE OBTAINED THROUGH
THE APPLICATION OF FLUID INJECTION OR OTHER IMPROVED RECOVERY TECHNIQUES FOR
SUPPLEMENTING THE NATURAL FORCES AND MECHANISMS OF PRIMARY RECOVERY WILL BE
INCLUDED AS "PROVED DEVELOPED RESERVES" ONLY AFTER TESTING BY A PILOT PROJECT OR
AFTER THE OPERATION OF AN INSTALLED PROGRAM HAS CONFIRMED THROUGH PRODUCTION
RESPONSE THAT INCREASED RECOVERY WILL BE ACHIEVED. UNDER NO CIRCUMSTANCES WILL
ESTIMATES FOR PROVED UNDEVELOPED RESERVES BE ATTRIBUTABLE TO ANY ACREAGE FOR
WHICH AN APPLICATION OF FLUID INJECTION OR OTHER IMPROVED RECOVERY TECHNIQUE IS
CONTEMPLATED, UNLESS SUCH TECHNIQUES HAVE BEEN PROVED EFFECTIVE BY ACTUAL TESTS
IN THE AREA AND IN THE SAME RESERVOIR.
"ROLL-UP" MEANS A TRANSACTION INVOLVING THE ACQUISITION, MERGER,
CONVERSION, OR CONSOLIDATION, EITHER DIRECTLY OR INDIRECTLY, OF THE PARTNERSHIP
AND THE ISSUANCE OF SECURITIES OF A ROLL-UP ENTITY. THE TERM ROLL-UP DOES NOT
INCLUDE: (A) A TRANSACTION INVOLVING SECURITIES OF THE PARTNERSHIP THAT HAVE
BEEN LISTED FOR AT LEAST 12 MONTHS ON A NATIONAL EXCHANGE OR TRADED THROUGH THE
NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATION NATIONAL MARKET
SYSTEM; OR (B) A TRANSACTION INVOLVING THE CONVERSION TO CORPORATE, TRUST OR
ASSOCIATION FORM OF ONLY THE PARTNERSHIP IF, AS A CONSEQUENCE OF THE
TRANSACTION, THERE WILL BE NO SIGNIFICANT ADVERSE CHANGE IN ANY OF THE
FOLLOWING: (1) VOTING RIGHTS; (2) THE TERM OF EXISTENCE OF THE PARTNERSHIP; (3)
THE GENERAL PARTNER'S COMPENSATION; OR (4) THE PARTNERSHIP'S INVESTMENT
OBJECTIVES.
"ROLL-UP ENTITY" MEANS A PARTNERSHIP, TRUST, CORPORATION OR OTHER ENTITY
THAT WOULD BE CREATED OR SURVIVE AFTER THE SUCCESSFUL COMPLETION OF A PROPOSED
ROLL-UP TRANSACTION.
A "ROYALTY" OR "ROYALTY INTEREST" IS AN INTEREST ENTITLING THE HOLDER TO
RECEIVE A SHARE OF GROSS PRODUCTION OF OIL, GAS OR OTHER MINERALS, OR THE
PROCEEDS FROM THE SALE OF SUCH SHARE OF PRODUCTION (WHICH PROCEEDS MAY, IN SOME
CASES, BE MEASURED BY A PERCENTAGE OF THE NET PROFITS REALIZED BY THE HOLDER OF
THE UNDERLYING WORKING INTEREST), TO BE RECEIVED FREE AND CLEAR OF ALL COSTS OF
DEVELOPMENT, OPERATION OR MAINTENANCE, AND HAVING NO CONTROL OVER DRILLING AND
PRODUCTION ACTIVITIES. THE TERM "ROYALTY" OR "ROYALTY INTEREST" INCLUDES
LANDOWNER'S ROYALTIES AND OVERRIDING ROYALTIES (INCLUDING NET PROFITS
ROYALTIES).
"SHARING RATIO" MEANS, WITH RESPECT TO A UNITHOLDER, THE RATIO BETWEEN THE
NUMBER OF UNITS OWNED BY SUCH UNITHOLDER AND THE AGGREGATE NUMBER OF UNITS OWNED
BY ALL UNITHOLDERS OF THE PARTNERSHIP AS AT THE TIME OF DETERMINATION.
"UNITS" ARE LIMITED PARTNERSHIP INTERESTS IN THE PARTNERSHIP, TO EACH OF
WHICH IS ALLOCABLE A SHARE OF THE PROFITS AND LOSSES OF THE PARTNERSHIP AND THE
RIGHT TO RECEIVE DISTRIBUTIONS OF THE PARTNERSHIP'S ASSETS.
"UNITHOLDERS" REFERS TO PERSONS WHO HOLD UNITS.
"UNDEVELOPED LEASEHOLD INTERESTS" REFERS TO ALL INTERESTS IN OIL, GAS AND
OTHER MINERAL LEASES EXCEPT THOSE PORTIONS OF SUCH LEASES INCLUDED WITHIN THE
GOVERNMENTALLY DESIGNATED SPACING OR CONSERVATION UNIT IN WHICH A PRODUCING WELL
IS LOCATED; OR, IF NO SPACING UNIT HAS BEEN DESIGNATED, IN THE CASE OF A
PRODUCING OIL WELL, WITHIN THE REGULARLY SURVEYED QUARTER-QUARTER SECTION (40
ACRES) OR SUBSTANTIALLY EQUIVALENT LOTS OR TRACTS IN WHICH IT IS LOCATED; OR, IN
THE CASE OF A PRODUCING GAS WELL, WITHIN THE REGULARLY SURVEYED QUARTER SECTION
(160 ACRES) OR SUBSTANTIALLY EQUIVALENT LOTS OR TRACTS IN WHICH IT IS LOCATED.
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A "WORKING INTEREST" IS THE OPERATING INTEREST UNDER AN OIL AND GAS LEASE
OR UNLEASED MINERAL INTEREST THE OWNER OF WHICH HAS THE RIGHT TO EXPLORE FOR,
DEVELOP AND PRODUCE OIL AND GAS FROM AND TO OPERATE THE PROPERTIES SUBJECT TO
SUCH INTEREST AND TO RECEIVE HIS PRO RATA SHARE OF THE OIL, GAS AND MINERALS
PRODUCED FROM SUCH PROPERTIES OR THE PROCEEDS FROM THE SALE THEREOF, AND THE
OBLIGATION TO PAY HIS PRO RATA SHARE OF ALL COSTS, INCLUDING COSTS OF
DEVELOPMENT, OPERATION AND MAINTENANCE ASSOCIATED THEREWITH.
SECTION 1.2 CROSS-REFERENCES
REFERENCES IN THESE ARTICLES TO PARTICULAR PARAGRAPHS, SECTIONS AND
ARTICLES ARE, EXCEPT AS OTHERWISE EXPRESSLY INDICATED THEREIN, REFERENCES TO
PARAGRAPHS, SECTIONS AND ARTICLES OF THESE ARTICLES.
ARTICLE 2
STATUS AND BUSINESS OF PARTNERSHIP
SECTION 2.1. STATUS
THE PARTIES TO THESE ARTICLES INTEND HEREBY TO BE MEMBERS OF A LIMITED
PARTNERSHIP PURSUANT TO THE ACT. THE GENERAL PARTNER SHALL NOT BE REQUIRED TO
DELIVER OR MAIL A COPY OF THE CERTIFICATE OR ANY AMENDMENT THERETO TO ANY
UNITHOLDER.
SECTION 2.2. PARTNERSHIP NAME AND TITLE TO PROPERTIES
THE NAME OF THE PARTNERSHIP SHALL BE THE NAME SET FORTH ABOVE. HOWEVER, THE
BUSINESS OF THE PARTNERSHIP MAY BE CONDUCTED UNDER ANY NAME DEEMED NECESSARY OR
DESIRABLE BY THE GENERAL PARTNER. TITLE TO PARTNERSHIP PROPERTIES WILL BE HELD
IN THE NAME OF THE PARTNERSHIP OR IN THE NAME OF A SPECIAL NOMINEE ENTITY
ORGANIZED FOR THE SOLE PURPOSE OF HOLDING RECORD TITLE TO OIL AND GAS
PROPERTIES. THE NOMINEE ENTITY WILL ENGAGE IN NO OTHER BUSINESS AND INCUR NO
OTHER LIABILITIES. IF PROPERTIES ARE HELD IN THE NAME OF A SPECIAL NOMINEE,
EITHER A RULING FROM THE INTERNAL REVENUE SERVICE OR AN OPINION OF QUALIFIED TAX
COUNSEL SHALL BE OBTAINED TO THE EFFECT THAT SUCH ARRANGEMENT SHALL NOT CHANGE
THE OWNERSHIP STATUS OF THE PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES.
SECTION 2.3. PURPOSES AND BUSINESS
(A) THE PURPOSES AND BUSINESS OF THE PARTNERSHIP SHALL BE TO ACCEPT THE
ASSETS AND LIABILITIES OF THE PREDECESSOR PARTNERSHIPS AND TO ACQUIRE, OWN,
HOLD, OPERATE, DEVELOP AND SELL AND EXCHANGE OIL, GAS AND OTHER MINERAL
PROPERTIES AND DIRECT AND INDIRECT INTERESTS THEREIN OF ALL KINDS; TO PROCESS,
REFINE, TRANSPORT AND SELL AND MARKET OIL, GAS AND OTHER MINERALS AND THE
PRODUCTS THEREOF; TO PURCHASE, LEASE, OWN, HOLD, OPERATE, SELL AND EXCHANGE ALL
EQUIPMENT, MACHINERY, FACILITIES, SYSTEMS AND PLANTS APPROPRIATE FOR SUCH
PURPOSES; AND TO ENGAGE IN OR PERFORM ANY AND ALL OTHER ACTS OR ACTIVITIES
CUSTOMARY IN CONNECTION WITH OR INCIDENT, RELATED OR SIMILAR TO THE FOREGOING,
INCLUDING, WITHOUT LIMITATION, THE DRILLING OF DEVELOPMENT WELLS OR THE
REWORKING, RECOMPLETING, DEEPENING OR SIDETRACKING OF EXISTING WELLS ON
PRODUCING PROPERTIES. THE PARTNERSHIP MAY NOT ENGAGE IN EXPLORATORY DRILLING
ACTIVITIES BUT MAY DRILL REPLACEMENT, SECONDARY OR TERTIARY RECOVERY,
ACCELERATION OR OTHER SIMILAR WELLS AND MAY ENGAGE IN DEVELOPMENT DRILLING
PROJECTS AS WELL. TO THE EXTENT NOT SPECIFICALLY SET FORTH IN THIS SECTION 2.3,
THE PURPOSES AND BUSINESS OF THE PARTNERSHIP SHALL ALSO INCLUDE ALL OF THE
RIGHTS AND POWERS OF THE PARTNERSHIP AND THE GENERAL PARTNER DESCRIBED IN THESE
ARTICLES.
(B) PARTNERSHIP REVENUES FROM THE SALE OF OIL AND GAS (EXCEPT AS MAY BE
REQUIRED BY PARAGRAPH (D) OF THIS SECTION 2.3) MAY NOT BE USED FOR PRODUCING
PROPERTY ACQUISITIONS. PARTNERSHIP REVENUES MAY,
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HOWEVER, BE MORTGAGED, ENCUMBERED OR ASSIGNED TO SECURE PAYMENT OF LOANS USED TO
PURCHASE PROPERTY INTERESTS AND MAY BE APPLIED TO PAY SUCH LOANS. PARTNERSHIP
REVENUES MAY ALSO BE APPLIED TO THE PURCHASE OF UNITS OF LIMITED PARTNERS UNDER
CERTAIN CIRCUMSTANCES, AS PROVIDED IN PARAGRAPH (D) OF THIS SECTION 2.3.
PROCEEDS FROM THE SALE OR DISPOSITION OF PRODUCING OIL AND GAS PROPERTIES SHALL
NOT BE USED FOR SUBSEQUENT PRODUCING PROPERTY ACQUISITIONS UNLESS PROPERTY IS
SOLD FOR THE PURPOSE OF PROVIDING FUNDS TO ACQUIRE OTHER PROPERTIES AND, PRIOR
TO THE CLOSING FOR THE SALE OF SUCH PROPERTY, THE GENERAL PARTNER HAS EARMARKED
THE PROPERTY TO BE SOLD FOR SUCH PURPOSE. PARTNERSHIP REVENUES MAY BE USED FOR
ALL OTHER PROPER PARTNERSHIP PURPOSES.
(C) ADDITIONAL PRODUCING PROPERTIES WILL BE PURCHASED ONLY IF
THE PROPERTY IS LOCATED ON THE SAME GEOLOGICAL FEATURE AS OTHER PROPERTIES
ACQUIRED BY THE PARTNERSHIP AND ONLY IF ACQUISITION OF THE ADDITIONAL PROPERTY
IS NECESSARY TO PROTECT OR ENHANCE THE PARTNERSHIP'S HOLDINGS.
(D) THE PARTNERSHIP WILL PURCHASE THE UNITS OF ITS LIMITED
PARTNERS WHO ELECT TO SELL THEIR UNITS AS PROVIDED IN ARTICLE 6. THE
PARTNERSHIP'S ANNUAL OBLIGATION TO PURCHASE PRESENTED UNITS SHALL BE LIMITED,
AND THE PURCHASE PRICE SHALL BE DETERMINED, IN ACCORDANCE WITH THE PROVISIONS OF
ARTICLE 6. INTERNALLY GENERATED FUNDS AND BORROWINGS SECURED BY PARTNERSHIP
ASSETS MAY BE USED FOR THIS PURPOSE. THE PARTNERSHIP MAY ALSO PURCHASE A PORTION
OF THE GENERAL PARTNER'S INTEREST IN THE PARTNERSHIP UNDER THE CIRCUMSTANCES
DESCRIBED IN PARAGRAPH (D) OF SECTION 11.1.
(E) THE PARTNERSHIP GENERALLY WILL CONDUCT ITS BUSINESS IN THE
UNITED STATES BUT MAY CONDUCT BUSINESS IN ANY OTHER COUNTRY.
SECTION 2.4. OFFICES
(A) THE REGISTERED OFFICE OF THE PARTNERSHIP SHALL BE AT ENEX
RESOURCES CORPORATION, C/O SATTERLEE STEPHENS BURKE & BURKE, 47 MAPLE STREET,
SUMMIT, NEW JERSEY 07901, OR AT SUCH OTHER PLACE WITHIN THE STATE OF NEW JERSEY
AS THE GENERAL PARTNER MAY CHOOSE FROM TIME TO TIME UPON WRITTEN NOTICE OF SUCH
CHANGE TO THE UNITHOLDERS. THE REGISTERED AGENT OF THE PARTNERSHIP IS ENEX
RESOURCES CORPORATION, WHICH MAINTAINS A BUSINESS OFFICE AT THE SAME ADDRESS AS
THE REGISTERED OFFICE. THE PARTNERSHIP MAY MAINTAIN OTHER OFFICES AT PLACES
DEEMED ADVISABLE BY THE GENERAL PARTNER.
(B) THE PRINCIPAL OFFICE OF THE PARTNERSHIP SHALL BE AT THE
EXECUTIVE OFFICE OF THE GENERAL PARTNER AT 800 ROCKMEAD DRIVE, THREE KINGWOOD
PLACE, SUITE 200, KINGWOOD, TEXAS 77339 OR AT SUCH OTHER PLACE WITHIN OR WITHOUT
THE STATES OF NEW JERSEY, DELAWARE AND TEXAS AS THE GENERAL PARTNER MAY CHOOSE
FROM TIME TO TIME UPON WRITTEN NOTICE OF SUCH CHANGE TO THE UNITHOLDERS.
SECTION 2.5. TERM
THE PARTNERSHIP TERM COMMENCED ON THE DATE OF THE ORIGINAL
FILING OF THE PARTNERSHIP'S CERTIFICATE. THE PARTNERSHIP SHALL CONTINUE, UNLESS
SOONER TERMINATED, FOR SO LONG AS THE PARTNERSHIP HOLDS ANY PROPERTY, BUT IN NO
EVENT BEYOND DECEMBER 31, 2015.
SECTION 2.6. CERTIFICATION
THE PARTIES TO THESE ARTICLES SHALL FROM TIME TO TIME EXECUTE
OR CAUSE TO BE EXECUTED ALL CERTIFICATES AND OTHER DOCUMENTS AND DO OR CAUSE TO
BE DONE ALL SUCH FILING, RECORDING, PUBLISHING AND OTHER ACTS AS MAY BE DEEMED
NECESSARY OR APPROPRIATE BY THE GENERAL PARTNER IN ORDER TO COMPLY WITH THE
REQUIREMENTS OF LAW FOR THE FORMATION AND OPERATION OF A LIMITED PARTNERSHIP IN
NEW JERSEY AND FOR
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THE OPERATION OF A LIMITED PARTNERSHIP IN ALL OTHER JURISDICTIONS WHERE THE
PARTNERSHIP SHALL CONDUCT BUSINESS.
ARTICLE 3
CONTRIBUTIONS OF THE PARTNERS
SECTION 3.1. GENERAL PARTNER
(A) THE GENERAL PARTNER'S CONTRIBUTION TO THE CAPITAL OF THE
PARTNERSHIP, AS GENERAL PARTNER, SHALL CONSIST OF ITS SHARE, AS GENERAL PARTNER,
OF THE ASSETS NET OF LIABILITIES TRANSFERRED TO THE PARTNERSHIP BY EACH
PREDECESSOR PARTNERSHIP. THE GENERAL PARTNER WILL MAKE CASH CONTRIBUTIONS TO THE
CAPITAL OF THE PARTNERSHIP FROM TIME TO TIME TO THE EXTENT NECESSARY TO ENABLE
THE PARTNERSHIP TO PAY THOSE PARTNERSHIP COSTS CHARGEABLE TO THE ACCOUNT OF THE
GENERAL PARTNER AS PROVIDED IN THESE ARTICLES. THE DIRECT PAYMENT BY THE GENERAL
PARTNER OF A COST CHARGEABLE TO ITS ACCOUNT SHALL BE DEEMED TO BE A CONTRIBUTION
TO THE CAPITAL OF THE PARTNERSHIP.
(B) THE GENERAL PARTNER ALSO MAY PURCHASE UNITS PURSUANT TO
ARTICLE 6. THE GENERAL PARTNER WILL PARTICIPATE TO THE EXTENT OF ITS PURCHASE OF
SUCH UNITS IN THE SAME MANNER AS IF THE GENERAL PARTNER WERE A SUBSTITUTED
LIMITED PARTNER (AS DESCRIBED IN SECTION 8.5) HOLDING SUCH UNITS.
(C) THE GENERAL PARTNER SHALL MAKE ADDITIONAL CAPITAL
CONTRIBUTIONS AS REQUIRED SO THAT ITS CAPITAL ACCOUNT BALANCE SHALL, AT ALL
TIMES DURING THE TERM OF THE PARTNERSHIP, EQUAL THE LESSER OF ONE (1) PERCENT OF
TOTAL POSITIVE CAPITAL ACCOUNT BALANCES OF THE PARTNERSHIP OR $500,000. TO THE
EXTENT THAT ANY SUCH ADDITIONAL CAPITAL CONTRIBUTIONS ARE REQUIRED, THE GENERAL
PARTNER SHALL RECEIVE UNITS IN CONSIDERATION THEREFOR.
SECTION 3.2. UNITHOLDERS
A UNITHOLDER'S CONTRIBUTION TO THE CAPITAL OF THE PARTNERSHIP
(INCLUDING THE GENERAL PARTNER'S CONTRIBUTION AS A UNITHOLDER) SHALL CONSIST OF
HIS SHARE, AS A LIMITED PARTNER OR THE HOLDER OF A LIMITED PARTNERSHIP INTEREST,
OF THE ASSETS NET OF LIABILITIES TRANSFERRED TO THE PARTNERSHIP BY THE
PREDECESSOR PARTNERSHIP OF WHICH HE WAS A LIMITED PARTNER OR THE HOLDER OF A
LIMITED PARTNERSHIP INTEREST AND THE AMOUNT OF ANY LIABILITIES OF A PREDECESSOR
PARTNERSHIP CONTRIBUTED TO THE PARTNERSHIP IN EXCHANGE FOR UNITS.
SECTION 3.3. PARTNERSHIP CAPITAL
(A) NO PARTNER OR UNITHOLDER SHALL BE ENTITLED TO BE PAID
INTEREST ON ANY CAPITAL CONTRIBUTED TO THE PARTNERSHIP OR TO WITHDRAW HIS
CONTRIBUTION, OR TO RECEIVE ANY RETURN OF ANY PORTION OF HIS CONTRIBUTION,
EXCEPT AS OTHERWISE PROVIDED IN THESE ARTICLES.
(B) ALL CONTRIBUTIONS TO THE CAPITAL OF THE PARTNERSHIP MAY BE
USED FOR ALL THE PURPOSES OF THE PARTNERSHIP AND AS OTHERWISE PROVIDED IN THESE
ARTICLES.
SECTION 3.4. LIABILITY OF PARTNERS; LOANS
(A) THE LIABILITY OF THE UNITHOLDERS SHALL BE LIMITED AS SET
FORTH IN THE ACT AND NO UNITHOLDER SHALL BE REQUIRED TO MAKE ANY CONTRIBUTION TO
THE CAPITAL OF THE PARTNERSHIP EXCEPT HIS CONTRIBUTION AS SET FORTH IN THE
PARTNERSHIP'S CERTIFICATE.
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(B) NOTHING IN THESE ARTICLES SHALL PREVENT A UNITHOLDER FROM
MAKING ANY LOAN TO THE PARTNERSHIP BY AGREEMENT WITH THE PARTNERSHIP; PROVIDED,
HOWEVER, THAT NO UNITHOLDER SHALL RECEIVE OR HOLD AS COLLATERAL SECURITY ANY
PARTNERSHIP PROPERTY.
SECTION 3.5. STATUS OF NON-LIMITED PARTNER UNITHOLDERS
(A) UNITHOLDERS WHO ARE NOT LIMITED PARTNERS SHALL HAVE THE
STATUS OF ASSIGNEES OF LIMITED PARTNERSHIP INTERESTS UNDER THE ACT.
(B) EXCEPT AS OTHERWISE PROVIDED IN SECTION 8.5 WITH RESPECT
TO THE TRANSFER OF UNITS, THE GENERAL PARTNER SHALL BE THE LIMITED PARTNER OF
RECORD WITH RESPECT TO ALL UNITS HELD BY UNITHOLDERS WHO ARE NOT ADMITTED TO THE
PARTNERSHIP AS LIMITED PARTNERS; PROVIDED, HOWEVER, THAT ANY VOTING RIGHTS TO
WHICH SUCH UNITHOLDERS WOULD BE ENTITLED WERE THEY LIMITED PARTNERS WILL BE
EXERCISED BY THE GENERAL PARTNER IN PROPORTION TO THE VOTES CAST BY LIMITED
PARTNERS.
(C) A UNITHOLDER WHO IS NOT A LIMITED PARTNER MAY REQUEST
ADMISSION TO THE PARTNERSHIP AS A LIMITED PARTNER AT ANY TIME; AND UPON SUCH
UNITHOLDER'S (I) SATISFACTION OF THE OBLIGATION TO MAKE THE REPRESENTATIONS,
WARRANTIES AND COVENANTS CONTAINED IN SECTION 10.1 AND (II) EXECUTION AND
DELIVERY OF THE POWER OF ATTORNEY CONTAINED IN SECTION 10.3, HE SHALL BE SO
ADMITTED TO THE PARTNERSHIP BY THE GENERAL PARTNER.
ARTICLE 4
ALLOCATION OF COSTS AND REVENUES; DISTRIBUTIONS
SECTION 4.1. ALLOCATION AMONG UNITHOLDERS
THE UNITHOLDERS (WHICH TERM INCLUDES, FOR ALL PURPOSES UNDER
THIS ARTICLE 4, THE GENERAL PARTNER WITH RESPECT TO UNITS OWNED BY IT) SHALL
SHARE THE PARTNERSHIP'S REVENUES, GAINS, COSTS, EXPENSES, LOSSES AND OTHER
CHARGES AND LIABILITIES ALLOCATED TO THEM PURSUANT TO THE SUBSEQUENT SECTIONS OF
THIS ARTICLE 4 PRO RATA IN ACCORDANCE WITH THEIR RESPECTIVE SHARING RATIOS.
SECTION 4.2. ALLOCATION OF COSTS AND REVENUES BETWEEN UNITHOLDERS AND GENERAL
PARTNER
(A) EXCEPT AS OTHERWISE PROVIDED IN SUBSEQUENT SECTIONS OF
THIS ARTICLE 4, ALL PARTNERSHIP COSTS (INCLUDING, WITHOUT LIMITATION, DIRECT
COSTS, ADMINISTRATIVE COSTS, THE COSTS OF PLANNING AND DEVELOPING THE
CONSOLIDATION AND PRESENTING IT TO THE EQUITY OWNERS OF THE PREDECESSOR
PARTNERSHIPS, AS WELL AS THE COSTS OF ORGANIZING THE PARTNERSHIP AND THE COSTS
OF THE CONSOLIDATION ITSELF) AND REVENUES SHALL BE ALLOCATED 3.29% TO THE
GENERAL PARTNER AND 96.71% TO THE UNITHOLDERS.
(B) THE GENERAL PARTNER WILL BE ENTITLED TO REIMBURSEMENT FROM
THE PARTNERSHIP FOR THE UNITHOLDERS' ALLOCABLE PORTION OF ALL COSTS AND EXPENSES
INCURRED IN CONNECTION WITH THE PARTNERSHIP'S BUSINESS AND PAID BY THE GENERAL
PARTNER, AND FOR THE UNITHOLDERS' ALLOCABLE PORTION OF ALL DIRECT COSTS AND
ADMINISTRATIVE COSTS; PROVIDED, HOWEVER, THAT REIMBURSEMENT OF ADMINISTRATIVE
COSTS SHALL BE LIMITED TO AN ANNUAL MAXIMUM REIMBURSABLE AMOUNT EQUAL TO 2% OF
AGGREGATE CAPITAL CONTRIBUTIONS TO THE PREDECESSOR PARTNERSHIPS; AND PROVIDED
FURTHER, THAT REIMBURSEMENT AS DIRECT COSTS OF SALARIES OF EXECUTIVE OFFICERS OF
THE GENERAL PARTNER FOR PROFESSIONAL SERVICES SHALL BE LIMITED TO AN ANNUAL
MAXIMUM REIMBURSABLE AMOUNT EQUAL TO .4% OF AGGREGATE CAPITAL CONTRIBUTIONS TO
THE PREDECESSOR PARTNERSHIPS.
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(C) ANYTHING TO THE CONTRARY IN THESE ARTICLES
NOTWITHSTANDING, WITH THE EXCEPTION OF PARAGRAPH (C) OF SECTION 4.3, THE GENERAL
PARTNER MAY REDUCE ITS REVENUE INTEREST AND CORRESPONDINGLY INCREASE THE REVENUE
INTEREST OF THE LIMITED PARTNERS IF REQUIRED BY LAW IN ORDER FOR THE GENERAL
PARTNER OR ITS AFFILIATES TO PARTICIPATE IN TRANSACTIONS WITH THE PARTNERSHIP OR
ITS LIMITED PARTNERS OR FOR THE PARTNERSHIP TO PARTICIPATE IN TRANSACTIONS WITH
AFFILIATES OF THE GENERAL PARTNER OR THEIR LIMITED PARTNERS.
SECTION 4.3. SPECIAL ALLOCATIONS
THE FOLLOWING SPECIAL ALLOCATIONS SHALL BE MADE IN THE
FOLLOWING ORDER:
(A) MINIMUM GAIN CHARGEBACK. EXCEPT AS OTHERWISE PROVIDED IN
SECTION 1.704-2(F) OF THE TREASURY REGULATIONS, AND NOTWITHSTANDING ANY OTHER
PROVISION OF THIS ARTICLE 4, IF THERE IS A NET DECREASE IN PARTNERSHIP MINIMUM
GAIN DURING ANY FISCAL YEAR, EACH PARTNER SHALL BE SPECIALLY ALLOCATED ITEMS OF
PARTNERSHIP INCOME AND GAIN FOR SUCH FISCAL YEAR (AND, IF NECESSARY, SUBSEQUENT
FISCAL YEARS) IN AN AMOUNT EQUAL TO SUCH PARTNER'S SHARE OF THE NET DECREASE IN
PARTNERSHIP MINIMUM GAIN, DETERMINED IN ACCORDANCE WITH TREASURY REGULATIONS
SECTION 1.704-2(G). ALLOCATIONS PURSUANT TO THE PREVIOUS SENTENCE SHALL BE MADE
IN PROPORTION TO THE RESPECTIVE AMOUNTS REQUIRED TO BE ALLOCATED TO EACH PARTNER
PURSUANT THERETO. THE ITEMS TO BE SO ALLOCATED SHALL BE DETERMINED IN ACCORDANCE
WITH SECTIONS 1.704-2(F)(6) AND 1.704-2(J)(2) OF THE TREASURY REGULATIONS. THIS
SECTION 4.3(A) IS INTENDED TO COMPLY WITH THE MINIMUM GAIN CHARGEBACK
REQUIREMENT IN SECTION 1.704-1(F) OF THE TREASURY REGULATIONS AND SHALL BE
INTERPRETED CONSISTENTLY THEREWITH.
(B) PARTNER MINIMUM GAIN CHARGEBACK. EXCEPT AS OTHERWISE
PROVIDED IN SECTION 1.704-1(I)(4) OF THE TREASURY REGULATIONS, AND
NOTWITHSTANDING ANY OTHER PROVISION OF THIS ARTICLE 4, IF THERE IS A NET
DECREASE IN PARTNER NONRECOURSE DEBT MINIMUM GAIN ATTRIBUTABLE TO A PARTNER
NONRECOURSE DEBT DURING ANY FISCAL YEAR, EACH PARTNER WHO HAS A SHARE OF THE
PARTNER NONRECOURSE DEBT MINIMUM GAIN ATTRIBUTABLE TO SUCH PARTNER NONRECOURSE
DEBT, DETERMINED IN ACCORDANCE WITH SECTION 1.704-2(I)(5) OF THE TREASURY
REGULATIONS, SHALL BE SPECIALLY ALLOCATED ITEMS OF PARTNERSHIP INCOME AND GAIN
FOR SUCH FISCAL YEAR (AND, IF NECESSARY, SUBSEQUENT FISCAL YEARS) IN AN AMOUNT
EQUAL TO SUCH PARTNER'S SHARE OF THE NET DECREASE IN PARTNER NONRECOURSE DEBT
MINIMUM GAIN ATTRIBUTABLE TO SUCH PARTNER NONRECOURSE DEBT, DETERMINED IN
ACCORDANCE WITH TREASURY REGULATIONS SECTION 1.704-2(I)(4). ALLOCATIONS PURSUANT
TO THE PREVIOUS SENTENCE SHALL BE MADE IN PROPORTION TO THE RESPECTIVE AMOUNTS
REQUIRED TO BE ALLOCATED TO EACH PARTNER PURSUANT THERETO. THE ITEMS TO BE SO
ALLOCATED SHALL BE DETERMINED IN ACCORDANCE WITH SECTIONS 1.704-2(I)(4) AND
1.704-2(J)(2) OF THE TREASURY REGULATIONS. THIS SECTION 4.3(B) IS INTENDED TO
COMPLY WITH THE MINIMUM GAIN CHARGEBACK REQUIREMENT IN SECTION 1.704-2(I)(4) OF
THE TREASURY REGULATIONS AND SHALL BE INTERPRETED CONSISTENTLY THEREWITH.
(C) QUALIFIED INCOME OFFSET. IN THE EVENT THAT ANY UNITHOLDER
UNEXPECTEDLY RECEIVES ANY ADJUSTMENTS, ALLOCATIONS, OR DISTRIBUTIONS DESCRIBED
IN TREASURY REGULATION SECTION 1.704-1(B)(2)(II(D)(4), (5), OR (6), WHICH WOULD
CAUSE THE NEGATIVE BALANCE IN SUCH UNITHOLDER'S CAPITAL ACCOUNT TO EXCEED THE
SUM OF (I) HIS OBLIGATION TO RESTORE A CAPITAL ACCOUNT DEFICIT UPON LIQUIDATION
OF THE PARTNERSHIP, PLUS (II) HIS DISTRIBUTIVE SHARE OF MINIMUM GAIN, ITEMS OF
PARTNERSHIP INCOME AND GAIN SHALL BE SPECIALLY ALLOCATED TO SUCH UNITHOLDER IN
AN AMOUNT AND MANNER SUFFICIENT TO ELIMINATE, TO THE EXTENT REQUIRED BY THE
TREASURY REGULATIONS, SUCH EXCESS NEGATIVE BALANCE IN HIS CAPITAL ACCOUNT AS
QUICKLY AS POSSIBLE, PROVIDED THAT AN ALLOCATION PURSUANT TO THIS SECTION 4.3(C)
SHALL BE MADE ONLY IF AND ONLY TO THE EXTENT THAT SUCH UNITHOLDER WOULD HAVE A
NEGATIVE BALANCE IN HIS CAPITAL ACCOUNT AFTER ALL ALLOCATIONS PROVIDED FOR IN
THIS ARTICLE 4 HAVE BEEN TENTATIVELY MADE AS IF THIS SECTION 4.3(C) WERE NOT IN
THESE ARTICLES. THIS SECTION 4.3(C) IS INTENDED TO COMPLY WITH THE ALTERNATIVE
TEST FOR ECONOMIC EFFECT IN SECTION 1.704-1(B)(2)(II)(D) OF THE TREASURY
REGULATIONS AND SHALL BE INTERPRETED CONSISTENTLY THEREWITH.
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(D) GROSS INCOME ALLOCATION. IN THE EVENT ANY UNITHOLDER HAS A
DEFICIT CAPITAL ACCOUNT AT THE END OF ANY FISCAL YEAR THAT IS IN EXCESS OF THE
SUM OF (I) THE AMOUNT SUCH UNITHOLDER IS OBLIGATED TO RESTORE PURSUANT TO ANY
PROVISION OF THIS AGREEMENT, AND (II) THE AMOUNT SUCH UNITHOLDER IS DEEMED TO BE
OBLIGATED TO RESTORE PURSUANT TO THE SECTIONS 1.704-2(G)(1) AND 1.704-2(I)(5) OF
THE TREASURY REGULATIONS, SUCH UNITHOLDER SHALL BE SPECIALLY ALLOCATED ITEMS OF
PARTNERSHIP INCOME AND GAIN IN THE AMOUNT OF SUCH EXCESS AS QUICKLY AS POSSIBLE,
PROVIDED THAT AN ALLOCATION PURSUANT TO THIS SECTION 4.3(D) SHALL BE MADE ONLY
IF AND TO THE EXTENT THAT SUCH UNITHOLDER WOULD HAVE A DEFICIT CAPITAL ACCOUNT
IN EXCESS OF SUCH SUM AFTER ALL OTHER ALLOCATIONS PROVIDED FOR IN THIS ARTICLE 4
HAVE BEEN TENTATIVELY MADE AS IF SECTION 4.3(C) HEREOF AND THIS SECTION 4.3(D)
WERE NOT IN THESE ARTICLES.
(E) NONRECOURSE DEDUCTIONS. NONRECOURSE DEDUCTIONS FOR ANY
FISCAL YEAR SHALL BE ALLOCATED PURSUANT TO SECTIONS 4.1 AND 4.2.
(F) PARTNER NONRECOURSE DEDUCTIONS. ANY PARTNER NONRECOURSE
DEDUCTIONS FOR ANY FISCAL YEAR SHALL BE SPECIALLY ALLOCATED TO THE PARTNER WHO
BEARS THE ECONOMIC RISK OF LOSS WITH RESPECT TO THE PARTNER NONRECOURSE DEBT TO
WHICH SUCH PARTNER NONRECOURSE DEDUCTIONS ARE ATTRIBUTABLE IN ACCORDANCE WITH
TREASURY REGULATIONS SECTION 1.704-2(I)(1).
FOR THE PURPOSES OF THIS SECTION 4.3 AND SECTION 4.4 THE TERM
PARTNER SHALL INCLUDE UNITHOLDERS TO THE EXTENT NECESSARY FOR ALLOCATIONS TO
COMPLY WITH THE TREASURY REGULATIONS.
SECTION 4.4. CURATIVE ALLOCATIONS
THE ALLOCATIONS SET FORTH IN SECTIONS 4.3(A), 4.3(B), 4.3(C),
4.3(D), 4.3(E), AND 4.3(F) AND HEREOF (THE "REGULATORY ALLOCATIONS") ARE
INTENDED TO COMPLY WITH CERTAIN REQUIREMENTS OF THE TREASURY REGULATIONS. IT IS
THE INTENT OF THE PARTNERS THAT, TO THE EXTENT POSSIBLE, ALL REGULATORY
ALLOCATIONS SHALL BE OFFSET EITHER WITH OTHER REGULATORY ALLOCATIONS OR WITH
SPECIAL ALLOCATIONS OF OTHER ITEMS OF PARTNERSHIP INCOME, GAIN, LOSS, OR
DEDUCTION PURSUANT TO THIS SECTION 4.4. THEREFORE, NOTWITHSTANDING ANY OTHER
PROVISION OF THIS ARTICLE 4 (OTHER THAN THE REGULATORY ALLOCATIONS), THE GENERAL
PARTNER SHALL MAKE SUCH OFFSETTING SPECIAL ALLOCATIONS OF PARTNERSHIP INCOME,
GAIN, LOSS OR DEDUCTION IN WHATEVER MANNER IT DETERMINES APPROPRIATE SO THAT,
AFTER SUCH OFFSETTING ALLOCATIONS ARE MADE, EACH PARTNER'S CAPITAL ACCOUNT
BALANCE IS, TO THE EXTENT POSSIBLE, EQUAL TO THE CAPITAL ACCOUNT BALANCE SUCH
PARTNER WOULD HAVE HAD IF THE REGULATORY ALLOCATIONS WERE NOT PART OF THESE
ARTICLES AND ALL PARTNERSHIP ITEMS WERE ALLOCATED PURSUANT TO SECTIONS 4.1 AND
4.2 HEREOF. IN EXERCISING ITS DISCRETION UNDER THIS SECTION 4.4, THE GENERAL
PARTNER SHALL TAKE INTO ACCOUNT FUTURE REGULATORY ALLOCATIONS UNDER SECTIONS
4.3(A) AND 4.3(B) THAT, ALTHOUGH NOT YET MADE, ARE LIKELY TO OFFSET OTHER
REGULATORY ALLOCATIONS PREVIOUSLY MADE UNDER SECTIONS 4.3(E) AND 4.3(F).
SECTION 4.5. REPAYMENT OF PARTNERSHIP BORROWINGS
ANYTHING TO THE CONTRARY IN THESE ARTICLES NOTWITHSTANDING,
THE REPAYMENT OF PARTNERSHIP BORROWINGS (EXCLUSIVE OF INTEREST) ASSUMED BY THE
PARTNERSHIP UPON THE ACCEPTANCE OF THE ASSETS AND LIABILITIES OF THE PREDECESSOR
PARTNERSHIPS AND PARTNERSHIP BORROWINGS (EXCLUSIVE OF INTEREST) THE PROCEEDS OF
WHICH ARE USED TO ACQUIRE EITHER PRODUCING PROPERTIES OR UNITS, SHALL BE MADE
OUT OF THE UNITHOLDERS' SHARE OF NET REVENUES AS SET FORTH IN THIS ARTICLE 4.
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SECTION 4.6. PROCEEDS FROM THE SALE OF PROPERTY
IN THE EVENT ANY PARTNERSHIP PROPERTY IS SOLD OR EXCHANGED
OTHER THAN IN A TRANSACTION DESCRIBED IN SECTION 4.8, THEN THE NET PROCEEDS OF
SUCH SALE OR EXCHANGE (WITH NET PROCEEDS MEANING GROSS PROCEEDS LESS SELLING
EXPENSES AND OTHER COSTS ASSOCIATED WITH SUCH TRANSACTION, IF ANY) SHALL FIRST
BE TENTATIVELY ALLOCATED TO THE UNITHOLDERS AND THE GENERAL PARTNER AS IF SUCH
NET PROCEEDS WERE REVENUES ALLOCATED PURSUANT TO SECTION 4.2 (THE AMOUNT SO
ALLOCATED TO THE GENERAL PARTNER BEING REFERRED TO IN THIS SECTION 4.6 AS ITS
"TENTATIVE ALLOCATION"). SUCH NET PROCEEDS SHALL THEN BE ALLOCATED AS FOLLOWS:
(I) THE UNITHOLDERS SHALL BE CREDITED WITH
SUCH PORTION OF THE NET PROCEEDS AS EQUALS THE AMOUNT AT WHICH
THE PROPERTY SOLD OR EXCHANGED IS CARRIED ON THE BOOKS OF THE
PARTNERSHIP IF IT WAS PURCHASED BY THE PARTNERSHIP OR, IF
CONTRIBUTED TO THE PARTNERSHIP, ITS ADJUSTED BASIS AT THE TIME
OF CONTRIBUTION, LESS ACCUMULATED COST RECOVERY DEDUCTIONS
WITH RESPECT THERETO, IN PROPORTION TO THEIR INTERESTS IN SUCH
AMOUNT. (FOR PURPOSES OF THIS PARAGRAPH, THE UNITHOLDERS'
INTERESTS IN SUCH AMOUNT SHALL CORRESPOND TO THEIR RESPECTIVE
SHARES OF THE COST OR ADJUSTED BASIS OF SUCH PROPERTY AS
REFLECTED ON THE PARTNERSHIP'S BOOKS, LESS THE COST RECOVERY
DEDUCTIONS ATTRIBUTABLE TO SUCH PROPERTY CHARGED TO THEIR
RESPECTIVE CAPITAL ACCOUNTS.)
(II) THE GENERAL PARTNER SHALL THEN BE
ALLOCATED SUCH PORTION OF ANY REMAINING NET PROCEEDS AS EQUALS
THE SUM OF THE GENERAL PARTNER'S TENTATIVE ALLOCATION AND AN
AMOUNT EQUAL TO THE EXCESS OF THE SUM OF THE GENERAL PARTNER'S
TENTATIVE ALLOCATIONS OF THE PROCEEDS OF ALL SALES OR
EXCHANGES OF PARTNERSHIP PROPERTY OVER THE SUM OF THE GENERAL
PARTNER'S ACTUAL SHARES OF THE PROCEEDS OF SUCH SALES OR
EXCHANGES.
(III) ANY NET PROCEEDS THEN REMAINING SHALL
BE ALLOCATED TO THE UNITHOLDERS.
SECTION 4.7. REINVESTMENT IN PROPERTIES
NOTWITHSTANDING THE PROVISIONS OF SECTION 4.6, IF PROPERTY IS
SOLD FOR THE PURPOSE OF PROVIDING FUNDS TO ACQUIRE OTHER PROPERTIES AND, PRIOR
TO THE CLOSING FOR THE SALE OF SUCH PROPERTY, THE GENERAL PARTNER HAS EARMARKED
THE PROPERTY TO BE SOLD FOR SUCH PURPOSE, THEN THE GAIN RESULTING FROM THE SALE
OF SUCH PROPERTY (I.E., THE AMOUNTS THAT WOULD OTHERWISE BE ALLOCATED PURSUANT
TO SUBPARAGRAPHS (II) AND (III) OF SECTION 4.6) SHALL BE ALLOCATED TO THE
UNITHOLDERS.
SECTION 4.8. ADJUSTMENTS
(A) IF A TRANSFEREE OF UNITS IS PERMITTED TO EXCHANGE SUCH
UNITS FOR A PRO RATA SHARE OF PARTNERSHIP NET ASSETS PURSUANT TO SECTION 8.8,
THE GENERAL PARTNER'S AND UNITHOLDERS' SHARES OF COSTS AND REVENUES SHALL BE
CORRESPONDINGLY ADJUSTED SO THAT THEIR SUM SHALL EQUAL 100%, TO TAKE INTO
ACCOUNT THE SHARE OF SUCH COSTS AND REVENUES ATTRIBUTABLE TO THE DISTRIBUTED
PARTNERSHIP ASSETS.
(B) IF THE PARTNERSHIP PURCHASES UNITS PURSUANT TO ARTICLE 6
AND THE GENERAL PARTNER DETERMINES THAT THE PARTNERSHIP SHOULD CANCEL SUCH
UNITS, THE GENERAL PARTNER'S AND UNITHOLDERS' SHARES OF COSTS AND REVENUES SHALL
BE CORRESPONDINGLY ADJUSTED SO THAT THEIR SUM SHALL EQUAL 100%, TO TAKE INTO
ACCOUNT THE SHARE OF COSTS AND REVENUES ATTRIBUTABLE TO THE CANCELLED UNITS.
(C) IF AT ANY TIME IT IS DETERMINED THAT THE ALLOCATION
PROVISIONS SET FORTH IN THIS ARTICLE 4 DO NOT RESULT IN THE GENERAL PARTNER
BEING ALLOCATED AT LEAST 1% OF EACH MATERIAL ITEM OF PARTNERSHIP INCOME, GAIN,
LOSS, DEDUCTION OR CREDIT, THEN THIS PARAGRAPH SHALL BECOME OPERATIVE AND CAUSE
THE GENERAL PARTNER TO BE ALLOCATED SO MUCH MORE OF EACH OF THOSE ITEMS AS WILL
CAUSE IT TO BE ALLOCATED AT ALL TIMES 1% OF
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EACH SUCH MATERIAL ITEM OF PARTNERSHIP INCOME, GAIN, LOSS, DEDUCTION OR CREDIT.
TO THE EXTENT THAT ADDITIONAL COST ITEMS ARE ALLOCATED TO THE GENERAL PARTNER
PURSUANT TO THE PRECEDING SENTENCE, IT WILL CONTRIBUTE TO THE PARTNERSHIP
SUFFICIENT ADDITIONAL FUNDS AS ARE NECESSARY TO PAY THE ADDITIONALLY ALLOCATED
ITEMS; PROVIDED, HOWEVER, THAT ANY SPECIAL ALLOCATIONS MADE PURSUANT TO THIS
PARAGRAPH SHALL BE OFFSET BY FUTURE ALLOCATIONS SO AS TO PLACE THE GENERAL
PARTNER IN THE SAME POSITION AS IF NO SPECIAL ALLOCATIONS HAD BEEN MADE PURSUANT
TO THIS PARAGRAPH, AND ANY FUNDS CONTRIBUTED BY THE GENERAL PARTNER TO FUND COST
ITEMS ALLOCATED TO IT SHALL BE DISTRIBUTED AT SUCH TIME AS THE OFFSETTING INCOME
ALLOCATION IS MADE TO THE GENERAL PARTNER.
SECTION 4.9. DISTRIBUTIONS
(A) NOT LESS OFTEN THAN QUARTERLY, THE GENERAL PARTNER WILL
REVIEW THE PARTNERSHIP'S ACCOUNTS TO DETERMINE WHETHER CASH DISTRIBUTIONS ARE
APPROPRIATE. THE PARTNERSHIP WILL DISTRIBUTE SUCH CASH FUNDS AS THE GENERAL
PARTNER DEEMS UNNECESSARY TO RETAIN IN THE PARTNERSHIP TO THE UNITHOLDERS IN
THEIR SHARING RATIOS. CASH DISTRIBUTIONS FROM THE PARTNERSHIP TO THE GENERAL
PARTNER SHALL BE MADE ONLY OUT OF FUNDS PROPERLY ALLOCATED TO ITS ACCOUNT.
(B) ANYTHING TO THE CONTRARY IN THESE ARTICLES
NOTWITHSTANDING, IF WITHHOLDING OF TAX IS REQUIRED WITH REGARD TO ANY INCOME
ATTRIBUTABLE TO SOME PARTNERS OR UNITHOLDERS AND NOT TO OTHERS, THEN
DISTRIBUTIONS OF SUCH INCOME TO THE PARTNERS OR UNITHOLDERS WILL BE MADE TO TAKE
THE DIFFERENCE INTO ACCOUNT. IN ADDITION, APPROPRIATE ADJUSTMENTS SHALL BE MADE
TO THE PARTNERS' OR UNITHOLDERS' CAPITAL ACCOUNTS IF AND TO THE EXTENT REQUIRED
TO GIVE EFFECT TO THE FOREGOING.
ARTICLE 5
TAX MATTERS
SECTION 5.1. TAX ACCOUNTING AND ALLOCATIONS
(A) WITH RESPECT TO THE ALLOCATIONS SET FORTH IN ARTICLE 4, TO
THE EXTENT PERMITTED BY LAW AND EXCEPT AS PROVIDED BELOW, (I) ALL INCOME AND
GAINS SHALL BE ALLOCATED TO THE PARTNERS (WHICH TERM, FOR THE PURPOSES OF THIS
ARTICLE 5, INCLUDES THE GENERAL PARTNER AND THE UNITHOLDERS) TO WHOM THE
REVENUES RESULTING IN THE REALIZATION OF SUCH INCOME AND GAINS ARE ALLOCATED,
(II) ALL LOSSES SHALL BE ALLOCATED TO THE PARTNERS IN THE SAME PROPORTION AS THE
LOSSES ARE ACTUALLY BORNE BY SUCH PARTNERS, (III) ALL DEDUCTIONS AND CREDITS
SHALL BE ALLOCATED TO THE PARTNERS CHARGED WITH THE EXPENDITURE GIVING RISE TO
SUCH DEDUCTIONS OR CREDITS, AND (IV) ALL ITEMS OF TAX PREFERENCE FOR FEDERAL
ALTERNATIVE MINIMUM TAX PURPOSES SHALL BE ALLOCATED TO THE PARTNERS CREDITED
WITH THE REVENUES RESULTING IN THE REALIZATION OF THE INCOME, GAINS OR LOSSES
GIVING RISE TO SUCH ITEMS OF TAX PREFERENCE OR CHARGED WITH THE EXPENDITURE
GIVING RISE TO THE DEDUCTIONS OR CREDITS TO WHICH SUCH ITEMS OF TAX PREFERENCE
ARE ATTRIBUTABLE. TO THE EXTENT PERMITTED BY LAW, EACH PARTNER SHALL BE ENTITLED
TO HIS DISTRIBUTIVE SHARE OF PARTNERSHIP INCOME, GAIN, LOSS, DEDUCTION OR
CREDIT, OR ITEMS OF TAX PREFERENCE, IN COMPUTING HIS TAXABLE INCOME OR TAX
LIABILITY, TO THE EXCLUSION OF ANY OTHER PARTNER.
(B) ANYTHING TO THE CONTRARY IN THESE ARTICLES
NOTWITHSTANDING, BUT EXCEPT AS PROVIDED IN PARAGRAPH (C) OF THIS SECTION 5.1, TO
THE EXTENT PERMITTED BY LAW, THE ADJUSTED BASIS OF EACH PARTNERSHIP OIL AND GAS
PROPERTY (AS DEFINED IN SECTION 614 OF THE CODE) SHALL BE ALLOCATED AMONG THE
PARTNERS IN THE SAME PROPORTION AS SUCH PARTNERS CONTRIBUTED TO THE COST OF EACH
SUCH OIL AND GAS PROPERTY. EACH PARTNER SHALL SEPARATELY REPORT AND KEEP RECORDS
OF ITS SHARE (DETERMINED UNDER SECTION 4.2) OF THE ADJUSTED BASIS OF, DEPLETION
WITH RESPECT TO, AND GAINS (INCLUDING RECAPTURE) OR LOSSES FROM THE DISPOSITION
OF, EACH PARTNERSHIP OIL AND GAS PROPERTY, WITH APPROPRIATE ADJUSTMENTS THERETO
FOR DEPLETION TAKEN BY SUCH PARTNER;
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EXPENDITURES MADE WHICH INCREASE THE BASIS OF ANY PARTNERSHIP OIL AND GAS
PROPERTY SHALL BE ALLOCATED TO THE PARTNERS IN PROPORTION TO THEIR CONTRIBUTIONS
TO SUCH EXPENDITURES. SUCH RECORDS SHALL BE FURNISHED TO THE PARTNERSHIP UPON
REQUEST.
(C) ANYTHING TO THE CONTRARY IN THESE ARTICLES
NOTWITHSTANDING, IN THE CASE OF PROPERTY CONTRIBUTED TO THE PARTNERSHIP BY ANY
PARTNER PURSUANT TO ARTICLE 3, INCOME, GAIN, LOSSES AND DEDUCTIONS WILL BE
ALLOCATED AMONG THE PARTNERS SO AS TO TAKE INTO ACCOUNT, PURSUANT TO SECTION
704(C) OF THE CODE, THE VARIATION BETWEEN THE FAIR MARKET VALUE AND ADJUSTED
BASIS OF PROPERTY AT THE TIME OF ITS CONTRIBUTION TO THE PARTNERSHIP. IN THE
EVENT THAT CAPITAL ACCOUNTS ARE REVALUED PURSUANT TO ARTICLE 7 TO REFLECT THE
ADMISSION OF A NEW PARTNER OR WITHDRAWAL OF A PARTNER, SUBSEQUENT ALLOCATIONS OF
PARTNERSHIP INCOME, GAIN, LOSS, AND DEDUCTION WITH RESPECT TO PARTNERSHIP ASSETS
REFLECTED IN THE CAPITAL ACCOUNTS SHALL TAKE INTO ACCOUNT ANY VARIATION BETWEEN
THE ADJUSTED BASIS OF SUCH ASSETS AND THE FAIR MARKET VALUE OF SUCH ASSETS AT
THE DATE SUCH REVALUATION OCCURRED. ALLOCATIONS MADE PURSUANT TO THIS PARAGRAPH
SHALL BE IN ACCORDANCE WITH SECTION 1.704-3 OF THE TREASURY REGULATIONS AND THE
GENERAL PARTNER SHALL BE AUTHORIZED TO MAKE CURATIVE OR REMEDIAL ALLOCATIONS, AS
PROVIDED IN THE TREASURY REGULATIONS, AS NECESSARY TO CAUSE SUCH ALLOCATIONS TO
COMPLY WITH SECTION 1.704-3. ADJUSTED BASIS OF PROPERTIES CONTRIBUTED TO THE
PARTNERSHIP THAT ARE SUBJECT TO DEPLETION SHALL BE ALLOCATED AMONG THE PARTNERS
IN ACCORDANCE WITH SECTIONS 1.613A-3(E), 1.704-1(B)(4)(V), AND 1.704-3 TO TAKE
INTO ACCOUNT THE DIFFERENCE BETWEEN THE ADJUSTED BASIS OF THE CONTRIBUTED
PROPERTY AND ITS FAIR MARKET VALUE ON THE DATE OF CONTRIBUTION. SIMILAR
ALLOCATIONS SHALL BE MADE IN THE EVENT THAT CAPITAL ACCOUNTS ARE REVALUED
PURSUANT TO ARTICLE 7.
(D) IN THE EVENT OF A SALE OR ASSIGNMENT OF UNITS (OTHER THAN
BY REASON OF A UNITHOLDER'S DEATH), EXCEPT TO THE EXTENT THAT PURSUANT TO A
VALID TREASURY DEPARTMENT REGULATION A DIFFERENT METHOD IS REQUIRED, THE INCOME,
GAINS, LOSSES, DEDUCTIONS AND CREDITS OF THE PARTNERSHIP FOR THE FISCAL YEAR IN
WHICH SUCH SALE OR ASSIGNMENT IS RECOGNIZED AS PROVIDED IN SECTION 8.2 SHALL BE
ALLOCATED PRO-RATA BETWEEN THE ASSIGNOR AND ASSIGNEE OF SUCH UNITS BASED ON THE
PERIODS OF TIME DURING SUCH FISCAL YEAR THAT SUCH UNITS WERE OWNED BY EACH,
WITHOUT REGARD TO THE PERIODS DURING SUCH FISCAL YEAR IN WHICH SUCH INCOME,
LOSSES, DEDUCTIONS AND CREDITS OF THE PARTNERSHIP WERE ACTUALLY REALIZED;
PROVIDED, HOWEVER, THAT WITH RESPECT TO CERTAIN "CASH BASIS ITEMS", INCLUDING,
FOR THIS PURPOSE, PARTNERSHIP ITEMS OF INTEREST, TAXES, PAYMENTS FOR SERVICES,
PAYMENTS FOR THE USE OF PROPERTY, AND ANY OTHER ITEMS DESIGNATED AS "CASH BASIS
ITEMS" UNDER SECTION 706 OF THE CODE AND THE REGULATIONS PROMULGATED THEREUNDER,
SUCH ITEMS SHALL BE ASSIGNED TO THE APPROPRIATE PERIOD TO WHICH THEY ARE
ATTRIBUTABLE AND BY ALLOCATING SUCH ASSIGNED PORTION BASED UPON THE INTEREST
OWNED BY A UNITHOLDER DURING EACH SUCH PERIOD.
(E) FOR THE PURPOSES OF COMPUTING THE PARTNERS' CAPITAL
ACCOUNTS, ALL COST RECOVERY DEDUCTIONS TAKEN INTO ACCOUNT FOR PURPOSES OF
COMPUTING PARTNERSHIP INCOME OR LOSS SHALL BE ALLOCATED TO THE UNITHOLDERS. FOR
THIS PURPOSE, COST RECOVERY DEDUCTIONS INCLUDE THE PARTNERSHIP'S DEDUCTIONS FOR
COST DEPLETION, PERCENTAGE DEPLETION TO THE EXTENT OF THE COST BASIS OF THE
PROPERTY, DEPRECIATION, AMORTIZATION AND THE LIKE. COST RECOVERY DEDUCTIONS DO
NOT INCLUDE THAT PORTION OF THE COST OF PARTNERSHIP PROPERTY THAT IS TAKEN INTO
ACCOUNT IN COMPUTING GAIN OR LOSS FROM SALES OR EXCHANGES.
SECTION 5.2. COMPENSATION INCOME
THE PARTIES HEREBY ACKNOWLEDGE AND AGREE THAT EACH PARTNER'S
INTEREST IN THE PROFITS AND LOSSES OF THE PARTNERSHIP IS ATTRIBUTABLE SOLELY TO
EACH PARTNER'S CONTRIBUTIONS TO THE CAPITAL OF THE PREDECESSOR PARTNERSHIPS,
INCLUDING, WITH RESPECT TO THE GENERAL PARTNER, BUT WITHOUT LIMITATION, ITS
PERSONAL LIABILITY WITH RESPECT TO CERTAIN LIABILITIES OF THE PREDECESSOR
PARTNERSHIPS. IN THE EVENT, HOWEVER, THAT ANY OF THE PARTNERS IS DETERMINED FOR
INCOME TAX PURPOSES TO HAVE RECEIVED ALL OR ANY PART OF ITS INTEREST IN THE
PROFITS AND LOSSES OF THE PARTNERSHIP (AS DISTINGUISHED FROM ITS INTEREST IN THE
CAPITAL OF THE PARTNERSHIP) AS COMPENSATION FOR SERVICES, AND, AS A RESULT OF
SUCH DETERMINATION, IS REQUIRED TO RECOGNIZE
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COMPENSATION INCOME FOR FEDERAL AND/OR STATE INCOME TAX PURPOSES WITH RESPECT TO
SUCH INTEREST IN THE PARTNERSHIP, THEN, ANYTHING TO THE CONTRARY IN THESE
ARTICLES NOTWITHSTANDING, ANY CORRESPONDING FEDERAL AND/OR STATE INCOME TAX
BENEFIT INURING TO THE PARTNERSHIP AS A RESULT OF SUCH DETERMINATION, WHETHER IN
THE FORM OF A DEDUCTION FOR COMPENSATION PAID, A DEDUCTION FOR DEPRECIATION OR
AMORTIZATION OF ANY OF ITS ASSETS, OR OTHERWISE, SHALL BE ALLOCATED FOR INCOME
TAX PURPOSES SOLELY TO THE PARTNERS REQUIRED TO RECOGNIZE SUCH COMPENSATION
INCOME IN AN AMOUNT WHICH BEARS THE SAME RATIO TO ANY SUCH INCOME TAX BENEFIT AS
THE AMOUNT OF SUCH COMPENSATION INCOME REQUIRED TO BE RECOGNIZED BY SUCH
PARTNERS BEARS TO THE TOTAL AMOUNT OF SUCH COMPENSATION INCOME REQUIRED TO BE
RECOGNIZED BY ALL OF SUCH PARTNERS.
SECTION 5.3. TAX ELECTIONS
(A) THE GENERAL PARTNER SHALL ON THE FIRST FEDERAL INCOME TAX
INFORMATION RETURN FILED ON BEHALF OF THE PARTNERSHIP MAKE A PROPER ELECTION TO
TREAT AS AN EXPENSE ALL INTANGIBLE DRILLING AND DEVELOPMENT COSTS IN ACCORDANCE
WITH THE OPTION GRANTED BY SECTION 263(C) OF THE CODE AND, IN ITS DISCRETION,
MAKE ANY NECESSARY ELECTION TO TREAT AS AN EXPENSE ANY OTHER AMOUNTS THAT MAY BE
SO TREATED UNDER APPLICABLE PROVISIONS OF THE CODE AND THE REGULATIONS
PROMULGATED THEREUNDER.
(B) THE GENERAL PARTNER WILL MAKE THE ELECTION AT THE TIME
AND IN THE MANNER SET FORTH UNDER TREAS. REG. SS. 1.704-1(B)(2)(IV)(K)(2) TO
COMPUTE SIMULATED DEPLETION ON A PROPERTY-BY-PROPERTY BASIS UNDER THE COST OR
PERCENTAGE METHOD.
(C) NO ELECTION SHALL BE MADE BY THE PARTNERSHIP, THE GENERAL
PARTNER OR ANY UNITHOLDER TO BE EXCLUDED FROM THE APPLICATION OF THE PROVISIONS
OF SUBCHAPTER K OF THE CODE, OR FROM ANY SIMILAR PROVISION OF STATE OR LOCAL
INCOME TAX LAWS.
(D) UPON THE TRANSFER OF ALL OR PART OF A UNITHOLDER'S
INTEREST, THE DEATH OF AN INDIVIDUAL UNITHOLDER, OR THE DISTRIBUTION OF ANY
PARTNERSHIP PROPERTY TO ANY PARTY TO THESE ARTICLES, THE PARTNERSHIP, AT THE
GENERAL PARTNER'S OPTION, MAY MAKE ANY AVAILABLE ELECTION TO CAUSE THE BASIS OF
THE PARTNERSHIP PROPERTIES TO BE ADJUSTED FOR FEDERAL INCOME TAX PURPOSES AS
PROVIDED BY SECTIONS 734, 743 AND 754, RESPECTIVELY, OF THE CODE; SIMILAR
ELECTIONS UNDER PROVISIONS OF STATE AND LOCAL INCOME TAX LAWS MAY BE MADE AT THE
GENERAL PARTNER'S OPTION.
SECTION 5.4. ADMINISTRATIVE MATTERS
(A) FEDERAL, STATE AND LOCAL INCOME (AND OTHER) TAX RETURNS
SHALL BE PREPARED AND FILED BY THE GENERAL PARTNER COVERING OPERATIONS
REPORTABLE BY THE PARTNERSHIP. THE GENERAL PARTNER SHALL USE ITS BEST EFFORTS IN
THE PREPARATION AND FILING OF SUCH TAX RETURNS, IN THE MANNER THAT THE GENERAL
PARTNER BELIEVES WILL BE MOST ADVANTAGEOUS TO INDIVIDUAL TAXPAYERS WHO ARE NOT
"DEALERS" IN OIL AND GAS PROPERTIES FOR FEDERAL INCOME TAX PURPOSES. THE GENERAL
PARTNER SHALL ALSO CAUSE TO BE PREPARED AND DISTRIBUTED TO ALL THE UNITHOLDERS A
SCHEDULE K-1, INCLUDING SUCH REPORTS OR COMPUTATIONS NECESSARY TO COMPUTE
DEPLETION DEDUCTIONS AND GAINS AND LOSSES FROM DISPOSITIONS OF PARTNERSHIP
PROPERTIES IN RESPECT OF EACH UNITHOLDER.
(B) THE GENERAL PARTNER SHALL BE THE TAX MATTERS PARTNER OF
THE PARTNERSHIP (WITHIN THE MEANING OF SECTION 6231(A)(7) OF THE CODE) EMPOWERED
TO RESOLVE THE APPROPRIATE TAX TREATMENT OF PARTNERSHIP ITEMS OF INCOME,
DEDUCTION OR CREDIT AND TO SERVE AS THE PRIMARY LIAISON BETWEEN THE INTERNAL
REVENUE SERVICE AND THE PARTNERSHIP AND ITS UNITHOLDERS.
(C) IN THE EVENT THE PARTNERSHIP IS REQUIRED TO REGISTER AS A
"TAX SHELTER" UNDER SECTION 6111 OF THE CODE, THE GENERAL PARTNER WILL COMPLETE
AND FILE THE APPROPRIATE REGISTRATION DOCUMENTS WITH THE INTERNAL REVENUE
SERVICE. IN ADDITION, THE GENERAL PARTNER WILL MAINTAIN A LIST OF INVESTORS IN
ACCORDANCE
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WITH SECTION 6112 OF THE CODE, AND THE REGULATIONS PROMULGATED THEREUNDER, AND
SHALL BE THE PERSON DESIGNATED BY THE PARTNERS TO MAINTAIN A MASTER LIST,
INCLUDING THE IDENTITY OF UNITHOLDER-TRANSFEREES, AS REPORTED TO THE GENERAL
PARTNER BY UNITHOLDER-TRANSFERORS.
ARTICLE 6
RIGHT TO PRESENT UNITS FOR PURCHASE
SECTION 6.1. RIGHT OF PRESENTMENT
UNLESS THE UNITS ARE LISTED ON A STOCK EXCHANGE OR INCLUDED
FOR QUOTATION ON NASDAQ OR A TRADING MARKET FOR THE UNITS OTHERWISE DEVELOPS, AT
ANNUAL INTERVALS COMMENCING ON DECEMBER 31 OF THE YEAR IN WHICH THE
PARTNERSHIP'S OPERATIONS COMMENCE, THE GENERAL PARTNER SHALL EVALUATE UNITS AS
OF THE YEAR THEN ENDED. WITHIN 120 DAYS THEREAFTER, THE GENERAL PARTNER WILL
MAIL A NOTICE SETTING FORTH THE PURCHASE PRICE, DETERMINED IN THE MANNER SET
FORTH IN SECTION 6.3, TO EACH LIMITED PARTNER WHO HAS, SINCE THE PREVIOUS
JANUARY 1ST, NOTIFIED THE GENERAL PARTNER OF A DESIRE TO PRESENT HIS UNITS TO
THE PARTNERSHIP FOR PURCHASE. EACH SUCH NOTICE FROM THE GENERAL PARTNER WILL
INCLUDE A SUMMARY OF THE REPORTS OF THE INDEPENDENT EXPERTS REFERRED TO IN
SECTION 6.3, THE ASSET AND LIABILITY ITEMS CONSIDERED IN DETERMINING THE
PURCHASE PRICE AND AN EXPLANATION OF HOW THE PURCHASE PRICE WAS CALCULATED, AND
WILL INCLUDE A FORM OF ASSIGNMENT OF UNITS TO BE PRESENTED FOR PURCHASE. THE
PARTNERSHIP WILL NOT BE OBLIGATED TO PURCHASE PRESENTED UNITS REPRESENTING MORE
THAN 15% OF THE AGGREGATE PURCHASE PRICE OF THE UNITS PER YEAR. THE
PARTNERSHIP'S OBLIGATION TO PURCHASE PRESENTED UNITS ALSO IS SUBJECT TO THE
CONDITIONS OF SECTIONS 2.3 AND 6.5. IF, FOR ANY REASON, LESS THAN ALL UNITS
PRESENTED AT ANY ONE TIME ARE TO BE PURCHASED, THE UNITS TO BE PURCHASED WILL BE
SELECTED BY LOT. UNITHOLDERS WHO ARE NOT LIMITED PARTNERS WILL NOT HAVE THE
RIGHT TO PRESENT THEIR UNITS TO THE PARTNERSHIP PURSUANT TO THIS ARTICLE 6.
SECTION 6.2. MANNER OF EXERCISE; RESCISSION
LIMITED PARTNERS DESIRING TO PRESENT THEIR UNITS FOR PURCHASE
MUST SO ELECT BY RETURNING THE FORM OF ASSIGNMENT, DULY EXECUTED AND COMPLETED,
BY MAIL, POSTAGE PREPAID, TO THE GENERAL PARTNER WITHIN THIRTY (30) DAYS AFTER
THE NOTIFICATION OF THE PURCHASE PRICE HAS BEEN MAILED BY THE GENERAL PARTNER.
AS A GENERAL RULE, THE PARTNERSHIP WILL NOT PURCHASE LESS THAN ALL OF A LIMITED
PARTNER'S UNITS, BUT THE GENERAL PARTNER MAY WAIVE THIS REQUIREMENT IN ITS SOLE
DISCRETION. THE EFFECTIVE DATE OF A SALE OF PRESENTED UNITS SHALL BE THE DATE
UPON WHICH THE GENERAL PARTNER MAILS THE PURCHASE PRICE TO THE PRESENTING
LIMITED PARTNER, WHICH SHALL BE NO LATER THAN SIXTY (60) DAYS AFTER THE RECEIPT
BY THE GENERAL PARTNER OF SUCH LIMITED PARTNER'S DULY COMPLETED AND EXECUTED
FORM OF ASSIGNMENT. NO PURCHASE WILL BE CONSIDERED EFFECTIVE UNTIL AFTER A CASH
PAYMENT HAS BEEN MADE TO THE LIMITED PARTNER PRESENTING THE UNITS FOR PURCHASE.
A PRESENTING LIMITED PARTNER MAY RESCIND THE SALE OF HIS UNITS BY GIVING WRITTEN
NOTICE TO THE GENERAL PARTNER WITHIN 15 DAYS AFTER MAILING OF HIS FORM OF
ASSIGNMENT.
SECTION 6.3. DETERMINATION OF PURCHASE PRICE
(A) THE PURCHASE PRICE FOR UNITS PRESENTED FOR PURCHASE
PURSUANT TO THIS ARTICLE 6 WILL BE BASED UPON THE PRESENTING LIMITED PARTNER'S
INDIRECT INTEREST IN A SHARE OF THE NET ASSETS AND LIABILITIES OF THE
PARTNERSHIP, CALCULATED AS OF THE PRECEDING DECEMBER 31 (THE "DETERMINATION
DATE"), WHICH WILL INCLUDE THE SUM OF THE FOLLOWING ITEMS:
(I) AN AMOUNT BASED ON THE DISCOUNTED
PRESENT WORTH OF FUTURE NET REVENUES FROM THE PARTNERSHIP'S
PROVED DEVELOPED RESERVES AND PROVED UNDEVELOPED RESERVES, AS
DETERMINED IN ACCORDANCE WITH PARAGRAPH (B) OF THIS SECTION
6.3;
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(II) CASH ON HAND;
(III) PREPAID EXPENSES AND ACCOUNTS RECEIVABLE (DISCOUNTED,
IF APPROPRIATE), LESS A REASONABLE AMOUNT FOR DOUBTFUL
ACCOUNTS; AND
(IV) THE ESTIMATED MARKET VALUE OF ALL ASSETS NOT
SEPARATELY SPECIFIED ABOVE, DETERMINED IN ACCORDANCE WITH
STANDARD INDUSTRY VALUATION PROCEDURES.
THERE WILL BE DEDUCTED FROM THE FOREGOING SUM AN AMOUNT EQUAL TO ALL DEBTS,
OBLIGATIONS AND OTHER LIABILITIES, INCLUDING ACCRUED EXPENSES, OF THE
PARTNERSHIP, ATTRIBUTABLE TO THE CAPITAL ACCOUNTS OF THE UNITHOLDERS AND ANY
DISTRIBUTIONS TO UNITHOLDERS BETWEEN THE DETERMINATION DATE AND THE DATE OF THE
CALCULATION; PROVIDED, HOWEVER, THAT IF ANY CASH DISTRIBUTED WAS DERIVED FROM
THE SALE OF OIL AND GAS PRODUCTION OR A PRODUCING PROPERTY SUBSEQUENT TO THE
DETERMINATION DATE, SUCH DISTRIBUTIONS SHALL BE DISCOUNTED AT THE SAME RATE USED
TO TAKE INTO ACCOUNT THE RISK FACTORS EMPLOYED TO DETERMINE THE VALUE OF THE
PARTNERSHIP'S PROVED RESERVES AS SET FORTH IN PARAGRAPH (B) OF THIS SECTION 6.3.
(B) THE PARTNERSHIP WILL ENGAGE AN INDEPENDENT EXPERT SELECTED
BY THE GENERAL PARTNER TO ESTIMATE THE FUTURE NET REVENUES ATTRIBUTABLE TO THE
PARTNERSHIP'S INTEREST IN PROVED DEVELOPED RESERVES AND PROVED UNDEVELOPED
RESERVES. IN MAKING THIS ESTIMATE, THE INDEPENDENT EXPERT MAY EMPLOY PRICE AND
COST DATA AND ASSUMPTIONS FURNISHED BY THE GENERAL PARTNER. COSTS WILL INCLUDE
"WINDFALL" OR EXCESS PROFITS TAXES, IF ANY. SUCH INDEPENDENTLY PREPARED ESTIMATE
WILL EVALUATE THOSE PARTNERSHIP PROPERTIES GENERATING SUBSTANTIALLY ALL OF THE
PARTNERSHIP'S AGGREGATE REVENUES. ENGINEERS ON THE GENERAL PARTNER'S STAFF WILL
ESTIMATE SUCH FUTURE NET REVENUES FROM THE BALANCE OF THE PARTNERSHIP'S
PROPERTIES EMPLOYING THE SAME PARAMETERS AS ARE EMPLOYED BY THE INDEPENDENT
EXPERT. THE AMOUNT ATTRIBUTABLE TO PARTNERSHIP RESERVES WILL BE DEEMED TO BE 70%
OF SUCH ESTIMATED FUTURE NET REVENUES IN THE CASE OF PROVED DEVELOPED PRODUCING
RESERVES AND, IN THE CASE OF ALL OTHER PROVED RESERVES, THEIR "APPRAISED VALUE".
WITH RESPECT TO SUCH OTHER PROVED RESERVES, A DISCOUNT FOR RISK AS THE
INDEPENDENT EXPERT SHALL REASONABLY DETERMINE, AFTER TAKING INTO ACCOUNT THE
NATURE AND QUALITY OF SUCH OIL AND GAS INTERESTS AND AS REVIEWED AND APPROVED BY
THE GENERAL PARTNER, WILL BE APPLIED TO THE PARTNERSHIP'S PROVED DEVELOPED
NON-PRODUCING RESERVES AND PROVED UNDEVELOPED RESERVES IN ARRIVING AT "APPRAISED
VALUE". THE AMOUNT SO DETERMINED BASED UPON THE LAST REPORT OF THE INDEPENDENT
EXPERT WILL BE ADJUSTED BY THE GENERAL PARTNER FOR ESTIMATED CHANGES THEREIN
FROM THE DETERMINATION DATE TO THE DATE OF THE CALCULATION OF THE PURCHASE
PRICE, (A) BY REASON OF PRODUCTION, SALES OF OR ADDITIONS TO RESERVES AND LEASE
AND WELL EQUIPMENT, THE SALE OR ABANDONMENT OF LEASES AND SIMILAR MATTERS
OCCURRING AFTER THE DETERMINATION DATE, AND (B) BY REASON OF ANY OF THE
FOLLOWING OCCURRING PRIOR TO THE DATE OF THE CALCULATION: CHANGES IN WELL
PERFORMANCE, INCREASES OR DECREASES IN THE MARKET PRICE OF OIL OR GAS, REVISION
OF REGULATIONS RELATING TO OIL IMPORTS, CHANGES IN INCOME, AD VALOREM AND OTHER
TAX LAWS (E.G., MATERIAL VARIATIONS IN THE PROVISIONS FOR DEPLETION OR MINIMUM
TAX PAYMENTS) AND SIMILAR MATTERS. THE SHARE OF THE AMOUNT ATTRIBUTABLE TO
PARTNERSHIP FUTURE NET REVENUES ALLOCABLE TO A PARTICULAR UNITHOLDER'S UNITS
WILL THEN BE DETERMINED, TAKING INTO ACCOUNT THE CHANGES IN THE ALLOCATION OF
PARTNERSHIP COSTS AND REVENUES DESCRIBED IN ARTICLE 4. THE RESULT WILL THEN BE
DISCOUNTED TO PRESENT WORTH USING AN INTEREST RATE NOT IN EXCESS OF 1% OVER THE
THEN PRIME INTEREST RATE ANNOUNCED BY TEXAS COMMERCE BANK OF HOUSTON, HOUSTON,
TEXAS TO ITS MOST PREFERRED COMMERCIAL CUSTOMERS. IF, AT THE TIME OF
DETERMINATION, THE PREVAILING PRIME RATE OF TEXAS COMMERCE BANK OF HOUSTON IS
14% OR MORE, THE VALUATION SHALL, FOR COMPARATIVE PURPOSES ONLY, STATE THE
AMOUNT THAT WOULD HAVE BEEN THE PURCHASE PRICE IF IT HAD BEEN COMPUTED USING A
10% ANNUAL DISCOUNT RATE.
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SECTION 6.4. OTHER PURCHASERS
THE PARTNERSHIP'S OBLIGATION TO PURCHASE UNITS PURSUANT TO
THIS ARTICLE 6 MAY BE DISCHARGED BY PAYMENT OF THE PURCHASE PRICE TO A
PRESENTING LIMITED PARTNER BY THE GENERAL PARTNER, BY AN AFFILIATE OF THE
GENERAL PARTNER OR BY A BROKER-DEALER OR OTHER PERSON SELECTED BY THE GENERAL
PARTNER. THE UNITS OF THE PRESENTING LIMITED PARTNER WILL BE TRANSFERRED TO THE
PARTY WHO PAYS FOR THEM. ONLY THE PARTNERSHIP, HOWEVER, IS OBLIGATED TO PURCHASE
UNITS PRESENTED BY LIMITED PARTNERS PURSUANT TO THIS ARTICLE 6.
SECTION 6.5. LEGAL RESTRICTIONS
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS
ARTICLE 6, IN THE EVENT THE PARTNERSHIP'S OBLIGATION TO PURCHASE UNITS FROM
LIMITED PARTNERS IS FOUND TO VIOLATE ANY EXISTING OR FUTURE LAWS OR LEGISLATION
OR TO JEOPARDIZE THE CLASSIFICATION OF THE PARTNERSHIP UNDER FEDERAL TAX LAWS,
SUCH OBLIGATION SHALL BE ELIMINATED TO THE EXTENT INCONSISTENT THEREWITH.
ARTICLE 7
BOOKS OF ACCOUNT AND REPORTS
SECTION 7.1. CAPITAL ACCOUNTS
(A) THE PARTNERSHIP SHALL MAINTAIN ACCOUNTS ON THE ACCRUAL
BASIS OF ACCOUNTING, WHICH METHOD SHALL ALSO BE ADOPTED FOR FEDERAL INCOME TAX
PURPOSES. THE PARTNERSHIP SHALL MAINTAIN A SEPARATE CAPITAL ACCOUNT FOR EACH
PARTNER (WHICH TERM, FOR THE PURPOSES OF THIS SECTION 7.1, INCLUDES THE GENERAL
PARTNER AND THE UNITHOLDERS). THE AMOUNT CREDITED TO THE CAPITAL ACCOUNT OF EACH
PARTNER AT THE INCEPTION OF THE PARTNERSHIP SHALL BE AN AMOUNT EQUAL TO THE FAIR
MARKET VALUE OF THE ASSETS NET OF LIABILITIES CONTRIBUTED BY SUCH PARTNER
PURSUANT TO SECTIONS 3.1 AND 3.2. THE CAPITAL ACCOUNT OF EACH PARTNER SHALL ALSO
BE CREDITED WITH THE FAIR MARKET VALUE OF ANY OTHER CONTRIBUTIONS TO PARTNERSHIP
CAPITAL AND HIS DISTRIBUTIVE SHARE OF PARTNERSHIP INCOME (INCLUDING INCOME
EXEMPT FROM TAX) AND GAINS (OR ITEMS THEREOF), AND SHALL BE CHARGED WITH (A) HIS
DISTRIBUTIVE SHARE OF PARTNERSHIP LOSSES AND DEDUCTIONS (OR ITEMS THEREOF), (B)
ALLOCATIONS TO HIM OF EXPENDITURES OF THE PARTNERSHIP DESCRIBED IN SECTION
705(A)(2)(B) OF THE CODE, AND (C) THE AMOUNT OF ANY CASH OR THE FAIR MARKET
VALUE OF ANY PROPERTY (NET OF ANY LIABILITIES ASSUMED BY SUCH PARTNER OR TO
WHICH SUCH DISTRIBUTED PROPERTY IS SUBJECT) DISTRIBUTED TO HIM. PARTNERSHIP
CAPITAL ACCOUNTS SHALL BE MAINTAINED IN ACCORDANCE WITH SECTION
1.704-1(B)(2)(IV) OF THE TREASURY REGULATIONS AND THE PROVISIONS OF THIS SECTION
SHALL BE INTERPRETED IN ACCORDANCE THEREWITH. A PARTNER'S DISTRIBUTIVE SHARE
SHALL BE DETERMINED IN ACCORDANCE WITH SECTION 702 OF THE CODE AND ARTICLE 5,
EXCEPT AS PROVIDED BELOW.
(B) FOR PURPOSES OF COMPUTING THE PARTNERS' CAPITAL ACCOUNTS,
SIMULATED DEPLETION DEDUCTIONS, SIMULATED GAINS, AND SIMULATED LOSSES (AS SUCH
TERMS ARE DEFINED IN SECTION 1.704 - 1(B)(2)(IV)(K)(2) OF THE TREASURY
REGULATIONS) SHALL BE ALLOCATED AMONG THE PARTNERS AS THEY (OR THEIR
PREDECESSORS IN INTEREST) WERE ALLOCATED THE BASIS OF PARTNERSHIP OIL AND GAS
PROPERTIES PURSUANT TO CODE SECTION 613A(C)(7)(D), THE TREASURY REGULATIONS
THEREUNDER, AND SECTION 1.704-1(B)(4)(V) OF THE REGULATIONS. IN ACCORDANCE WITH
CODE SECTION 613(A)(C)(7)(D) AND THE TREASURY REGULATIONS THEREUNDER AND SECTION
1.704-1(B)(4)(V) OF THE REGULATIONS, THE ADJUSTED BASIS FOR ALL OIL AND GAS
PROPERTIES SHALL BE SHARED BY THE PARTNERS IN THE SAME PROPORTIONS AS THEY SHARE
PARTNERSHIP INCOME PURSUANT TO ARTICLE 4.
(C) IF AN ADJUSTMENT IS MADE IN A PARTNER'S DISTRIBUTIVE SHARE
OF PARTNERSHIP INCOME, GAIN, LOSS, OR DEDUCTION (OR ANY ITEMS THEREOF), AND SUCH
ADJUSTMENT IS REFLECTED IN AN AMENDED RETURN FILED BY THE PARTNERSHIP OR IS
REFLECTED IN AN AGREEMENT BETWEEN THE INTERNAL REVENUE SERVICE AND THE
PARTNERSHIP,
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THEN THE CAPITAL ACCOUNT OF EACH PARTNER SHALL BE RECOMPUTED TO REFLECT SUCH
ADJUSTMENT. CAPITAL ACCOUNTS SHALL BE ADJUSTED IN ACCORDANCE WITH TREAS. REG.
SS. 1.704-1(B)(2)(IV)(M) TO REFLECT ANY ADJUSTMENT TO THE BASIS OF PARTNERSHIP
PROPERTY ATTRIBUTABLE TO AN ELECTION MADE PURSUANT TO SECTIONS 743 AND 754 OF
THE CODE.
(D) THE GENERAL PARTNER SHALL HAVE THE AUTHORITY TO MAKE
APPROPRIATE ADJUSTMENTS TO THE CAPITAL ACCOUNTS AS NECESSARY TO REFLECT ANY
CHANGES TO THE PARTNERS' CAPITAL ACCOUNTS OCCURRING PURSUANT TO THE PROVISIONS
OF THESE ARTICLES.
(E) UPON THE SALE OR OTHER DISPOSITION OF AN INTEREST IN THE
PARTNERSHIP, THE CAPITAL ACCOUNT OF THE TRANSFEROR PARTNER WHICH IS ATTRIBUTABLE
TO SUCH INTEREST SHALL CARRY OVER TO THE TRANSFEREE OF SUCH INTEREST; PROVIDED
THAT IF A SALE OR OTHER DISPOSITION OF AN INTEREST IN THE PARTNERSHIP CAUSES A
TERMINATION OF THE PARTNERSHIP WITHIN THE MEANING OF SECTION 708(B)(1)(B) OF THE
CODE, THE CAPITAL ACCOUNTS OF THE PARTNERS SHALL GOVERN THE CONSTRUCTIVE
LIQUIDATION OF THE PARTNERSHIP PURSUANT TO TREAS. REG. SS. 1.708- 1(B)(1)(IV)
AND UPON THE CONSTRUCTIVE REFORMATION OF THE PARTNERSHIP THE CAPITAL ACCOUNT
BALANCE OF EACH PARTNER SHALL BE REDETERMINED IN ACCORDANCE WITH THIS SECTION
7.1.
(F) THE BOOKS AND RECORDS OF THE PARTNERSHIP SHALL INCLUDE
SUCH OTHER SEPARATE AND ADDITIONAL ACCOUNTS FOR EACH PARTNER AS SHALL BE
NECESSARY TO REFLECT ACCURATELY THE RIGHTS AND INTERESTS OF THE RESPECTIVE
PARTNERS AND SHALL SPECIFICALLY INDICATE THE NAME AND ADDRESS OF EACH PARTNER
AND THE AMOUNT OF UNITS HELD BY HIM.
SECTION 7.2. BOOKS OF ACCOUNT AND ANNUAL FINANCIAL REPORTS
THE GENERAL PARTNER SHALL MAINTAIN ADEQUATE BOOKS AND RECORDS
OF ACCOUNT WHICH SHALL REFLECT ALL PARTNERSHIP TRANSACTIONS AND BE APPROPRIATE
AND ADEQUATE TO RECORD TRULY AND FULLY ALL INFORMATION REGARDING THE STATE OF
THE PARTNERSHIP'S BUSINESS AND FINANCIAL CONDITION. AFTER COMMENCEMENT OF THE
PARTNERSHIP'S OPERATIONS, THE BOOKS OF THE PARTNERSHIP WILL BE AUDITED ANNUALLY
BY SUCH FIRM OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AS THE GENERAL PARTNER
SHALL DESIGNATE. WITHIN 120 DAYS AFTER THE CLOSE OF THE PARTNERSHIP'S FISCAL
YEAR, THE GENERAL PARTNER SHALL FURNISH EACH UNITHOLDER SUCH FINANCIAL
STATEMENTS AS ARE CONSIDERED NECESSARY OR ADVISABLE BY THE GENERAL PARTNER TO
ADVISE ALL UNITHOLDERS ABOUT THEIR INVESTMENT IN THE PARTNERSHIP. THE ANNUAL
REPORTS SHALL CONTAIN SUCH FINANCIAL INFORMATION PREPARED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AS MAY BE REQUIRED FROM TIME TO TIME BY
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION. THE GENERAL PARTNER SHALL
ALSO DELIVER NECESSARY INCOME TAX REPORTING INFORMATION TO THE UNITHOLDERS
WITHIN 75 DAYS AFTER THE CLOSE OF THE PARTNERSHIP'S FISCAL YEAR, WHICH
INFORMATION SHALL INCLUDE A SEPARATE SECTION SPECIFYING THOSE ITEMS NECESSARY
FOR A UNITHOLDER TO DETERMINE THE AMOUNT OF HIS DEPLETION ALLOWANCE WITH RESPECT
TO PARTNERSHIP PROPERTIES.
SECTION 7.3. ANNUAL REPORTS OF OPERATIONS
THE GENERAL PARTNER SHALL FURNISH THE UNITHOLDERS WITH (I)
ANNUAL REPORTS OF THE PARTNERSHIP'S OPERATIONS WHICH SHALL INCLUDE A DETAILED
STATEMENT OF ALL TRANSACTIONS BETWEEN THE PARTNERSHIP AND THE GENERAL PARTNER
AND ITS AFFILIATES DURING THE PRECEDING FISCAL YEAR, SHOWING THE AMOUNTS AND THE
CONSIDERATION AND REIMBURSEMENTS INVOLVED AND (II) A WRITTEN ATTESTATION FROM
THE PARTNERSHIP'S INDEPENDENT PUBLIC ACCOUNTANTS THAT THE METHOD USED TO
ALLOCATE DIRECT COSTS AND ADMINISTRATIVE COSTS WAS CONSISTENT WITH THE METHOD
DESCRIBED IN THESE ARTICLES AND THAT THE TOTAL AMOUNT OF SUCH COSTS ALLOCATED
DID NOT MATERIALLY EXCEED THE AMOUNTS ACTUALLY INCURRED BY THE GENERAL PARTNER.
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SECTION 7.4. OTHER REPORTS
(A) THE GENERAL PARTNER WILL FURNISH THE UNITHOLDERS WITH
QUARTERLY PARTNERSHIP CASH RECEIPTS AND DISBURSEMENT STATEMENTS.
(B) THE GENERAL PARTNER WILL MAKE AVAILABLE TO THE
UNITHOLDERS, UPON REQUEST, COPIES OF REPORTS FILED BY THE PARTNERSHIP WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE REQUIREMENTS OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
SECTION 7.5. ACCESS TO AND PRESERVATION OF RECORDS
(A) THE GENERAL PARTNER SHALL PERMIT ACCESS TO ALL RECORDS OF
THE PARTNERSHIP FOR INSPECTION AND COPYING AT THE PARTNERSHIP'S OFFICE, UPON
REASONABLE NOTICE, DURING NORMAL BUSINESS HOURS, TO ANY LIMITED PARTNER AND/OR
HIS ACCREDITED REPRESENTATIVES. NOTWITHSTANDING THE FOREGOING, THE GENERAL
PARTNER MAY KEEP LOGS, WELL REPORTS AND OTHER DRILLING DATA CONFIDENTIAL FOR A
REASONABLE PERIOD OF TIME.
(B) THE GENERAL PARTNER SHALL MAINTAIN AND PRESERVE ALL
ACCOUNTS, BOOKS AND OTHER RELEVANT PARTNERSHIP DOCUMENTS DURING THE TERM OF THE
PARTNERSHIP AND FOR FOUR YEARS THEREAFTER.
(C) THE GENERAL PARTNER WILL COMPUTE THE PARTNERSHIPS' TOTAL
PROVED RESERVES OF OIL AND GAS, THE DOLLAR VALUE THEREOF AT THEN EXISTING PRICES
AND EACH UNITHOLDER'S INTEREST IN SUCH RESERVE VALUE ANNUALLY. THE RESERVE
COMPUTATIONS WILL BE BASED PRIMARILY UPON ENGINEERING REPORTS PREPARED BY
QUALIFIED INDEPENDENT PETROLEUM CONSULTANTS OR ENGINEERS SELECTED BY THE GENERAL
PARTNER. THEY WILL INCLUDE, WHERE PRACTICABLE, AN ESTIMATE OF THE TIME REQUIRED
FOR THE EXTRACTION OF SUCH RESERVES AND THE PRESENT WORTH OF SUCH RESERVES. THE
GENERAL PARTNER WILL PROVIDE TO THE UNITHOLDERS A COMPUTATION AND ESTIMATE OF
RESERVES OF THE PARTNERSHIP AS SOON AS POSSIBLE AND IN NO EVENT MORE THAN 90
DAYS AFTER THE OCCURRENCE OF AN EVENT OTHER THAN NORMAL PRODUCTION LEADING TO A
REDUCTION OF SUCH RESERVES OF MORE THAN 10%.
(D) THE PARTNERSHIP SHALL KEEP AND MAINTAIN AT ITS PRINCIPAL
OFFICE, AND UPON FIVE DAYS WRITTEN REQUEST BY ANY PARTNER SHALL MAKE AVAILABLE
FOR INSPECTION AND COPYING (AT THE COST OF THE REQUESTING PARTNER) AT THE
PARTNERSHIP'S REGISTERED OFFICE DURING ORDINARY BUSINESS HOURS, EACH OF THE
FOLLOWING:
(I) AN ALPHABETICAL LIST, UPDATED AT LEAST
QUARTERLY, OF THE FULL NAME, LAST KNOWN BUSINESS ADDRESS OR
HOME ADDRESS, BUSINESS OR HOME TELEPHONE NUMBER AND THE
PARTNERSHIP INTEREST OF EACH PARTNER AND THE RIGHTS OF EACH
PARTNER TO VOTE. ON REQUEST, A COPY OF SUCH LIST WILL BE
FURNISHED TO ANY LIMITED PARTNER OR HIS REPRESENTATIVE WITHIN
10 DAYS OF THE REQUEST AND UPON PAYMENT OF REASONABLE
REPRODUCTION AND MAILING COSTS. THE PURPOSE FOR WHICH A
PARTNER MAY REQUEST A COPY OF THE LIST INCLUDE, WITHOUT
LIMITATION, MATTERS RELATING TO PARTNERS' VOTING RIGHTS UNDER
THE PARTNERSHIP AND THE EXERCISE OF PARTNERS' RIGHTS UNDER
FEDERAL PROXY LAWS. IF THE GENERAL PARTNER NEGLECTS OR REFUSES
TO EXHIBIT, PRODUCE, OR MAIL A COPY OF THE LIST AS REQUESTED,
THE GENERAL PARTNER SHALL BE LIABLE TO ANY PARTNER REQUESTING
THE LIST FOR THE COSTS, INCLUDING ATTORNEYS FEES, INCURRED BY
THAT PARTNER FOR COMPELLING THE PRODUCTION OF THE LIST, AND
FOR ACTUAL DAMAGES SUFFERED BY ANY PARTNER BY REASON OF SUCH
REFUSAL OR NEGLECT. IT SHALL BE A DEFENSE TO ANY SUCH CLAIM
THAT THE ACTUAL PURPOSE AND REASON FOR THE REQUEST FOR
INSPECTION OR FOR A COPY OF THE LIST IS TO SECURE THE LIST OF
PARTNER OR OTHER INFORMATION FOR THE PURPOSE OF SELLING SUCH
LIST OR INFORMATION OR COPIES THEREOF, OR OF USING THE SAME
FOR A COMMERCIAL PURPOSE OTHER THAN IN THE INTEREST OF THE
APPLICANT AS A PARTNER IN CONNECTION WITH THE AFFAIRS OF THE
PARTNERSHIP. THE GENERAL PARTNER MAY REQUIRE THE PARTNER
REQUESTING THE LIST TO REPRESENT THAT THE LIST IS NOT
REQUESTED FOR A COMMERCIAL PURPOSE UNRELATED TO THE PARTNER'S
INTEREST IN THE PARTNERSHIP. THE
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REMEDIES PROVIDED BY THIS SECTION 7.5 TO PARTNERS REQUESTING
COPIES OF THE LIST ARE IN ADDITION TO, AND SHALL NOT IN ANY
WAY LIMIT, OTHER REMEDIES AVAILABLE TO PARTNERS UNDER FEDERAL
LAW, OR THE LAWS OF ANY STATE;
(II) A COPY OF THE CERTIFICATE AND ALL
AMENDMENTS THERETO, TOGETHER WITH EXECUTED COPIES OF ANY
POWERS OF ATTORNEY PURSUANT TO WHICH THE CERTIFICATE OR ANY
AMENDMENT HAS BEEN EXECUTED;
(III) COPIES OF THE PARTNERSHIP'S FEDERAL,
STATE AND LOCAL INCOME TAX RETURNS AND REPORTS,
IF ANY, FOR THE THREE (3) MOST RECENT YEARS; AND
(IV) COPIES OF ANY THEN EFFECTIVE WRITTEN
PARTNERSHIP AGREEMENT AND OF ANY FINANCIAL STATEMENTS OF THE
PARTNERSHIP FOR THE THREE (3) MOST RECENT YEARS.
(E) THE GENERAL PARTNER SHALL CAUSE TO BE MAINTAINED RECORDS
OF THE INFORMATION UPON WHICH WAS BASED THE DETERMINATION OF THE SUITABILITY OF
A UNITHOLDER TO INVEST IN EACH PREDECESSOR PARTNERSHIP THAT COMMENCED OPERATIONS
ON OR AFTER SEPTEMBER 11, 1990 OF WHICH HE OR SHE WAS A LIMITED PARTNER, FOR A
PERIOD OF SIX YEARS FROM THE COMMENCEMENT OF OPERATIONS OF EACH SUCH PREDECESSOR
PARTNERSHIP.
SECTION 7.6. ADDITIONAL INFORMATION REGARDING TAX BASIS
TO THE EXTENT THE GENERAL PARTNER IS REQUIRED TO DETERMINE THE
ADJUSTED TAX BASIS OF ANY PARTNERSHIP PROPERTY WITH RESPECT TO WHICH THE CODE
REQUIRES THAT RECORDS OF SUCH ADJUSTED TAX BASIS BE KEPT AND MAINTAINED BY THE
UNITHOLDERS, THE GENERAL PARTNER MAY REQUEST INFORMATION REGARDING SUCH ADJUSTED
TAX BASIS FROM THE UNITHOLDERS, IN WRITING, AND EACH UNITHOLDER SHALL FURNISH
SUCH INFORMATION TO THE GENERAL PARTNER WITHIN 90 DAYS AFTER SAID REQUEST IS
MAILED BY THE GENERAL PARTNER.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF THE UNITHOLDERS
SECTION 8.1. LIABILITY OF UNITHOLDERS
EXCEPT AS MAY OTHERWISE BE PROVIDED UNDER APPLICABLE STATE
LAW, NO UNITHOLDER SHALL BE PERSONALLY LIABLE FOR ANY OF THE DEBTS OF THE
PARTNERSHIP OR ANY OF THE LOSSES THEREOF IN EXCESS OF HIS CAPITAL INVESTMENT AND
HIS SHARE OF THE UNDISTRIBUTED NET PROFITS OF THE PARTNERSHIP, ANYTHING TO THE
CONTRARY IN THESE ARTICLES NOTWITHSTANDING. NO UNITHOLDER SHALL (I) TAKE PART IN
THE MANAGEMENT OF THE BUSINESS OR TRANSACT ANY BUSINESS FOR THE PARTNERSHIP;
(II) HAVE THE POWER TO SIGN FOR OR TO BIND THE PARTNERSHIP; OR (III) BE PAID ANY
SALARY OR HAVE A DRAWING ACCOUNT.
SECTION 8.2. TRANSFER OF UNITS
(A) EXCEPT AS OTHERWISE PROVIDED IN THESE ARTICLES, A
UNITHOLDER MAY ASSIGN, PLEDGE OR TRANSFER HIS UNITS, BUT NO SUCH ASSIGNMENT,
PLEDGE OR TRANSFER SHALL BE MADE OR GIVEN EFFECT UNLESS IT IS IN COMPLIANCE WITH
APPLICABLE SECURITIES LAWS, AND NO SUCH ASSIGNMENT, PLEDGE OR TRANSFER SHALL
RELEASE A LIMITED PARTNER FROM HIS OBLIGATIONS UNDER THESE ARTICLES.
(B) NO ASSIGNMENT OR TRANSFER MAY BE MADE, OTHER THAN TO THE
GENERAL PARTNER OR BY OPERATION OF LAW, UNLESS THE TRANSFEROR ASSIGNS ALL OF HIS
UNITS IN THE PARTNERSHIP OR AFTER SUCH TRANSFER THE TRANSFEROR WILL OWN AT LEAST
$2,500 OF UNITS ($2,000 FOR INDIVIDUAL RETIREMENT ACCOUNTS OR KEOGH PLANS) AND
THE
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TRANSFEREE WILL OWN AT LEAST $2,500 OF UNITS ($2,000 FOR INDIVIDUAL RETIREMENT
ACCOUNTS OR KEOGH PLANS). IN ADDITION, NO ASSIGNMENT OR TRANSFER MAY BE MADE
UNLESS THE TRANSFEROR HAS FIRST REPORTED TO THE GENERAL PARTNER THE NAME,
ADDRESS AND TAXPAYER IDENTIFICATION NUMBER OF THE TRANSFEREE; THE AMOUNT OF
UNITS TO BE ACQUIRED BY THE TRANSFEREE; THE DATE ON WHICH THE UNITS ARE TO BE
ACQUIRED; THE TRANSFEREE'S NAME; AND WHETHER OR NOT THE TRANSFEREE IS (I) AN
INDIVIDUAL CITIZEN OF THE UNITED STATES OVER 21 YEARS OF AGE OR (II) A
CORPORATION ORGANIZED UNDER THE LAWS OF THE UNITED STATES OR A PARTNERSHIP OR
OTHER ASSOCIATION ALL OF THE MEMBERS OF WHICH ARE SUCH CITIZENS OF SUCH AGE,
WHICH CORPORATION OR ASSOCIATION IS AUTHORIZED AND OTHERWISE DULY QUALIFIED TO
HOLD FEDERAL AND OTHER OIL AND GAS LEASES, OTHER REAL AND PERSONAL PROPERTY AND
INTERESTS THEREIN OR (III) A FIDUCIARY THAT WOULD QUALIFY UNDER (I) OR (II)
ABOVE AND THAT IS ACTING FOR BENEFICIARIES THAT WOULD SO QUALIFY OR ARE
NON-ALIEN MINORS.
(C) THE GENERAL PARTNER SHALL HAVE THE RIGHT TO REFUSE TO
RECOGNIZE ANY SALE, EXCHANGE, OR OTHER TRANSFER OF UNITS IF IT BELIEVES THAT
SUCH TRANSFER OCCURRED ON A SECONDARY MARKET OR THE SUBSTANTIAL EQUIVALENT
THEREOF WITHIN THE MEANING OF SECTION 7704 OF THE CODE.
(D) SUBJECT TO THE FOREGOING RESTRICTIONS, THE GENERAL PARTNER
SHALL RECOGNIZE THE ASSIGNMENT OF UNITS AS OF THE LAST DAY OF THE CALENDAR
QUARTER FOLLOWING RECEIPT OF NOTICE OF SUCH ASSIGNMENT AND ALL DOCUMENTATION
REQUIRED BY SECTION 8.3.
(E) FOR PURPOSES OF THESE ARTICLES, ANY TRANSFER OF UNITS OR
ANY RIGHTS ATTRIBUTABLE THERETO, WHETHER VOLUNTARY OR BY OPERATION OF LAW, SHALL
BE CONSIDERED AN ASSIGNMENT OF UNITS.
(F) THE GENERAL PARTNER SHALL BE THE LIMITED PARTNER OF RECORD
WITH RESPECT TO ALL UNITS HELD BY UNITHOLDERS WHO ARE NOT ADMITTED TO THE
PARTNERSHIP AS LIMITED PARTNERS; PROVIDED, HOWEVER, THAT ANY VOTING RIGHTS TO
WHICH SUCH UNITHOLDERS WOULD BE ENTITLED WERE THEY LIMITED PARTNERS WILL BE
EXERCISED BY THE GENERAL PARTNER IN PROPORTION TO THE VOTES CAST BY UNITHOLDERS
WHO ARE LIMITED PARTNERS.
SECTION 8.3. TRANSFER DOCUMENTS REQUIRED
(A) THE SALE OR ASSIGNMENT OF UNITS BY A UNITHOLDER SHALL NOT
BE EFFECTIVE UNTIL THE ASSIGNOR AND ASSIGNEE EXECUTE ALL SUCH CERTIFICATES AND
OTHER DOCUMENTS AND PERFORM ALL SUCH ACTS AS THE GENERAL PARTNER MAY DEEM
APPROPRIATE TO PRESERVE THE LIMITED LIABILITY OF THE UNITHOLDERS AND THE TAX
STATUS OF THE PARTNERSHIP AFTER THE COMPLETION OF SUCH SALE OR ASSIGNMENT. THE
ASSIGNOR AND ASSIGNEE OF UNITS SHALL EACH REPRESENT TO THE GENERAL PARTNER THAT
THE SALE, EXCHANGE, OR OTHER TRANSFER OF UNITS DID NOT, TO THE BEST OF THEIR
KNOWLEDGE, OCCUR ON A SECONDARY MARKET OR THE SUBSTANTIAL EQUIVALENT THEREOF
(WITHIN THE MEANING OF SECTION 7704 OF THE CODE), UNLESS THE GENERAL PARTNER, IN
ITS SOLE DISCRETION, WAIVES SUCH REQUIREMENT. UPON THE REQUEST OF ANY
UNITHOLDER, THE GENERAL PARTNER WILL PROVIDE APPROPRIATE FORMS FOR THE
ASSIGNMENT OF UNITS, INCLUDING A COPY OF THE STATEMENT SUCH UNITHOLDER IS
REQUIRED TO PROVIDE TO AN ASSIGNEE UNDER SS. 6112 OF THE CODE AND THE
REGULATIONS PROMULGATED THEREUNDER, IF APPLICABLE, TO INFORM SUCH ASSIGNEE OF
THE REQUIREMENT THAT SUCH ASSIGNEE EITHER MAINTAIN A LIST OF SUBSEQUENT
TRANSFEREES OR DESIGNATE THE GENERAL PARTNER TO DO SO ON HIS BEHALF.
(B) A PERSON WHO IS THE ASSIGNEE OF UNITS OF A UNITHOLDER, BUT
WHO DOES NOT BECOME A "SUBSTITUTED LIMITED PARTNER", AS DESCRIBED IN SECTION
8.5, AND DESIRES TO MAKE A FURTHER ASSIGNMENT OF SUCH UNITS, SHALL BE SUBJECT TO
ALL THE PROVISIONS OF THIS ARTICLE 8 TO THE SAME EXTENT AND IN THE SAME MANNER
AS ANY LIMITED PARTNER DESIRING TO MAKE AN ASSIGNMENT OF UNITS HELD BY HIM.
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SECTION 8.4. DEATH OR INCAPACITY OF UNITHOLDERS
IF A UNITHOLDER DIES, HIS EXECUTOR, ADMINISTRATOR OR TRUSTEE,
OR, IF HE IS ADJUDICATED INCOMPETENT, HIS COMMITTEE, GUARDIAN OR CONSERVATOR,
OR, IF HE BECOMES BANKRUPT, THE TRUSTEE OR RECEIVER OF HIS ESTATE, SHALL HAVE
ALL THE RIGHTS AND OBLIGATIONS OF A UNITHOLDER FOR THE PURPOSE OF SETTLING OR
MANAGING HIS ESTATE AND SUCH POWER AS THE INCAPACITATED UNITHOLDER POSSESSED TO
ASSIGN ALL OR ANY PART OF THE UNITS HELD BY HIM AND TO JOIN WITH SUCH ASSIGNEE
IN SATISFYING CONDITIONS PRECEDENT TO SUCH ASSIGNEE BECOMING A SUBSTITUTED
LIMITED PARTNER. THE DEATH OR INCAPACITY OR BANKRUPTCY OF A UNITHOLDER SHALL NOT
DISSOLVE THE PARTNERSHIP.
SECTION 8.5. SUBSTITUTED LIMITED PARTNERS
(A) SUBJECT TO RECEIPT OF THE CONSENT OF THE GENERAL PARTNER,
EACH LIMITED PARTNER SHALL HAVE THE RIGHT TO SUBSTITUTE A PURCHASER, ASSIGNEE,
TRANSFEREE, DONEE, HEIR, LEGATEE OR OTHER RECIPIENT OF HIS UNITS AS A LIMITED
PARTNER IN HIS PLACE. THE GENERAL PARTNER'S CONSENT MAY BE WITHHELD IN THE
GENERAL PARTNER'S SOLE DISCRETION, BUT ONLY IF THE TRANSFER OCCURRED ON A
SECONDARY MARKET OR THE SUBSTANTIAL EQUIVALENT THEREOF (WITHIN THE MEANING OF
SECTION 7704 OF THE CODE), WOULD JEOPARDIZE THE STATUS OF THE PARTNERSHIP AS A
PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES, WOULD CAUSE A TERMINATION OF THE
PARTNERSHIP WITHIN THE MEANING OF SECTION 708(B) OF THE CODE, OR WOULD VIOLATE,
OR CAUSE THE PARTNERSHIP TO VIOLATE, ANY APPLICABLE LAW OR GOVERNMENTAL RULE OR
REGULATION. THE GENERAL PARTNER SHALL BE ENTITLED TO RELY ON THE ADVICE OF
COUNSEL IN MAKING SUCH A DETERMINATION. IN ADDITION, THE GENERAL PARTNER'S
CONSENT MAY BE WITHHELD IN THE EVENT THE NEW UNITHOLDER DOES NOT AGREE OR IS
UNABLE TO MAKE THE REPRESENTATIONS, WARRANTIES, CERTIFICATIONS, COVENANTS,
AGREEMENTS AND DESIGNATIONS SET FORTH AND REFERRED TO IN SECTION 10.1. ANY SUCH
CONSENT BY THE GENERAL PARTNER SHALL BE BINDING AND CONCLUSIVE. WHEN THE
SUBSTITUTION OF A LIMITED PARTNER BECOMES EFFECTIVE, THE ASSIGNING LIMITED
PARTNER SHALL BE RELIEVED OF HIS OBLIGATIONS UNDER THESE ARTICLES TO THE EXTENT
PERMITTED BY LAW WITH RESPECT TO THE ASSIGNED UNITS. THE SUBSTITUTED LIMITED
PARTNER MUST REIMBURSE THE PARTNERSHIP FOR FILING FEES AND OTHER EXPENSES OF THE
SUBSTITUTION OR ADDITION.
(B) BY EXECUTING THESE ARTICLES, EACH LIMITED PARTNER SHALL BE
DEEMED TO HAVE CONSENTED TO ANY SUBSTITUTION TO WHICH THE GENERAL PARTNER
CONSENTS.
(C) A LIMITED PARTNER MAY ASSIGN ALL OR ANY UNDIVIDED PORTION
OF HIS RIGHT TO RECEIVE DISTRIBUTIONS (INCLUDING DISTRIBUTIONS OF CAPITAL) FROM
THE PARTNERSHIP WITHOUT HAVING HIS ASSIGNEE SUBSTITUTED AS A LIMITED PARTNER IN
HIS PLACE, PROVIDED (I) THE TRANSFER DID NOT OCCUR ON A SECONDARY MARKET OR THE
SUBSTANTIAL EQUIVALENT THEREOF (WITHIN THE MEANING OF SECTION 7704 OF THE CODE)
OR THE GENERAL PARTNER, IN ITS SOLE DISCRETION, WAIVES SUCH REQUIREMENT, (II)
THE TRANSFER WOULD NOT CAUSE A TERMINATION OF THE PARTNERSHIP UNDER SECTION
708(B) OF THE CODE, JEOPARDIZE THE TAX STATUS OF THE PARTNERSHIP AS A
PARTNERSHIP, OR VIOLATE OR CAUSE THE PARTNERSHIP TO VIOLATE ANY LAW OR
GOVERNMENTAL REGULATION; (III) SUCH ASSIGNMENT SHALL NOT RELEASE THE ASSIGNING
LIMITED PARTNER FROM ANY OF HIS LIABILITIES UNDER THESE ARTICLES; (IV) IF TWO OR
MORE PERSONS ARE TO RECEIVE SUCH DISTRIBUTIONS, SUCH PERSONS, IF THE GENERAL
PARTNER SO REQUESTS, SHALL JOINTLY DESIGNATE ONE AGENT TO WHOM SUCH
DISTRIBUTIONS ARE TO BE MADE FOR THEIR ACCOUNT; (V) THE REQUIREMENTS OF
PARAGRAPH (B) OF SECTION 8.2 HAVE BEEN MET; AND (VI) THE GENERAL PARTNER HAS
RECEIVED A CERTIFIED COPY OF SUCH ASSIGNMENT.
(D) THE GENERAL PARTNER SHALL AMEND ITS RECORDS AT LEAST ONCE
EACH CALENDAR QUARTER TO EFFECT THE SUBSTITUTION OF LIMITED PARTNERS, IF ANY.
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SECTION 8.6. VOTING RIGHTS
(A) BY VOTE OF A MAJORITY IN INTEREST OF THE LIMITED PARTNERS,
THE LIMITED PARTNERS MAY (I) AMEND THESE ARTICLES PURSUANT TO SECTION 13.1; (II)
DISSOLVE THE PARTNERSHIP; (III) APPROVE OR DISAPPROVE THE SALE OF ALL OR
SUBSTANTIALLY ALL OF THE ASSETS OF THE PARTNERSHIP OTHER THAN IN THE ORDINARY
COURSE OF THE PARTNERSHIP'S BUSINESS; (IV) REMOVE THE GENERAL PARTNER; PROVIDED,
HOWEVER, THAT THE PROVISIONS OF THIS CLAUSE (IV) SHALL BE INEFFECTIVE UNTIL SUCH
TIME AS A FAVORABLE RULING SHALL HAVE BEEN RECEIVED BY THE PARTNERSHIP FROM THE
INTERNAL REVENUE SERVICE TO THE EFFECT THAT SUCH ACTION WILL NOT ADVERSELY
AFFECT THE TAX STATUS OF THE PARTNERSHIP OR ANY OF THE UNITHOLDERS, IN FORM AND
SUBSTANCE SATISFACTORY TO A MAJORITY IN INTEREST OF THE LIMITED PARTNERS OR
COUNSEL FOR THE LIMITED PARTNERS (WHICH SHALL BE OTHER THAN COUNSEL FOR THE
GENERAL PARTNER AND WHICH COUNSEL SHALL BE ACCEPTABLE TO A MAJORITY IN INTEREST
OF THE LIMITED PARTNERS) SHALL HAVE DELIVERED TO THE PARTNERSHIP AN OPINION TO
THE SAME EFFECT; (V) PROVIDED THAT IN THE OPINION OF COUNSEL FOR THE LIMITED
PARTNERS SUCH ACTION WILL NOT VIOLATE THE ACT, RESULT IN THE LOSS OF ANY
UNITHOLDER'S LIMITED LIABILITY OR ADVERSELY AFFECT THE FEDERAL INCOME TAX STATUS
OF THE PARTNERSHIP, CANCEL ANY CONTRACT DESCRIBED IN PARAGRAPH (H) OF SECTION
9.2 WITHOUT PENALTY UPON 60 DAYS NOTICE AND (VI) ELECT A LIQUIDATOR IN THE EVENT
OF THE DISSOLUTION OF THE PARTNERSHIP BY REASON OF AN EVENT OF WITHDRAWAL (AS
DEFINED IN THE ACT) OF THE GENERAL PARTNER.
(B) BY A VOTE OF TWO-THIRDS IN INTEREST OF THE LIMITED
PARTNERS, THE LIMITED PARTNERS MAY APPROVE OR DISAPPROVE THE SELECTION OF AN
ADDITIONAL OR SUCCESSOR GENERAL PARTNER.
(C) IN CONNECTION WITH ANY VOTE OF THE LIMITED PARTNERS
PURSUANT TO CLAUSES (IV) OR (V) OF PARAGRAPH (A) OR PARAGRAPH (B) OF THIS
SECTION 8.6, THE GENERAL PARTNER WILL ABSTAIN FROM VOTING THOSE UNITS IT
ACQUIRED AS A LIMITED PARTNER IN LIQUIDATION OF LIMITED PARTNERSHIP INTERESTS IN
A PREDECESSOR PARTNERSHIP, IF THE AGREEMENT OF LIMITED PARTNERSHIP OF SUCH
PREDECESSOR PARTNERSHIP INCLUDED A PROVISION TO SUCH EFFECT. THE GENERAL PARTNER
WILL ALSO ABSTAIN FROM VOTING ON ANY MATTER WHATSOEVER, THOSE UNITS IT ACQUIRED
AS A LIMITED PARTNER IN LIQUIDATION OF LIMITED PARTNERSHIP INTERESTS IN A
PREDECESSOR PARTNERSHIP THAT WERE ACQUIRED BY THE GENERAL PARTNER WITHIN TWO
YEARS FROM THE DATE OF THE COMMENCEMENT OF OPERATIONS OF SUCH PREDECESSOR
PARTNERSHIP, IF THE AGREEMENT OF LIMITED PARTNERSHIP OF SUCH PREDECESSOR
PARTNERSHIP INCLUDED A PROVISION TO SUCH EFFECT.
(D) WITHIN NINETY (90) DAYS AFTER AN EVENT OF WITHDRAWAL OF
THE GENERAL PARTNER, THE REMAINING PARTNERS MAY, IN LIEU OF ELECTING A
LIQUIDATOR, UNANIMOUSLY AGREE IN WRITING TO CONTINUE THE PARTNERSHIP'S BUSINESS
AND TO THE APPOINTMENT OF A SUCCESSOR GENERAL PARTNER PURSUANT TO SECTION 11.1.
(E) IF ANY APPROVAL OF ACTION BY VOTE OF A MAJORITY OR
TWO-THIRDS IN INTEREST OF THE LIMITED PARTNERS WOULD VIOLATE THE ACT OR
ADVERSELY AFFECT THE LIMITED PARTNERS' LIMITED LIABILITY OR THE PARTNERSHIP'S
TAX STATUS BUT, IN THE OPINION OF THE AFOREMENTIONED COUNSEL, THE SAME APPROVAL
UPON UNANIMOUS CONSENT WOULD NOT, SUCH ACTION MAY BE TAKEN UPON RECEIPT OF SUCH
UNANIMOUS APPROVAL.
(F) THE GENERAL PARTNER, AS GENERAL PARTNER, WILL CONCUR IN
ANY VOTE OF THE LIMITED PARTNERS TAKEN UNDER THIS SECTION 8.6 AND SHALL EXECUTE
AN AMENDMENT TO THE CERTIFICATE AND ANY OTHER DOCUMENTS REQUIRED TO GIVE EFFECT
TO SUCH ACTION UNLESS THE EFFECT OF THE ACTION WOULD BE TO INCREASE THE
LIABILITY OR OBLIGATIONS OF THE GENERAL PARTNER OR AFFECT ITS RIGHTS AND
INTERESTS IN PROFITS, LOSSES AND CAPITAL OF THE PARTNERSHIP OR ALTER FEDERAL
INCOME TAX ALLOCATIONS UNDER THESE ARTICLES.
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SECTION 8.7. CONSENTS, MEETINGS AND SUBMISSIONS TO LIMITED PARTNERS
(A) ANY VOTE OR CONSENT REQUIRED BY THESE ARTICLES MAY BE
GIVEN (I) BY A WRITTEN CONSENT OF THE CONSENTING PARTNER PRIOR TO, AT THE TIME
OF, OR AFTER THE DOING OF THE ACT OR THING FOR WHICH THE CONSENT IS SOLICITED,
OR (II) BY THE AFFIRMATIVE VOTE BY THE CONSENTING PARTNER TO THE DOING OF THE
ACT OR THING FOR WHICH THE CONSENT IS SOLICITED AT ANY MEETING CALLED AND HELD
PURSUANT TO PARAGRAPH (B) OF THIS SECTION 8.7 TO CONSIDER THE DOING OF SUCH ACT
OR THING.
(B) ANY MATTER, INCLUDING THOSE MATTERS REFERRED TO IN SECTION
8.6, WITH RESPECT TO WHICH THE CONSENT OF THE LIMITED PARTNERS IS SOLICITED MAY
BE CONSIDERED AT A MEETING OF THE PARTNERS AT WHICH A QUORUM CONSISTING OF AT
LEAST A MAJORITY IN INTEREST OF ALL LIMITED PARTNERS IS PRESENT IN PERSON OR BY
PROXY, PROVIDED SUCH MEETING IS HELD NOT LESS THAN 30 NOR MORE THAN 60 DAYS
AFTER NOTIFICATION THEREOF SHALL HAVE BEEN GIVEN BY THE GENERAL PARTNER TO ALL
PARTNERS; PROVIDED, HOWEVER, THAT THE DATE FOR NOTICE OF SUCH A MEETING MAY BE
EXTENDED FOR A PERIOD OF UP TO 60 DAYS, IF IN THE OPINION OF THE GENERAL PARTNER
SUCH ADDITIONAL TIME IS NECESSARY TO PERMIT PREPARATION OF PROXY OR INFORMATION
STATEMENTS OR OTHER DOCUMENTS REQUIRED TO BE DELIVERED IN CONNECTION WITH SUCH
MEETING BY THE SECURITIES AND EXCHANGE COMMISSION OR OTHER REGULATORY
AUTHORITIES. SUCH NOTICE (I) MAY BE GIVEN BY THE GENERAL PARTNER, IN ITS
DISCRETION, AT ANY TIME, AND (II) SHALL BE GIVEN BY THE GENERAL PARTNER WITHIN
15 DAYS AFTER RECEIPT BY IT OF A REQUEST FOR A MEETING TO CONSIDER A MATTER
REFERRED TO IN SECTION 8.6 ENDORSED IN WRITING BY NOT LESS THAN 10% IN INTEREST
OF THE LIMITED PARTNERS. ANY REQUEST SO ENDORSED AND SUBMITTED TO THE LIMITED
PARTNERS BY THE GENERAL PARTNER MAY BE ACCOMPANIED BY THE RECOMMENDATIONS OF THE
GENERAL PARTNER AS TO ADOPTION OF THE PROPOSED ACTION AND/OR THE OPINION OF
COUNSEL REFERRED TO IN SECTION 8.6 AND SUCH OTHER INFORMATION AS THE GENERAL
PARTNER DEEMS APPROPRIATE. SUCH MEETING SHALL BE HELD EITHER AT THE PRINCIPAL
OFFICE OF THE PARTNERSHIP OR THE GENERAL PARTNER OR SUCH OTHER LOCATION AS SHALL
BE SPECIFIED BY THE GENERAL PARTNER.
(C) THE GENERAL PARTNER SHALL GIVE ALL THE LIMITED PARTNERS
NOTICE OF ANY PROPOSAL OR OTHER MATTER REQUIRED BY ANY PROVISION OF THESE
ARTICLES OR BY LAW TO BE SUBMITTED FOR THE CONSIDERATION AND APPROVAL OF THE
LIMITED PARTNERS. SUCH NOTICE SHALL INCLUDE ANY INFORMATION REQUIRED BY THE
RELEVANT PROVISIONS OF THESE ARTICLES OR BY LAW.
(D) THE GENERAL PARTNER MAY, IN ACCORDANCE WITH THE PROVISIONS
OF THE ACT, FIX, IN ADVANCE, A DATE AS THE RECORD DATE FOR DETERMINING THE
PARTNERSHIP'S LIMITED PARTNERS WITH REGARD TO ANY PARTNERSHIP ACTION OR EVENT
AND, IN PARTICULAR, FOR DETERMINING THE LIMITED PARTNERS ENTITLED:
(I) TO BE NOTIFIED OF OR TO VOTE AT ANY MEETING OF THE
PARTNERS OR ANY ADJOURNMENT THEREOF OR TO CONSENT IN
WRITING TO ANY ACTION WITHOUT A MEETING; OR
(II)TO RECEIVE PAYMENT OF ANY DISTRIBUTION OR ALLOTMENT
OF ANY RIGHT.
(E) ON ANY MATTER REQUIRING A VOTE BY OR THE CONSENT OF THE
LIMITED PARTNERS, THE LIMITED PARTNERS' RESPECTIVE INTERESTS SHALL BE DETERMINED
IN ACCORDANCE WITH THEIR SHARING RATIOS; PROVIDED, HOWEVER, THAT IF THE GENERAL
PARTNER IS REQUIRED TO ABSTAIN FROM VOTING ANY OF ITS UNITS PURSUANT TO
PARAGRAPH (B) OF SECTION 8.6 ON ANY MATTER, THEN FOR THE PURPOSE OF DETERMINING
THE LIMITED PARTNERS' RESPECTIVE INTERESTS FOR THAT MATTER, THE LIMITED
PARTNERS' SHARING RATIOS SHALL BE DETERMINED BY TREATING SUCH UNITS AS THOUGH
THEY WERE NOT OWNED BY ANY PARTNER OF THE PARTNERSHIP.
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SECTION 8.8. EXCHANGE FOR ASSETS
(A) TRANSFEREES OF UNITS THAT HAVE BEEN PRESENTED BY A LIMITED
PARTNER PURSUANT TO ARTICLE 6 WILL HAVE THE RIGHT, AT THE SOLE OPTION OF THE
GENERAL PARTNER AND AT SUCH TIME AS THE GENERAL PARTNER SHALL APPROVE, TO
SURRENDER SUCH UNITS IN EXCHANGE FOR THE PRO RATA SHARE OF PARTNERSHIP NET
ASSETS ATTRIBUTABLE TO SUCH UNITS. THE PRO RATA SHARE OF PARTNERSHIP NET ASSETS
ATTRIBUTABLE TO UNITS SHALL BE ASSIGNED SUBJECT TO A PRO RATA SHARE OF ALL LIENS
AND OTHER ENCUMBRANCES BURDENING SUCH ASSETS. SUCH PRO RATA SHARE SHALL BE THAT
PERCENTAGE OF PARTNERSHIP NET ASSETS WHICH WOULD HAVE BEEN DISTRIBUTED TO THE
HOLDER OF SUCH UNITS IF THE PARTNERSHIP HAD BEEN LIQUIDATED PURSUANT TO THE
PROVISIONS OF ARTICLE 11 IMMEDIATELY PRIOR TO THE EXCHANGE.
(B) IF 25% OR MORE OF THE UNITS IN THE PARTNERSHIP ARE
EXCHANGED FOR A PRO RATA SHARE OF PARTNERSHIP NET ASSETS PURSUANT TO PARAGRAPH
(A) OF THIS SECTION 8.8, THEN THE GENERAL PARTNER WILL SUBMIT TO A VOTE OF THE
LIMITED PARTNERS A PROPOSAL TO DISSOLVE THE PARTNERSHIP AND LIQUIDATE PURSUANT
TO SECTION 11.2.
SECTION 8.9. PURCHASE OF UNITS BY GENERAL PARTNER
IF AT ANY TIME THE GENERAL PARTNER DETERMINES THAT ANY
REPRESENTATION, WARRANTY, CERTIFICATION, COVENANT, AGREEMENT OR DESIGNATION MADE
BY OR REQUESTED OF A UNITHOLDER TO THE GENERAL PARTNER WAS FALSE WHEN MADE, HAS
BEEN BREACHED, OR WOULD BE FALSE IF MADE AT A LATER TIME, OR THAT A UNITHOLDER
IS OTHERWISE NOT QUALIFIED TO HOLD UNITS IN FEDERAL OIL AND GAS LEASES, OR
OTHERWISE JEOPARDIZES THE PARTNERSHIP'S TAX STATUS OR THE LIMITED LIABILITY OF
OTHER UNITHOLDERS, THEN THE GENERAL PARTNER, OR ANY PERSON DESIGNATED BY THE
GENERAL PARTNER, SHALL HAVE THE RIGHT, BUT NOT THE OBLIGATION, TO PURCHASE THE
UNITS OF SUCH UNITHOLDER AT A PRICE EQUAL TO THE MOST RECENT PURCHASE PRICE
THEREFOR DETERMINED IN ACCORDANCE WITH ARTICLE 6, OR, IF A TRADING MARKET FOR
THE UNITS HAS DEVELOPED SUCH THAT NO SUCH PRICE HAS BEEN DETERMINED AS OF THE
PRECEDING DECEMBER 31, AT THE THEN CURRENT MARKET PRICE FOR SUCH UNITS.
SECTION 8.10. APPRAISAL AND COMPENSATION
(A) IN CONNECTION WITH A PROPOSED ROLL-UP, THE APPRAISED VALUE
OF ALL PARTNERSHIP PROPERTIES AND OTHER ASSETS WILL BE DETERMINED BY AN
INDEPENDENT EXPERT SELECTED BY THE GENERAL PARTNER AS OF A DATE IMMEDIATELY
PRIOR TO THE ANNOUNCEMENT OF THE PROPOSED ROLL-UP TRANSACTION. IF THE APPRAISAL
IS TO BE INCLUDED IN A PROSPECTUS USED TO OFFER THE SECURITIES OF A ROLL-UP
ENTITY, THE APPRAISAL WILL BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
AS AN EXHIBIT TO THE REGISTRATION STATEMENT FOR SUCH OFFERING. THE APPRAISAL OF
SUCH PROPERTIES AND OTHER ASSETS WILL ASSUME AN ORDERLY LIQUIDATION OF
PARTNERSHIP ASSETS OVER A 12 MONTH PERIOD. THE TERMS OF THE ENGAGEMENT OF THE
INDEPENDENT EXPERT WILL CLEARLY STATE THAT THE ENGAGEMENT IS FOR THE BENEFIT OF
THE PARTNERSHIP AND ITS PARTNERS. A SUMMARY OF THE APPRAISAL, INDICATING ALL
MATERIAL ASSUMPTIONS UNDERLYING THE APPRAISAL, WILL BE INCLUDED IN A REPORT TO
THE LIMITED PARTNERS IN CONNECTION WITH THE PROPOSED ROLL-UP.
(B) IN CONNECTION WITH A PROPOSED ROLL-UP, THE PERSON
SPONSORING THE ROLL-UP SHALL OFFER THE LIMITED PARTNERS WHO VOTE "NO" ON THE
PROPOSAL THE CHOICE OF (1) ACCEPTING THE SECURITIES OF THE ROLL-UP ENTITY
OFFERED IN THE PROPOSED ROLL-UP; OR (2) ONE OF THE FOLLOWING: (A) REMAINING AS A
LIMITED PARTNER IN THE PARTNERSHIP ON THE SAME TERMS AND CONDITIONS AS EXISTED
PREVIOUSLY; OR (B) RECEIVING CASH IN AN AMOUNT EQUAL TO THE LIMITED PARTNER'S
PRO-RATA SHARE OF THE APPRAISED VALUE DETERMINED UNDER PARAGRAPH (A) OF THIS
SECTION 8.10, EXCEPT THAT IN THE EVENT THAT ANY PARTNERSHIP PROPERTIES OR OTHER
ASSETS ARE SOLD TO PROVIDE CASH TO PAY SUCH LIMITED PARTNERS, THERE SHALL BE
MADE SUCH ADJUSTMENTS TO THE APPRAISED VALUE AS MAY BE NECESSARY TO GIVE EFFECT
TO THE PRICES ACTUALLY RECEIVED IN LIEU OF THE APPRAISED VALUE OF THE
PARTNERSHIP PROPERTIES AND OTHER ASSETS THAT ARE SOLD. NOTWITHSTANDING THE
FOREGOING, THIS PARAGRAPH (B)
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SHALL NOT APPLY TO ANY PROPOSED CONSOLIDATION TRANSACTION INVOLVING THE
PARTNERSHIP AND ANY AFFILIATED LIMITED PARTNERSHIPS, IF, AS A CONSEQUENCE OF THE
TRANSACTION, THERE WILL BE NO SIGNIFICANT ADVERSE DIFFERENCE BETWEEN (I) THE
LIMITED PARTNER'S VOTING RIGHTS IN THE PARTNERSHIP AND IN THE ROLL-UP ENTITY;
(II) THE TERM OF THE EXISTENCE OF THE PARTNERSHIP AND THE ROLL-UP ENTITY; (III)
THE GENERAL PARTNER'S COMPENSATION IN THE PARTNERSHIP AND IN THE ROLL-UP ENTITY;
OR (4) THE INVESTMENT OBJECTIVES OF THE PARTNERSHIP AND THE ROLL-UP ENTITY.
(C) THE PARTNERSHIP WILL NOT PARTICIPATE IN ANY PROPOSED
ROLL-UP WHICH WOULD RESULT IN THE LIMITED PARTNERS HAVING FEWER DEMOCRACY RIGHTS
IN THE ROLL-UP ENTITY THAN THOSE PROVIDED FOR IN THESE ARTICLES. IF THE ROLL-UP
ENTITY IS NOT A LIMITED PARTNERSHIP, THE DEMOCRACY RIGHTS OF THE EQUITY OWNERS
IN THE ROLL-UP ENTITY WILL CORRESPOND TO THE DEMOCRACY RIGHTS PROVIDED FOR IN
THESE ARTICLES TO THE GREATEST EXTENT POSSIBLE.
(D) THE PARTNERSHIP WILL NOT PARTICIPATE IN ANY PROPOSED
ROLL-UP WHICH INCLUDES PROVISIONS WHICH WOULD OPERATE TO MATERIALLY IMPEDE OR
FRUSTRATE THE ACCUMULATION BY ANY PURCHASER OF THE SECURITIES OF THE ROLL-UP
ENTITY (EXCEPT TO THE MINIMUM EXTENT NECESSARY TO PRESERVE THE TAX STATUS OF THE
ROLL-UP ENTITY). THE PARTNERSHIP WILL NOT PARTICIPATE IN ANY PROPOSED ROLL-UP
WHICH WOULD LIMIT THE ABILITY OF THE EQUITY OWNERS OF THE ROLL-UP ENTITY TO
EXERCISE THE VOTING RIGHTS OF THEIR SECURITIES OF THE ROLL-UP ENTITY ON THE
BASIS OF THE SHARE OF THE TOTAL EQUITY OF THE ROLL-UP ENTITY HELD BY SUCH EQUITY
OWNERS.
(E) THE PARTNERSHIP WILL NOT PARTICIPATE IN ANY PROPOSED
ROLL-UP IN WHICH THE EQUITY OWNERS OF THE ROLL-UP ENTITY WILL HAVE RIGHTS OF
ACCESS TO THE RECORDS OF THE ROLL-UP ENTITY LESS EXTENSIVE THAT THOSE PROVIDED
FOR IN THESE ARTICLES.
(F) THE PARTNERSHIP WILL NOT PARTICIPATE IN ANY PROPOSED
ROLL-UP IN WHICH ANY OF THE COSTS OF THE TRANSACTION WILL BE BORNE BY THE
PARTNERSHIP IF THE ROLL-UP IS NOT APPROVED BY THE LIMITED PARTNERS.
ARTICLE 9
RIGHTS AND OBLIGATIONS OF THE GENERAL PARTNER
SECTION 9.1. POWERS OF THE GENERAL PARTNER
THE GENERAL PARTNER SHALL HAVE FULL, EXCLUSIVE AND COMPLETE
DISCRETION TO MANAGE AND CONTROL THE BUSINESS AND OPERATIONS OF THE PARTNERSHIP
AND SHALL HAVE POWER AND AUTHORITY TO DO ALL THINGS NECESSARY OR ADVISABLE FOR
SUCH PURPOSE. BY WAY OF ILLUSTRATION AND NOT BY WAY OF LIMITATION, THE GENERAL
PARTNER SHALL HAVE FULL POWER AND AUTHORITY TO ACQUIRE, SELL, EXCHANGE, TRANSFER
AND ABANDON PROPERTIES, PRODUCTS AND FACILITIES IN THE ORDINARY COURSE OF THE
PARTNERSHIP'S BUSINESS, TO INVEST PARTNERSHIP FUNDS TEMPORARILY IN INVESTMENTS
HAVING A PRUDENTLY OBTAINABLE YIELD, TO BORROW MONEY AND TO GRANT SECURITY
INTERESTS IN PARTNERSHIP ASSETS, TO PROCURE AND MAINTAIN SUCH INSURANCE AS MAY
BE AVAILABLE, IN SUCH AMOUNTS AND COVERING SUCH RISKS AS ARE, IN ITS SOLE
JUDGMENT, APPROPRIATE, TO CAUSE THE PARTNERSHIP TO PURCHASE UNITS AS PROVIDED IN
ARTICLE 6, TO CAUSE THE PARTNERSHIP TO BECOME A PARTICIPANT OR A GENERAL OR
LIMITED PARTNER IN ONE OR MORE JOINT VENTURES, PARTNERSHIPS OR OTHER ENTERPRISES
FORMED TO CONDUCT BUSINESS OF THE SORT IN WHICH THE PARTNERSHIP MAY ENGAGE, AND,
IF NOT IN THE ORDINARY COURSE OF THE PARTNERSHIP'S BUSINESS, THEN WITH THE
APPROVAL OF A MAJORITY IN INTEREST OF THE LIMITED PARTNERS, TO SELL OR OTHERWISE
DISPOSE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE PARTNERSHIP.
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SECTION 9.2. CERTAIN TRANSACTIONS
THE GENERAL PARTNER MAY ENGAGE IN THE FOLLOWING KINDS OF
TRANSACTIONS ON BEHALF OF THE PARTNERSHIP AND THE UNITHOLDERS WITH ANY PERSON,
WHETHER OR NOT SUCH PERSON IS THE GENERAL PARTNER OR IS AN AFFILIATE OF THE
GENERAL PARTNER, SUBJECT TO THE FOLLOWING LIMITATIONS:
(A) THE GENERAL PARTNER MAY ENTER INTO OPERATING AGREEMENTS
COVERING PARTNERSHIP PROPERTIES PURSUANT TO A MODEL FORM OPERATING AGREEMENT
ISSUED BY THE AMERICAN ASSOCIATION OF PETROLEUM LANDMEN AND AN ACCOUNTING
PROCEDURE FOR JOINT OPERATIONS ISSUED BY THE COUNCIL OF PETROLEUM ACCOUNTANTS
SOCIETIES OF NORTH AMERICA CUSTOMARY AND USUAL FOR THE GEOGRAPHIC AREA IN WHICH
THE PROPERTIES ARE LOCATED. THE CONSIDERATION TO BE RECEIVED BY THE GENERAL
PARTNER OR ANY PERSON THAT IS AN AFFILIATE OF THE GENERAL PARTNER FOR ACTING AS
OPERATOR SHALL INCLUDE A CHARGE FOR DIRECT COSTS AND ADMINISTRATIVE COSTS, BUT
MAY NOT BE IN EXCESS OF THE COMPETITIVE RATE OR DUPLICATIVE OF ANY CONSIDERATION
OR REIMBURSEMENT RECEIVED PURSUANT TO THE OTHER PROVISIONS OF THESE ARTICLES.
THE GENERAL PARTNER MAY NOT BENEFIT ITSELF BY INTERPOSITIONING ITSELF BETWEEN
THE PARTNERSHIP AND THE ACTUAL PROVIDER OF OPERATOR SERVICES.
(B) NEITHER THE GENERAL PARTNER NOR ITS AFFILIATES SHALL SELL,
TRANSFER OR CONVEY ANY PROPERTY TO OR PURCHASE ANY PROPERTY FROM THE
PARTNERSHIP, DIRECTLY OR INDIRECTLY, EXCEPT PURSUANT TO TRANSACTIONS THAT ARE
FAIR AND REASONABLE TO THE UNITHOLDERS. ANY PURCHASE FROM THE GENERAL PARTNER OR
ITS AFFILIATES (OTHER THAN AN AFFILIATED LIMITED PARTNERSHIP, IN WHICH THE
ECONOMIC INTEREST OF THE GENERAL PARTNER IS SUBSTANTIALLY SIMILAR TO OR LESS
THAN ITS ECONOMIC INTEREST IN THE PARTNERSHIP) MUST BE CONSISTENT WITH THE
OBJECTIVES OF THE PARTNERSHIP.
(I) IF THE PROPERTY TO BE SOLD TO THE
PARTNERSHIP BY THE GENERAL PARTNER OR ANY OF ITS AFFILIATES
HAS BEEN HELD FOR LESS THAN TWO (2) YEARS AND THERE HAVE NOT
BEEN SIGNIFICANT EXPENDITURES MADE IN CONNECTION WITH THE
PROPERTY, ANY SUCH PURCHASE (OTHER THAN FROM AN AFFILIATED
LIMITED PARTNERSHIP IN WHICH THE ECONOMIC INTEREST OF THE
GENERAL PARTNER IS SUBSTANTIALLY SIMILAR TO OR LESS THAN ITS
ECONOMIC INTEREST IN THE PARTNERSHIP) MUST BE MADE AT COST, AS
ADJUSTED FOR INTERVENING OPERATIONS, UNLESS THE GENERAL
PARTNER HAS REASON TO BELIEVE THAT SUCH ADJUSTED COST IS
MATERIALLY MORE THAN THE FAIR MARKET VALUE OF SUCH PROPERTY,
IN WHICH CASE SUCH PURCHASE SHALL BE MADE AT FAIR MARKET
VALUE.
(II) IF THE PROPERTY TO BE SOLD TO THE
PARTNERSHIP BY THE GENERAL PARTNER OR ANY OF ITS AFFILIATES
HAS BEEN HELD FOR LESS THAN SIX (6) MONTHS AND THERE HAVE NOT
BEEN SIGNIFICANT EXPENDITURES MADE IN CONNECTION WITH THE
PROPERTY, ANY PURCHASE FROM AN AFFILIATED LIMITED PARTNERSHIP
IN WHICH THE ECONOMIC INTEREST OF THE GENERAL PARTNER IS
SUBSTANTIALLY SIMILAR TO OR LESS THAN ITS ECONOMIC INTEREST IN
THE PARTNERSHIP WILL BE AT COST, AS ADJUSTED FOR INTERVENING
OPERATIONS, UNLESS THE GENERAL PARTNER HAS REASON TO BELIEVE
THAT SUCH ADJUSTED COST IS MATERIALLY MORE THAN THE FAIR
MARKET VALUE OF SUCH PROPERTY, IN WHICH CASE SUCH PURCHASE
SHALL BE MADE AT FAIR MARKET VALUE.
(III) ANY OTHER PURCHASE FROM THE GENERAL
PARTNER OR ITS AFFILIATES (INCLUDING LIMITED PARTNERSHIP
AFFILIATES) WILL BE AT NOT MORE THAN FAIR MARKET VALUE.
(IV) ANY SALE, TRANSFER OR CONVEYANCE OF AN
UNDEVELOPED LEASEHOLD INTEREST FROM THE PARTNERSHIP TO THE
GENERAL PARTNER OR AN AFFILIATE OF THE GENERAL PARTNER, OTHER
THAN AN AFFILIATED LIMITED PARTNERSHIP, MUST BE MADE AT THE
HIGHER OF COST OR FAIR MARKET VALUE.
(V) OTHER THAN A TRANSFER IN CONNECTION WITH
FARMOUTS OR JOINT VENTURES MADE IN COMPLIANCE WITH THIS
SECTION 9.2, ANY SALE, TRANSFER OR CONVEYANCE OF AN
UNDEVELOPED LEASEHOLD
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INTEREST TO AN AFFILIATED LIMITED PARTNERSHIP FORMED FOR THE
PURPOSE OF DRILLING ON UNDEVELOPED LEASEHOLD INTERESTS MUST BE
MADE AT COST, UNLESS THE GENERAL PARTNER HAS CAUSE TO BELIEVE
THAT COST IS MATERIALLY MORE THAN THE FAIR MARKET VALUE OF
SUCH PROPERTY, IN WHICH CASE SUCH TRANSFER SHOULD BE MADE FOR
A PRICE NOT IN EXCESS OF ITS FAIR MARKET VALUE; PROVIDED
HOWEVER, IF THE PARTNERSHIP HAS HELD THE PROPERTY FOR MORE
THAN TWO YEARS AND THE ECONOMIC INTEREST OF THE GENERAL
PARTNER IN THE AFFILIATED LIMITED PARTNERSHIP IS SUBSTANTIALLY
SIMILAR TO, OR LESS THAN, ITS ECONOMIC INTEREST IN THE
PARTNERSHIP, THE TRANSFER MAY BE MADE AT FAIR MARKET VALUE.
(VI) ANY SALE, TRANSFER, OR CONVEYANCE OF A
PRODUCING PROPERTY FROM THE PARTNERSHIP TO THE GENERAL PARTNER
OR AN AFFILIATE, OTHER THAN AN AFFILIATED LIMITED PARTNERSHIP
IN WHICH THE ECONOMIC INTEREST OF THE GENERAL PARTNER IS
SUBSTANTIALLY SIMILAR TO OR LESS THAN ITS ECONOMIC INTEREST IN
THE PARTNERSHIP, SHALL NOT BE PERMITTED EXCEPT IN CONNECTION
WITH THE LIQUIDATION OF THE PARTNERSHIP AND THEN ONLY AT FAIR
MARKET VALUE.
(VII) EXCEPT IN CONNECTION WITH FARMOUTS OR
JOINT VENTURES MADE IN COMPLIANCE WITH THIS SECTION 9.2, A
TRANSFER OF ANY TYPE OF PROPERTY FROM THE PARTNERSHIP TO AN
AFFILIATED PRODUCTION PURCHASE OR INCOME PROGRAM LIMITED
PARTNERSHIP MUST BE MADE AT FAIR MARKET VALUE IF THE PROPERTY
HAS BEEN HELD FOR MORE THAN SIX (6) MONTHS OR THERE HAVE BEEN
SIGNIFICANT EXPENDITURES MADE IN CONNECTION WITH THE PROPERTY.
OTHERWISE, IF THE GENERAL PARTNER DEEMS IT TO BE IN THE BEST
INTEREST OF THE PARTNERSHIP, THE TRANSFER MAY BE MADE AT COST,
AS ADJUSTED FOR INTERVENING OPERATIONS.
EXCEPT AS PROVIDED IN THE PRECEDING SENTENCE, ANY DETERMINATION OF FAIR MARKET
VALUE AS REQUIRED BY THE PROVISIONS OF THIS PARAGRAPH (B) OF SECTION 9.2 MUST BE
SUPPORTED BY AN APPRAISAL FROM AN INDEPENDENT EXPERT SELECTED BY THE GENERAL
PARTNER ON BEHALF OF THE PARTNERSHIP. SUCH OPINION AND ANY ASSOCIATED SUPPORTING
INFORMATION MUST BE MAINTAINED IN THE RECORDS OF THE PARTNERSHIP FOR AT LEAST
SIX (6) YEARS.
(C) A DEVELOPMENT WELL MAY BE DRILLED ON UNDEVELOPED LEASEHOLD
INTERESTS ACQUIRED BY THE PARTNERSHIP IN THE VICINITY OF PRODUCING PROPERTIES
PURCHASED BY THE PARTNERSHIP WHEN, IN THE OPINION OF THE GENERAL PARTNER, THE
DRILLING OF SUCH A WELL IS WARRANTED. UNDEVELOPED LEASEHOLD INTERESTS NOT IN THE
VICINITY OF PRODUCING PROPERTIES PURCHASED BY THE PARTNERSHIP SUBSEQUENTLY MAY
BE SOLD.
(D) EXCEPT AS PROVIDED IN THIS SECTION 9.2 (IN PARTICULAR
PARAGRAPH (B)), THE PARTNERSHIP SHALL NOT PURCHASE PROPERTIES FROM OR SELL
PROPERTIES TO ANY OTHER AFFILIATED LIMITED PARTNERSHIP. THIS PROHIBITION,
HOWEVER, SHALL NOT APPLY TO PURCHASE OF PROPERTY THROUGH PARTICIPATION IN JOINT
VENTURES WITH THE GENERAL PARTNER AND/OR SUCH AFFILIATED LIMITED PARTNERSHIPS,
PROVIDED THAT THE RESPECTIVE OBLIGATIONS AND REVENUE SHARING OF ALL PARTIES TO
THE TRANSACTION ARE SUBSTANTIALLY PROPORTIONATE TO THEIR RESPECTIVE
PARTICIPATIONS IN THE JOINT VENTURE AND THE COMPENSATION ARRANGEMENT OR ANY
OTHER INTEREST OR RIGHT OF EITHER THE GENERAL PARTNER OR ITS AFFILIATES IS
SUBSTANTIALLY SIMILAR IN EACH AFFILIATED LIMITED PARTNERSHIP, OR, IF DIFFERENT,
THE AGGREGATE COMPENSATION OF THE GENERAL PARTNER AND ITS AFFILIATES ASSOCIATED
WITH THE PROPERTY AND ANY DIRECT AND INDIRECT OWNERSHIP INTEREST IN THE PROPERTY
MAY NOT EXCEED THE LOWER OF THE COMPENSATION AND OWNERSHIP INTEREST THE GENERAL
PARTNER AND/OR ITS AFFILIATES COULD RECEIVE IF THE PROPERTY WERE SEPARATELY
OWNED OR RETAINED BY EITHER ONE OF THE LIMITED PARTNERSHIP AFFILIATES. IN
ADDITION, THERE WILL BE NO DUPLICATION OR INCREASE IN ORGANIZATION AND OFFERING
EXPENSES, COMPENSATION TO THE GENERAL PARTNER, PARTNERSHIP EXPENSES OR OTHER
FEES AND COSTS; THERE WILL BE NO SUBSTANTIVE ALTERATION IN THE FIDUCIARY AND
CONTRACTUAL RELATIONSHIP BETWEEN THE GENERAL PARTNER AND THE UNITHOLDERS; AND
THERE WILL BE NO DIMINISHMENT IN THE VOTING RIGHTS OF THE LIMITED PARTNERS.
(E) THE GENERAL PARTNER MAY FARM OUT THE PARTNERSHIP'S
INTERESTS IN OIL, GAS AND OTHER PROPERTIES. HOWEVER, THE GENERAL PARTNER MAY
NOT FARM OUT ANY WELL FOR THE PRIMARY PURPOSE OF AVOIDING
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PAYMENT OF COSTS RELATING TO SUCH WELL ALLOCABLE TO THE GENERAL PARTNER PURSUANT
TO THESE ARTICLES OR UNLESS THE GENERAL PARTNER EXERCISING THE STANDARD OF A
PRUDENT OPERATOR, DETERMINES THAT (I) THE PARTNERSHIP LACKS SUFFICIENT FUNDS TO
DRILL THE WELL AND CANNOT OBTAIN SUITABLE ALTERNATIVE FINANCING FOR SUCH
DRILLING; (II) THE PROPERTY HAS BEEN DOWNGRADED BY EVENTS OCCURRING AFTER ITS
ACQUISITION BY THE PARTNERSHIP SO THAT DRILLING WOULD NO LONGER BE DESIRABLE FOR
THE PARTNERSHIP; (III) DRILLING ON THE PROPERTY WOULD RESULT IN AN EXCESSIVE
CONCENTRATION OF PARTNERSHIP FUNDS CREATING IN THE GENERAL PARTNER'S OPINION
UNDUE RISKS TO THE PARTNERSHIP; OR (IV) THE BEST INTERESTS OF THE PARTNERSHIP
WOULD BE SERVED BY THE FARMOUT. IF THE DRILLING OF A PARTNERSHIP WELL IS FARMED
OUT, THE PARTNERSHIP WILL OBTAIN OR RETAIN SUCH ECONOMIC INTERESTS AND
CONCESSIONS AS A REASONABLY PRUDENT OPERATOR WOULD OR COULD OBTAIN OR RETAIN
UNDER THE CIRCUMSTANCES.
(F) THE GENERAL PARTNER MAY, ON BEHALF OF THE PARTNERSHIP,
BORROW MONEY, EITHER UNSECURED OR SECURED BY PARTNERSHIP ASSETS AND INCOME. ANY
LOAN TO THE PARTNERSHIP BY THE GENERAL PARTNER OR AN AFFILIATE OF THE GENERAL
PARTNER WILL BEAR INTEREST IN AN AMOUNT WHICH SHALL NOT EXCEED THE LESSER OF (I)
THE GENERAL PARTNER'S OR SUCH AFFILIATE'S INTEREST COST FROM TIME TO TIME DURING
THE TERM OF SUCH LOAN, (II) THE RATE WHICH WOULD BE CHARGED TO THE PARTNERSHIP
(WITHOUT REFERENCE TO THE GENERAL PARTNER'S FINANCIAL ABILITIES OR GUARANTEES)
BY UNRELATED BANKS ON COMPARABLE LOANS FOR THE SAME PURPOSES OR (III) THE
MAXIMUM LAWFUL RATE. THE GENERAL PARTNER MAY NOT RECEIVE POINTS OR OTHER
FINANCING CHARGES OR FEES, REGARDLESS OF AMOUNT, ON ANY LOANS IT MAY MAKE TO THE
PARTNERSHIP. WHEN TWO OR MORE PARTNERSHIPS PARTICIPATE IN THE SAME TRANSACTION
AND FINANCING IS OBTAINED FOR THE BENEFIT OF ALL OF THE PARTICIPANTS, THE
PARTNERSHIP SHALL BECOME LIABLE TO PAY ONLY ITS PRO RATA SHARE OF THE LOAN, AND
ITS INTEREST IN THE PROPERTIES PURCHASED SHALL BE MORTGAGED ONLY AS SECURITY FOR
THE SHARE OF THE LOAN FOR WHICH IT BECOMES LIABLE. NOTWITHSTANDING THE
PROVISIONS OF THIS PARAGRAPH, NO CREDITOR OF THE PARTNERSHIP SHALL HAVE OR
ACQUIRE AS A RESULT OF MAKING ANY NONRECOURSE LOAN TO THE PARTNERSHIP ANY DIRECT
OR INDIRECT INTEREST IN THE PROFITS, CAPITAL OR PROPERTY OF THE PARTNERSHIP
OTHER THAN AS A SECURED PARTY. THE PARTNERSHIP SHALL NOT MAKE LOANS OR ADVANCE
PAYMENTS TO THE GENERAL PARTNER OR ANY OF ITS AFFILIATES EXCEPT THAT AFFILIATES
MAY MAKE ADVANCE PAYMENTS WHERE NECESSARY TO SECURE TAX BENEFITS OF PREPAID
DRILLING COSTS. THESE PAYMENTS, IF ANY, SHALL NOT INCLUDE NONREFUNDABLE PAYMENTS
FOR COMPLETION COSTS PRIOR TO THE TIME THAT A DECISION IS MADE THAT THE WELL OR
WELLS WARRANT A COMPLETION ATTEMPT. THE GENERAL PARTNER MAY NOT PLEDGE ANY
PARTNERSHIP PROPERTIES AS SECURITY FOR LOANS TO THE GENERAL PARTNER OR ITS
AFFILIATES.
(G) THE GENERAL PARTNER MAY RENDER OR OBTAIN GEOLOGICAL,
GEOPHYSICAL, ENGINEERING, LAND, LEGAL, OPERATING AND OTHER TECHNICAL SERVICES,
STUDIES, EVALUATIONS, BOOKKEEPING, ACCOUNTING, DATA PROCESSING, REPORTING AND
SIMILAR SERVICES RELATING TO THE CONDUCT OF THE PARTNERSHIP'S OPERATIONS AND THE
BUSINESS AFFAIRS OF THE UNITHOLDERS. IF ANY SUCH SERVICE, STUDY OR EVALUATION IS
RENDERED BY THE GENERAL PARTNER OR OBTAINED FROM AN AFFILIATE OF THE GENERAL
PARTNER, THE PRICE PAID BY THE PARTNERSHIP THEREFOR SHALL NOT EXCEED THE COST
INCURRED IN PROVIDING THE SERVICE, STUDY OR EVALUATION.
(H) EACH CONTRACT OTHER THAN THESE ARTICLES RELATING TO A
TRANSACTION BETWEEN THE PARTNERSHIP AND THE GENERAL PARTNER OR AN AFFILIATE OF
THE GENERAL PARTNER OTHER THAN AN AFFILIATED LIMITED PARTNERSHIP SHALL CONTAIN A
PROVISION WHICH SHALL PERMIT CANCELLATION OF THE CONTRACT BY THE PARTNERSHIP
WITHOUT PENALTY, ON NOT LESS THAN 60 DAYS PRIOR WRITTEN NOTICE, UPON THE VOTE IN
FAVOR OF TERMINATION BY A MAJORITY IN INTEREST OF THE LIMITED PARTNERS. ANY
CONTRACT TERMINATED BY THE GENERAL PARTNER OR AN AFFILIATE SHALL REQUIRE 60 DAYS
ADVANCE NOTICE IN WRITING TO THE LIMITED PARTNERS.
(I) IN THE EVENT NATURAL GAS OR OIL PRODUCED BY THE
PARTNERSHIP IS TRANSPORTED THROUGH A PIPELINE OR OTHER TRANSPORTATION FACILITY
OWNED BY THE GENERAL PARTNER OR AN AFFILIATE OF THE GENERAL PARTNER, THE GENERAL
PARTNER OR SUCH AFFILIATE WILL TRANSPORT SUCH NATURAL GAS OR OIL FOR THE
PARTNERSHIP ON THE BEST TERMS MADE AVAILABLE TO ANY THIRD PARTY. IF THE GENERAL
PARTNER OR AN AFFILIATE RENDERS ANY OIL FIELD OR OTHER SERVICES OR SELLS OR
LEASES TO THE PARTNERSHIP ANY EQUIPMENT OR RELATED SUPPLIES, THEN, IF THE
GENERAL PARTNER OR SUCH AFFILIATE IS ENGAGED, INDEPENDENTLY OF THE PARTNERSHIP
AND AS AN ORDINARY AND
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ONGOING BUSINESS, IN THE BUSINESS OF RENDERING SUCH SERVICES OR SELLING OR
LEASING SUCH EQUIPMENT OR SUPPLIES TO A SUBSTANTIAL EXTENT TO OTHER PERSONS IN
THE OIL AND GAS INDUSTRY, THE COMPENSATION, PRICE OR RENTAL THEREFOR PAID BY THE
PARTNERSHIP SHALL BE COMPETITIVE WITH THE COMPENSATION, PRICE OR RENTAL OF OTHER
PERSONS IN THE AREA ENGAGED IN THE BUSINESS OF RENDERING COMPARABLE SERVICES OR
SELLING OR LEASING COMPARABLE EQUIPMENT AND SUPPLIES WHICH COULD REASONABLY BE
MADE AVAILABLE TO THE PARTNERSHIP, AND IF THE GENERAL PARTNER OR SUCH AFFILIATE
IS NOT SO INDEPENDENTLY ENGAGED IN SUCH BUSINESS, THEN THE COMPENSATION, PRICE
OR RENTAL PAID BY THE PARTNERSHIP SHALL BE THE COST OF SUCH SERVICES, EQUIPMENT
OR SUPPLIES TO THE GENERAL PARTNER OR SUCH AFFILIATES OR THE COMPETITIVE RATE
WHICH COULD BE OBTAINED IN THE AREA, WHICHEVER IS LESS.
(J) THE GENERAL PARTNER WILL NOT TAKE ANY ACTION WITH RESPECT
TO THE ASSETS OR PROPERTY OF THE PARTNERSHIP WHICH DOES NOT BENEFIT PRIMARILY
THE PARTNERSHIP AS A WHOLE, INCLUDING THE UTILIZATION OF FUNDS OF THE
PARTNERSHIP AS COMPENSATING BALANCES FOR THE BENEFIT OF THE GENERAL PARTNER AND
FUTURE COMMITMENTS OF PRODUCTION. NO REBATES OR GIVE-UPS MAY BE RECEIVED BY THE
GENERAL PARTNER OR ANY OF ITS AFFILIATES NOR MAY THE GENERAL PARTNER OR ANY OF
ITS AFFILIATES PARTICIPATE IN ANY RECIPROCAL BUSINESS ARRANGEMENTS WHICH WOULD
CIRCUMVENT THIS SECTION 9.2. THE GENERAL PARTNER SHALL HAVE A FIDUCIARY
RESPONSIBILITY FOR THE SAFEKEEPING AND USE OF ALL FUNDS AND ASSETS OF THE
PARTNERSHIP, WHETHER OR NOT IN THE GENERAL PARTNER'S POSSESSION OR CONTROL, AND
THE GENERAL PARTNER SHALL NOT EMPLOY, OR PERMIT ANOTHER TO EMPLOY, SUCH FUNDS OR
ASSETS IN ANY MANNER EXCEPT FOR THE EXCLUSIVE BENEFIT OF THE PARTNERSHIP.
(K) THE GENERAL PARTNER WILL NOT USE PARTNERSHIP FUNDS TO
PROVE UP PROPERTIES IN THE GEOLOGICAL PROSPECT AREAS BELONGING TO THE GENERAL
PARTNER OR ITS AFFILIATES.
(L) ALL BENEFITS FROM MARKETING ARRANGEMENTS OR OTHER
RELATIONSHIPS AFFECTING PROPERTY OF THE GENERAL PARTNER OR ITS AFFILIATES AND
THE PARTNERSHIP SHALL BE FAIRLY AND EQUITABLY APPORTIONED ACCORDING TO THE
RESPECTIVE INTERESTS OF EACH. PARTNERSHIP FUNDS WILL NOT BE COMMINGLED WITH THE
FUNDS OF ANY OTHER ENTITY. NOTWITHSTANDING THE FOREGOING, THE GENERAL PARTNER
MAY ESTABLISH A MASTER FIDUCIARY ACCOUNT PURSUANT TO WHICH SEPARATE SUBTRUST
ACCOUNTS ARE MAINTAINED FOR THE BENEFIT OF AFFILIATED LIMITED PARTNERSHIPS,
PROVIDED THE PARTNERSHIP'S FUNDS ARE PROTECTED FROM THE CLAIMS OF SUCH OTHER
LIMITED PARTNERSHIPS AND THEIR CREDITORS. THE GENERAL PARTNER WILL NOT MAKE ANY
ADVANCES TO THE PARTNERSHIP NOR WILL THE PARTNERSHIP BORROW ANY FUNDS FOR THE
PURPOSE OF SUSTAINING A REGULAR PATTERN OF DISTRIBUTION EVEN THOUGH LOAN PAYMENT
REQUIREMENTS, UNUSUAL OPERATING COSTS OR OTHER EXPENSES OR TEMPORARY REDUCTIONS
IN PARTNERSHIP REVENUES MAY REDUCE FUNDS AVAILABLE FOR DISTRIBUTION.
SECTION 9.3. INDEMNIFICATION
(A) THE GENERAL PARTNER AND ITS AFFILIATES SHALL BE
INDEMNIFIED BY THE PARTNERSHIP UNDER THE FOLLOWING CIRCUMSTANCES AND IN THE
MANNER AND TO THE EXTENT SET FORTH BELOW:
(I) THE GENERAL PARTNER AND ITS AFFILIATES
SHALL BE INDEMNIFIED AGAINST THE REASONABLE EXPENSES,
INCLUDING ATTORNEYS' FEES, ACTUALLY AND NECESSARILY INCURRED
BY THE GENERAL PARTNER AND ITS AFFILIATES IN CONNECTION WITH
THE DEFENSE OF AN ACTION IN THE RIGHT OF THE PARTNERSHIP TO
PROCURE A JUDGEMENT IN ITS FAVOR BY REASON OF THE GENERAL
PARTNER BEING OR HAVING BEEN A GENERAL PARTNER IN THE
PARTNERSHIP, OR IN CONNECTION WITH AN APPEAL THEREIN IF THE
GENERAL PARTNER OR SUCH AFFILIATE ACTED IN GOOD FAITH AND IN A
MANNER THE GENERAL PARTNER OR SUCH AFFILIATE REASONABLY
BELIEVED TO BE IN OR NOT OPPOSED TO THE BEST INTERESTS OF THE
PARTNERSHIP; PROVIDED, HOWEVER, THAT NO INDEMNIFICATION SHALL
BE PROVIDED IN RESPECT OF ANY CLAIM, ISSUE OR MATTER AS TO
WHICH THE GENERAL PARTNER OR ITS AFFILIATES SHALL HAVE BEEN
ADJUDGED TO BE LIABLE FOR NEGLIGENCE OR MISCONDUCT, UNLESS AND
ONLY TO THE EXTENT THAT THE SUPERIOR COURT OF THE STATE OF NEW
JERSEY OR THE COURT IN WHICH THE PROCEEDING WAS BROUGHT SHALL
DETERMINE UPON APPLICATION THAT DESPITE THE ADJUDICATION OF
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LIABILITY, BUT IN VIEW OF ALL CIRCUMSTANCES OF THE CASE, THE
GENERAL PARTNER OR SUCH AFFILIATE IS FAIRLY AND REASONABLY
ENTITLED TO INDEMNITY FOR THE EXPENSES AS THE SUPERIOR COURT
OR ANY OTHER COURT SHALL DEEM PROPER. THE INDEMNIFICATION
PROVIDED FOR UNDER THIS PARAGRAPH (A) SHALL IN NO CASE INCLUDE
AMOUNTS PAID IN SETTLING OR OTHERWISE DISPOSING OF A
THREATENED ACTION, OR PENDING ACTION WITH OR WITHOUT COURT
APPROVAL BUT SHALL INCLUDE EXPENSES INCURRED IN A THREATENED
ACTION OR PENDING ACTION WHICH IS SETTLED OR OTHERWISE
DISPOSED OF WITHOUT COURT APPROVAL, PROVIDED THERE IS A
DETERMINATION UPON APPLICATION TO THE SUPERIOR COURT OF THE
STATE OF NEW JERSEY THAT IN VIEW OF ALL CIRCUMSTANCES OF THE
CASE, THE GENERAL PARTNER OR ITS AFFILIATE IS FAIRLY AND
REASONABLY ENTITLED TO INDEMNITY FOR THE EXPENSES AS THE
SUPERIOR COURT SHALL DEEM PROPER.
(II) IN ALL CASES OTHER THAN ACTIONS IN THE
RIGHT OF THE PARTNERSHIP BROUGHT BY REASON OF THE GENERAL
PARTNER BEING OR HAVING BEEN A GENERAL PARTNER IN THE
PARTNERSHIP, THE GENERAL PARTNER AND ITS AFFILIATES SHALL BE
INDEMNIFIED BY THE PARTNERSHIP AGAINST ANY LOSSES, JUDGMENTS,
LIABILITIES, EXPENSES, INCLUDING REASONABLE ATTORNEYS' FEES,
AND AMOUNTS PAID IN SETTLEMENT OF OR INCURRED IN CONNECTION
WITH ANY CLAIMS SUSTAINED BY THEM IN CONNECTION WITH THE
PARTNERSHIP PROVIDED THAT THE SAME WERE NOT THE RESULT OF
NEGLIGENCE, A FAILURE TO ACT IN GOOD FAITH OR MISCONDUCT ON
THE PART OF THE GENERAL PARTNER OR ITS AFFILIATES.
(III) NOTWITHSTANDING THE FOREGOING, THE
GENERAL PARTNER AND ITS AFFILIATES AND ANY PERSON ACTING AS A
BROKER-DEALER SHALL NOT BE INDEMNIFIED FOR ANY LOSSES,
LIABILITIES OR EXPENSES ARISING FROM OR OUT OF AN ALLEGED
VIOLATION OF FEDERAL OR STATE SECURITIES LAWS UNLESS (1) THERE
HAS BEEN A SUCCESSFUL ADJUDICATION ON THE MERITS OF EACH COUNT
INVOLVING ALLEGED SECURITIES LAW VIOLATIONS AS TO THE
PARTICULAR INDEMNITEE AND THE COURT APPROVES INDEMNIFICATION
OF LITIGATION COSTS, OR (2) SUCH CLAIMS HAVE BEEN DISMISSED
WITH PREJUDICE ON THE MERITS BY A COURT OF COMPETENT
JURISDICTION AS TO THE PARTICULAR INDEMNITEE AND THE COURT
APPROVES INDEMNIFICATION OF LITIGATION COSTS, OR (3) A COURT
OF COMPETENT JURISDICTION APPROVES A SETTLEMENT OF THE CLAIMS
AGAINST A PARTICULAR INDEMNITEE AND THE COURT FINDS THAT
INDEMNIFICATION OF THE SETTLEMENT AND RELATED COSTS SHOULD BE
MADE.
(IV) THE INDEMNIFICATION SET FORTH IN THIS
PARAGRAPH (A) SHALL IN NO EVENT CAUSE A UNITHOLDER TO INCUR
ANY LIABILITY BEYOND THE BALANCE IN HIS CAPITAL ACCOUNT,
INCLUDING HIS SHARE OF ANY UNDISTRIBUTED PROFITS OF THE
PARTNERSHIP, NOR SHALL IT RESULT IN ANY LIABILITY OF THE
UNITHOLDERS TO ANY THIRD PARTY.
THE OTHER PROVISIONS OF THIS PARAGRAPH (A) TO THE CONTRARY
NOTWITHSTANDING, FOR SO LONG AS THE SAME SHALL BE PROHIBITED BY THE ACT, THE
GENERAL PARTNER SHALL NOT BE INDEMNIFIED AGAINST (1) AMOUNTS PAID IN SETTLING OR
OTHERWISE DISPOSING OF A THREATENED ACTION, OR PENDING ACTION IN THE RIGHT OF
THE PARTNERSHIP TO PROCURE A JUDGMENT IN ITS FAVOR TO WHICH THE GENERAL PARTNER
HAS BEEN MADE A PARTY BY REASON OF BEING OR HAVING BEEN A GENERAL PARTNER OF THE
PARTNERSHIP, OR (2) THE REASONABLE EXPENSES, INCLUDING ATTORNEY'S FEES, ACTUALLY
AND NECESSARILY INCURRED IN CONNECTION WITH THE DEFENSE OF SUCH ACTION, OR IN
CONNECTION WITH AN APPEAL THEREIN, UNLESS THE GENERAL PARTNER ACTED IN GOOD
FAITH AND IN A MANNER THE GENERAL PARTNER REASONABLY BELIEVED TO BE IN OR NOT
OPPOSED TO THE BEST INTERESTS OF THE PARTNERSHIP; PROVIDED, HOWEVER, THAT NO
INDEMNIFICATION SHALL BE PROVIDED WITH RESPECT TO EXPENSES INCURRED IN SUCH AN
ACTION WHICH IS SETTLED OR OTHERWISE DISPOSED OF WITHOUT COURT APPROVAL UNLESS
THERE IS A DETERMINATION UPON APPLICATION TO THE SUPERIOR COURT OF THE STATE OF
NEW JERSEY THAT IN VIEW OF ALL CIRCUMSTANCES OF THE CASE, THE GENERAL PARTNER IS
FAIRLY AND REASONABLY ENTITLED TO INDEMNITY FOR THE EXPENSES AS THE SUPERIOR
COURT SHALL DEEM PROPER.
(B) IN ANY CLAIM FOR INDEMNIFICATION FOR FEDERAL OR STATE
SECURITIES LAW VIOLATIONS, THE PARTY SEEKING INDEMNIFICATION SHALL PLACE BEFORE
THE COURT THE POSITION OF THE SECURITIES AND EXCHANGE
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COMMISSION, THE MASSACHUSETTS SECURITIES DIVISION AND ANY OTHER APPLICABLE
REGULATORY AUTHORITY (INCLUDING, IN THE CASE WHERE A UNITHOLDER HAS FILED THE
CLAIM AS PLAINTIFF, THE APPLICABLE REGULATORY AUTHORITY OF THE STATE IN WHICH
SUCH PLAINTIFF WAS OFFERED OR SOLD UNITS) WITH RESPECT TO THE ISSUE OF
INDEMNIFICATION FOR SECURITIES LAW VIOLATIONS.
(C) ANY AMOUNTS PAYABLE PURSUANT TO THIS SECTION 9.3 ARE
RECOVERABLE ONLY OUT OF THE ASSETS OF THE PARTNERSHIP AND NOT FROM THE
UNITHOLDERS. THE PARTNERSHIP SHALL NOT INCUR THE COST OF THAT PORTION OF ANY
INSURANCE WHICH INSURES ANY PARTY AGAINST ANY LIABILITY THE INDEMNIFICATION OF
WHICH IS PROHIBITED BY THIS SECTION 9.3 PROVIDED, HOWEVER, THAT NOTHING
CONTAINED IN THESE ARTICLES SHALL PRECLUDE THE PARTNERSHIP FROM PURCHASING AND
PAYING FOR SUCH TYPES OF INSURANCE, INCLUDING EXTENDED COVERAGE LIABILITY AND
CASUALTY AND WORKERS' COMPENSATION, AS WOULD BE CUSTOMARY FOR ANY PERSON OWNING
COMPARABLE ASSETS AND ENGAGED IN A SIMILAR BUSINESS, OR FROM NAMING THE GENERAL
PARTNER AND ITS AFFILIATES AS ADDITIONAL INSURED PARTIES THEREUNDER, PROVIDED
THAT SUCH ADDITION DOES NOT ADD TO THE PREMIUMS PAYABLE BY THE PARTNERSHIP.
(D) THE ADVANCEMENT OF PARTNERSHIP FUNDS TO THE GENERAL
PARTNER OR ITS AFFILIATES FOR LEGAL EXPENSES AND OTHER COSTS INCURRED AS A
RESULT OF ANY LEGAL ACTION FOR WHICH INDEMNIFICATION IS BEING SOUGHT IS
PERMISSIBLE ONLY IF THE PARTNERSHIP HAS ADEQUATE FUNDS AVAILABLE AND THE
FOLLOWING ARE SATISFIED:
(I) THE LEGAL ACTION RELATES TO ACTS OR
OMISSIONS WITH RESPECT TO THE PERFORMANCE OF DUTIES OR
SERVICES ON BEHALF OF THE PARTNERSHIP, AND
(II) THE LEGAL ACTION IS INITIATED BY A
PERSON WHO IS NOT A LIMITED PARTNER, OR THE LEGAL ACTION IS
INITIATED BY A LIMITED PARTNER AND A COURT OF COMPETENT
JURISDICTION SPECIFICALLY APPROVES SUCH ADVANCEMENT, AND
(III) THE GENERAL PARTNER OR ITS AFFILIATES
UNDERTAKE TO REPAY THE ADVANCED FUNDS TO THE PARTNERSHIP,
TOGETHER WITH THE APPLICABLE LEGAL RATE OF INTEREST THEREON,
IN CASES IN WHICH SUCH PARTY IS FOUND NOT TO BE ENTITLED TO
INDEMNIFICATION.
(E) FOR PURPOSES OF THIS SECTION 9.3 ONLY, THE TERM
"AFFILIATES" SHALL INCLUDE ONLY THOSE AFFILIATES WHO ARE PERFORMING SERVICES ON
BEHALF OF THE GENERAL PARTNER WITHIN THE SCOPE OF THE GENERAL PARTNER'S
AUTHORITY AS SET FORTH IN THESE ARTICLES ("QUALIFIED AFFILIATES"); PROVIDED,
HOWEVER, THAT AN AFFILIATE THAT IS NOT A QUALIFIED AFFILIATE WHOSE LIABILITY IS
SOLELY ATTRIBUTABLE TO THE NATURE OF ITS RELATIONSHIP TO THE GENERAL PARTNER OR
A QUALIFIED AFFILIATE (E.G., "CONTROLLING PERSON" LIABILITY UNDER THE FEDERAL
SECURITIES LAWS) SHALL BE INDEMNIFIED TO THE SAME EXTENT AS A QUALIFIED
AFFILIATE.
SECTION 9.4. TRANSFER OF GENERAL PARTNER'S INTEREST
THE INTEREST OF THE GENERAL PARTNER MAY NOT BE VOLUNTARILY
ASSIGNED NOR ANOTHER GENERAL PARTNER ADMITTED WITHOUT THE CONSENT OF A MAJORITY
IN INTEREST OF THE LIMITED PARTNERS; PROVIDED, HOWEVER, THAT THE GENERAL PARTNER
MAY ASSIGN ITS INTEREST IN THE PARTNERSHIP WITHOUT SUCH CONSENT AND SUBSTITUTE
AS GENERAL PARTNER (I) ANOTHER CORPORATION IN CONNECTION WITH A MERGER OR
CONSOLIDATION OR A TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE
GENERAL PARTNER WITH OR TO SUCH CORPORATION, PROVIDED THAT SUCH CORPORATION
ASSUMES ALL OF THE OBLIGATIONS OF THE GENERAL PARTNER WITH REGARD TO THE
PARTNERSHIP AND HAS, AFTER CONSUMMATION OF SUCH TRANSACTION, A NET WORTH EQUAL
TO OR IN EXCESS OF THE GENERAL PARTNER'S NET WORTH; OR (II) A PARENT OR
SUBSIDIARY OF THE GENERAL PARTNER; PROVIDED, FURTHER, THAT IN THE OPINION OF
COUNSEL TO THE PARTNERSHIP, SUCH TRANSFER AS CONTEMPLATED BY (I) AND (II) ABOVE
WOULD NOT JEOPARDIZE THE STATUS OF THE PARTNERSHIP AS A PARTNERSHIP FOR FEDERAL
INCOME TAX PURPOSES. IN THE EVENT THE ACT IS INTERPRETED OR CONSTRUED TO REQUIRE
THE CONSENT OF THE LIMITED PARTNERS WITH RESPECT TO ANY TRANSFER AND
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SUBSTITUTION AS CONTEMPLATED BY (I) AND (II) ABOVE, EACH LIMITED PARTNER SHALL
BE DEEMED TO HAVE CONSENTED TO SUCH TRANSFER AND SUBSTITUTION BY BECOMING A
PARTY TO THESE ARTICLES. NOTHING CONTAINED IN THESE ARTICLES SHALL BE DEEMED TO
PROHIBIT OR RESTRICT THE RIGHT OF THE GENERAL PARTNER TO ASSIGN ITS RIGHT TO
RECEIVE REVENUES FROM THE PARTNERSHIP OR ITS RIGHT TO PLEDGE OR GRANT A SECURITY
INTEREST IN ITS GENERAL PARTNER'S INTEREST IN THE PARTNERSHIP AND/OR ANY UNITS
IT OWNS AS SECURITY FOR ANY INDEBTEDNESS OR OTHER OBLIGATION OR LIABILITY OR TO
PROHIBIT OR RESTRICT THE ABILITY OF ANY SECURED PARTY TO ASSERT ITS INTEREST IN
SUCH SECURITY.
SECTION 9.5. WITHDRAWAL OF GENERAL PARTNER
THE GENERAL PARTNER SHALL HAVE THE RIGHT TO WITHDRAW
VOLUNTARILY AS GENERAL PARTNER UPON 120 DAYS PRIOR WRITTEN NOTICE TO THE
UNITHOLDERS. THE GENERAL PARTNER SHALL PAY ALL EXPENSES INCURRED BY THE
PARTNERSHIP WITH RESPECT TO SUCH WITHDRAWAL, BUT SHALL HAVE NO OTHER LIABILITY
ON ACCOUNT OF SUCH WITHDRAWAL. UPON THE SENDING OF NOTICE OF WITHDRAWAL BY THE
GENERAL PARTNER, WHICH NOTICE WILL INCLUDE INFORMATION CONCERNING THE GENERAL
PARTNER'S NOMINEE FOR ELECTION AS SUBSTITUTED GENERAL PARTNER, THE LIMITED
PARTNERS SHALL HAVE THE RIGHT TO CONTINUE THE BUSINESS OF THE PARTNERSHIP IN
ACCORDANCE WITH SECTION 11.1; OTHERWISE THE PARTNERSHIP SHALL DISSOLVE PURSUANT
TO SUBPARAGRAPH (A)(I) OF SECTION 11.1, AND THE GENERAL PARTNER SHALL REMAIN AS
GENERAL PARTNER FOR THE PURPOSE OF WINDING UP THE AFFAIRS OF THE PARTNERSHIP.
SECTION 9.6. RESOLUTION OF CONFLICTS OF INTEREST
(A) UNLESS OTHERWISE EXPRESSLY PROVIDED IN THESE ARTICLES,
WHENEVER A POTENTIAL CONFLICT OF INTEREST EXISTS OR ARISES BETWEEN THE GENERAL
PARTNER OR ANY OF ITS AFFILIATES, ON THE ONE HAND, AND THE PARTNERSHIP OR ANY
UNITHOLDER, ON THE OTHER HAND, ANY RESOLUTION OR COURSE OF ACTION IN RESPECT OF
SUCH CONFLICT OF INTEREST SHALL BE PERMITTED AND DEEMED APPROVED BY ALL
PARTNERS, AND SHALL NOT CONSTITUTE A BREACH OF THESE ARTICLES, OF ANY AGREEMENT
CONTEMPLATED IN THESE ARTICLES, OR OF ANY DUTY STATED OR IMPLIED BY LAW OR
EQUITY, IF THE RESOLUTION OR COURSE OF ACTION IS, OR BY OPERATION OF THESE
ARTICLES IS DEEMED TO BE, FAIR AND REASONABLE TO THE PARTNERSHIP. THE GENERAL
PARTNER SHALL BE AUTHORIZED IN CONNECTION WITH ITS RESOLUTION OF ANY CONFLICT OF
INTEREST TO CONSIDER (I) THE RELATIVE INTERESTS OF ANY PARTY TO SUCH CONFLICT,
AGREEMENT, TRANSACTION OR SITUATION AND THE BENEFITS AND BURDENS RELATING TO
SUCH INTEREST; (II) ANY CUSTOMARY OR ACCEPTED INDUSTRY PRACTICES AND ANY
CUSTOMARY OR HISTORICAL DEALINGS WITH A PARTICULAR PERSON; (III) ANY APPLICABLE
GENERALLY ACCEPTED ACCOUNTING OR ENGINEERING PRACTICES OR PRINCIPLES; AND (IV)
SUCH ADDITIONAL FACTORS AS THE GENERAL PARTNER DETERMINES IN ITS SOLE DISCRETION
TO BE RELEVANT, REASONABLE OR APPROPRIATE UNDER THE CIRCUMSTANCES. NOTHING
CONTAINED IN THESE ARTICLES, HOWEVER, IS INTENDED TO NOR SHALL IT BE CONSTRUED
TO REQUIRE THE GENERAL PARTNER TO CONSIDER THE INTERESTS OF ANY PERSON OTHER
THAN THE PARTNERSHIP. IN THE ABSENCE OF BAD FAITH BY THE GENERAL PARTNER, THE
RESOLUTION, ACTION OR TERMS SO MADE, TAKEN OR PROVIDED BY THE GENERAL PARTNER
WITH RESPECT TO SUCH MATTER SHALL NOT CONSTITUTE A BREACH OF THESE ARTICLES OR
ANY OTHER AGREEMENT CONTEMPLATED IN THESE ARTICLES OR A BREACH OF ANY STANDARD
OF CARE OR DUTY IMPOSED IN THESE ARTICLES OR SUCH OTHER AGREEMENT OR UNDER THE
ACT OR ANY OTHER LAW, RULE OR REGULATION.
(B) WHENEVER THESE ARTICLES OR ANY OTHER AGREEMENT
CONTEMPLATED HEREBY PROVIDES THAT THE GENERAL PARTNER OR ANY OF ITS AFFILIATES
IS PERMITTED OR REQUIRED TO MAKE A DECISION IN "GOOD FAITH" OR UNDER ANOTHER
EXPRESS STANDARD, THE GENERAL PARTNER OR SUCH AFFILIATE SHALL ACT UNDER SUCH
EXPRESS STANDARD AND SHALL NOT BE SUBJECT TO ANY OTHER OR DIFFERENT STANDARDS
IMPOSED BY THESE ARTICLES, ANY OTHER AGREEMENT CONTEMPLATED HEREBY OR UNDER THE
ACT OR ANY OTHER LAW, RULE OR REGULATION.
(C) WHENEVER A PARTICULAR TRANSACTION, ARRANGEMENT OR
RESOLUTION OF A CONFLICT OF INTEREST IS REQUIRED UNDER THESE ARTICLES TO BE
"FAIR AND REASONABLE" TO ANY PERSON, THE FAIR AND REASONABLE NATURE
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OF SUCH TRANSACTION, ARRANGEMENT OR RESOLUTION SHALL BE CONSIDERED IN THE
CONTEXT OF ALL SIMILAR OR RELATED TRANSACTIONS.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES OF THE PARTNERS AND POWER OF ATTORNEY
SECTION 10.1. REPRESENTATIONS OF THE LIMITED PARTNERS
EACH LIMITED PARTNER HAS MADE THE REPRESENTATIONS, WARRANTIES,
CERTIFICATIONS, COVENANTS, DESIGNATIONS AND AGREEMENTS SET FORTH IN THE
SUBSCRIPTION AGREEMENT OR AGREEMENTS OR THE ASSIGNMENT OR ASSIGNMENTS OF LIMITED
PARTNERSHIP INTEREST PURSUANT TO WHICH HE ACQUIRED LIMITED PARTNERSHIP INTERESTS
IN ONE OR MORE OF THE PREDECESSOR PARTNERSHIPS (THE "ACQUISITION
INSTRUMENT(S)"), WHICH REPRESENTATIONS, WARRANTIES, CERTIFICATIONS, COVENANTS,
DESIGNATIONS AND AGREEMENTS, INCLUDING WITHOUT LIMITATION THE DESIGNATION OF THE
GENERAL PARTNER (AND ITS DULY AUTHORIZED AGENTS) AS THE LIMITED PARTNER'S
ATTORNEY-IN-FACT FOR THE PURPOSES AND TO THE FULL EXTENT PROVIDED IN THE
ACQUISITION INSTRUMENT(S), ARE HEREBY INCORPORATED INTO THESE ARTICLES.
EACH LIMITED PARTNER REPRESENTS, WARRANTS, COVENANTS AND
AGREES AS FOLLOWS:
(A) HIS DIRECT AND INDIRECT INTERESTS IN FEDERAL OIL AND GAS
LEASES, APPLICATIONS AND OFFERS THEREFOR AND OPTIONS DO NOT EXCEED 246,080 ACRES
IN ANY STATE, OF WHICH NO MORE THAN 200,000 ACRES ARE UNDER OPTION, NOR DO THEY
EXCEED 300,000 ACRES IN EACH OF THE NORTHERN AND SOUTHERN LEASING DISTRICTS OF
ALASKA, OF WHICH NO MORE THAN 200,000 ACRES ARE HELD UNDER OPTION IN EITHER
LEASING DISTRICT.
(B) HE IS (I) AN INDIVIDUAL CITIZEN OF THE UNITED STATES OVER
21 YEARS OF AGE OR (II) A CORPORATION ORGANIZED UNDER THE LAWS OF THE UNITED
STATES OR OF ANY STATE OR TERRITORY THEREOF OR A PARTNERSHIP OR OTHER
ASSOCIATION ORGANIZED UNDER SUCH LAWS ALL OF THE MEMBERS OF WHICH ARE SUCH
CITIZENS OF SUCH AGE, WHICH CORPORATION OR ASSOCIATION IS AUTHORIZED AND
OTHERWISE DULY QUALIFIED TO HOLD FEDERAL AND OTHER OIL AND GAS LEASES, OTHER
REAL AND PERSONAL PROPERTY AND INTERESTS THEREIN OR (III) A FIDUCIARY THAT WOULD
QUALIFY UNDER (I) OR (II) ABOVE AND THAT IS ACTING FOR BENEFICIARIES THAT WOULD
SO QUALIFY OR ARE NON- ALIEN MINORS. A CORPORATE LIMITED PARTNER FURTHER
CERTIFIES THAT TO THE BEST OF ITS KNOWLEDGE, NOT MORE THAN 10% OF THE VOTING
STOCK, AND OF ALL THE STOCK, IS OWNED OR CONTROLLED BY CITIZENS OR COUNTRIES
THAT DENY TO U.S. CITIZENS PRIVILEGES TO OWN STOCK IN CORPORATIONS HOLDING OIL
AND GAS LEASES SIMILAR TO THE PRIVILEGES OF NON-U.S. CITIZENS TO OWN STOCK IN
CORPORATIONS HOLDING AN INTEREST IN FEDERAL OIL AND GAS LEASES.
(C) EXCEPT AS DISCLOSED IN A SEPARATE SCHEDULE PREVIOUSLY
DELIVERED TO THE GENERAL PARTNER, HE DOES NOT HOLD OR OWN, WITHIN THE MEANING OF
SS. 318 OF THE CODE, ANY ENEX RESOURCES CORPORATION COMMON STOCK, WARRANTS OR
ANY OTHER SECURITIES CONVERTIBLE INTO COMMON STOCK. HE FURTHER COVENANTS THAT HE
SHALL NOT, DIRECTLY OR INDIRECTLY, ACQUIRE ANY MORE OF SUCH STOCK OR OTHER
SECURITIES OF THE GENERAL PARTNER OR ANY OF ITS AFFILIATES WITHOUT THE GENERAL
PARTNER'S PRIOR WRITTEN CONSENT AND AGREES TO ADVISE THE GENERAL PARTNER IN
WRITING PROMPTLY AFTER THE DISPOSITION OF ANY STOCK OR SECURITIES LISTED IN THE
AFOREMENTIONED SCHEDULE OR THEREAFTER ACQUIRED WITH THE PRIOR WRITTEN CONSENT OF
THE GENERAL PARTNER.
(D) HE CERTIFIES UNDER PENALTY OF PERJURY THAT (1) THE SOCIAL
SECURITY OR TAXPAYER IDENTIFICATION NUMBER PREVIOUSLY REPORTED TO THE GENERAL
PARTNER IS HIS TRUE, CORRECT AND COMPLETE SOCIAL SECURITY OR TAXPAYER
IDENTIFICATION NUMBER AND (2) HE IS NOT SUBJECT TO BACKUP WITHHOLDING AS A
RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR THE INTERNAL REVENUE
SERVICE HAS NOTIFIED HIM THAT HE IS NO LONGER SUBJECT TO BACKUP WITHHOLDING.
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(E) HE WILL NOT FILE A STATEMENT UNDER CODE SECTION
6224(C)(3)(B) PROHIBITING THE TAX MATTERS PARTNER FROM ENTERING INTO A
SETTLEMENT ON HIS BEHALF WITH RESPECT TO PARTNERSHIP ITEMS AND THE GENERAL
PARTNER IS AUTHORIZED TO FILE WITH THE INTERNAL REVENUE SERVICE PURSUANT TO CODE
SS. 6224(B) A COPY OF THESE ARTICLES AND ANY OTHER DOCUMENT NECESSARY TO PERFECT
THE LIMITED PARTNER'S WAIVER OF RIGHTS HEREUNDER. IN ADDITION, HE HEREBY AGREES
THAT THE GENERAL PARTNER SHALL BE THE PERSON DESIGNATED TO MAINTAIN A MASTER
LIST OF INVESTORS PURSUANT TO CODE SS. 6112.
(F) HE WILL NOT TAKE ANY ACTION OR ACQUIRE INTERESTS THAT
WOULD CAUSE ANY OF THE REPRESENTATIONS, WARRANTIES, CERTIFICATIONS, COVENANTS,
AGREEMENTS AND DESIGNATIONS MADE IN THESE ARTICLES TO BE FALSE IF THEY WERE MADE
AT A LATER TIME.
SECTION 10.2. REPRESENTATIONS OF THE GENERAL PARTNER
THE GENERAL PARTNER REPRESENTS AND WARRANTS TO THE PARTNERSHIP AND TO EACH
LIMITED PARTNER THAT:
(A) BASED UPON THE REPRESENTATIONS OF THE UNITHOLDERS MADE
PURSUANT TO SECTION 10.1, THE UNITHOLDERS DO NOT OWN, DIRECTLY OR INDIRECTLY
WITHIN THE MEANING OF SS. 318 OF THE CODE, INDIVIDUALLY OR IN THE AGGREGATE,
MORE THAN 20% OF THE STOCK OF THE GENERAL PARTNER OR ANY OF ITS AFFILIATES AS
DEFINED IN SS. 1504(A) OF THE CODE;
(B) IT HAS A NET WORTH WHICH IS SUBSTANTIAL, BASED UPON THE
FAIR MARKET VALUE OF ITS ASSETS, AND WILL USE ITS BEST EFFORTS TO MAINTAIN SUCH
NET WORTH;
(C) THE PURCHASE OF UNITS BY THE LIMITED PARTNERS DOES NOT
ENTAIL EITHER A MANDATORY OR DISCRETIONARY PURCHASE OF, OR OPTION TO PURCHASE,
ANY TYPE OF SECURITY OF THE GENERAL PARTNER OR ANY OF ITS AFFILIATES AS DEFINED
IN SECTION 1504(A) OF THE CODE; AND THAT IT HAS NO PRESENT PLAN OR INTENTION TO
OFFER ANY OF ITS SECURITIES (OR THOSE OF SUCH AFFILIATES) IN EXCHANGE FOR THE
UNITS OF ANY LIMITED PARTNER;
(D) THE ORGANIZATION AND OPERATION OF THE PARTNERSHIP WILL BE
IN ACCORDANCE WITH THESE ARTICLES AND ALL APPLICABLE LIMITED PARTNERSHIP LAWS;
(E) THE INTEREST OF THE GENERAL PARTNER (OR OF ALL GENERAL
PARTNERS TAKEN TOGETHER IF MORE THAN ONE) IN EACH MATERIAL ITEM OF PARTNERSHIP
INCOME, GAIN, LOSS, DEDUCTION OR CREDIT WILL BE EQUAL TO AT LEAST ONE PERCENT OF
EACH SUCH ITEM AT ALL TIMES DURING THE EXISTENCE OF THE PARTNERSHIP; AND
(F) A CREDITOR WHO MAKES A NONRECOURSE LOAN TO A PARTNERSHIP
WILL NOT HAVE OR ACQUIRE AT ANY TIME AS A RESULT OF MAKING SUCH LOAN ANY DIRECT
OR INDIRECT INTEREST IN THE PROFITS, CAPITAL, OR PROPERTY OF THE PARTNERSHIP
OTHER THAN AS A SECURED CREDITOR.
SECTION 10.3. POWER OF ATTORNEY
EACH UNITHOLDER HEREBY CONSTITUTES AND APPOINTS ENEX (AND ITS
DULY AUTHORIZED AGENTS) HIS TRUE AND LAWFUL AGENT AND ATTORNEY-IN-FACT (WITH
FULL POWER TO SUBSTITUTE ANOTHER ATTORNEY IN ITS PLACE AND TO REVOKE SUCH
SUBSTITUTION) TO MAKE, EXECUTE, SWEAR TO AND ACKNOWLEDGE, AMEND, FILE, RECORD,
DELIVER AND PUBLISH IN HIS NAME, PLACE AND STEAD IN ANY WAY WHICH HE COULD DO IF
PERSONALLY PRESENT TO THE EXTENT PERMITTED BY LAW:
(A) THE CERTIFICATE OR ANY AMENDMENT OF THE
CERTIFICATE REQUIRED OR PERMITTED TO BE FILED ON BEHALF OF THE
PARTNERSHIP PURSUANT TO THE ACT OR ANY SIMILAR INSTRUMENT
REQUIRED OR PERMITTED TO BE FILED OR RECORDED UNDER THE
STATUTES RELATING TO LIMITED PARTNERSHIPS UNDER THE LAWS OF
ANY JURISDICTION IN WHICH THE PARTNERSHIP SHALL ENGAGE IN
BUSINESS;
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(B) A COUNTERPART OF THESE ARTICLES EXECUTED
FOR THE PURPOSES OF ADDING A LIMITED PARTNER OR PARTNERS OR A
GENERAL PARTNER OR SUBSTITUTING AS A LIMITED PARTNER AN
ASSIGNEE OR ASSIGNEES OF A LIMITED PARTNER PURSUANT TO ARTICLE
8;
(C) ALL CERTIFICATES, DOCUMENTS AND OTHER
INSTRUMENTS NECESSARY TO QUALIFY OR CONTINUE THE PARTNERSHIP
AS A LIMITED PARTNERSHIP (OR PARTNERSHIP OR PARTNERSHIP IN
COMMENDAM WHEREIN THE UNITHOLDERS HAVE LIMITED LIABILITY) IN
THE JURISDICTIONS WHERE THE PARTNERSHIP MAY BE DOING BUSINESS,
INCLUDING, BUT NOT LIMITED TO, ANY FICTITIOUS OR ASSUMED NAME
CERTIFICATE REQUIRED OR PERMITTED TO BE FILED BY OR ON BEHALF
OF THE PARTNERSHIP AND ANY AMENDMENTS TO SUCH CERTIFICATES,
DOCUMENTS OR INSTRUMENTS WHICH SHALL BE APPROPRIATE IN SUCH
JURISDICTION;
(D) ANY OTHER INSTRUMENT WHICH IS NOW OR
WHICH MAY HEREAFTER BE REQUIRED BY LAW TO BE FILED FOR OR ON
BEHALF OF THE PARTNERSHIP;
(E) ANY OFFERS TO LEASE, LEASES, ASSIGNMENTS
AND REQUESTS FOR APPROVAL OF ASSIGNMENT, STATEMENT OF
CITIZENSHIP, INTEREST AND HOLDING, AND ANY OTHER INSTRUMENTS
OR COMMUNICATIONS NOW OR HEREAFTER REQUIRED OR PERMITTED TO BE
FILED ON BEHALF OF THE PARTNERSHIP OR THE PARTNERS IN THEIR
CAPACITIES AS SUCH UNDER ANY LAW RELATING TO OIL, GAS OR OTHER
MINERAL EXPLORATION OR PRODUCTION INTERESTS IN GOVERNMENT
LANDS;
(F) ALL ASSIGNMENTS, CONVEYANCES AND OTHER
CERTIFICATES OR OTHER INSTRUMENTS EVIDENCING THE DISSOLUTION,
TERMINATION OR LIQUIDATION OF THE PARTNERSHIP WHEN SUCH SHALL
BE APPROPRIATE, IN EACH JURISDICTION IN WHICH THE PARTNERSHIP
SHALL DO BUSINESS;
(G) ALL CERTIFICATIONS, REQUESTS FOR
WITHHOLDING ADJUSTMENTS, REQUESTS FOR CREDITS OR REFUNDS AND
RETURN OF TAX LIABILITY THAT THE PARTNERSHIP MAY BE REQUIRED
OR PERMITTED TO EXECUTE, ACKNOWLEDGE, SWEAR TO OR FILE
PURSUANT TO THE PROVISIONS OF THE CODE;
(H) ALL DOCUMENTS FOR AND AGREEMENTS WITH
THE INTERNAL REVENUE SERVICE TO KEEP OPEN THE STATUTE OF
LIMITATIONS WITH RESPECT TO ANY PARTNERSHIP ITEMS UNDER
EXAMINATION BY THE INTERNAL REVENUE SERVICE AND TO TAKE ANY
AND ALL OTHER ACTION NECESSARY OR DESIRABLE TO ESTABLISH EACH
UNITHOLDER'S LIABILITY FOR TAX OR WITHHOLDING OF TAX,
ENTITLEMENT TO A CREDIT OR REFUND OF TAX; AND
(I) ALL INSTRUMENTS WHICH THE GENERAL
PARTNER DEEMS APPROPRIATE TO REFLECT ANY AMENDMENT TO THESE
ARTICLES, OR MODIFICATION OF THE PARTNERSHIP, MADE IN
ACCORDANCE WITH THE TERMS OF THIS AGREEMENT OR TO CARRY OUT
THE PURPOSES AND BUSINESS OF THE PARTNERSHIP.
THE EXISTENCE OF THIS POWER OF ATTORNEY SHALL NOT PRECLUDE
EXECUTION OF ANY SUCH INSTRUMENT BY A UNITHOLDER INDIVIDUALLY ON ANY SUCH
MATTER. THIS IS A LIMITED POWER OF ATTORNEY WHICH MAY NOT BE REVOKED AND SHALL
SURVIVE THE ASSIGNMENT OR TRANSFER BY A UNITHOLDER OF ALL OR PART OF HIS UNITS
IN THE PARTNERSHIP AND, BEING COUPLED WITH AN INTEREST, SHALL SURVIVE THE DEATH,
DISSOLUTION, BANKRUPTCY, INCOMPETENCY OR LEGAL DISABILITY OF A UNITHOLDER TO THE
EXTENT THAT HE MAY LEGALLY CONTRACT FOR SUCH SURVIVAL. THIS POWER MAY BE
EXERCISED BY A FACSIMILE SIGNATURE OF ONE OFFICER OF THE GENERAL PARTNER OR ANY
SUCCESSORS THERETO OR BY LISTING ALL UNITHOLDERS FOR WHOM ACTION IS BEING TAKEN
PURSUANT TO LIKE POWERS OF ATTORNEY NEXT TO THE SINGLE SIGNATURE OF SUCH
OFFICER. ANY PERSON DEALING WITH THE PARTNERSHIP MAY CONCLUSIVELY PRESUME AND
RELY UPON THE FACT THAT ANY SUCH INSTRUMENT EXECUTED BY SUCH AGENT AND
ATTORNEY-IN-FACT IS AUTHORIZED, REGULAR AND BINDING WITHOUT FURTHER INQUIRY AND
EACH UNITHOLDER HEREBY AGREES TO BE BOUND BY ANY REPRESENTATIONS MADE BY THE
GENERAL PARTNER ACTING IN GOOD FAITH PURSUANT TO THIS POWER OF ATTORNEY. EACH
UNITHOLDER SHALL EXECUTE AND DELIVER TO THE GENERAL PARTNER OR ANY SUCCESSOR
GENERAL PARTNER OF THE PARTNERSHIP WITHIN FIVE DAYS AFTER THE RECEIPT OF A
REQUEST THEREFOR BY THE
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GENERAL PARTNER OR ANY SUCH SUCCESSOR GENERAL PARTNER SUCH FURTHER DESIGNATIONS,
POWERS OF ATTORNEY AND OTHER INSTRUMENTS AS THE GENERAL PARTNER OR ANY SUCH
SUCCESSOR GENERAL PARTNER SHALL REASONABLY DEEM NECESSARY.
ARTICLE 11
DISSOLUTION, LIQUIDATION AND TERMINATION OF THE PARTNERSHIP
SECTION 11.1. EVENTS CAUSING DISSOLUTION
(A) THE HAPPENING OF ANY ONE OF THE FOLLOWING EVENTS SHALL WORK AN
IMMEDIATE DISSOLUTION OF THE PARTNERSHIP:
(I) THE WITHDRAWAL OF THE GENERAL PARTNER PURSUANT TO SECTION 9.5;
(II) THE REMOVAL OF THE GENERAL PARTNER PURSUANT TO SECTION 8.6;
(III) ANY OTHER EVENT OF WITHDRAWAL (AS DEFINED IN THE ACT) OF THE
GENERAL PARTNER;
(IV) THE SALE OF ALL OR SUBSTANTIALLY ALL THE ASSETS OF THE PARTNERSHIP;
(V) THE AFFIRMATIVE VOTE OF A MAJORITY IN INTEREST OF THE LIMITED
PARTNERS TO DISSOLVE THE PARTNERSHIP;
(VI) THE EXPIRATION OF THE TERM OF THE PARTNERSHIP AS PROVIDED IN
SECTION 2.5;
(VII) THE ENTRY OF A COURT ORDER OR JUDGMENT OF DISSOLUTION; OR
(VIII) ANY OTHER EVENT WHICH WOULD CAUSE A DISSOLUTION UNDER THE ACT;
PROVIDED, HOWEVER, THAT THE PARTNERSHIP SHALL NOT BE DISSOLVED (AND SHALL NOT BE
REQUIRED TO BE WOUND UP PURSUANT TO SECTION 11.2) BY REASON OF AN EVENT
DESCRIBED IN CLAUSES (I), (II) OR (III) ABOVE (EACH, AN "EVENT OF WITHDRAWAL")
IF, (A) AT THE TIME OF THE EVENT OF WITHDRAWAL THERE IS AT LEAST ONE OTHER
GENERAL PARTNER WHO AGREES TO CARRY ON THE BUSINESS OF THE PARTNERSHIP OR (B)
WITHIN NINETY (90) DAYS FOLLOWING THE EVENT OF WITHDRAWAL, ALL THE REMAINING
PARTNERS AGREE IN WRITING TO CONTINUE THE BUSINESS OF THE PARTNERSHIP AND TO THE
APPOINTMENT OF A SUCCESSOR GENERAL PARTNER PURSUANT TO PARAGRAPH (B) OF THIS
SECTION 11.1.
(B) UPON THE HAPPENING OF AN EVENT OF WITHDRAWAL AT A TIME
WHEN THERE IS NO OTHER GENERAL PARTNER WHO AGREES TO CARRY ON THE BUSINESS OF
THE PARTNERSHIP, THE LIMITED PARTNERS SHALL HAVE THE RIGHT, EXERCISABLE IN
ACCORDANCE WITH THE PROVISIONS OF SECTIONS 8.6 AND 8.7, BUT ONLY WITHIN NINETY
(90) DAYS AFTER THE EVENT OF WITHDRAWAL, TO AGREE IN WRITING TO CONTINUE THE
PARTNERSHIP'S BUSINESS AND TO THE APPOINTMENT OF A SUCCESSOR GENERAL PARTNER.
SUCH SUCCESSOR GENERAL PARTNER SHALL BE CONSIDERED APPOINTED UPON PAYMENT TO THE
PARTNERSHIP OF THE CONTRIBUTION TO THE CAPITAL OF THE PARTNERSHIP DESIGNATED BY
THE LIMITED PARTNERS AND EXECUTION OF AN APPROPRIATE AMENDMENT TO THE
CERTIFICATE. IF THE REQUISITE AGREEMENT IS NOT OBTAINED WITHIN SUCH TIME PERIOD,
THE PARTNERSHIP SHALL BE WOUND UP AND TERMINATED PURSUANT TO SECTION 11.2.
(C) THE SELECTION OF A SUCCESSOR GENERAL PARTNER PURSUANT TO
PARAGRAPH (B) OF THIS SECTION 11.1 SHALL RELIEVE ENEX OF THE RESPONSIBILITIES OF
GENERAL PARTNER AND THE SUCCESSOR GENERAL PARTNER SHALL
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BE REQUIRED TO MAKE ARRANGEMENTS SATISFACTORY TO ENEX TO REMOVE ENEX FROM
PERSONAL LIABILITY ON ANY EXISTING OR FUTURE PARTNERSHIP LIABILITIES OR TO
INDEMNIFY ENEX AGAINST ANY SUCH LIABILITIES AND THESE ARTICLES AND THE
CERTIFICATE SHALL BE AMENDED TO NAME THE SUCCESSOR GENERAL PARTNER AS GENERAL
PARTNER.
(D) ANYTHING TO THE CONTRARY IN THESE ARTICLES
NOTWITHSTANDING, A SUCCESSOR GENERAL PARTNER SELECTED BY THE LIMITED PARTNERS
PURSUANT TO THE PROVISIONS OF PARAGRAPH (B) OF THIS SECTION 11.1 SHALL NOT
ACQUIRE ANY INTEREST IN THE PARTNERSHIP'S PROFITS, LOSSES, DEDUCTIONS OR
CREDITS, OR ANY DISTRIBUTIVE INTEREST IN THE PARTNERSHIP'S PROPERTIES ON
DISSOLUTION, SOLELY BY REASON OF BECOMING A SUCCESSOR GENERAL PARTNER. IN THE
EVENT THAT A SUCCESSOR GENERAL PARTNER IS SELECTED, ENEX MAY RETAIN ALL OF ITS
UNITS AND, AS ITS GENERAL PARTNER'S INTEREST, THAT PORTION OF PARTNERSHIP
REVENUES (NET OF ALLOCABLE OPERATING COSTS) REPRESENTED BY A FRACTION NOT TO
EXCEED ENEX'S PERCENTAGE INTEREST IN PARTNERSHIP REVENUES HAVING AS ITS
NUMERATOR THE TOTAL FUNDS EXPENDED BY THE PARTNERSHIP AND THE PREDECESSOR
PARTNERSHIPS AND ALLOCATED TO THE GENERAL PARTNER AND AS ITS DENOMINATOR THE
TOTAL FUNDS EXPENDED BY THE PARTNERSHIP AND THE PREDECESSOR PARTNERSHIPS. THE
REMAINDER OF ENEX'S ORIGINAL GENERAL PARTNER'S INTEREST IN THE PARTNERSHIP BUT
IN ANY EVENT NOT LESS THAN 20% OF SUCH INTEREST, SHALL BE OFFERED FOR SALE FIRST
TO THE SUCCESSOR GENERAL PARTNER AND, TO THE EXTENT SUCH OFFER IS NOT ACCEPTED
BY THE SUCCESSOR GENERAL PARTNER, TO THE PARTNERSHIP. THE PURCHASE PRICE SHALL
BE BASED UPON AN EVALUATION BY AN INDEPENDENT EXPERT, WHICH SHALL BE SELECTED BY
MUTUAL AGREEMENT OF BOTH ENEX AND THE SUCCESSOR GENERAL PARTNER. IN THE EVENT
THEY ARE UNABLE SO TO AGREE, A MEMBER OF THE AMERICAN ARBITRATION ASSOCIATION
DESIGNATED BY ENEX SHALL SELECT THE FIRM, WHICH SELECTION SHALL BE BINDING ON
BOTH PARTIES. THE PURCHASE PRICE OF THE INTEREST TO BE SOLD SHALL BE DETERMINED
BY SUCH FIRM ON THE SAME BASIS AS THAT USED IN DETERMINING THE PURCHASE PRICE
FOR UNITS PURSUANT TO ARTICLE 6.
(E) IF THE SUCCESSOR GENERAL PARTNER OR THE PARTNERSHIP OR
EITHER OF THEM HAVE NOT PURCHASED ANY PORTION OF ENEX'S GENERAL PARTNER'S
INTEREST WITHIN SIXTY (60) DAYS AFTER THE SUCCESSOR GENERAL PARTNER'S
APPOINTMENT, THEN PROMPTLY THEREAFTER THERE SHALL BE DISTRIBUTED TO ENEX IN LIEU
OF ITS GENERAL PARTNER'S INTEREST IN THE PARTNERSHIP:
(I) A FRACTIONAL UNDIVIDED SHARE OF ALL OF
THE PARTNERSHIP'S WORKING INTERESTS AND OTHER PARTNERSHIP
PROPERTIES EQUAL TO ITS PERCENTAGE INTEREST IN PARTNERSHIP
REVENUES, SUBJECT TO ITS ALLOCABLE PORTION OF THE MORTGAGES OR
OTHER BURDENS, IF ANY, ON SUCH PROPERTIES; AND
(II) AN AMOUNT IN CASH EQUAL TO ITS
PERCENTAGE INTEREST IN PARTNERSHIP REVENUES, MULTIPLIED BY THE
VALUE OF ALL OTHER PARTNERSHIP ASSETS THEN ON HAND, LESS A
PROPORTIONATE SHARE OF UNSECURED PARTNERSHIP INDEBTEDNESS, IF
ANY, WITH THE VALUE OF SUCH ASSETS BEING DETERMINED ON THE
SAME BASIS AS THE PURCHASE PRICE OF UNITS PURSUANT TO ARTICLE
6.
IN THE EVENT THE SUCCESSOR GENERAL PARTNER OR THE PARTNERSHIP OR EITHER OF THEM
HAS PURCHASED A PORTION OF ENEX'S GENERAL PARTNER'S INTEREST, THEN THE
PERCENTAGE SHARE OF OTHER PROPERTIES AND OF CASH DISTRIBUTABLE TO ENEX PURSUANT
TO THIS PARAGRAPH (E) SHALL BE REDUCED PROPORTIONATELY.
(F) DISSOLUTION OF THE PARTNERSHIP SHALL BE EFFECTIVE ON THE
DAY ON WHICH THE EVENT OCCURS GIVING RISE TO THE DISSOLUTION, BUT THE
PARTNERSHIP SHALL NOT TERMINATE UNTIL THE PARTNERSHIP'S CERTIFICATE HAS BEEN
CANCELLED AND THE ASSETS OF THE PARTNERSHIP HAVE BEEN DISTRIBUTED AS PROVIDED IN
SECTION 11.2.
(G) EXCEPT FOR THE RIGHT OF THIS PARTNERSHIP TO USE THE
PRESENT PARTNERSHIP NAME, THE RIGHT TO USE OR GRANT THE USE OF THE NAME "ENEX",
"ENEX RESOURCES" OR DERIVATIONS THEREOF SHALL REMAIN EXCLUSIVELY THAT OF ENEX
RESOURCES CORPORATION.
B-39
<PAGE>
SECTION 11.2. LIQUIDATION
(A) IF THE PARTNERSHIP SHALL BE DISSOLVED FOR ANY REASON, NO
FURTHER BUSINESS SHALL BE CONDUCTED BY THE PARTNERSHIP EXCEPT FOR THE TAKING OF
SUCH ACTION AS SHALL BE NECESSARY FOR THE PRESERVATION OF PARTNERSHIP PROPERTY,
TO CONDUCT AN ACCOUNTING OF THE PARTNERSHIP'S ASSETS, LIABILITIES AND OPERATIONS
TO THE DATE OF DISSOLUTION, FOR THE WINDING UP OF THE AFFAIRS OF THE PARTNERSHIP
AND FOR THE DISTRIBUTION OF ITS ASSETS TO THE UNITHOLDERS PURSUANT TO THE
PROVISIONS OF THIS SECTION. UPON SUCH DISSOLUTION, THE GENERAL PARTNER, OR, IF
THE PARTNERSHIP BE DISSOLVED BY REASON OF AN EVENT OF WITHDRAWAL OF THE GENERAL
PARTNER, SUCH OTHER PERSON AS MAY BE ELECTED BY THE LIMITED PARTNERS IN
ACCORDANCE WITH THE PROVISIONS OF SECTIONS 8.6 AND 8.7, SHALL ACT AS LIQUIDATOR.
THE LIQUIDATOR, WHETHER THE GENERAL PARTNER OR ANOTHER PERSON, MAY BE PAID A
REASONABLE FEE FOR ACTING AS SUCH. THE LIQUIDATOR SHALL HAVE FULL POWER TO SELL,
ASSIGN AND ENCUMBER ANY OR ALL OF THE PARTNERSHIP ASSETS.
(B) UPON THE WINDING UP AND TERMINATION OF THE BUSINESS AND
AFFAIRS OF THE PARTNERSHIP, ITS ASSETS SHALL, TO THE EXTENT PRACTICABLE, BE
SOLD, THE PROCEEDS ALLOCATED TO THE PARTNERS IN ACCORDANCE WITH ARTICLE 4 HEREOF
AND THE PARTNERS' CAPITAL ACCOUNTS ADJUSTED ACCORDINGLY. SUCH PROCEEDS AND
REMAINING ASSETS SHALL BE SUBSEQUENTLY DISTRIBUTED AS FOLLOWS:
(I) ALL OF THE PARTNERSHIP'S DEBTS AND LIABILITIES TO
PERSONS OTHER THAN THE PARTNERS AND UNITHOLDERS SHALL BE PAID
AND DISCHARGED IN THEIR ORDER OF PRIORITY, AS PROVIDED BY LAW;
(II) ALL OF THE PARTNERSHIP'S DEBTS AND LIABILITIES TO THE
PARTNERS AND UNITHOLDERS SHALL BE PAID AND DISCHARGED;
(III) ANY UNUSED CONTRIBUTIONS TO THE CAPITAL OF THE
PARTNERSHIP SHALL BE DISTRIBUTED TO THE CONTRIBUTING PARTNERS
AND UNITHOLDERS; AND
(IV) ANY REMAINING CASH AND OTHER ASSETS OF
THE PARTNERSHIP SHALL BE DISTRIBUTED TO THE PARTNERS AND
UNITHOLDERS IN PROPORTION TO AND IN PAYMENT OF THE POSITIVE
BALANCES IN THEIR RESPECTIVE CAPITAL ACCOUNTS, WITH THE EFFECT
OF BRINGING SUCH CAPITAL ACCOUNTS TO ZERO. IF THE GENERAL
PARTNER HAS A DEFICIT IN ITS CAPITAL ACCOUNT, IT SHALL BE
REQUIRED TO RESTORE SUCH ACCOUNT TO A ZERO BALANCE. THE
RESTORATION OF ANY SUCH DEFICIT MUST BE MADE BY THE END OF THE
TAXABLE YEAR IN WHICH THE LIQUIDATION OCCURS OR, IF LATER,
WITHIN 90 DAYS AFTER THE DATE OF SUCH LIQUIDATION.
(C) A UNITHOLDER SHALL LOOK SOLELY TO THE ASSETS OF THE
PARTNERSHIP FOR THE RETURN OF HIS CAPITAL INVESTMENT, AND IF PARTNERSHIP
PROPERTIES AND OTHER PARTNERSHIP ASSETS REMAINING AFTER THE PAYMENT OR DISCHARGE
OF THE DEBTS AND LIABILITIES OF THE PARTNERSHIP ARE INSUFFICIENT TO RETURN HIS
CAPITAL INVESTMENT, HE SHALL HAVE NO RECOURSE AGAINST THE GENERAL PARTNER OR ANY
LIQUIDATOR OR OTHER UNITHOLDER. THE GENERAL PARTNER MAY, IF IT SO DESIRES,
PURCHASE PARTNERSHIP PROPERTIES OR OTHER PARTNERSHIP ASSETS UPON LIQUIDATION AT
THE GREATER OF THE HIGHEST POSSIBLE BONA FIDE OFFER RECEIVED THEREFOR OR THE
VALUE THEREOF AS DETERMINED BY AN INDEPENDENT EXPERT AND/OR OTHER APPROPRIATE
INDEPENDENT APPRAISER(S) SELECTED BY THE GENERAL PARTNER OR OTHER LIQUIDATOR, AS
THE CASE MAY BE, IN ITS SOLE DISCRETION; PROVIDED AT LEAST 15 DAYS ADVANCE
NOTICE OF SUCH PROPOSED SALE HAS BEEN GIVEN TO THE UNITHOLDERS.
B-40
<PAGE>
ARTICLE 12
RIGHT OF THE GENERAL PARTNER TO CONDUCT SIMILAR OPERATIONS
NEITHER THE GENERAL PARTNER NOR ANY OF ITS AFFILIATES IS
REQUIRED TO DEVOTE ITS EXCLUSIVE EFFORTS TOWARD ACTIVITIES IN WHICH THE
PARTNERSHIP PARTICIPATES. SUBJECT TO THE PROVISIONS OF SECTION 9.2, THE GENERAL
PARTNER OR ITS AFFILIATES SHALL HAVE THE RIGHT TO ACQUIRE, EXPLORE, DEVELOP AND
PRODUCE OIL, GAS AND OTHER MINERAL PROPERTIES AND TO DEVELOP AND MANAGE AND
OPERATE ADDITIONAL OIL, GAS AND OTHER MINERAL PROPERTIES ACQUIRED AT ANY TIME.
FURTHERMORE, THE GENERAL PARTNER IS NOT PREVENTED FROM ENGAGING IN OTHER
BUSINESS TRANSACTIONS WITH PURCHASERS OF PARTNERSHIP PRODUCTION, WHICH
TRANSACTIONS MAY BE FACILITATED BY SUCH SALES.
ARTICLE 13
AMENDMENTS
SECTION 13.1. PROPOSAL AND ADOPTION OF AMENDMENTS GENERALLY
(A) PROPOSED AMENDMENTS TO THESE ARTICLES SHALL BE ADOPTED
PURSUANT TO THE PROVISIONS OF SECTIONS 8.6 AND 8.7; PROVIDED, HOWEVER, THAT NO
AMENDMENT MAY, WITHOUT THE PRIOR WRITTEN APPROVAL OF ALL PARTNERS, (I) ENLARGE
THE OBLIGATIONS OF ANY PARTNER UNDER THESE ARTICLES, (II) ENLARGE THE LIABILITY
OF THE GENERAL PARTNER TO THE UNITHOLDERS, (III) RESULT IN THE LOSS OF ANY
LIMITED PARTNER'S LIMITED LIABILITY, (IV) AMEND THIS ARTICLE 13 OR ARTICLES 4,
5, 6 OR 7 OF THESE ARTICLES, OR (V) ADVERSELY AFFECT THE PARTNERSHIP'S STATUS AS
A "PARTNERSHIP" FOR FEDERAL INCOME TAX PURPOSES. THE DATE OF ADOPTION OF AN
AMENDMENT PURSUANT TO THIS ARTICLE 13 SHALL BE THE DATE ON WHICH THE GENERAL
PARTNER SHALL HAVE RECEIVED THE REQUISITE CONSENT OF THE LIMITED PARTNERS. ANY
PROPOSED AMENDMENT WHICH IS NOT ADOPTED MAY BE RESUBMITTED. IN THE EVENT ANY
PROPOSED AMENDMENT IS NOT ADOPTED, ANY WRITTEN CONSENT RECEIVED WITH RESPECT
THERETO SHALL BECOME VOID AND SHALL NOT BE EFFECTIVE WITH RESPECT TO ANY
RESUBMISSION OF THE PROPOSED AMENDMENT.
(B) THE GENERAL PARTNER SHALL, WITHIN A REASONABLE TIME AFTER
THE ADOPTION OF ANY AMENDMENT TO THESE ARTICLES, MAKE ANY FILINGS OR
PUBLICATIONS REQUIRED OR DESIRABLE TO REFLECT SUCH AMENDMENT, INCLUDING ANY
REQUIRED FILING FOR RECORDATION OF ANY AMENDMENT TO THE PARTNERSHIP'S
CERTIFICATE OR OTHER INSTRUMENT OR SIMILAR DOCUMENT.
SECTION 13.2. AMENDMENTS ON ADMISSION OR WITHDRAWAL OF PARTNERS
(A) IF THESE ARTICLES OR THE CERTIFICATE SHALL BE AMENDED TO
REFLECT THE ADMISSION, SUBSTITUTION OR WITHDRAWAL OF A LIMITED PARTNER, THE
AMENDMENT SHALL BE SIGNED BY THE GENERAL PARTNER AND THE PERSON TO BE
SUBSTITUTED OR ADDED OR HIS ATTORNEY-IN-FACT.
(B) IF THESE ARTICLES OR THE CERTIFICATE SHALL BE AMENDED TO
REFLECT THE REMOVAL OR WITHDRAWAL OF THE GENERAL PARTNER AND THE CONTINUATION OF
THE BUSINESS OF THE PARTNERSHIP AND THE ADMISSION OF A SUCCESSOR GENERAL PARTNER
OR THE ADMISSION OF A SUBSTITUTED GENERAL PARTNER, SUCH AMENDMENT SHALL BE
SIGNED BY THE ORIGINAL GENERAL PARTNER, THE LIMITED PARTNERS OR THEIR
ATTORNEY(S)-IN-FACT AND THE SUCCESSOR GENERAL PARTNER OR SUBSTITUTED GENERAL
PARTNER.
(C) IF THE CERTIFICATE SHALL BE AMENDED TO REFLECT THE
WITHDRAWAL OR ADMISSION OF A PARTNER, SUCH AMENDMENT SHALL BE SIGNED BY THE
PARTY OR PARTIES REQUIRED BY THE ACT.
B-41
<PAGE>
SECTION 13.3. AMENDMENTS RELATING TO PRESERVATION OF LIMITED LIABILITY
(A) THE GENERAL PARTNER SHALL HAVE THE AUTHORITY TO AMEND
THESE ARTICLES WITHOUT ANY VOTE OR OTHER ACTION BY THE LIMITED PARTNERS FOR THE
SOLE PURPOSE OF FORMING, QUALIFYING OR CONTINUING THE PARTNERSHIP AS A LIMITED
PARTNERSHIP (OR A PARTNERSHIP OR PARTNERSHIP IN COMMENDAM IN WHICH THE
UNITHOLDERS HAVE LIMITED LIABILITY) IN ALL JURISDICTIONS IN WHICH THE
PARTNERSHIP CONDUCTS OR PLANS TO CONDUCT BUSINESS.
(B) THE GENERAL PARTNER SHALL HAVE THE POWER AND AUTHORITY TO
AMEND ARTICLE 8 TO PROVIDE FOR AND ALLOW THE AUTOMATIC SUBSTITUTION OF A
DECEASED LIMITED PARTNER'S HEIRS OR DEVISEES AS SUBSTITUTED LIMITED PARTNERS IN
ACCORDANCE WITH THE ACT AND ARTICLE 2882 OF THE CIVIL CODE OF THE STATE OF
LOUISIANA; PROVIDED, HOWEVER, THE GENERAL PARTNER'S POWER AND AUTHORITY TO MAKE
SUCH AMENDMENT IS CONDITIONED UPON THE PARTNERSHIP HAVING FIRST RECEIVED A
RULING FROM THE INTERNAL REVENUE SERVICE OR AN OPINION OF TAX COUNSEL,
ACCEPTABLE TO THE GENERAL PARTNER, THAT SUCH AMENDMENT WILL NOT CAUSE THE
PARTNERSHIP TO LOSE ITS CLASSIFICATION AS A PARTNERSHIP FOR FEDERAL INCOME TAX
PURPOSES. THE GENERAL PARTNER MAY ELECT TO CAUSE OR NOT TO CAUSE THE PARTNERSHIP
TO BE QUALIFIED AS A PARTNERSHIP IN COMMENDAM IF THE PARTNERSHIP DOES NOT
RECEIVE THE RULING FROM THE INTERNAL REVENUE SERVICE OR SUCH OPINION OF TAX
COUNSEL REQUIRED ABOVE. IF SUCH A RULING OR OPINION IS OBTAINED, THE GENERAL
PARTNER WILL PROCEED TO EFFECT THE ABOVE STATED AMENDMENT TO THESE ARTICLES
PURSUANT TO THE POWER OF ATTORNEY CONTAINED IN THESE ARTICLES PRIOR TO CAUSING
THE PARTNERSHIP TO CONDUCT BUSINESS IN THE STATE OF LOUISIANA. IF SUCH A RULING
OR OPINION IS NOT OBTAINED, THE GENERAL PARTNER WILL NOT AMEND THESE ARTICLES
BUT, IN ITS DISCRETION, MAY CAUSE THE PARTNERSHIP TO BE QUALIFIED AS A
PARTNERSHIP IN COMMENDAM IF THE GENERAL PARTNER DETERMINES THE POTENTIAL RISK TO
THE PARTNERSHIP TO BE ACCEPTABLE.
SECTION 13.4. AMENDMENTS WITHOUT APPROVAL BY LIMITED PARTNERS
IN ADDITION TO ANY AMENDMENTS OTHERWISE AUTHORIZED IN THESE
ARTICLES, THESE ARTICLES MAY BE AMENDED FROM TIME TO TIME BY THE GENERAL PARTNER
WITHOUT THE CONSENT OF ANY OF THE LIMITED PARTNERS (I) TO ADD TO THE
REPRESENTATIONS, DUTIES OR OBLIGATIONS OF THE GENERAL PARTNER, OR TO SURRENDER
ANY RIGHT OR POWER GRANTED TO THE GENERAL PARTNER, FOR THE BENEFIT OF THE
LIMITED PARTNERS, (II) TO CURE ANY AMBIGUITY, TO CORRECT OR SUPPLEMENT ANY
PROVISION WHICH MAY BE INCONSISTENT WITH ANY OTHER PROVISION, TO CORRECT ANY
TYPOGRAPHICAL ERRORS OR TO MAKE ANY OTHER PROVISIONS WITH RESPECT TO MATTERS OR
QUESTIONS ARISING UNDER THESE ARTICLES WHICH WILL NOT BE INCONSISTENT WITH THE
PROVISIONS OF THESE ARTICLES, AND (III) TO DELETE OR ADD ANY PROVISIONS FROM OR
TO THESE ARTICLES REQUIRED TO BE SO DELETED OR ADDED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER FEDERAL AGENCY OR BY A STATE "BLUE SKY"
COMMISSIONER OR SIMILAR OFFICIAL, WHICH ADDITION OR DELETION IS DEEMED BY THE
COMMISSION, OR SUCH AGENCY OR OFFICIAL TO BE FOR THE BENEFIT OR PROTECTION OF
THE UNITHOLDERS; PROVIDED, HOWEVER, THAT NO AMENDMENT SHALL BE ADOPTED PURSUANT
TO THIS SECTION 13.4 UNLESS THE ADOPTION THEREOF (I) IS FOR THE BENEFIT OF OR
NOT ADVERSE TO THE INTERESTS OF THE LIMITED PARTNERS, (II) IS CONSISTENT WITH
ARTICLE 9, (III) DOES NOT ALTER THE RESPECTIVE AGGREGATE INTEREST OF THE GENERAL
PARTNER OR THE LIMITED PARTNERS IN PROFITS OR LOSSES OR IN CASH DISTRIBUTIONS OF
THE PARTNERSHIP; AND (IV) DOES NOT, IN THE OPINION OF COUNSEL TO THE
PARTNERSHIP, BY ITS TERMS, ADVERSELY AFFECT THE LIMITED LIABILITY OF THE LIMITED
PARTNERS OR THE STATUS OF THE PARTNERSHIP AS A PARTNERSHIP FOR FEDERAL INCOME
TAX PURPOSES.
B-42
<PAGE>
ARTICLE 14
MISCELLANEOUS PROVISIONS
SECTION 14.1. NOTICES
ALL NOTICES OR OTHER COMMUNICATIONS REQUIRED OR PERMITTED TO
BE GIVEN PURSUANT TO THESE ARTICLES SHALL BE IN WRITING AND SHALL BE CONSIDERED
AS PROPERLY GIVEN OR MADE IF MAILED FROM WITHIN THE UNITED STATES BY FIRST CLASS
MAIL, POSTAGE PREPAID, OR IF TELEGRAPHED, BY PREPAID TELEGRAM, AND ADDRESSED, IF
TO THE GENERAL PARTNER, TO ENEX RESOURCES CORPORATION, 800 ROCKMEAD DRIVE, SUITE
200, THREE KINGWOOD PLACE, KINGWOOD, TEXAS 77339, AND IF TO A UNITHOLDER, TO THE
ADDRESS SET FORTH IN THE RECORDS OF THE PARTNERSHIP. ANY UNITHOLDER MAY CHANGE
HIS ADDRESS BY GIVING NOTICE IN WRITING TO THE GENERAL PARTNER, AND THE GENERAL
PARTNER MAY CHANGE ITS ADDRESS BY GIVING SUCH NOTICE TO ALL PARTNERS. ANY SUCH
NEWLY DESIGNATED ADDRESS SHALL BE SUCH PARTNER'S OR UNITHOLDER'S ADDRESS FOR THE
PURPOSE OF ALL NOTICES OR OTHER COMMUNICATIONS REQUIRED OR PERMITTED TO BE GIVEN
PURSUANT TO THESE ARTICLES TEN DAYS AFTER NOTICE IS GIVEN.
SECTION 14.2. EXCHANGE OFFERS
ANY OFFER MADE BY, OR AT THE DIRECTION OF, THE GENERAL PARTNER
OR ANY OF ITS AFFILIATES TO LIMITED PARTNERS TO EXCHANGE THEIR INTERESTS IN THE
PARTNERSHIP FOR ANOTHER SECURITY SHALL BE GOVERNED BY (I) THE PROVISIONS OF THE
NORTH AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION, INC. GUIDELINES FOR THE
REGISTRATION OF OIL AND GAS PROGRAMS OR COMPARABLE REGULATIONS OR GUIDELINES
ADOPTED BY STATE SECURITIES ADMINISTRATORS AS IN EFFECT AT THE TIME OF SUCH
OFFER AND (II) ANY OTHER FEDERAL OR STATE REGISTRATION REQUIREMENTS IN EFFECT AT
THE TIME OF SUCH OFFER.
SECTION 14.3. BINDING PROVISIONS
THE COVENANTS AND AGREEMENTS CONTAINED IN THESE ARTICLES SHALL
BE BINDING UPON AND INURE TO THE BENEFIT OF THE HEIRS, EXECUTORS,
ADMINISTRATORS, SUCCESSORS AND ASSIGNS OF THE RESPECTIVE PARTIES HERETO.
SECTION 14.4. APPLICABLE LAW
THESE ARTICLES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW JERSEY WITHOUT REFERENCE TO THE PRINCIPLES OF
CONFLICTS OF LAWS.
SECTION 14.5. EXECUTION AND COUNTERPARTS
SUBJECT TO ACCEPTANCE BY THE GENERAL PARTNER, EXECUTION OF ANY
INSTRUMENT THE EXECUTION OF WHICH, BY ITS TERMS, IS INTENDED TO CONSTITUTE
EXECUTION OF THESE ARTICLES (AN "EXECUTION INSTRUMENT"), SHALL CONSTITUTE
EXECUTION OF THESE ARTICLES FOR ALL PURPOSES. THESE ARTICLES AND EACH SUCH
EXECUTION INSTRUMENT (ALL OF WHICH ARE HEREBY EXPRESSLY INCORPORATED BY
REFERENCE WITH THE SAME EFFECT AS IF SET FORTH AT LENGTH HEREIN) MAY BE EXECUTED
IN SEVERAL COUNTERPARTS, ALL OF WHICH TOGETHER SHALL CONSTITUTE ONE BINDING
AGREEMENT ON ALL PARTIES HERETO, NOTWITHSTANDING THAT ALL PARTIES HAVE NOT
SIGNED THE SAME COUNTERPART, EXCEPT THAT NO COUNTERPART SHALL BE BINDING UNLESS
SIGNED BY THE GENERAL PARTNER. ANY SIGNATURE MAY BE BY AN ATTORNEY-IN-FACT.
B-43
<PAGE>
SECTION 14.6. SEVERABILITY OF PROVISIONS
IF FOR ANY REASON ANY PROVISION OF THESE ARTICLES WHICH IS NOT
MATERIAL TO THE PURPOSE OR BUSINESS OF THE PARTNERSHIP IS DETERMINED TO BE
INVALID AND CONTRARY TO ANY EXISTING OR FUTURE LAW OR GOVERNMENTAL REGULATION,
SUCH INVALIDITY SHALL NOT IMPAIR THE OPERATION OF OR AFFECT THOSE PORTIONS OF
THESE ARTICLES THAT ARE VALID.
SECTION 14.7. ENTIRE AGREEMENT
THESE ARTICLES AND THE AFOREMENTIONED EXECUTION INSTRUMENTS
CONSTITUTE THE ENTIRE AGREEMENT AMONG THE PARTIES RELATING TO THE PARTNERSHIP.
THESE ARTICLES SUPERSEDE ANY PRIOR AGREEMENT OR UNDERSTANDING AMONG THE PARTIES
AND MAY NOT BE MODIFIED OR AMENDED IN ANY MANNER OTHER THAN AS SET FORTH IN
THESE ARTICLES.
SECTION 14.8. GENDER AND NUMBER
THE GENDER AND NUMBER USED IN THESE ARTICLES ARE USED AS A
REFERENCE TERM ONLY AND SHALL APPLY WITH THE SAME EFFECT WHETHER THE PARTIES ARE
OF THE MASCULINE OR FEMININE GENDER, OR ARE CORPORATE OR OTHER FORM, AND THE
SINGULAR SHALL LIKEWISE INCLUDE THE PLURAL.
SECTION 14.9. HEADINGS
ARTICLE AND SECTION TITLES ARE FOR DESCRIPTIVE PURPOSES ONLY
AND SHALL NOT CONTROL OR ALTER THE MEANING OF THESE ARTICLES AS SET FORTH IN THE
TEXT.
SECTION 14.10. PARTITION
EACH PARTY WAIVES THE BENEFIT OF ANY PROVISIONS OF LAW WHICH
MAY PROVIDE FOR PARTITION OF REAL OR PERSONAL PROPERTY AND AGREES THAT HE WILL
NOT RESORT TO ANY ACTION AT LAW OR IN EQUITY TO PARTITION ANY PROPERTY SUBJECT
TO THESE ARTICLES.
B-44
<PAGE>
IN WITNESS WHEREOF, THESE AMENDED ARTICLES OF LIMITED
PARTNERSHIP HAVE BEEN EXECUTED ON THIS _____ DAY OF ______________, 199___.
GENERAL PARTNER
ENEX RESOURCES CORPORATION
ATTEST:
____________________ BY _____________________
(ASSISTANT) SECRETARY (VICE) PRESIDENT
ADDITIONAL LIMITED PARTNERS BY
ENEX RESOURCES CORPORATION, AS
ATTORNEY-IN-FACT FOR EACH OF THE
LIMITED PARTNERS PURSUANT TO A
POWER OF ATTORNEY IN ITS
POSSESSION WHICH AUTHORIZES IT TO
EXECUTE THE FOREGOING INSTRUMENT.
ATTEST:
_____________________ BY ____________________
(ASSISTANT) SECRETARY (VICE) PRESIDENT
WITHDRAWING (ORIGINAL) LIMITED
PARTNER
ENEX L.P. CORP.
ATTEST:
_____________________ BY __________________
(ASSISTANT) SECRETARY (VICE) PRESIDENT
B-45
<PAGE>
OATHS AND ACKNOWLEDGEMENTS
STATE OF TEXAS} SS.:
COUNTY OF MONTGOMERY}
On this _____ day of ___________, 198__, before me, a Notary Public
in and for the jurisdiction aforesaid, personally appeared _____________________
who resides at ___________ _____________________ to me known and known to me to
be [a Vice] President of Enex Resources Corporation ("Enex") and who, being
first duly sworn, upon his oath stated and acknowledged to me that the foregoing
Amended Articles of Limited Partnership ("Articles") were executed by him before
me in such capacity for and on behalf of Enex, that the statements made in the
Articles are true to the best of his knowledge, information and belief, that the
Articles are the free act and deed of Enex and that execution thereof was by
virtue of the authority duly vested in or granted to him by Enex.
This day sworn to and subscribed before me, and in witness whereof I
have hereunto set my hand and affixed my official seal on the day, month and
year first above written.
[Notarial Seal]
-------------------------------------------
Notary Public
My Commission Expires:
----------------
B-46
<PAGE>
STATE OF TEXAS} SS.:
COUNTY OF MONTGOMERY}
On this _____ day of ___________, 198__, before me, a Notary Public
in and for the jurisdiction aforesaid, personally appeared _____________________
who resides at ___________ _____________________ to me known and known to me to
be [a Vice] President of Enex Resources Corporation ("Enex") and who, being
first duly sworn, upon his oath stated and acknowledged to me that the foregoing
Amended Articles of Limited Partnership ("Articles") were executed by him before
me in such capacity for and on behalf of Enex, which executed the Articles as
attorney-in-fact for each limited partner whose name is set forth on Schedule A
to the Articles pursuant to each such limited partner's power of attorney, that
the statements made in the Articles are true to the best of his knowledge,
information and belief, that the Articles are the free act and deed of Enex and
that execution thereof was by virtue of the authority duly vested in or granted
to him by Enex.
This day sworn to and subscribed before me, and in witness whereof I
have hereunto set my hand and affixed my official seal on the day, month and
year first above written.
[Notarial Seal]
--------------------------------------
Notary Public
My Commission Expires:
----------------
STATE OF TEXAS} SS.:
COUNTY OF MONTGOMERY}
On this _____ day of ___________, 198__, before me, a Notary Public
in and for the jurisdiction aforesaid, personally appeared _____________________
who resides at ___________ _____________________ to me known and known to me to
be [a Vice] President of Enex L.P. Corp. ("Enex") and who, being first duly
sworn, upon his oath stated and acknowledged to me that the foregoing Articles
of Limited Partnership ("Articles") were executed by him before me in such
capacity for and on behalf of Enex, that the statements made in the Articles are
true to the best of his knowledge, information and belief, that the Articles are
the free act and deed of Enex and that execution thereof was by virtue of the
authority duly vested in or granted to him by Enex.
This day sworn to and subscribed before me, and in witness whereof I
have hereunto set my hand and affixed my official seal on the day, month and
year first above written.
[Notarial Seal]
----------------------------------------
Notary Public
My Commission Expires:
-----------------
B-47
<PAGE>
APPENDIX C
PLAN OF CONSOLIDATION
OF
ENEX OIL & GAS INCOME PROGRAM LIMITED PARTNERSHIPS AND
ENEX INCOME AND RETIREMENT FUND LIMITED PARTNERSHIPS
INTO
ENEX CONSOLIDATED PARTNERS, L.P.
------------------
Capitalized terms used herein shall have the same meaning as defined
and used in the Prospectus/Proxy Statement of Enex Consolidated Partners, L.P.
(the "Consolidated Partnership"), to which this Plan of Consolidation is annexed
as Appendix C.
This Plan of Consolidation ("Plan") is intended to accomplish the
following:
1. The adoption by the requisite majority in interest of the
"limited partners" (as described in the Prospectus/Proxy Statement
under "THE PROPOSED CONSOLIDATION--Terms of the Consolidation --
Partnership Voting Requirements and Rights") of some or all of the 34
limited partnerships listed in the Prospectus/Proxy Statement under
"SUMMARY - Partnerships Subject to Consolidation" of this Plan and of
amendments to each Partnership's certificate and agreement of limited
partnership, as set forth in Appendix D to the Prospectus/Proxy
Statement; provided, however, that at least six (6) Partnerships whose
assets, together with the exchange value of those Interests exchanged
for Units pursuant to a simultaneous exchange offer made by the
Consolidated Partnership to the limited partners, have an aggregate
exchange value of $10 million or more.
2. The execution and delivery of (i) the Consolidation
Agreement in the form annexed hereto as Exhibit I and incorporated
herein by reference by the Consolidated Partnership and each
Partnership the limited partners of which adopt this Plan of
Consolidation ("Participating Partnerships") and thereby participate in
the proposed Consolidation and (ii) the Amended Articles of Limited
Partnership of the Consolidated Partnership in the form annexed to this
Prospectus/Proxy Statement as Appendix B..
3. The transfer to the Consolidated Partnership, pursuant to
the Consolidation Agreement, of all of the Participating Partnerships'
properties and assets, subject to all of their debts, obligations,
liabilities (except for amounts owed to the General Partner) and
agreements, which shall be assumed by the Consolidated Partnership, in
exchange for the issuance by the Consolidated Partnership of units of
limited partnership interest in the Consolidated Partnership ("Units")
to the Participating Partnerships in amounts based upon the exchange
value of each Participating Partnership's net assets as set forth in
Table A - Consolidation Schedule -Composition of Exchange Values in the
Prospectus/Proxy Statement under "THE PROPOSED CONSOLIDATION - The
Consolidation Schedule."
4. The dissolution and termination of each Participating
Partnership pursuant to its certificate and agreement of limited
partnership, as amended pursuant to this Plan, whereupon no further
business shall be done by such Participating Partnership and no further
obligations shall be incurred on any such Participating Partnership's
behalf except for the consummation of the termination, liquidation, and
winding up of its affairs as provided herein or in its certificate and
agreement of limited partnership, as amended.
5. The distribution to each partner of each of the
Participating Partnerships of a number of Units equal to such Partner's
ratable share of the Units received by each Partnership of which he is
a partner.
This Plan, its implementation and consummation, are subject to the
terms and conditions set forth in the Prospectus/Proxy Statement and the
Consolidation Agreement.
The General Partner, upon the adoption of this Plan, subject to its
fiduciary duty and obligation to the limited partners of the Partnerships, is
hereby authorized on behalf of each of the Participating Partnerships and is
hereby granted specific authority to do all acts and things in the name of each
of the Participating Partnerships
<PAGE>
necessary or appropriate in order to carry out this Plan, perform the
Consolidation Agreement and complete the dissolution, winding up and termination
of each Participating Partnership in accordance with this Plan and its
certificate and agreement of limited partnership, as amended, including the
execution and delivery of the Consolidation Agreement and such other agreements,
certificates, documents, assignments and conveyances, and other instruments as
may, in the General Partner's sole discretion, be required in order to
effectuate and implement the foregoing.
<PAGE>
EXHIBIT I to APPENDIX C
CONSOLIDATION AGREEMENT
THIS AGREEMENT dated as of_____ , 1996 among ENEX CONSOLIDATED PARTNERS,
L.P., a limited partnership formed under the laws of the State of New Jersey
(the "Consolidated Partnership"), those ENEX OIL & GAS INCOME PROGRAM LIMITED
PARTNERSHIPS AND ENEX INCOME AND RETIREMENT FUND LIMITED PARTNERSHIPS that have
executed this Agreement or a counterpart hereof (the "Participating
Partnerships") and ENEX RESOURCES CORPORATION, a Delaware corporation and the
general partner of the Consolidated Partnership and the Participating
Partnerships (the "General Partner").
RECITALS
This Agreement sets forth the terms upon which the Consolidated Partnership
will acquire the operations and assets of the Participating Partnerships in
exchange for units of limited partnership interest in the Consolidated
Partnership ("Units"), if all of the conditions of the proposed consolidation
are met. Unless otherwise defined herein, capitalized terms used herein shall
have the same meaning as defined and used in the Prospectus/Proxy Statement of
the Consolidated Partnership dated _____, 1996 (the "Prospectus/Proxy
Statement").
The General Partner has submitted to the limited partners of each of
the Participating Partnerships for their approval the proposal to adopt the Plan
of Consolidation (the "Plan") to which this Agreement is annexed as an Exhibit.
Pursuant to the Plan, which has been adopted by the limited partners of
each of the Participating Partnerships, each of the Participating Partnerships
has amended its certificate and agreement of limited partnership in order to
consolidate its operations and assets into the Consolidated Partnership and
thereafter to dissolve and terminate.
AGREEMENT
In consideration of the mutual promises contained herein, the
Consolidated Partnership, the Participating Partnerships and the General Partner
hereby agree as follows:
ARTICLE I
ACQUISITION OF ASSETS
1.1 Transfer of Assets. Each Participating Partnership shall assign,
convey, transfer and deliver to the Consolidated Partnership and the
Consolidated Partnership shall accept from each Participating Partnership,
effective as of the last day of the month during which the limited partners of
the Participating Partnerships approve the Plan of Consolidation, at 11:59 P.M.
local time at the location of each property and asset (the "Effective Date"), or
such other date and time as may be agreed upon by the Consolidated Partnership
and such Participating Partnership, all of the properties and assets of each
Participating Partnership, without limitation and wherever situated (such
properties and assets being hereinafter referred to as the "Assets"), including:
(a) all interests in and rights in respect of oil, gas,
mineral and related properties and assets of any kind and nature,
direct or indirect, including working interests, royalties, overriding
royalties, production payments, other non-working interests and
non-operating interests, contract rights, debt instruments, and equity
interests in joint ventures, partnerships, corporations and other
entities, including but not limited to common and preferred stock,
debentures, bonds and other securities of every kind and nature and
unrelated assets coincidentally acquired in connection with the
acquisition of the foregoing assets; all interests in and rights in
respect of oil, gas and other minerals
<PAGE>
and hydrocarbons or revenues therefrom and all contracts in connection
therewith and claims and rights thereto (including without limitation
all oil and gas leases and interests thereunder, mineral leases and
interests thereunder, surface interests, fee interests, reversionary
interests, royalties, overriding royalties, reservations and
concessions), all easements, rights of way, licenses, permits, leases
and other interests associated with, appurtenant to or necessary for
the operation of any of the foregoing, and all interests in equipment
and machinery (including without limitation well equipment and
machinery), oil and gas transmission or storage facilities (including
without limitation tanks, tank batteries, pipelines and gathering
systems), camps, water plants, electric plants, gasoline and gas
processing plants, refineries and other tangible personal property and
fixtures associated with, appurtenant to or necessary for the operation
of any of the foregoing, all of which assets are hereinafter referred
to as the "Oil and Gas Interests";
(b) all pipe, fittings, supplies, inventory, materials,
machinery, equipment and other tangible personal property and fixtures
not included in the Oil and Gas Interests;
(c) all title opinions and reports, abstracts of title, status
reports, leases, deeds, unitization agreements, pooling agreements,
operating agreements, division orders, transfer orders, permits,
certifications, licenses, participation agreements, partnership
agreements, and other contracts, agreements, documents and instruments
pertaining in any manner to the Oil and Gas Interests or any other
Assets, to the operations thereof, to the title thereto, or to any
other aspect of the business of the Participating Partnerships, and all
rights of the Participating Partnerships under all of such leases,
deeds, orders, permits, certifications, licenses, agreements, contracts
and other documents and instruments;
(d) all production records, maps, engineering data, geological
and geophysical data, logs and similar material;
(e) all books of account, ledgers, files and other records and
data pertaining in any manner to any of the Assets or the operation
thereof, or to any other aspect of the business of the Participating
Partnerships;
(f) all claims, rights, warranties, covenants, representations
and causes of action (including without limitation those from or with
respect to predecessors in title or interest of the Participating
Partnerships) which relate to any of the Assets; and
(g) all cash, accounts receivable, prepaid expenses,
investments and other assets of the Participating Partnerships.
1.2 Encumbrances. All Assets transferred pursuant to Section 1.1 hereof
shall be transferred subject to all liens, claims and encumbrances burdening the
Assets at the Effective Date, including but not limited to mortgages, security
interests, royalties, overriding royalties, production payments, contract
rights, reversionary interests, easements, rights of way, licenses, permits,
unitization and pooling agreements, operating agreements and other contracts and
agreements pertaining in any manner to the Oil and Gas Interests.
ARTICLE II
CONSIDERATION FOR ASSETS
2.1 Units of Limited Partnership Interest in the Consolidated
Partnership. As consideration for the Assets of each Participating Partnership,
at the Closing (as defined in Section 5.2 hereof) the Consolidated Partnership
shall issue to each Participating Partnership the number of Units in the
Consolidated Partnership determined in accordance with the provisions described
in the section of the Prospectus/Proxy Statement captioned "THE PROPOSED
CONSOLIDATION" and the Amended Articles of Limited Partnership of the
Consolidated Partnership shall provide for the allocation of the Consolidated
Partnership's costs and revenues
<PAGE>
in the manner described in the section of the Prospectus/Proxy Statement
captioned "THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues."
The manner of the disposition of Units to the Partners of each Participating
Partnership shall be as set forth in the Prospectus/Proxy Statement and in
accordance with the certificates and agreements of limited partnership of the
Participating Partnerships.
2.2 Assumption of Debts and Liabilities by the Consolidated
Partnership. In connection with the transfer of the Assets described in Section
1.1, the Consolidated Partnership shall assume and pay, perform, fulfill and
discharge all of the debts, obligations, liabilities (except for amounts owed to
the General Partner) and agreements of each Participating Partnership, whether
direct or contingent, and indemnify each Participating Partnership against the
liabilities and losses described in the Assumption and Indemnification Agreement
referred to in Section 5.2 below.
2.3 Dissenters' Rights. A limited partner of a Participating
Partnership who votes against approval of the Plan may demand cash in lieu of
Units in an amount equal to the exchange value of such limited partner's
Interests pursuant to the following terms and conditions. Failure to take any
action required below will result in a termination or waiver of these
dissenters' rights.
1. A limited partner electing to exercise dissenters' rights
must (a) deliver to the General Partner, before the limited partners
vote on the Plan, a written notice of intention to demand a cash
payment (a "Dissenter's Notice") that is made by or on behalf of the
person who is the limited partner of record of the Interests for which
such dissenters' rights are demanded and (b) vote AGAINST approval of
the Plan. The demand must be delivered to the General Partner at its
offices at 800 Rockmead Drive, Three Kingwood Place, Kingwood, Texas
77339. A Dissenter's Notice must reasonably inform the General Partner
of the identity of the limited partner of record and of such limited
partner's intention to demand cash for his Interests. A Proxy and
Ballot left blank or simply voting against approval of the Plan does
not constitute a Dissenter's Notice.
2. Only the limited partner of record of Interests is entitled
to demand dissenters' rights for the Interests registered in that
limited partner's name. The Dissenter's Notice must be executed by or
for the limited partner of record, fully and correctly, as the limited
partner's name appears on the Proxy and Ballot mailed to the limited
partner. If the Interests are owned of record in a fiduciary capacity,
such as by a trustee, guardian, or custodian, the Dissenter's Notice
should be executed in that capacity. If the Interests are owned of
record by more than one person, as in a joint tenancy or tenancy in
common, the Dissenter's Notice should be executed by or for all owners.
An authorized agent, including one of two or more joint owners, may
execute the Dissenter's Notice for a limited partner of record;
however, the agent must identify the owner or owners of record and
expressly disclose the fact that, in executing the Dissenter's Notice,
the agent is acting as agent for the owner or owners of record.
3. Within thirty (30) days after the effective date of the
Consolidation, the General Partner will send a notice of the
effectiveness of the Consolidation to each limited partner of a
Participating Partnership who satisfied the foregoing conditions prior
to the vote of the limited partners at the Meetings.
4. Each such limited partner may deliver to the General
Partner a written demand for a cash payment for his Interests (a
"Dissenter's Demand") at any time thereafter and before the expiration
of 120 days after the effective date of the Consolidation.
5. A limited partner will lose the right to receive cash in
lieu of Units if no Dissenter's Demand from him is received by the
General Partner within 120 days after the Effective Date, or if a
limited partner delivers to the General Partner a written withdrawal of
such limited partner's Dissenter's Demand and an acceptance of the
Consolidation, except that any such attempt to withdraw made more than
60 days after the effective date of the Consolidation shall require the
General Partner's written approval. If dissenters' rights are not
perfected or a demand for dissenters' rights
<PAGE>
is withdrawn, a limited partner will be entitled to receive the
consideration otherwise payable pursuant to the Plan, (i.e., Units
issued by the Consolidated Partnership).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE PARTICIPATING PARTNERSHIPS
Each of the Participating Partnerships represents and warrants as
follows with respect to such Participating Partnership:
(a) Such Participating Partnership has all requisite power and
authority to own, operate and lease its properties and other assets, to
carry on its business as now being conducted in the place or places
where such properties and other assets are now owned or leased or such
business is now conducted and to enter into and perform all of the
provisions of this Agreement.
(b) The balance sheets of such Participating Partnership at
December 31, 1995 and 1994, as included in the combined balance sheets
of Enex Oil & Gas Income Program and Enex Income and Retirement Fund
Limited Partnerships and the notes thereto, examined by Deloitte &
Touche, independent certified public accountants, and the unaudited
balance sheets of such Participating Partnership at , 1996 and 1995, as
included in the combined balance sheets of Enex Oil & Gas Income
Program and Enex Income and Retirement Fund Limited Partnerships,
fairly present such Participating Partnership's financial condition as
of such dates and, to the General Partner's best information, knowledge
and belief, are complete and correct in all material respects, and such
balance sheets show all of the material liabilities and commitments,
direct and contingent, of such Participating Partnership as of such
dates.
(c) The statements of operations of such Participating
Partnership as included in the combined statements of operations of
Enex Oil & Gas Income Program and Enex Income and Retirement Fund
Limited Partnerships, for the fiscal years ended December 31, 1995 and
1994 and the notes thereto, examined by the aforesaid independent
certified public accountants, and the unaudited statements of
operations of such Participating Partnership included in the
compilation for the -month periods ended 1996 and 1995 included in the
combined statements of operation of Enex Oil & Gas Income Program and
Enex Income and Retirement Fund Limited Partnerships, fairly present
the results of such Participating Partnership's operations for those
periods and, to the General Partner's best knowledge, information, and
belief, are complete and correct in all material respects.
(d) The books of account of such Participating Partnership
fairly and in all material respects reflect such Participating
Partnership's income, expenses, assets, liabilities and commitments
since December 31, 1995, in accordance with generally accepted
accounting principles consistently applied. Such Participating
Partnership has conducted its operations according to the ordinary and
usual course of business and has paid all of its obligations as they
have become due.
(e) Such Participating Partnership does not have any material
liabilities, obligations, commitments or debts, whether direct or
contingent, which are not disclosed in the financial statements and
books of account referred to above.
(f) To the best of the General Partner's knowledge,
information and belief, such Participating Partnership has good title
to substantially all of the value of its Oil and Gas Interests which
were used in determining the exchange value of such Participating
Partnership. The term "good title" means title which generally would be
acceptable for oil and gas properties in the particular area where the
applicable properties are located for the particular type of properties
involved (e.g., producing or nonproducing). The term "good title"
includes title subject to defects and irregularities which are not
likely to interfere materially with the benefit and enjoyment of
<PAGE>
production from the properties or which, in accordance with generally
prevailing standards of the oil and gas industry, can reasonably be
accepted in light of the value of the properties affected.
(g) Since the acquisition of such Participating Partnership's
Oil and Gas Interests on behalf of such Participating Partnership, said
Oil and Gas Interests have been administered and maintained (and, to
the extent that the General Partner has acted as operator thereof,
operated) by the General Partner on behalf of such Participating
Partnership in a reasonable manner and in accordance with generally
prevailing standards of the oil and gas industry.
The warranties and representations made herein shall remain in effect
until, but shall not survive, the Closing.
<PAGE>
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions. The following requirements are
conditions precedent to completion of the consolidation:
The Consolidation will not take place unless
(a) the proposed Consolidation is approved by
limited partners of at least six (6) Partnerships whose
assets, together with the exchange value of those Interests
exchanged for Units pursuant to the exchange offer described
in the Prospectus/Proxy Statement under "THE PROPOSED
CONSOLIDATION - The Exchange Offer", have an aggregate
exchange value of $10 million or more;
(b) the consolidation contemplated hereby shall not
violate any order, decree or judgment of any court or
governmental body having jurisdiction;
(c) no development or change occurs, or is
discovered, in the business or properties of one or more of
the Partnerships that approve the transaction, or in the
applicable regulatory or tax structure, or otherwise, that
would materially adversely affect the business, properties or
prospects of the Consolidated Partnership, but that would not
also affect the Partnerships generally in the same manner or
to the same extent;
(d) all necessary governmental and third party
permits, consents and other approvals have been obtained;
(e) there is no pending or threatened legal action
challenging or seeking to prevent the consummation of the
Consolidation; and
(f) the representations and warranties of the
Participating Partnerships contained in or given in connection
with this Agreement shall have been true and correct when made
and shall be true and correct as of the Closing Date.
If condition (c) is not met with respect to one or more of the
Partnerships that approve the consolidation, and the withdrawal of such
Partnership or Partnerships from the Consolidated Partnership would not have a
material adverse effect on the Consolidated Partnership, the General Partner
may, in its sole discretion, either form the Consolidated Partnership without
including the assets of the Partnership or Partnerships which do not meet
condition (c) or resolicit the limited partners of such Partnership or
Partnerships and the limited partners of the Participating Partnerships and
include such Partnership or Partnerships in the Consolidated Partnership if the
requisite percentage of resolicited Partners approve the consolidation based
upon exchange values which give effect to the changed circumstances. If the
exchange value of any Partnership determined at the time of transfer has changed
by less than 15% from the exchange value set forth herein, such change will not
be deemed material. Conversely, any change in exchange value of 15% or more will
be deemed material. In addition, the General Partner may, in its discretion,
elect to cancel the consolidation if "dissenters' rights" (as described in the
Prospectus/Proxy Statement under "THE PROPOSED CONSOLIDATION - Terms of the
Consolidation - Dissenters' Rights") are exercised by limited partners holding
more than 10% of the aggregate exchange value of all the Partnerships that
participate in the Consolidation or if, in its judgment, the Consolidation is
rendered
C-I-5
<PAGE>
impracticable or inadvisable by war or other calamity or a material adverse
change in general market or economic conditions.
4.2 Benefit of Conditions. The conditions set forth in Section
4.1(f) are for the sole benefit of the Consolidated Partnership and may be
waived, in whole or in part, by the General Partner on behalf of the
Consolidated Partnership in its sole discretion in writing.
4.3 General Partner's Determination Final. Any determination
by the General Partner concerning the events and matters set forth in Section
4.1 above will be final and binding on all parties.
ARTICLE V
CLOSING
5.1 Closing Date. The Closing Date with respect to each
Participating Partnership shall be on the Effective Date, or thereafter on such
other date and time as may be determined by the General Partner in its sole
discretion.
5.2 Closing. The closing of the proposed Consolidation and the
transactions contemplated hereunder (the "Closing") shall be held at the offices
of the General Partner at 800 Rockmead Dr., Kingwood, Texas or at such other
place as may be agreed upon by the parties. At the Closing:
(a) Each Participating Partnership shall deliver
to the Consolidated Partnership:
(i) such deeds, assignments, bills of sale,
conveyances and other instruments necessary to
convey, transfer and assign to the Consolidated
Partnership good and marketable title to the Assets,
and
(ii) exclusive possession of all the Assets,
including without limitation the leases, agreements,
maps, books, papers and other records of such
Participating Partnership referred to in Section 1.1
of this Agreement.
(b) The Consolidated Partnership shall issue and
deliver to each Participating Partnership the number of Units
in the Consolidated Partnership determined in accordance with
the provisions of Section 2.1 of this Agreement.
(c) The Consolidated Partnership and each
Participating Partnership shall execute and deliver to each
other an assumption and indemnification agreement
substantially in the form attached hereto as Exhibit I-A (the
"Assumption and Indemnification Agreement").
5.3 Independent Obligations. The obligation of each
Participating Partnership that has executed this Agreement or a counterpart
hereof to complete the Consolidation with respect to such Participating
Partnership is independent of, and not conditioned upon, the execution of this
Agreement or a counterpart hereof by any other Participating Partnership or the
completion of the Consolidation with respect to such other Participating
Partnership, except to the extent provided in Section 4.1(a).
C-I-6
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IN WITNESS WHEREOF, this Agreement has been signed by the
General Partner, the Consolidated Partnership and the Participating
Partnerships, as of the date first written above.
ENEX RESOURCES CORPORATION ENEX CONSOLIDATED PARTNERS, L.P.
By: ENEX RESOURCES CORPORATION
General Partner
By: By:
Title: Title:
ENEX PROGRAM I PARTNERS, L.P. ENEX OIL & GAS INCOME PROGRAM II-7, L.P.
By:ENEX RESOURCES CORPORATION By: ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM II-8, L.P.ENEX OIL & GAS INCOME PROGRAM II-9, L.P.
By:ENEX RESOURCES CORPORATION By: ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM II-10,L.P. ENEX OIL & GAS INCOME PROGRAM III -
Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM III -
Series 2, L.P. Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-7
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM III -
Series 4, L.P. Series 5, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM III -
Series 6, L.P. Series 7, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM IV -
Series 8, L.P. Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM IV - ENEX OIL & GAS INCOME PROGRAM IV -
Series 2, L.P. Series 4, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM IV - ENEX OIL & GAS INCOME PROGRAM IV -
Series 5, L.P. Series 6, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-8
<PAGE>
ENEX OIL & GAS INCOME PROGRAM IV - ENEX OIL & GAS INCOME PROGRAM V -
Series 7, L.P. Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM V - ENEX OIL & GAS INCOME PROGRAM V -
Series 2, L.P. Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM V - ENEX OIL & GAS INCOME PROGRAM V -
Series 4, L.P. Series 5, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM VI - ENEX INCOME AND RETIREMENT FUND -
Series 1, L.P. Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX INCOME AND RETIREMENT FUND - ENEX INCOME AND RETIREMENT FUND -
Series 2, L.P. Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-9
<PAGE>
ENEX 88-89 INCOME AND RETIREMENT ENEX 88-89 INCOME AND RETIREMENT
FUND - Series 5, L.P. FUND - Series 6, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX 88-89 INCOME AND RETIREMENT ENEX 90-91 INCOME AND RETIREMENT
FUND - Series 7, L.P. FUND - Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX 90-91 INCOME AND RETIREMENT ENEX 90-91 INCOME AND RETIREMENT
FUND - Series 2, L.P. FUND - Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-10
<PAGE>
EXHIBIT I-A to APPENDIX C
ASSUMPTION AND INDEMNIFICATION AGREEMENT
THIS AGREEMENT dated as of _____, 1996, between Enex Consolidated Partners,
L.P., a limited partnership formed under the laws of the State of New Jersey
(the "Consolidated Partnership"), and those Enex Oil & Gas Income Program and
Enex Income and Retirement Fund Limited Partnerships that have executed this
Agreement or a counterpart hereof (the "Participating Partnerships").
RECITALS
The Consolidated Partnership is acquiring the property and assets of the
Participating Partnerships pursuant to a Consolidation Agreement dated as of
______, 1996 (the "Consolidation Agreement"), among the Consolidated
Partnership, the Participating Partnerships and Enex Resources Corporation, a
Delaware corporation and the general partner of the Consolidated Partnership and
the Participating Partnerships (the "General Partner"), as of the "Effective
Date" (as defined in the Consolidation Agreement). In connection with such
consolidation, the Consolidated Partnership has agreed to assume the debts,
obligations, liabilities (except for amounts owed to the General Partner) and
agreements of the Participating Partnerships and to indemnify the Participating
Partnerships against certain liabilities and losses.
AGREEMENT
In consideration of such consolidation, the Consolidated Partnership and
the Participating Partnerships hereby agree as follows:
1. Assumption of Obligations. The Consolidated
Partnership hereby assumes and agrees to pay, perform, fulfill
and discharge, within the time such payment or performance is
due, all debts, obligations, liabilities (except for amounts
owed to the General Partner) and agreements of the
Participating Partnerships. The foregoing assumption is a
continuing assumption and shall remain in full force and
effect until the payment or discharge of all debts,
obligations, liabilities and agreements of the Participating
Partnerships.
2. Indemnification. The Consolidated Partnership
agrees to indemnify, defend and hold harmless the
Participating Partnerships and their partners from, against
and with respect to any claim, obligation, liability, loss,
damage, assessment, cost, expense, action, suit, proceeding,
or demand, of any kind or character (including, without
limitation, reasonable attorneys' fees and expenses) and costs
and expenses reasonably incurred in investigating, preparing
or defending any litigation or claim, arising out of or
relating to or attributable to:
(a) any failure of the Consolidated
Partnership to pay, perform, fulfill or discharge
any debt, obligation, liability or agreement assumed
by the Consolidated Partnership under paragraph 1 of
this Agreement, or
(b) any failure of the Consolidated
Partnership to perform or observe any covenant,
agreement or condition to be performed or observed
by it under the Consolidation Agreement.
IN WITNESS WHEREOF, the Consolidated Partnership and the
Participating Partnerships have executed this Agreement, with effect as of the
day and year first above written.
ENEX CONSOLIDATED PARTNERS, L.P.
By: ENEX RESOURCES CORPORATION,
General Partner
By:
Title:
C-I-A-1
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ENEX PROGRAM I PARTNERS, L.P. ENEX OIL & GAS INCOME PROGRAM II-7, L.P.
By:ENEX RESOURCES CORPORATION By: ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM II-8, L.P.ENEX OIL & GAS INCOME PROGRAM II-9, L.P.
By:ENEX RESOURCES CORPORATION By: ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM II-10,L.P. ENEX OIL & GAS INCOME PROGRAM III -
Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM III -
Series 2, L.P. Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM III -
Series 4, L.P. Series 5, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-A-2
<PAGE>
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM III -
Series 6, L.P. Series 7, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM III - ENEX OIL & GAS INCOME PROGRAM IV -
Series 8, L.P. Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM IV - ENEX OIL & GAS INCOME PROGRAM IV -
Series 2, L.P. Series 4, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM IV - ENEX OIL & GAS INCOME PROGRAM IV -
Series 5, L.P. Series 6, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM IV - ENEX OIL & GAS INCOME PROGRAM V -
Series 7, L.P. Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-A-3
<PAGE>
ENEX OIL & GAS INCOME PROGRAM V - ENEX OIL & GAS INCOME PROGRAM V -
Series 4, L.P. Series 5, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX OIL & GAS INCOME PROGRAM VI - ENEX INCOME AND RETIREMENT FUND -
Series 1, L.P. Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX INCOME AND RETIREMENT FUND - ENEX INCOME AND RETIREMENT FUND -
Series 2, L.P. Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX 88-89 INCOME AND RETIREMENT ENEX 88-89 INCOME AND RETIREMENT
FUND - Series 5, L.P. FUND - Series 6, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-A-4
<PAGE>
ENEX 88-89 INCOME AND RETIREMENT ENEX 90-91 INCOME AND RETIREMENT
FUND - Series 7, L.P. FUND - Series 1, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
ENEX 90-91 INCOME AND RETIREMENT ENEX 90-91 INCOME AND RETIREMENT
FUND - Series 2, L.P. FUND - Series 3, L.P.
By:ENEX RESOURCES CORPORATION By:ENEX RESOURCES CORPORATION
General Partner General Partner
By: By:
Title: Title:
C-I-A-5
<PAGE>
APPENDIX D
AMENDMENTS TO THE AGREEMENTS
OF LIMITED PARTNERSHIP OF THE
ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
LIMITED PARTNERSHIPS
The following amendments to the Agreement of Limited
Partnership ("Agreement") of each Enex Oil & Gas Income Program and Enex Income
and Retirement Fund Limited Partnership (the "Partnerships") that is eligible to
become a party to the Consolidation Agreement attached as Exhibit I to the Plan
(as defined below) by virtue of being listed in the Prospectus/Proxy Statement
to which these amendments are annexed as Appendix D (the "Prospectus/Proxy
Statement") under "SUMMARY - Partnerships subject to Consolidation" are being
proposed by the General Partner for adoption by the limited partners of each
Partnership.
1. Section 2.3 or 2.4 of the Agreement, as the case may be,
which sets forth the purpose and business of the Partnership, is hereby amended
by the addition of a new paragraph at the end thereof, appropriately sub-
lettered, as the case may be, to read in full as follows:
"The preceding provisions of this Section to the
contrary notwithstanding, the purpose and business of the
Partnership is to transfer its assets and its liabilities to
Enex Consolidated Partners, L.P., a New Jersey limited
partnership (the "Consolidated Partnership"), pursuant to the
provisions, and subject to the terms and conditions, of the
Plan of Consolidation annexed as Appendix C to the
Consolidated Partnership's Prospectus/Proxy Statement dated
______, 1995 (the "Plan"), in exchange for units of limited
partnership interest in the Consolidated Partnership ("Units")
and, thereafter, to dissolve and terminate in accordance with
the provisions of the Plan and Article XI of this Agreement."
2. Section 11.1 of the Agreement, which sets forth the events
causing dissolution of the Partnership, is hereby amended by the addition of a
new paragraph at the end thereof, appropriately sub-lettered, to read in full as
follows.
"Notwithstanding the foregoing provisions of this
Section 11.1, the Partnership shall dissolve on the Effective
Date (as defined in the Consolidation Agreement annexed as
Exhibit I to the Plan referred to in Section [23 or 24 (as the
case may be)] above), whereupon the Partnership will be
terminated in accordance with the provisions of the Plan and
this Article XI."
3. Section 11.2 of the Agreement, which sets forth the
procedures for the liquidation of the Partnership, is hereby amended by the
addition of new paragraphs (d), (e), (f) and (g) to read in full as follows:
(d) Immediately preceding the Effective Date, the
General Partner shall contribute all of the notes receivable
and accounts receivable it is owed by the Partnerships to the
capital of the Partnership as a capital contribution and the
General Partner's capital account shall be adjusted
accordingly.
(e) Notwithstanding the foregoing provisions of this
Section 11.2, upon the liquidation of the Partnership pursuant
to the Plan, the Units received by the Partnership in exchange
for its assets and liabilities shall be distributed in kind to
the Partners in proportion to the balances in their respective
capital accounts [as provided in Table 13 in Appendix A to the
Prospectus/Proxy Statement].
(f) Notwithstanding anything to the contrary
contained in this Agreement, the General Partner shall have
full, exclusive and complete discretion and power fully to
implement the Plan on behalf of the Partnership and to take
all necessary actions and steps in the name of the Partnership
in order to consummate the Plan and the dissolution, winding
up and termination of the Partnership in accordance with the
Plan and this Article 11, including the execution and delivery
of the Consolidation Agreement referred to in paragraph
Section 11.1, the execution and filing of a certificate of
amendment to the Partnership's certificate of limited
partnership and/or a certificate of dissolution of the
Partnership and such other agreements, certificates,
documents, assignments and conveyances, and other instruments
as may be necessary in order to effectuate and implement the
foregoing.
D-1
<PAGE>
(g) To the extent that any of the provisions of the
final paragraph of Section 2.3 or 2.4, as the case may be, the
final paragraph of Section 11.1, paragraphs (d), (e) and (f)
of this Section 11.2 or this paragraph (g) are inconsistent
with any other provisions of this Agreement with respect to
duration and termination of the Partnership or otherwise, the
terms, conditions and provisions of such paragraphs shall be
superseding and shall govern. If, for any reason, the Plan is
not effectuated or the Consolidation contemplated thereunder
is not consummated, whether by reason of an abandonment prior
to completion or otherwise, the provisions of the paragraphs
referred to in the preceding sentence shall be deemed a
nullity, without any force or effect, and the Partnership
shall not dissolve and terminate.
D-2
<PAGE>
ENEX CONSOLIDATED PARTNERS, L.P.
PROSPECTUS/PROXY STATEMENT
For Meetings of Limited Partners of
ENEX OIL & GAS INCOME PROGRAM PARTNERSHIPS
ENEX INCOME AND RETIREMENT FUND PARTNERSHIPS
To be Held _______, 1996
TABLE OF CONTENTS
Page
INFORMATION INCORPORATED BY
REFERENCE....................................................4
SUMMARY...........................................................5
Introduction.................................................5
Risk Factors.................................................5
Objectives of the Consolidation..............................8
Alternatives to the Consolidation............................8
Partnerships Subject to Consolidation........................8
Conditions to the Consolidation..............................9
Exchange Offer..............................................10
Fairness of the Transaction.................................10
Recommendation of the Board.................................11
Partnership Voting Requirements and Rights..................11
Dissenters' Rights; List of Partners........................12
Tax Consequences of the Consolidation.......................12
Tax Consequences of the Exchange Offer......................13
Costs of the Consolidation..................................13
Selected Financial Data.....................................13
RISK FACTORS AND OTHER
CONSIDERATIONS..............................................15
The Proposed Consolidation..................................15
The Consolidated Partnership................................18
THE PROPOSED CONSOLIDATION.......................................22
Partnerships Subject to Consolidation.......................22
Selected Financial Data.....................................23
Management's Discussion and Analysis of Finan-
cial Condition and Results of Operations..........24
The Consolidation Schedule..................................26
Method of Determining Exchange Values.......................28
Background and Alternatives to
the Consolidation.................................30
Fairness of the Transaction.................................32
Terms of the Consolidation..................................32
Consequences to the General Partner.........................38
Partner Lists...............................................38
The Exchange Offer..........................................39
Page
THE CONSOLIDATED PARTNERSHIP.....................................39
Proposed Activities.........................................39
Transfer of Units...........................................46
Right of Presentment........................................47
No Assessments..............................................50
Participation in Costs and Revenues.........................50
Compensation................................................54
Management..................................................56
Conflicts of Interest.......................................62
Competition, Markets and Regulation.........................64
Summary of the Articles of Limited Partnership..............66
Applicability of the New Jersey Act.........................69
TAX ASPECTS......................................................71
Federal Income Tax Introduction.............................71
The Proposed Consolidation..................................71
The Exchange Offer..........................................72
Participation in the Consolidated Partnership...............73
Other Tax Aspects...........................................80
Possible Changes in Federal Tax Laws and
Regulations............................................80
EMPLOYEE RETIREMENT INCOME
SECURITY ACT................................................80
GENERAL INFORMATION..............................................82
Legal Opinion...............................................82
Experts.....................................................82
ADDITIONAL INFORMATION...........................................82
INDEX TO FINANCIAL STATEMENTS......................................
LIST OF APPENDICES
Appendex A: Tables
Appendix B: Articles of Limited Partnership
Appendix C: Plan of Consolidation
Appendix D: Proposed Amendments
<PAGE>
ENEX OIL & GAS INCOME
PROGRAM III - Series 3 L.P.
(the "Subject Partnership")
SUPPLEMENT TO ENEX CONSOLIDATED PARTNERS, L.P. PROSPECTUS
AND ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND
PROXY STATEMENT
Dated _____________ , 1996
The effects of the Consolidation may be different for limited partners in the
various Partnerships. Accordingly, a Supplement has been prepared for each of
the thirty-four Partnerships eligible to participate in the Consolidation. Each
supplement provides information regarding the effects of the Consolidation on
the limited partners of one Partnership. The General Partner will promptly mail
a copy of this supplement, without charge, upon request by any limited partner
or his representative who has been so designated in writing, addressed to: the
Investor Relations Department of Enex Resources Corporation at 800 Rockmead,
Three Kingwood Place, Suite 200, Kingwood, TX 77339 (713) 358-8401.
Before voting on the Consolidation, investors should carefully consider the
following factors in addition to the other information included in the
Prospectus/Proxy Statement. Risk factors associated with the Consolidation are
summarized below and described in more detail elsewhere in the Prospectus/Proxy
Statement under the caption "RISK FACTORS AND OTHER CONSIDERATIONS--The Proposed
Consolidation" in the Prospectus/Proxy Statement.
Risks in Determining Exchange Values: The principal risks a limited
partner takes in approving the Consolidation are two-fold. First, his properties
may have oil or gas reserves, or both, that are not now apparent to the General
Partner or to the Independent Expert engaged by the General Partner to determine
the fair market value of the Partnerships' properties, H.J. Gruy and Associates,
Inc. ("Gruy"). If that is the case, a limited partner will not receive full
credit for his or her property interests in the Consolidated Partnership.
Second, future events may show that the exchange value formula itself operated
to the disadvantage of his or her Partnership in relation to other Partnerships
participating in the Consolidation. The effect would be to reduce his interest
in the Consolidated Partnership compared to what he or she would have received
under a different formula. The General Partner has endeavored to value the
holdings of the various Partnerships as fairly as possible, but there can be no
guarantee that it has succeeded in that effort. The assumptions that have been
made may be erroneous and even if they are not, factors beyond the General
Partner's control may intervene to upset those assumptions and the calculations
on which they are based. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement and Table A annexed to this
supplement.
Changes in Distributions: The Consolidation is expected to have an
effect on the distributions the limited partners of participating Partnerships
will receive. Following the Consolidation, limited partners of most of the
Partnerships will experience an increase in distributions over the amounts that
would have been sustainable by their Partnerships, while other limited partners
will experience a reduction from such levels of distributions. The General
Partner estimates that the limited partners of the Subject Partnership will have
distributions of approximately $18.78 per $500 Interest in the next four
quarters after the Consolidation versus $10.94 per $500 Interest if the Subject
Partnership does not participate in the Consolidation. The estimated increase is
due to the savings in overhead expenses due to simplified managerial and
administrative tasks and to the conversion of debt payable to the general
1
<PAGE>
partners into units in the Consolidated Partnership. The Consolidated
Partnership, with its substantially expanded reserve base will allow the limited
partners in the Partnership to participate in the ownership of much longer-lived
properties with greater cumulative cash flow and distributions than the Subject
Partnership would have if it does not participate in the Consolidation. See
Tables 2, 3 in Appendix A to the Prospectus/Proxy Statement.
Failure to Return Signed Proxy and Ballot: Limited partners who fail
to complete, sign and return the accompanying Proxy and Ballot or otherwise fail
to qualify for admission to the Consolidated Partnership as limited partners
will not be entitled to vote their Units or to present their Units for purchase
by the Consolidated Partnership and may also find it extremely difficult to
terminate their interests in the Consolidated Partnership. See "THE PROPOSED
CONSOLIDATION--Terms of the Consolidation--Request for Admission as Limited
Partner" and "THE CONSOLIDATED PARTNERSHIP--Right of Presentment" in the
Prospectus/Proxy Statement.
Limited Liquidity: There is no public market for the Units and there
may be no such market at any time. For tax reasons, the General Partner reserves
the right to refuse to recognize any transfer of Units that may occur on a
public market. Although the Units are otherwise freely transferable (with
certain limited restrictions) and limited annual purchase offers for Units will
begin in 1997, a Unitholder cannot expect to be able readily to liquidate his
investment in case of emergency. See "THE CONSOLIDATED PARTNERSHIP-Transfer of
Units" and "--Right of Presentment" and "TAX ASPECTS--Participation in the
Consolidated Partnership--Publicly Traded Partnerships " in the Prospectus/Proxy
Statement.
ERISA - Plan Assets Regulations: The Employee Retirement Income
Security Act of 1974 ("ERISA") requires that "plan assets" of employee benefit
plans subject to ERISA be held in trust. Although the term "plan assets" is not
defined, regulations published by the Department of Labor indicate that the
assets of a pooled investment vehicle such as the Consolidated Partnership will
not be plan assets for ERISA purposes if they meet certain criteria. The General
Partner has received an opinion of counsel to the effect that the Consolidated
Partnership's assets will not be treated as "plan assets" but no absolute
assurance can be given that the Consolidated Partnership's assets will not be
"plan assets" for ERISA purposes. See "EMPLOYEE RETIREMENT INCOME SECURITY ACT"
in the Prospectus/Proxy Statement.
Lack of Independent Review or Separate Representation: The General
Partner has not retained an unaffiliated representative to act on behalf of the
limited partners for purposes of negotiating the terms of the Consolidation. The
consideration to be received by the Partnerships in the Consolidation and the
other terms of the Plan of Consolidation were determined by the General Partner,
which has inherent conflicts of interest stemming from its various ownership
percentages owned in each Partnership. Measures adopted by the General Partner
intended to ensure the fairness of the terms of the Consolidation, including
Gruy's engagement, cannot remove the inherent conflicts of interest. The terms
of the Consolidation may be inferior to those that could have resulted through
negotiations with third-party bidders. See "THE PROPOSED CONSOLIDATION--Method
of Determining Exchange Values" in the Prospectus/Proxy Statement. No
governmental authority has made any determination relating to the fairness of
the Units for public investment. The attorneys, accountants and other experts
who perform services for the Consolidated Partnership all perform services for
the Partnerships and the General Partner. See "THE CONSOLIDATED
PARTNERSHIP--Conflicts of Interest" in the Prospectus/Proxy Statement.
2
<PAGE>
Changes in Voting Power: Any limited partner taking part in the
Consolidation will, in effect, exchange the interest he now holds in a
Partnership for a much smaller interest in the much larger Consolidated
Partnership. This will reduce a limited partner's ability to influence the
taking of action in those instances where the Partnership Agreements provide for
the vote and consent of the limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Federal Income Tax Consequences: The General Partner has received an
opinion of counsel that, generally, no gain or loss will be recognized by a
limited partner upon the transfer of the Partnership assets in exchange for
Units, unless existing Partnership liabilities exceed the sum of the adjusted
tax basis in the transferred assets and the proportionate share of the
Consolidated Partnership's liabilities after the Consolidation. It is not
anticipated that any limited partners will recognize gain as a result of such
excess liabilities. The opinion is not binding on the Internal Revenue Service
(the "IRS"), however. Unitholders will be required to share disproportionately
in deductions attributable to properties contributed to the Consolidated
Partnership and to recognize disproportionate amounts of gain or loss on the
sale of such properties to the extent of any difference between the fair market
value and the adjusted tax basis of each property at the time of contribution.
The effect of such allocations is to place each Unitholder in approximately the
same position with respect to deductions, gain and loss relative to contributed
properties as he would have been had the contributed property been purchased
from the participating Partnership by the Consolidated Partnership. See "TAX
ASPECTS--Proposed Consolidation" and "--Participation in the Consolidated
Partnership" in the Prospectus/Proxy Statement. In addition, there are risks
that contributions of appreciated property to the Consolidated Partnership in
exchange offers for Interests in the Partnerships could cause the contributing
limited partners to recognize some or all of the gain inherent in the
contributed property, a significant portion of which could be ordinary income.
See "TAX ASPECTS--The Exchange Offer" in the Prospectus/Proxy Statement.
State Income Tax Consequences: The transactions involved in the
proposed Consolidation may also be subject to the income or other tax laws of
one or more states and other taxing jurisdictions and may result in an increase
or decrease in the amount of state income taxes payable by a Unitholder with
respect to future operations and an increase in the number of states in which
taxes are owed by him. See "TAX ASPECTS--Other Tax Aspects" in the
Prospectus/Proxy Statement.
Differences between an Investment in the Subject Partnership and in
the Consolidated Partnership:
General Partners' Percentage Share. Under the Subject Partnership's
Partnership Agreement, the net revenues it earns (i.e., after payment of Direct
Costs, Administrative Costs, Operating Costs, interest on loans and other costs
and expenses incurred) are generally allocated 10% to the General Partner and
90% to the limited partners (including the General Partner with respect to the
Interests it owns)1. Other Partnerships contain similar provisions. In some
cases , however, such revenues and costs are allocated
- --------
1. If, at any time after tenth anniversary of the commencement of
the last Partnership formed in the Program in which the Subject Partnership was
formed, the sum of (i) the aggregate purchase price of the Interests in the
Subject Partnership and (ii) the amount of all distributions theretofore paid to
the limited partners, does not at least equal the amount of the limited
partners' subscriptions to the Subject Partnership, the General Partner's share
of partnership revenues (excluding revenues attributable to Interests which it
owns) will be allocated to the limited partners until they have been credited
with additional distributions equal to the amount of the difference.
3
<PAGE>
100% to the limited partners (including the General Partner with respect to the
Interests it owns). In order to provide for a single blended sharing percentage
for the General Partner in the Consolidated Partnership, the General Partner has
caused the 10% net revenue interests it owns to be valued in the same manner as
the outstanding Interests in the affected Partnerships. For each participating
Partnership, the exchange value of the General Partner's net revenue sharing
percentage (if not 0%) will be converted into a proportionate allocation of
Consolidated Partnership net revenues to the General Partner rather than into
Units. If all of the Partnerships participate in the Consolidation, the
Consolidated Partnership's net revenues will be allocated 3.3% to the General
Partner and 96.7% to the Unitholders (including the General Partner with respect
to the Units it owns). See "THE CONSOLIDATED PARTNERSHIP--Participation in Costs
and Revenues--General Cost and Revenue Sharing Percentages" in the
Prospectus/Proxy Statement.
Right of Presentment. Unlike the Subject Partnership's right of
presentment, the annual obligation to purchase Units upon presentment is limited
to 15% of the aggregate number of Units outstanding and will be borne by the
Consolidated Partnership rather than by the General Partner. See "THE
CONSOLIDATED PARTNERSHIP--Right of Presentment" in the Prospectus/Proxy
Statement.
Compensation. The Articles provide that the General Partner's
entitlement to reimbursement for that part of the Consolidated Partnership's
Direct Costs that consists of salaries of executive officers of the General
Partner for professional services is limited to an annual maximum reimbursable
amount equal to .4% of aggregate Capital Contributions to the Partnerships
participating in the Consolidation. The Partnership Agreement of the Subject
Partnership contains no such limitation on reimbursements to the General
Partner. See "THE CONSOLIDATED PARTNERSHIP--Compensation--Direct and
Administrative Costs."
Voting Rights . The limited partners of the Consolidated Partnership
may, by vote of two-thirds in interest, approve or disapprove the selection of
an additional or successor general partner. The Partnership Agreement of the
Subject Partnership also allows the limited partners to select an additional or
successor general partner, but by a vote of a majority in interest and
two-thirds of the number of limited partners. See "THE CONSOLIDATED
PARTNERSHIP--Summary of the Articles of Limited Partnership--Voting and Other
Rights of Limited Partners" in the Prospectus/Proxy Statement.
Overhead and Operating Costs Savings: The General Partner believes
that the Consolidation will result in substantial economies of operation and
savings in Direct, Administrative and Operating Costs, particularly in the areas
of audit and accounting services, bookkeeping and data processing and property
record maintenance. Management of the General Partner estimates that in the
absence of the proposed Consolidation, the Subject Partnership would incur
approximately $ 1,900,000 of Administrative Costs each year, but that if all
Partnerships were to participate in the proposed Consolidation, the share of the
Administrative Costs of the Consolidated Partnership allocable to the limited
partners of the Subject Partnership would be reduced to $1,100,000 per year as a
result of simplified managerial and administrative requirements.
Diversification of Property Interests: The Subject Partnership now
holds interests in one acquisition and in 10,725 oil and 189 gas wells. After
the Consolidation, if all Partnerships participate, a limited partner will hold
an interest, proportionately reduced on the basis of relative exchange values,
in 48 acquisitions containing approximately 12,320 gross wells and in three gas
plants.
4
<PAGE>
The General Partner believes that greater diversity in property holdings will
lessen dependence upon any single property or type of property. It will reduce
the risk that failure of any one property to perform as expected, or adverse
price changes or other matters affecting one type of property, will materially
reduce the value of a limited partner's interest. See, however, "RISK FACTORS
AND OTHER CONSIDERATIONS--Risks in Determining Exchange Values" in the
Prospectus/Proxy Statement. The greater the number of properties in which
interests are held, the lower the risks of holding the investment. Certainty and
predictability of operations, and consequently of distributions to the Partners,
may be similarly enhanced.
Expanded Reserve Base: Currently, the Partnership has 94,019 barrels
of oil, condensate and natural gas liquids reserves and 123,304 cubic feet of
natural gas reserves. At January 1, 1996, the undiscounted and discounted value
(at 10%) of these reserves was $1,446,413 and $908,112, respectively.
The reserve base for the Consolidated Partnership, assuming all Partnerships
participate, will be expanded to 2.1 million barrels of oil, condensate and
natural gas liquids and 12.8 billion cubic feet of gas. This represents 4.26
million equivalent barrels of oil using a conversion ratio of 6 mcf of gas to 1
barrel of oil. The combined value of these reserves at January 1, 1996, was
estimated to be $22.9 million. See Tables 4-7 in Appendix A to the
Prospectus/Proxy Statement.
The expanded size, both in oil and gas reserves and in the future value of these
reserves, will strengthen the ownership position of the limited partners,
particularly since many Partnerships own small interests in the same properties.
The combined ownership position will provide increased strength and flexibility
both in future negotiations with oil and gas purchasers and in participation of
reserve enhancement projects in which, in some cases, the Partnership would not
otherwise be able to participate. Negotiations in the future sale of properties
will also be strengthened. Marginal properties can be sold without a material
effect on cash flow. Overall, the Consolidated Partnership will be able to
compete in larger markets with the stronger, combined asset base.
Working Capital and Debt: At March 31, 1996 the Partnership owed the
General Partner $146,352. If the Partnership participates in the Consolidation,
the General Partner will contribute this receivable from the Partnership for
Units in the Consolidated Partnership. As a result, the Consolidated Partnership
will have essentially no debt and substantially greater working capital than the
Partnerships would have on a combined basis or on an individual basis. See "THE
PROPOSED CONSOLIDATION--Method of Determining Exchange Values--Indebtedness to
the General Partner" in the Prospectus/Proxy Statement.
General Partner's Interest at Payout: The General Partner's revenue
interest in the Subject Partnership will increase from 10% to 15% upon payout to
the limited partners, though it is not likely that payout will occur within the
next five years unless oil and gas prices rise substantially. Nevertheless, the
General Partner has decided to relinquish its right to receive this increase in
its share of participating Partnerships' revenues after payout. Accordingly, the
General Partner's share of Consolidated Partnership revenues and costs will not
increase as it should upon payout on an individual Partnership basis. See "THE
CONSOLIDATED PARTNERSHIP--Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
Elimination of Conflicts: By its nature, the formation of an oil and
gas partnership by a company engaged in the oil and gas business involves
conflicts of interest which cannot be totally eliminated. However, the General
Partner believes that many conflicts of interest that arise from Partnership
5
<PAGE>
operations should be eliminated by the Consolidation. For example, the
Consolidation will eliminate conflicts among the participating Partnerships,
although it will not affect potential conflicts between the Consolidated
Partnership and non-participating Partnerships.
Fairness of the Consolidation: The General Partner considered, as
alternatives to the Consolidation, dissolving the Partnerships by liquidating
their assets in accordance with their respective Partnership Agreements. The
General Partner believes, however, that the Partnerships will realize greater
value from their properties over the long term by operating them on a combined
basis through the Consolidated Partnership and achieving substantial cost
savings. The General Partner also considered continuing to manage the
Partnerships on an ongoing basis. However, the Board of Directors of the General
Partner, a majority of whose members are not employees of the General Partner or
any affiliates of the General Partner, has unanimously approved the proposed
Consolidation as being fair and in the best interests of the limited partners
based on the following factors, in order of their significance: (i) simplified
managerial and administrative requirements resulting in savings in overhead
expense; (ii) reduction of risk due to diversification of assets; (iii) an
expanded reserve base; (iv) elimination of debt owed to the General Partner; (v)
elimination of the General Partner's increased revenue interest at payout; and
(vi) elimination of certain conflicts of interest. These factors are discussed
in detail under the captions "THE PROPOSED CONSOLIDATION--Fairness of the
Transaction" and "--Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
The General Partner believes that the proposed Consolidation is fair to and in
the best interests of the limited partners of each and all the Partnerships. The
number of Units to be distributed to the limited partners and the General
Partner pursuant to the Consolidation in exchange for their Interests will be
determined in accordance with the exchange values of such Interests, which, in
turn, are based on valuations of the Partnership properties by Gruy, an
Independent Expert. See "THE PROPOSED CONSOLIDATION--Method of Determining
Exchange Values" in the Prospectus/Proxy Statement. The General Partner does not
believe that alternative methods of valuing the Partnership properties would
result in materially different valuations of Partnership properties than those
yielded by Gruy's valuations. Even were such to be the case, in the General
Partners' experience, oil and gas properties are generally purchased and sold at
prices approximating estimates of the discounted present value of the subject
oil and gas reserves. Thus, in the General Partner's view, the Gruy estimated
fair market valuations, as compared to other valuation methods, represent the
best estimation of the realizable value of the Partnership properties and the
fairest basis for determining the number of Units to be distributed in
consideration for the Partnerships' assets. See the "THE PROPOSED
CONSOLIDATION--Fairness of the Transaction" in the Prospectus/Proxy Statement.
At a meeting held on May 24, 1996, after considering the risks and material
considerations summarized above, the General Partner's board of directors
unanimously determined that the Consolidation is in the best interests of the
limited partners and that the terms of the Consolidation are fair to the limited
partners, assuming both maximum and minimum participation by the Partnerships.
The General Partner's board of directors unanimously approved the Plan of
Consolidation and recommends that the limited partners vote "FOR" the
Consolidation. The General Partner believes that the Consolidation will provide
the limited partners with the benefits summarized under the caption
"SUMMARY--Objectives of the Consolidation" in the Prospectus/Proxy Statement.
Its recommendation is based in part on the conclusion that those potential
advantages over the current structure outweigh the potential risks and
disadvantages summarized above and addressed in more detail under the caption
"RISK FACTORS AND OTHER CONSIDERATIONS" in the Prospectus/Proxy Statement.
6
<PAGE>
Set forth below are tables showing the calculation of exchange values and the
allocation of Units for the Subject Partnership (Table A), the General Partner's
compensation and distributions history from the Subject Partnership for the
three most recent fiscal years and the three months ended March 31, 1996 and
what such amounts would have been had the Consolidation been effective that date
(Table B), and the amount of the limited partners' cash distributions for the
five most recent fiscal years and the three months ended March 31, 1996. (Table
C).
For additional information, see "SELECTED FINANCIAL DATA" and "PRO FORMA
FINANCIAL INFORMATION" in the Prospectus/Proxy Statement.
7
<PAGE>
TABLE A
<TABLE>
<CAPTION>
Enex Oil & Gas Income Program III - Series 3, L.P.
Calculation of Exchange Value
As of March 31, 1996
- ---------------------
Fair Market Value of Number of Units in
Oil & Gas Reserves (1) Enex Consolidated
Property Name: Amount Partners, L.P.
------- ------------------
<S> <C> <C>
Concord $634,084
Larto Lake 5,183
------------
Subtotal - Property 639,267
Cash & cash equivalents 17,283
Accounts receivable 36,949
Other current assets 2,597
------------
Subtotal - assets 696,096
Less:
Liabilities to third parties 14,121
------------
Partnership Exchange Value 681,975 66,253
Less:
Liability to General Partner 146,352 14,635
General Partner Capital Balance 36,153 3,615
Attributable to GP's revenue interest (2) 19,436
------------ -----------------
Exchange value attributable
to Limited Partners $480,034 48,003
============ =================
Exchange value per $500
Interest $74.89 7.49
============ =================
Percentage of total units in the
Consolidated Partnership allocated to
this limited partnership 4.02%
==================
</TABLE>
(1) As determined by H. J. Gruy and Associates, Inc. See "THE PROPOSED
CONSOLIDATION - Method of Determining Exchange Values" in the
Prospectus/Proxy Statement.
(2) The General Partner's revenue interests are not converted into units. See
"THE CONSOLIDATED PARTNERSHIP - Participation in Costs and Revenues" in the
Prospectus/Proxy Statement.
<PAGE>
TABLE B
Summary of Compensation and Cash
Distributions paid to the General Partner
ENEX OIL & GAS INCOME PROGRAM III - SERIES 3, L.P.
<TABLE>
<CAPTION>
---------------------------------------------------------------
HISTORICAL Three Months Year Ended
Ended December 31,
-----------------------------------------------
March 31, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $8,652 $35,848 $42,274 $39,589
Net debt repaid to GP 7,744 51,669 19,243 54,011
Cash distributions paid to GP as GP 1,620 5,408 6,981 14,078
Cash distributions paid to GP as LP 2,176 6,841 6,334 5,900
</TABLE>
PRO FORMA
<TABLE>
<CAPTION>
Three Months Year Ended
Ended December 31,
-----------------------------------------------
March 31, 1996 1995 1994 1993
<S> <C> <C> <C> <C>
Reimbursement of expenses paid to GP $4,954 $18,426 $24,807 $20,811
Cash distributions paid to GP as GP (1) 1,178 4,042 3,121 4,477
Cash distributions paid to GP as LP (2) 16,533 56,695 43,775 62,784
</TABLE>
- --------------------------------------------------------------------------
TABLE C
Summary of Cash Distributions paid to Limited Partners
ENEX OIL & GAS INCOME PROGRAM III - SERIES 3, L.P.
<TABLE>
<CAPTION>
Three Months
HISTORICAL Ended Year Ended December 31,
--------------------------------------------------------------------------
March 31, 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Cash Distributions (3) $14,593 $48,695 $62,865 $126,771 $142,600 $225,565
</TABLE>
<TABLE>
<CAPTION>
Three Months Year Ended
PRO FORMA Ended December 31,
March 31, 1996 1995
<S> <C> <C>
Cash Distributions (4) $39,972 $137,075
</TABLE>
(1) Distributions paid to General Partner as the General Partner assumes 100%
participation in the consolidation by all Partnerships resulting in a
General Partner's Percentage Share equal to 3.29%. See "THE CONSOLIDATED
PARTNERSHIP - Participation in Costs and Revenues -
General Cost and Revenue Sharing Percentages".
(2) Distribution paid to the General Partner as a limited partner assumes
100% participation by all Partnerships and includes the Interests the
General Partner currently owns as a limited partner and those limited
partner Units that the General Partner will receive from converting its
general partner capital balance and its receivables from the
Partnerships. See "THE CONSOLIDATED PARTNERSHIP - Participation in Costs
and Revenues".
(3) Because of depletion (which is usually higher in the early years of
production), a portion of every distribution of revenues from properties
represents a return of a limited partner's original investment. Until a
limited partner receives cash distributions equal to his original
investment, 100% of such distributions may be deemed to be a return of
capital.
(4) Distributions paid to the limited partners assumes 100% participation by
all Partnerships and are based upon the exchange values computed as of
March 31, 1996. These March 1996 exchange values do not necessarily
correspond with the relative exchange values which would have been in
effect at an earlier date.
<PAGE>
ENEX OIL & GAS INCOME PROGRAM AND
ENEX INCOME AND RETIREMENT FUND LIMITED PARTNERSHIPS
Proxy and Ballot for Meetings of Limited Partnerships
to be held xxxxxxxx, 1996
------------------------------------
THE UNDERSIGNED HEREBY APPOINTS GERALD B. ECKLEY, ROBERT E. DENSFORD,
AND WILLIAM C. HOOPER AND EACH OR ANY OF THEM LAWFUL ATTORNEYS AND PROXIES, WITH
FULL POWER OF SUBSTITUTION, AND AUTHORIZES THEM TO ACT FOR AND IN PLACE OF THE
UNDERSIGNED AT THE MEETINGS OF THE LIMITED PARTNERS TO BE HELD ON XXXXXXXXXXX,
1996, AND AT ANY ADJOURNMENT THEREOF, AND TO VOTE THE LIMITED PARTNERSHIP
INTERESTS OWNED BY THE UNDERSIGNED IN THE ENEX OIL & GAS INCOME PROGRAM AND ENEX
INCOME AND RETIREMENT FUND LIMITED PARTNERSHIPS NAMED BELOW ON XXXXXX , 1996,
THE RECORD DATE FOR SUCH MEETINGS, AS FOLLOWS:
1. (A) THE UNDERSIGNED WISHES TO VOTE ALL INTERESTS IN THE SAME MANNER AS
FOLLOWS:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
OR
(B) IF THE UNDERSIGNED WISHES TO VOTE INTERESTS SEPARATELY, PLEASE ATTACH A
SCHEDULE SETTING FORTH THE NAME OF EACH OF THE PARTERSHIP(S) IN WHICH THE
UNDERSIGNED OWNS AN INTEREST AND OPPOSITE EACH SUCH PARTNERSHIP NAME A VOTE FOR
OR AGAINSTT OR ABSTAIN
IN CONNECTION WITH THE PROPOSAL TO APPROVE THE ADOPTION OF THE PLAN OF
CONSOLIDATION PURSUANT TO WHICH EACH PARTICIPATING PARTNERSHIP WILL TRANSFER ITS
ASSETS TO ENEX CONSOLIDATED PARTNERS, L. P., A NEW JERSEY LIMITED PARTNERSHIP
(THE "CONSOLIDATED PARTNERSHIP"), AND THEREAFTER DISSOLVE AND TERMINATE WITH THE
LIMITED PARTNERS OF THE PARTICIPATING PARTNERSHIPS RECEIVING UNITS OF LIMITED
PARTNERSHIP INTEREST IN THE CONSOLIDATED PARTNERSHIP, AND TO AMEND EACH
PARTNERSHIP'S CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP TO PROVIDE FOR
SUCH CONSOLIDATION, ALL AS MORE FULLY DESCRIBED IN THE ACCOMPANYING
PROSPECTUS/PROXY STATEMENT.
2. IN THEIR DISCRETION, UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE MEETINGS.
THIS PROXY AND BALLOT IS SOLICITED BY THE GENERAL PARTNER. VOTES IT
REPRESENTS WILL BE CAST AS SPECIFIED. IF NO CONTRARY SPECIFICATION IS MADE
ABOVE, ALL LIMITED PARTNERSHIP INTERESTS OWNED BY THE LIMITED PARTNER(S) SIGNING
BELOW WILL BE VOTED FOR THE CONSOLIDATION. THIS PROXY AND BALLOT IS IRREVOCABLE
UPON RECEIPT BY THE GENERAL PARTNER IF VOTED FOR THE CONSOLIDATION.
BY SIGNING THIS PROXY AND BALLOT, THE UNDERSIGNED HEREBY REQUESTS ADMISSION
AS A LIMITED PARTNER IN ENEX CONSOLIDATED PARTNERS, L.P. PURSUANT TO THE TERMS
AND CONDITIONS (INCLUDING THE POWER OF ATTORNEY) AND THE CERTIFICATIONS, IF
APPLICABLE, SET FORTH ON THE REVERSE SIDE OF THIS PROXY AND BALLOT, UNLESS THE
UNDERSIGNED HAS INDICATED TO THE CONTRARY ON THE REVERSE SIDE OF THIS PROXY AND
BALLOT.
ELECTION TO PARTICIPATE IN THE EXCHANGE OFFER
THE CONSOLIDATED PARTNERSHIP IS OFFERING UNITS IN EXCHANGE FOR THE
LIMITED PARTNERSHIP INTERESTS OF INDIVIDUAL LIMITED PARTNERS OF PARTNERSHIPS
THAT FAIL TO APPROVE THE PROPOSED CONSOLIDATION, IN ACCORDANCE WITH THE TERMS
AND CONDITIONS SET FORTH IN THE ACCOMPANYING PROSPECTUS/PROXY STATEMENT. THIS
OFFER IS ONLY AVAILABLE TO LIMITED PARTNERS WHO VOTE IN FAVOR OF THE PROPOSED
CONSOLIDATION.
PLEASE CHECK THE APPROPRIATE BOX BELOW TO INDICATED WHETHER OR NOT YOU
WISH TO PARTICIPATE IN THE EXCHANGE OFFER AND EXCHANGE ALL OF YOUR LIMITED
PARTNERSHIP INTERESTS FOR UNITS OF THE CONSOLIDATED PARTNERSHIP IN ACCORDANCE
WITH THE TERMS AND CONDITIONS SET FORTH IN THE ACCOMPANYING PROSPECTUS/PROXY
STATEMENT.
[ ] I WISH TO PARTICIPATE IN THE EXCHANGE OFFER.
[ ] I DO NOT WISH TO PARTICIPATE IN THE EXCHANGE OFFER.
UNLESS OTHERWISE SPECIFIED, ALL LIMITED PARTNERSHIP INTERESTS OWNED BY
THE LIMITED PARTNER(S) SIGNING BELOW WILL BE VOTED FOR THE EXCHANGE OFFER.
REPRESENTATION BY PERSONS SIGNING
IN A REPRESENTATIVE CAPACITY
IF THE LIMITED PARTNER WHOSE NAME IS PRINTED ON THE LABEL BELOW IS NOT
AN INDIVIDUAL, THE PERSON SIGNING THIS PROXY AND BALLOT HEREBY REPRESENTS THAT
HE IS, IN HIS REPRESENTATIVE CAPACITY, EMPOWERED AND DULY AUTHORIZED BY THE
GOVERNING DOCUMENTS, TRUST INSTRUMENTS, PENSION PLAN, CHARTER, CERTIFICATE OF
INCORPORATION, BY LAW PROVISION, BOARD OR STOCKHOLDER RESOLUTION OR SIMILAR
AUTHORITY TO COMPLETE AND EXECUTE THIS PROXY AND BALLOT IN SUCH CAPACITY ON
BEHALF OF THE LIMITED PARTNER.
EXECUTION BY IRA, KEOGH AND PENSION PLAN LIMITED PARTNERS
IF THE LIMITED PARTNER IS AN INDIVIDUAL RETIREMENT ACCOUNT OR KEOGH OR
PENSION PLAN PURSUANT TO WHICH THE BENEFICIARY THEREOF IS PERMITTED TO DIRECT
THE INVESTMENT (I.E., A SELF-DIRECTED PLAN), THE PERSON SIGNING THIS PROXY AND
BALLOT, IN ADDITION TO MAKING THE REPRESENTATION CONTAINED IN THE PRECEDING
PARAGRAPH, FURTHER REPRESENTS THAT THIS PROXY AND BALLOT HAS BEEN COMPLETED
PURSUANT TO THE DIRECTION OF SUCH BENEFICIARY.
SIGNATURE BOX
SIGNATURE(S) OF LIMITED PARTNERS: X SIGNED: _____________________________
DATED:_________________________ X SIGNED: _____________________________
PLEASE SIGN EXACTLY AS THE NAME IS PRINTED ON THE LABEL ABOVE. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN, GENERAL PARTNER, CORPORATE
OFFICER, OR IN ANY OTHER REPRESENTATIVE CAPACITY, GIVE FULL TITLE AND NOTE THE
REPRESENTATIONS INCLUDED IN THE TWO IMMEDIATELY PRECEDING PARAGRAPHS. IF TWO OR
MORE PERSONS ARE THE JOINT OWNERS OF THE LIMITED PARTNERSHIP INTERESTS COVERED
HEREBY, EACH PERSON NAMED HEREON MUST SIGN ABOVE.
REQUEST FOR ADMISSION AS LIMITED PARTNER
UNLESS INDICATED TO THE CONTRARY BELOW, THE UNDERSIGNED HEREBY (A)
REQUESTS ADMISSION AS A LIMITED PARTNER IN ENEX CONSOLIDATED PARTNERS, L. P., A
NEW JERSEY LIMITED PARTNERSHIP (THE "CONSOLIDATED PARTNERSHIP"), WITH RESPECT TO
ALL OF THE UNITS OF LIMITED PARTNERSHIP INTEREST IN THE CONSOLIDATED PARTNERSHIP
("UNITS") TO WHICH THE UNDERSIGNED MAY BECOME ENTITLED PURSUANT TO THE PROPOSED
CONSOLIDATION OF THE PARTNERSHIPS DESCRIBED IN THE ACCOMPANYING PROSPECTUS/PROXY
STATEMENT AND (B) AGREES TO BECOME A PARTY TO THE ARTICLES OF LIMITED
PARTNERSHIP OF THE CONSOLIDATED PARTNERSHIP (THE "ARTICLES"; A COPY OF WHICH IS
INCLUDED IN AN APPENDIX TO THE PROSPECTUS/PROXY STATEMENT) AND TO BE BOUND BY
ALL OF THE TERMS AND CONDITION THEREOF. THE UNDERSIGNED CONFIRMS HIS WILLINGNESS
TO ACCEPT SUCH UNITS FOR THE LIMITED PARTNERSHIP INTEREST(S) COVERED HEREBY AND
TO CONTINUE TO HAVE AN INVESTMENT IN THE CONSOLIDATED PARTNERSHIP.
CHECK ONLY IF YOU REQUEST NOT TO BE ADMITTED AS A LIMITED PARTNER IN THE
CONSOLIDATED PARTNERSHIP. NOTE: IF YOU CHECK THIS BOX, YOU WILL NOT BE ENTITLED
TO EXERCISE ALL THE RIGHTS OF A LIMITED PARTNER DESCRIBED IN THE ACCOMPANYING
PROSPECTUS/PROXY STATEMENT. [ ]
POWER OF ATTORNEY
THE UNDERSIGNED HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS
ENEX RESOURCES CORPORATION (THE "GENERAL PARTNER"), WITH FULL POWER OF
SUBSTITUTION, AS THE TRUE AND LAWFUL ATTORNEY OF THE UNDERSIGNED, IN THE
UNDERSIGNED'S NAME, PLACE AND STEAD, TO EXECUTE, ACKNOWLEDGE, SWEAR TO AND FILE:
(I) ALL CERTIFICATIONS REQUIRED OR PERMITTED UNDER THE PROVISIONS OF THE
INTERNAL REVENUE CODE AND ALL DOCUMENTS FOR AND AGREEMENTS WITH THE INTERNAL
REVENUE SERVICE TO KEEP OPEN THE STATUTE OF LIMITATIONS WITH RESPECT TO ANY
CONSOLIDATED PARTNERSHIP ITEMS UNDER EXAMINATION BY THE INTERNAL REVENUE SERVICE
OR TO ESTABLISH A UNITHOLDER'S LIABILITY FOR TAX OR WITHHOLDING OF TAX,
ENTITLEMENT TO A CREDIT OR REFUND OF TAX; (II) ALL STOCK EXCHANGE LISTING
APPLICATIONS, NASDAQ APPLICATIONS AND OTHER INSTRUMENTS AND AGREEMENTS RELATING
TO THE POSSIBLE ESTABLISHMENT AND MAINTENANCE OF A MARKET FOR THE UNITS; (III)
THE ARTICLES AND ANY AMENDMENTS THERETO MADE IN ACCORDANCE THEREWITH; (IV)
CERTIFICATES OF LIMITED PARTNERSHIP REQUIRED BY LAW AND ALL AMENDMENTS THERETO;
(V) ALL CERTIFICATES AND OTHER INSTRUMENTS NECESSARY TO QUALIFY OR CONTINUE THE
CONSOLIDATED PARTNERSHIP IN THE STATES WHERE IT MAY BE DOING BUSINESS; (VI)
LEASES, ASSIGNMENTS AND OTHER INSTRUMENTS REQUIRED OR PERMITTED IN CONNECTION
WITH THE LEASING OF LANDS FOR OIL, GAS OR OTHER MINERAL EXPLORATION OR
PRODUCTION; (VII) ALL ASSIGNMENTS, CONVEYANCES OR OTHER INSTRUMENTS OR DOCUMENTS
NECESSARY TO EFFECT THE DISSOLUTION AND LIQUIDATION OF THE CONSOLIDATED
PARTNERSHIP; AND (VIII) ALL OTHER FILINGS WITH AGENCIES OF THE FEDERAL
GOVERNMENT, OF ANY STATE OR LOCAL GOVERNMENT, OR OF ANY OTHER JURISDICTION,
WHICH THE GENERAL PARTNER CONSIDERS NECESSARY OR DESIRABLE TO CARRY OUT THE
PURPOSES AND BUSINESS OF THE CONSOLIDATED PARTNERSHIP AND (IX) ALL OTHER
AGREEMENTS, CERTIFICATES AND DOCUMENTS REFERRED TO IN THE POWER OF ATTORNEY THAT
IS SET FORTH IN ARTICLE 10 OF THE ARTICLES. THIS POWER OF ATTORNEY SHALL BE
DEEMED COUPLED WITH AN INTEREST, SHALL BE IRREVOCABLE AND SHALL SURVIVE THE
DEATH, BANKRUPTCY, INCAPACITY, DISSOLUTION OR TERMINATION OF THE UNDERSIGNED AND
SHALL EXTEND TO THE UNDERSIGNED'S HEIRS, REPRESENTATIVES, SUCCESSORS OR ASSIGNS,
TO THE EXTENT THE UNDERSIGNED MAY LEGALLY CONTRACT FOR SUCH SURVIVAL.
CERTIFICATION AS TO ELIGIBILITY
PARTNERSHIP'S RIGHT TO PURCHASE INTERESTS
THE UNDERSIGNED HEREBY CERTIFIES TO THE CONSOLIDATED PARTNERSHIP AND
THE GENERAL PARTNER THAT, UNLESS OTHERWISE INDICATED BELOW, THE UNDERSIGNED
(INCLUDING, TO THE BEST OF THE UNDERSIGNED'S KNOWLEDGE, ANY PERSON FOR WHOM THE
UNDERSIGNED WILL HOLD THE UNITS) CAN MAKE AND DOES HEREBY MAKE ALL OF THE
REPRESENTATIONS, WARRANTIES, CERTIFICATIONS, COVENANTS, AGREEMENTS AND
DESIGNATIONS SET FORTH IN ARTICLE 10 OF THE ARTICLES. THE UNDERSIGNED
UNDERSTANDS THAT IF AT ANY TIME THE CONSOLIDATED PARTNERSHIP OR THE GENERAL
PARTNER DETERMINES THAT ANY REPRESENTATION, WARRANTY, CERTIFICATION, COVENANT,
AGREEMENT OR DESIGNATION MADE BY OR REQUESTED OF THE UNDERSIGNED IS OTHERWISE
NOT QUALIFIED TO HOLD INTERESTS IN FEDERAL OIL AND GAS LEASES, OR OTHERWISE
JEOPARDIZES THE CONSOLIDATED PARTNERSHIP'S TAX STATUS OR THE LIMITED LIABILITY
OF OTHER UNITHOLDERS, THEN THE GENERAL PARTNER, OR ANY PARTY DESIGNATED BY THE
GENERAL PARTNER, SHALL HAVE THE RIGHT, BUT NOT THE OBLIGATION, TO PURCHASE ALL
OR ANY PART OF THE UNITS HELD BY THE UNDERSIGNED AT A PURCHASE PRICE DETERMINED
IN ACCORDANCE WITH THE ARTICLES.
CHECK ONLY IF YOU ARE NOT ABLE TO CERTIFY IN ACCORDANCE WITH THE FOREGOING.
NOTE: IF YOU CHECK THIS BOX, YOU WILL HAVE THE STATUS OF AN ASSIGNEE OF A
LIMITED PARTNERSHIP INTEREST RATHER THAN A LIMITED PARTNER OF THE CONSOLIDATED
PARTNERSHIP, AS DESCRIBED IN THE ACCOMPANYING PROSPECTUS/PROXY STATEMENT. [ ]
