UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 8 - K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report
November 30, 1998
Abraxas Petroleum Corporation
(Exact name of registrant as specified in its charter)
Nevada
(State of other jurisdiction of incorporation)
0-19118 74-2584033
(Commission File Number) (I.R.S. Employer Identification Number)
500 N. Loop 1604 East, Suite 100
San Antonio, Texas 78232
(Address of principal executive offices)
Registrant's telephone number, including area code:
210-490-4788
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Item 2. ACQUISITION OF DISPOSITION OF ASSETS
(a) On November 16, 1998, Abraxas Petroleum Corporation, a Nevada
corporation (the "Company"), sold its natural gas producing properties
in the Wamsutter area of southwestern Wyoming's Green River Basin to
Abraxas Wamsutter L.P., a Texas limited partnership (the "Partnership")
for consideration of $58.6 million and a minority equity interest in
the Partnership. A subsidiary of the Company, Wamsutter Holdings, Inc.,
a Wyoming corporation, (the "General Partner"), will initially own a
one percent interest and act as the general partner of the Partnership.
TIFS III-X, a Delaware corporation (the "Limited Partner"), a
subsidiary of GE Capital Structure Finance Group, will be the limited
partner and initially own ninety-nine percent of the Partnership. After
certain payback requirements are satisfied, the Company's interest will
increase to 35% initially and could increase to as high as 65%. The
Company will also receive a 1% management fee and reimbursement of
certain overhead cost from the Partnership.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(B) Pro Forma Financial Statements
It is impracticable to provide the required pro forma
financial statements for the disposition described above at
the time this report is filed. The pro forma financial
statements will be filed as soon as practicable, but no later
than 60 days after this report must be filed.
(C) The following exhibits are filed as part of this report:
NUMBER DOCUMENT
10.1 Purchase and Sale Agreement dated November
12, 1998 between Abraxas Petroleum Corporation
and Abraxas Wamsutter L.P.
10.2 Abraxas Wamsutter L.P. Limited partnership agreement.
99.1 Press release dated November 12, 1998.
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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ABRAXAS PETROLEUM CORPORATION
By: ___________________________________
Chris Williford
Executive Vice President, Chief Financial
Officer and Treasurer
Dated: November 30, 1998
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EXHIBIT 10.1
PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I Definitions and References.........................................1
Section 1.1. Certain Defined Terms........................................1
Section 1.2. References, Titles and Construction..........................2
ARTICLE II Property to be Sold and Purchased.................................3
Section 2.1. Assets Included...............................................3
Section 2.2. Excluded Assets...............................................5
ARTICLE III Purchase Price....................................................7
ARTICLE IV Representations and Warranties of Seller...........................7
Section 4.1. Organization and Existence...................................7
Section 4.2. Power and Authority..........................................7
Section 4.3. Valid and Binding Agreement..................................7
Section 4.4. Non-Contravention............................................8
Section 4.5. Approvals....................................................8
Section 4.6. Pending Litigation...........................................8
Section 4.7. Basic Documents..............................................8
Section 4.8. Commitments, Abandonments or Proposals......................9
Section 4.9. Production Sales Contracts...................................9
Section 4.10. Plugging and Abandonment...................................10
Section 4.11. Licenses and Permits.......................................10
Section 4.12. Area of Mutual Interest and Other
Agreements; Tax Partnerships............................10
Section 4.13. Payment of Expenses........................................10
Section 4.14. Compliance with Laws.......................................10
Section 4.15. Information furnished to Cawley, Gillespie
& Associates...............................................11
Section 4.16. Disclaimer of Warranties...................................11
ARTICLE V Representations and Warranties of Buyer............................12
Section 5.1. Organization and Existence..................................12
Section 5.2. Power and Authority.........................................12
Section 5.3. Valid and Binding Agreement.................................12
Section 5.4. Non-Contravention...........................................12
Section 5.5. Approvals...................................................13
Section 5.6. Pending Litigation..........................................13
Section 5.7. Knowledgeable Purchaser.....................................13
ARTICLE VI Certain Covenants of Seller Pending Closing......................13
Section 6.1. Access to Files.............................................13
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Section 6.2. Conduct of Operations.......................................13
Section 6.3. Restrictions on Certain Actions.............................14
Section 6.4. Payment of Expenses.........................................14
Section 6.5. Preferential Rights and Third Party Consents................15
ARTICLE VII Due Diligence Examination.......................................15
Section 7.1. Inspection and Assertion of Defects.........................15
Section 7.2. Certain Price Adjustments...................................17
Section 7.3. Waiver......................................................18
ARTICLE VIII Conditions Precedent to the Obligations of the Parties.........18
Section 8.1. Conditions Precedent to the Obligations of Buyer............18
Section 8.2. Conditions Precedent to the Obligations of Seller.......19
ARTICLE IX Closing of Transaction...........................................20
Section 9.1. The Closing.................................................20
Section 9.2. Seller's Closing Obligations................................20
Section 9.3. Buyer's Closing Obligations.................................21
Section 9.4. Delivery of Files...........................................21
ARTICLE X Certain Accounting Adjustments.....................................21
Section 10.1. Adjustments................................................21
Section 10.2. Closing and Post-Closing Accounting Settlements............22
ARTICLE XI Assumption and Indemnification...................................22
Section 11.1. Seller's Indemnification Obligations....................22
Section 11.2. Buyer's Indemnification Obligations.....................23
Section 11.3. Net Amounts.............................................23
Section 11.4. Notice of Claim.........................................23
Section 11.5. Indemnification Exclusive Remedy........................24
Section 11.6. No Assumption...........................................24
ARTICLE XII Casualty Loss...................................................24
ARTICLE XIII Notices........................................................24
ARTICLE XIV Commissions......................................................25
ARTICLE XV Miscellaneous Matters.............................................26
Section 15.1. Survival of Provisions.....................................26
Section 15.2. Further Assurances.........................................26
Section 15.3. Binding Effect; Successors and Assigns.....................26
Section 15.4. Imbalances.................................................26
Section 15.5. Expenses...................................................26
Section 15.6. Entire Agreement...........................................27
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Section 15.7. Public Statements..........................................27
Section 15.8. Injunctive Relief..........................................27
Section 15.9. Amendments.................................................27
Section 15.10. Governing Law..............................................27
Section 15.11. Counterparts...............................................27
Section 15.12. Arbitration................................................27
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PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT dated November 12, 1998, is made by
and between ABRAXAS PETROLEUM CORPORATION, a Nevada corporation ("Seller"), and
ABRAXAS WAMSUTTER L.P., a Texas limited partnership ("Buyer").
W I T N E S E T H:
WHEREAS, Seller desires to sell, assign and convey to Buyer, and Buyer
desires to purchase and accept certain oil and gas properties and related assets
in Sweetwater and Carbon Counties, Wyoming; and
WHEREAS, Seller and Buyer deem it in their mutual best interests to
execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants and agreements contained herein, Seller and Buyer do hereby
agree as follows:
ARTICLE I
Definitions and References
Section 1.1. Certain Defined Terms. When used in this Agreement, the
following terms shall have the respective meanings assigned to them in this
Section 1.1 or in the section, subsections or other subdivisions referred to
below:
"Adjusted Purchase Price" shall have the meaning assigned to such term
in Article III.
"Agreement" shall mean this Agreement, as hereafter changed, amended or
modified in accordance with the terms hereof.
"Asserted Defects" shall have the meaning assigned to such term in
Section 7.1(a).
"Assignment" shall have the meaning assigned to such term in Section
9.2(a).
"Basic Documents" shall have the meaning assigned to such term in
Section 4.7.
"Closing" and "Closing Date" shall have the meanings assigned to such
terms in Section 9.1.
"Defects" shall have the meaning assigned to such term in Section
7.1(b).
"Effective Date" shall have the meaning assigned to such term in
Section 9.2(a).
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"Oil and Gas Properties" shall have the meaning assigned to such term
in Article II.
"Properties" shall have the meaning assigned to such term in Article
II.
"Purchase Price" shall have the meaning assigned to such term in
Article III.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
all rules and regulations under such Act.
"Seller Disclosure Schedule" shall mean a schedule delivered by Seller
to Buyer on the date hereof which sets forth additional information regarding
the representations and warranties of Seller contained herein and information
called for hereby.
Section 1.2. References, Titles and Construction.
(a) All references in this Agreement to articles, sections, subsections
and other subdivisions refer to corresponding articles, sections, subsections
and other subdivisions of this Agreement unless expressly provided otherwise.
(b) Titles appearing at the beginning of any of such subdivisions are
for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
(c) The words "this Agreement", "this instrument", "herein", "hereof",
"hereby", "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited.
(d) Words in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise requires. Pronouns in masculine,
feminine and neuter genders shall be construed to include any other gender.
(e) Unless the context otherwise requires or unless otherwise provided
herein, the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection shall
be construed to authorize such renewal, extension, modification, amendment or
restatement.
(f) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(g) The word "or" is not intended to be exclusive and the word
"includes" and its derivatives means "includes, but is not limited to" and
corresponding derivative expressions.
(h) No consideration shall be given to the fact or presumption that one
party had a greater or lesser hand in drafting this Agreement.
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(i) All references herein to "$" or "dollars" shall refer to U.S.
Dollars.
(j) Exhibits II, III, 6.5, 7.1(b)(i), 7.1(b)(vi), 7.2 and 9.2(a) are
attached hereto. Each such Exhibit is incorporated herein by reference for all
purposes and references to this Agreement shall also include such Exhibit unless
the context in which used shall otherwise require.
ARTICLE II
Property to be Sold and Purchased
Section 2.1. Assets Included. Seller agrees to sell and Buyer agrees to
purchase, for the consideration hereinafter set forth, and subject to the terms
and provisions herein contained, the following described properties, rights and
interests:
(a) Subject to Section 2.2, all of Seller's right, title and
interest in and to those properties described in Exhibit II attached
hereto and made a part hereof for all purposes;
(b) Without limitation of the foregoing but subject to Section
2.2, all other right, title and interest (of whatever kind or
character, whether legal or equitable, and whether vested or
contingent) of Seller in and to the oil, gas and other minerals in and
under or that may be produced from the lands described in Exhibit II
hereto (including, without limitation, interests in oil, gas and/or
mineral leases covering such lands, overriding royalties, production
payments and net profits interests in such lands or such leases, and
fee mineral interests, fee royalty interests and other interests in
such oil, gas and other minerals), whether such lands be described in a
description set forth in such Exhibit II or be described in such
Exhibit II by reference to another instrument (and without limitation
by any depth limitations that may be set forth in such Exhibit II or in
any such instrument so referred to for description), even though
Seller's interest in such oil, gas and other minerals may be
incorrectly described in, or omitted from, such Exhibit II;
(c) Subject to Section 2.2, all rights, titles and interests
of Seller in and to, or otherwise derived from, all presently existing
and valid oil, gas and/or mineral unitization, pooling, and/or
communitization agreements, declarations and/or orders and in and to
the properties covered and the units created thereby (including,
without limitation, all units formed under orders, rules, regulations,
or other official acts of any federal, state, or other authority having
jurisdiction, voluntary unitization agreements, designations and/or
declarations) relating to the properties described in paragraphs (a)
and (b) above;
(d) Subject to Section 2.2, all rights, titles and interests
of Seller in and to all presently existing and valid production sales
(and sales related) contracts, operating agreements, and other
agreements and contracts which relate to any of the properties
described in paragraphs (a), (b) and (c) above, or which relate to the
exploration, development, operation, or maintenance thereof or the
treatment, storage, transportation or marketing of production therefrom
(or allocated thereto);
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(e) Subject to Section 2.2, all rights, titles and interests
of Seller in and to all materials, supplies, machinery, equipment,
improvements and other personal property and fixtures (including, but
not by way of limitation, all wells, wellhead equipment, pumping units,
flowlines, tanks, buildings, injection facilities, saltwater disposal
facilities, compression facilities, gathering systems, and other
equipment), and all easements, rights-of-way, surface leases and other
surface rights, all permits and licenses, and all other appurtenances
being used or held for use in connection with, or otherwise related to,
the exploration, development, operation or maintenance of any of the
properties described in paragraphs (a), (b) and (c) above, or the
treatment, storage, transportation or marketing of production therefrom
(or allocated thereto); and
(f) Subject to Section 2.2, all of Seller's lease files,
abstracts and title opinions, production records, well files,
accounting records (but not including general financial accounting
records), seismic records and surveys, gravity maps, electric logs,
geological or geophysical data and records, and other files, documents
and records of every kind and description which relate to the
properties described above.
The properties and interests specified in the foregoing paragraphs (a), (b) and
(c) are herein sometimes collectively called the "Oil and Gas Properties," and
the properties and interests specified in the foregoing paragraphs (a), (b),
(c), (d), (e) and (f) are herein sometimes collectively called the "Properties".
Except as set forth in Section 2.2(b), the Properties include all right, title
and interest of Seller in, to and under the following:
(i) Purchase and Sale Agreement dated August 1, 1995, by and
between Dalen Resources Oil & Gas Co., as Seller, and TGas
Investments LLC, as Buyer, as amended by Amendment to Purchase
and Sale Agreement and Agreement Regarding Assignment of
Rights dated July 15, 1996, by and between Ensearch
Exploration, Inc. and TGas Investments LLC;
(ii) Purchase and Sale Agreement dated May 22, 1996, by and
between Ensearch Exploration, Inc., as Seller, and Abraxas
Petroleum Corporation, as Buyer;
(iii) Promissory Note (Nonrecourse) dated effective April 1,
1996, made by TGas Investments LLC and payable to the order of
Ensearch Exploration, Inc., evidencing the Production Payment
as set forth in that certain Purchase and Sale Agreement dated
August 1, 1995, by and between Dalen Resources Oil & Gas Co.,
as Seller, and TGas Investments LLC, as Buyer, as amended by
Amendment to Purchase and Sale Agreement and Agreement
Regarding Assignment of Rights dated July 15, 1996, by and
between Ensearch Exploration, Inc. and TGas Investments LLC.;
(iv) Assignment of Oil and Gas Interests and Assumption of
Obligations dated September 30, 1996, from Ensearch
Exploration, Inc. to Seller;
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(v) Assignment of Option to Purchase Oil and Gas Interests
dated September 30,1996, from Ensearch Exploration, Inc. to
Seller;
(vi) Assignment of Guaranty Rights dated September 30, 1996,
from Ensearch Exploration, Inc. to Seller;
(vii) Management Agreement dated September 30, 1996, by and
between TGas Investments LLC and Seller; and
(viii) Gas Purchase Agreement dated September 30, 1996, by and
between TGas Investments LLC and Seller (the Agreements,
Assignments and Note referenced in items (i) through (viii) of
this Section 2.1, together with any and all related
instruments, but not including the Note referenced in Section
2.2(j), are herein collectively called the "TGas Contracts").
Section 2.2. Excluded Assets. Notwithstanding anything herein contained
to the contrary, the Properties do not include, and there is hereby excepted and
reserved unto Seller, the following:
(a) Any accounts receivable or accounts payable accruing
before the Effective Date including, but not limited to, all payments
held in suspense for title or other reasons that are customary in the
industry and which payments are attributable to periods of time prior
to the Effective Date;
(b) All corporate, financial, tax and legal (other than title)
records of Seller;
(c) All oil, gas or other hydrocarbon production from or
attributable to the Properties with respect to all periods prior to the
Effective Date, all proceeds attributable thereto, and all oil, gas or
other hydrocarbons that, at the Effective Date, are owned by Seller and
are in storage or within processing plants;
(d) Any refund of costs, taxes or expenses borne by Seller or
Seller's predecessors in title attributable to periods prior to the
Effective Date ;
(e) Any and all proceeds from the settlements of contract
disputes with purchasers of oil, gas or other hydrocarbons from the
Properties, including, without limitation, settlement of take-or-pay
disputes, insofar as said proceeds are attributable to periods of time
prior to the Effective Date ;
(f) Any and all proceeds from settlements with regard to
reclassification of gas produced from the Properties, insofar as said
proceeds are attributable to periods of time prior to the Effective
Date; and
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(g) All claims (including insurance claims) and causes of
action of Seller against one or more third parties arising from acts,
omission or events occurring prior to the Effective Date and all claims
under any joint interest audit attributable to any period prior to the
Effective Date.
(h) Any geological, geophysical or seismic data, materials or
information, including maps, interpretations records or other technical
information related to or based upon any such data, materials or
information, and any other asset, data, materials or information, the
transfer of which is restricted or prohibited under the terms of any
third party license, confidentiality agreement or other agreement or
the transfer of which would require the payment of a fee or other
consideration to any third party; provided, however, that if any such
data, materials or information is transferable upon payment of a fee or
other consideration, and if Buyer has paid such fee or other
consideration prior to the Closing Date, then such data, materials or
information shall be transferred to Buyer;
(i) All those rights and interests ("Section 29 Tax Credits")
described in or conveyed by that certain Assignment of Oil and Gas
Leases with Reservation of Production Payment dated effective August 1,
1995 from Dalen Resources & Gas Co. to TGas Investments, LLC;
(j) That certain Promissory Note (Recourse) dated effective
April 1, 1996, made by TGas Investments LLC and payable to the order of
Ensearch Exploration, Inc. (the "Recourse Note"), evidencing the
obligation of TGas Investments LLC to make Credit Payments as set forth
in that certain Purchase and Sale Agreement dated August 1, 1995, by
and between Dalen Resources Oil & Gas Co., as Seller, and TGas
Investments LLC, as Buyer, as amended by Amendment to Purchase and Sale
Agreement and Agreement Regarding Assignment of Rights dated July 15,
1996, by and between Ensearch Exploration, Inc. and TGas Investments
LLC;
(k) An undivided one percent of Seller's right, title and
interest in and to the lands and leases described on Exhibit II,
insofar and only insofar as the same cover and include oil, gas and
other minerals produced from the wells identified on Exhibit III; and
(l) All right, title and interest of Seller in and to the oil,
gas and other minerals in and under or that may be produced from zones,
strata and horizons occurring below the stratigraphic equivalent of
9,460 feet as depicted in the Compensated Neutron electric log dated
August 3, 1998, of the Abraxas Petroleum Corporation - Echo Springs
Well No. 4-22-19-93, located in the SE-NW-SE of Section 22, T19N, R93W,
Carbon County, Wyoming, also being the same as the top of the Ericson
Formation of the Mesaverde Group, together with access through the
depths to be conveyed in order to explore for, drill and produce
hydrocarbons from the reserved depths.
The properties and interests specified in the foregoing paragraphs (a)
through (l) of this Section 2.2 are herein sometimes collectively
called the "Excluded Assets".
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Notwithstanding the inclusion of Seller's rights under
operating agreements under Section 2.1(d) hereof, SELLER GIVES NO
ASSURANCE HEREUNDER THAT BUYER SHALL SUCCEED SELLER AS OPERATOR OF ANY
PROPERTY WHERE PARTIES OTHER THAN SELLER OWN INTERESTS IN SUCH
PROPERTY.
ARTICLE III
Purchase Price
In consideration of the sale of the Properties by Seller to Buyer,
Buyer shall pay to Seller at Closing cash in the amount of $60,200,000. The
Purchase Price may be adjusted as provided in Sections 6.5 and 7.2 and in
Article XII (the Purchase Price, as so adjusted, and as the same may be
otherwise adjusted by the mutual agreement of the parties, being called the
"Adjusted Purchase Price").
ARTICLE IV
Representations and Warranties of Seller
Section 4.1. Organization and Existence. Seller is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Nevada. Seller is duly qualified to transact business and is in good standing in
the State of Wyoming.
Section 4.2. Power and Authority. Seller has the corporate power and
authority to execute, deliver, and perform this Agreement and each other
agreement, instrument, or document executed or to be executed by Seller in
connection with the transactions contemplated hereby to which it is a party and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery, and performance by Seller of this Agreement and each other agreement,
instrument, or document executed or to be executed by Seller in connection with
the transactions contemplated hereby to which it is a party, and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary corporate action of Seller.
Section 4.3. Valid and Binding Agreement. This Agreement has been duly
executed and delivered by Seller and constitutes, and each other agreement,
instrument, or document executed or to be executed by Seller in connection with
the transactions contemplated hereby to which it is a party has been, or when
executed will be, duly executed and delivered by Seller and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of Seller, enforceable against it in accordance with their respective terms,
except that such enforceability may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws affecting creditors'
rights generally and (b) equitable principles which may limit the availability
of certain equitable remedies (such as specific performance) in certain
instances.
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Section 4.4. Non-Contravention. Other than requirements (if any) that
there be obtained consents to assignment (or waivers of preferential rights to
purchase) from third parties, and except for approvals required to be obtained
from governmental entities who are lessors under leases forming a part of the
Oil and Gas Properties (or who administer such leases on behalf of such lessors)
which are customarily obtained post-closing and the consent of Seller's senior
lenders, neither the execution, delivery, and performance by Seller of this
Agreement and each other agreement, instrument, or document executed or to be
executed by Seller in connection with the transactions contemplated hereby to
which it is a party nor the consummation by it of the transactions contemplated
hereby and thereby do and will (a) conflict with or result in a violation of any
provision of the charter, bylaws or other governing instruments of Seller, (b)
conflict with or result in a violation of any provision of, or constitute (with
or without the giving of notice or the passage of time or both) a default under,
or give rise (with or without the giving of notice or the passage of time or
both) to any right of termination, cancellation, or acceleration under, any
bond, debenture, note, mortgage or indenture, or any material lease, contract,
agreement, or other instrument or obligation to which Seller is a party or by
which Seller or any of its properties may be bound, (c) result in the creation
or imposition of any lien or other encumbrance upon the properties of Seller, or
(d) violate any applicable law, rule or regulation binding upon Seller, if such
violation would have a material adverse affect with respect to the Properties.
Section 4.5. Approvals. Other than requirements (if any) that there be
obtained consents to assignment (or waivers of preferential rights to purchase)
from third parties, and except for approvals required to be obtained from
governmental entities who are lessors under leases forming a part of the Oil and
Gas Properties (or who administer such leases on behalf of such lessors) which
are customarily obtained post-closing and the consent of Seller's senior
lenders, no consent, approval, order, or authorization of, or declaration,
filing, or registration with, any court or governmental agency or of any third
party is required to be obtained or made by Seller in connection with the
execution, delivery, or performance by Seller of this Agreement, each other
agreement, instrument, or document executed or to be executed by Seller in
connection with the transactions contemplated hereby to which it is a party or
the consummation by it of the transactions contemplated hereby and thereby, if
the failure to obtain such consent or approval would have a material adverse
affect with respect to the Properties.
Section 4.6. Pending Litigation. There are no pending suits, actions,
or other proceedings in which Seller is a party which relate to the Properties
(including, without limitation, any actions challenging or pertaining to
Seller's title to any of the Properties), or affecting the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
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Section 4.7. Basic Documents. The oil, gas and/or mineral leases,
Seller's interests in which comprise parts of the Oil and Gas Properties, and
all other material contracts and agreements, licenses, permits and easements,
rights-of-way and other rights-of-surface use comprising any part of or
otherwise relating to the Properties including, but not by way of limitation,
the TGas Contracts (such leases and such material contracts, agreements,
licenses, permits, easements, rights-of-way and other rights-of-surface use
being herein called the "Basic Documents"), are in all material respects in full
force and effect and constitute valid and binding obligations of the parties
thereto. All material contracts and agreements which are Basic Documents are
disclosed on Exhibit II in connection with the descriptions of the Oil and Gas
Properties to which they relate. Seller is not in breach or default (and no
situation exists which with the passing of time or giving of notice would create
a breach or default) of its obligations under the Basic Documents, and (to the
best of Seller's knowledge) no breach or default by any third party (or
situation which with the passage of time or giving of notice would create a
breach or default) exists, to the extent such breach or default (whether by
Seller or such a third party) could reasonably be expected to materially
adversely affect the ownership, operation, value or use of any Oil and Gas
Property after the Effective Date. All payments (including, without limitation,
all delay rentals, royalties, shut-in royalties and valid calls for payment or
prepayment under operating agreements) owing under Basic Documents have been and
are being made (timely, and before the same became delinquent) by Seller in all
material respects (and, where the non-payment of same by a third party could
materially adversely affect the ownership, operation, value or use of an Oil and
Gas Property after the Effective Date, have been and are being made, to Seller's
knowledge, by such third parties). For the purposes of the representations
contained in this Section (and without limitation of such representations), the
non-payment of an amount, or non-performance of an obligation, where such
non-payment, or non-performance, could result in the forfeiture or termination
of rights of Seller under a Basic Document, shall be considered material.
Section 4.8. Commitments, Abandonments or Proposals. Except as set
forth in Section 4.8 of the Seller Disclosure Schedule: (a) Seller has incurred
no expenses, and has made no commitments to make expenditures (including,
without limitation, Seller has not entered into any agreements that would
obligate Buyer to make expenditures), in connection with (and no other
obligations or liabilities have been incurred which would adversely affect) the
ownership or operation of the Properties after the Effective Date, other than
routine expenses incurred in the normal operation of existing wells on the Oil
and Gas Properties; (b) Seller has not abandoned any wells (or removed any
material items of equipment, except those replaced by items of materially equal
suitability) on the Oil and Gas Properties since the Effective Date; and (c) no
proposals are currently outstanding (whether made by Seller or by any other
party) to drill additional wells, or to deepen, plug back, or rework existing
wells, or to conduct other operations for which consent is required under the
applicable operating agreement, or to conduct any other operations other than
normal operation of existing wells on the Oil and Gas Properties, or to abandon
any wells, on the Oil and Gas Properties.
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Section 4.9. Production Sales Contracts. There exist no agreements or
arrangements for the sale of production from the Oil and Gas Properties
(including without limitation, calls on, or other rights to purchase,
production, whether or not the same are currently being exercised) other than
(a) production sales contracts (in this Section, the "Scheduled Production Sales
Contracts") disclosed in Section 4.9 of the Seller Disclosure Schedule or (b)
agreements or arrangements which are cancelable on 90 days notice or less
without penalty or detriment. Seller is presently receiving a price for all
production from (or attributable to) each Oil and Gas Property covered by a
Scheduled Production Sales Contract as computed in accordance with the terms of
such contract, and is not having deliveries of gas from any Oil and Gas Property
subject to a Scheduled Production Sale Contract curtailed substantially below
such property's delivery capacity.
Section 4.10. Plugging and Abandonment. Except for wells listed in
Section 4.10 of the Seller Disclosure Schedule, there are no dry holes, or shut
in or otherwise inactive wells, located on the Oil and Gas Properties or on
lands pooled or unitized therewith, except for wells that have been plugged and
abandoned, and except for wells drilled to depths not included within the Oil
and Gas Properties or within units in which the Oil and Gas Properties
participate which have never been completed in such depths.
Section 4.11. Licenses and Permits. Seller has all governmental
licenses and permits necessary or appropriate to own and operate the Properties
as presently being owned and operated, if the failure to have such license or
permit would have a material adverse affect with respect to the Properties, and
such licenses, permits and filings are in full force and effect (and are
transferrable to Buyer or are subject to being routinely replaced by a license
or permit issued to Buyer as a successor owner of the Properties), and Seller
has not received written notice of any violations in respect of any such
licenses or permits.
Section 4.12. Area of Mutual Interest and Other Agreements; Tax
Partnerships. No Oil and Gas Property is subject to (or has related to it) any
area of mutual interest agreements. No Oil and Gas Property is subject to (or
has related to it) any farm-out or farm-in agreement under which any party
thereto is entitled to receive assignments not yet made, or could earn
additional assignments after the Effective Date. No Oil and Gas Property is
subject to (or has related to it) any tax partnership.
Section 4.13. Payment of Expenses. All expenses (including, without
limitation, all bills for labor, materials and supplies used or furnished for
use in connection with the Properties, and all severance, production, ad
valorem, windfall profit and other similar taxes) relating to the ownership or
operation of the Properties, have been, and are being, paid (timely, and before
the same become delinquent) by Seller, except such expenses and taxes as are
disputed in good faith by Seller and for which an adequate accounting reserve
has been established by Seller.
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Section 4.14. Compliance with Laws. As to Properties operated by Seller
and, to Seller's knowledge with respect to Properties operated by third parties,
the ownership and operation of the Properties, to the extent that
non-conformance could adversely affect the ownership, operation, value or use
thereof after the Effective Date (or otherwise affect Buyer), has been in
conformity, in all material respects, with all applicable laws, and all
applicable rules, regulations and orders of all governmental agencies having
jurisdiction, relating to the Properties. Without in any way limiting the
foregoing representations, the Properties are not in violation of (or subject to
any existing, pending or, threatened investigation or inquiry by any
governmental authority, or to any remedial obligations under) any applicable
laws, rules, regulations or orders pertaining to health or the environment,
including those relating to waste materials or hazardous substances (hereinafter
sometimes collectively called "applicable environmental laws"). Seller
undertook, at the times of its respective acquisitions of the Properties,
appropriate inquiry into the previous ownership and uses of the Properties
consistent with good commercial or customary practice, and Seller has taken
reasonable steps necessary to determine and has determined that no hazardous
substances or solid wastes (as defined in the applicable environmental laws)
have been disposed of or otherwise released on or to the Properties. Also
without limitation of the foregoing, all oil and gas wells comprising a part of
the Properties have been drilled and completed within the boundaries of the
applicable leases or within limits otherwise permitted by a valid and
enforceable pooling, unit, or other agreement or contract or by applicable law,
and no well comprising a part of the Properties is or was subject to any penalty
on allowables after the Effective Date because of any over-production (or any
other judgments, orders or decrees of any court or governmental authority or
agency) which would (or did) prevent such well from being entitled to its full
legal and regular allowable (as prescribed by any court or governmental body or
agency) from and after the Effective Date.
Section 4.15. Information furnished to Cawley, Gillespie & Associates.
All information furnished by Seller or its representatives to Cawley, Gillespie
& Associates, Inc. in connection with the preparation of the initial reserve
report was true and correct in all material respects.
Section 4.16. Disclaimer of Warranties. Other than those expressly set
out in this Article IV or in Exhibit 9.2(a), Seller hereby expressly disclaims
any and all representations or warranties with respect to the Properties or the
transaction contemplated hereby, and Buyer agrees that the Properties are being
sold by Seller "where is" and "as is", with all faults. Specifically as a part
of (but not in limitation of) the foregoing, Buyer acknowledges that Seller has
not made, and Seller hereby expressly disclaims, any representation or warranty
(express, implied, under common law, by statute or otherwise) as to the
condition of the Properties (INCLUDING WITHOUT LIMITATION, SELLER DISCLAIMS ANY
IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, OR CONFORMITY TO MODELS OR SAMPLES OF MATERIALS).
Buyer acknowledges that it has made its own independent examination,
investigation, analysis and evaluation of the Properties, including Buyer's own
estimate of the value of the Properties. Buyer acknowledges that it has
undertaken such due diligence as Buyer deems adequate, including that described
above. Buyer acknowledges and agrees that neither Seller nor any of its
shareholders, officers, directors, employees or other representatives
(collectively, the "Seller Parties") shall be deemed to have made any
representation or warranty other than as expressly set forth herein. Without
limiting the generality of the foregoing and notwithstanding any otherwise
express representations and warranties made by any of the Seller Parties herein,
the Seller Parties make no representation or warranty with respect to:
(a) any projections, estimates or budgets heretofore delivered
to or made available to Buyer of future revenues, expenses or
expenditures or future results of operations; or
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(b) except as expressly covered by a representation and
warranty contained herein, any other information or documents
(financial or otherwise) made available to Buyer or its
counsel, accountants, advisers or representatives.
ARTICLE V
Representations and Warranties of Buyer
Section 5.1. Organization and Existence. Buyer is a limited partnership
duly organized, legally existing and in good standing under the laws of its
state of incorporation, and is qualified to do business in the State of Texas.
Section 5.2. Power and Authority. Buyer has full partnership power and
partnership authority to execute, deliver, and perform this Agreement and each
other agreement, instrument, or document executed or to be executed by Buyer in
connection with the transactions contemplated hereby to which it is a party and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery, and performance by Buyer of this Agreement and each other agreement,
instrument, or document executed or to be executed by Buyer in connection with
the transactions contemplated hereby to which it is a party, and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly authorized by all necessary partnership action of Buyer.
Section 5.3. Valid and Binding Agreement. This Agreement has been duly
executed and delivered by Buyer and constitutes, and each other agreement,
instrument, or document executed or to be executed by Buyer in connection with
the transactions contemplated hereby to which it is a party has been, or when
executed will be, duly executed and delivered by Buyer and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of Buyer, enforceable against it in accordance with their respective terms,
except that such enforceability may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws affecting creditors'
rights generally and (b) equitable principles which may limit the availability
of certain equitable remedies (such as specific performance) in certain
instances.
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Section 5.4. Non-Contravention. The execution, delivery, and
performance by Buyer of this Agreement and each other agreement, instrument, or
document executed or to be executed by Buyer in connection with the transactions
contemplated hereby to which it is a party and the consummation by it of the
transactions contemplated hereby and thereby do not and will not (a) conflict
with or result in a violation of any provision of the partnership agreement or
other governing instruments of Buyer, (b) conflict with or result in a violation
of any provision of, or constitute (with or without the giving of notice or the
passage of time or both) a default under, or give rise (with or without the
giving of notice or the passage of time or both) to any right of termination,
cancellation, or acceleration under, any bond, debenture, note, mortgage,
indenture, lease, contract, agreement, or other instrument or obligation to
which Buyer is a party or by which Buyer or any of its properties may be bound,
(c) result in the creation or imposition of any lien or other encumbrance upon
the properties of Buyer, or (d) violate any applicable law, rule or regulation
binding upon Buyer.
Section 5.5. Approvals. No consent, approval, order, or authorization
of, or declaration, filing, or registration with, any court or governmental
agency or of any third party is required to be obtained or made by Buyer in
connection with the execution, delivery, or performance by Buyer of this
Agreement and each other agreement, instrument, or document executed or to be
executed by Buyer in connection with the transactions contemplated hereby to
which it is a party or the consummation by it of the transactions contemplated
hereby and thereby.
Section 5.6. Pending Litigation. There are no pending suits, actions,
or other proceedings in which Buyer is a party which affect the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
Section 5.7. Knowledgeable Purchaser. Buyer is a knowledgeable
purchaser, owner and operator of oil and gas properties, has the ability to
evaluate (and in fact has evaluated) the Properties for purchase, and is
acquiring the Properties for its own account and not with the intent to make a
distribution within the meaning of the Securities Act (and the rules and
regulations pertaining thereto) or a distribution thereof in violation of any
other applicable securities laws. Buyer is an Accredited Investor within the
meaning of the Securities Act.
ARTICLE VI
Certain Covenants of Seller Pending Closing
Section 6.1. Access to Files. From the date hereof until Closing,
Seller will give Buyer, and its attorneys and other representatives, access at
all reasonable times to the Properties and to any contract files, lease or other
title files, production files, well files and other files of Seller pertaining
to the ownership and/or operation of the Properties, and Seller will use its
reasonable best efforts to arrange for Buyer, and its attorneys and other
representatives, to have access to any such files in the office of Seller.
Seller shall not be obligated to provide Buyer with access to any records or
data which Seller cannot provide to Buyer without, in its opinion, breaching
confidentiality agreements with other parties.
All access to the Properties shall be at the sole cost, risk and
expense of Buyer, and Buyer agrees to indemnify Seller from any and all losses
which may result, directly or indirectly, from Buyer's inspection of the
Properties. All information obtained by Buyer shall be maintained in strict
confidence, for use solely in connection with its evaluation of the Properties,
and shall not be disclosed to any other party without Seller's prior written
consent.
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Section 6.2. Conduct of Operations. Seller will (a) continue the
routine operation of the Properties in the ordinary course of business and as
would a prudent operator, (b) operate the Properties in conformity (in all
material respects) with all applicable laws, and all applicable rules,
regulations and orders of all governmental agencies having jurisdiction, and in
conformity with all oil, gas and/or mineral leases, and in conformity (in all
material respects) with all Basic Documents other than such leases, and (c)
fulfill all obligations (including without limitation all obligations to make
payments under leases or other Basic Documents) under such leases, and (in all
material respects) under such other Basic Documents and (in all material
respects) under such laws, rules, regulations and orders (without limitation of
the foregoing, the failure to perform an obligation, when such failure could
result in forfeiture or termination of rights of Seller under a Basic Document,
shall be considered material).
Section 6.3. Restrictions on Certain Actions. Seller will not, without
Buyer's prior consent:
(a) expend any funds, or make any commitments to expend funds
(including, without limitation, entering into new agreements which would
obligate Seller to expend funds), or otherwise incur any other obligations or
liabilities, in connection with the ownership or operation of the Properties
after the Effective Date, other than routine expenses incurred in the normal
operation of the existing wells on the Oil and Gas Properties, except in the
event of an emergency requiring immediate action to protect life or preserve the
Properties;
(b) except where necessary to prevent the termination of an oil and gas
lease or other material agreement governing Seller's interest in the Properties,
propose the drilling of any additional wells, or propose the deepening, plugging
back or reworking of any existing wells, or propose the conducting of any other
operations which require consent under the applicable operating agreement, or
propose the conducting of any other operations other than the normal operation
of the existing wells on the Oil and Gas Properties, or propose the abandonment
of any wells on the Oil and Gas Properties (and Seller agrees that it will
advise Buyer of any such proposals made by third parties and will respond to
each such proposal made by a third party in the manner requested by Buyer),;
(c) sell, transfer or abandon any portion of the Properties other than
items of materials, supplies, machinery, equipment, improvements or other
personal property or fixtures forming a part of the Properties (and then only if
the same is replaced with an item of substantially equal suitability, free of
liens and security interests, which replacement item will then, for the purposes
of this Agreement, become part of the Properties) ; or
(d) release (or permit to terminate), or modify or reduce its rights
under, any oil, gas and/or mineral lease forming a part of the Oil and Gas
Properties, or any other Basic Document, or enter into any new agreements which
would be Basic Documents, or modify any existing production sales contracts or
enter into any new production sales contracts, except contracts terminable by
Seller with notice of sixty (60) days or less.
Section 6.4. Payment of Expenses. Seller will cause all expenses
(including, without limitation, all bills for labor, materials and supplies used
or furnished for use in connection with the Property and all severance,
production, windfall profit and similar taxes) relating to the ownership or
operation of the Properties prior to the date of Closing to be promptly paid and
discharged, except for expenses disputed in good faith.
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Section 6.5. Preferential Rights and Third Party Consents. Seller will
request, from the appropriate parties (and in accordance with the documents
creating such rights and/or requirements), waivers of the preferential rights to
purchase, or requirements that consent to assignment be obtained, which are
identified on Exhibit 6.5. Seller shall have no obligation hereunder other than
to so request such waivers (i.e., Seller shall have no obligation to assure that
such waivers are obtained), and if all such waivers (or any other waivers of
preferential rights to purchase or requirements that consent be obtained to
assignment, even if the same are not listed on such Exhibit 6.5) are not
obtained, Buyer may treat any waiver which is not obtained as a matter which
causes Seller's title to not be sufficient to meet the standards set forth in
Article VII; provided, however, that if the unobtained waiver is a waiver of a
preferential right to purchase, and if both Buyer and Seller agree to this
treatment of such matter (and agree upon an appropriate allocation of the
Purchase Price), Seller will tender (at the agreed allocated portion of the
Purchase Price) the required interest in the Property affected by such unwaived
preferential right to purchase to the holder, or holders, of such right who have
elected not to waive such preferential right to purchase, and if, and to the
extent that, such preferential right to purchase is exercised by such party or
parties, such interest in such Property will be excluded from the transaction
contemplated hereby and the Purchase Price will be reduced by the amount paid,
or to be paid, by the party exercising such preferential right to purchase (and
Seller shall collect such amount from such purchaser).
ARTICLE VII
Due Diligence Examination
Section 7.1. Inspection and Assertion of Defects.
(a) Buyer may, to the extent it deems appropriate, conduct, at its sole
cost, such title examination or investigation as it may choose to conduct with
respect to the Properties. Should, as a result of such examination and
investigation, or otherwise, matters come to Buyer's attention which would
constitute "Defects" (as below defined), and should there be one or more of such
Defects which Buyer determines it is unwilling to waive and close the
transaction contemplated hereby notwithstanding the fact that such Defects
exist, Buyer shall notify Seller in writing of such Defects at or prior to
Closing. Such Defects of which Buyer so provides notice are herein called
"Asserted Defects." All Defects with respect to which Buyer fails to so give
Seller notice will be deemed waived for all purposes. In the event that Buyer
notifies Seller of Asserted Defects, Seller shall have the right (but not the
obligation) to attempt to cure, such Asserted Defects to the reasonable
satisfaction of Buyer, and for the purpose of curing such Asserted Defects,
Seller may on written notice to Buyer elect to delay Closing for a period not to
exceed 14 days.
(b) The term "Defect" as used in this Section shall mean the following:
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(i) Seller's ownership of the Properties is such that, with
respect to a well listed on Exhibit 7.1(b)(i) hereto, it (A) entitles
Seller to receive a percentage share of the oil, gas and other
hydrocarbons produced from, or allocated to, such well which is less
than the percentage share set forth on Exhibit 7.1(b)(i) in connection
with such well in the column headed "NRI" or (B) causes Seller to be
obligated to bear a percentage share of the cost of operation of such
well greater than the percentage share set forth on Exhibit 7.1(b)(i)
in connection with such well in the column headed "WI" (unless the
share of production from such well to which Seller is entitled is
proportionately larger than the "NRI" shown for such well on Exhibit
7.1(b)(i)); or
(ii) Seller's ownership of an Oil and Gas Property is subject
to a lien other than (A) a lien for taxes not yet delinquent, or (B) a
mechanic's or materialmen's lien (or other similar lien), or a lien
under an operating agreement or similar agreement, to the extent the
same relates to expenses incurred which are not yet due; or
(iii) Seller's ownership of an Oil and Gas Property is subject
to a preferential right to purchase such property or a requirement that
consent to assignment of such property be obtained, unless a waiver of
such right has been obtained with respect to the transaction
contemplated hereby or, in the case of a preferential right to
purchase, an appropriate tender of the applicable interest has been
made to the party holding such right and the period of time required
for such party to exercise such right has expired without such party
exercising such right; or
(iv) Seller's ownership of an Oil and Gas Property is subject
to an imperfection in title which, if asserted, would cause a Defect,
as defined in clause (i) above, to exist, and such imperfection in
title is not such as would normally be waived by persons engaged in the
oil and gas business who are purchasing producing properties; or
(v) An Oil and Gas Property is subject to a makeup obligation
to satisfy take-or-pay payments or other prepayments for production
previously received by Seller; or
(vi) Seller is in an overproduced position with respect to an
Oil and Gas Property (e.g., Seller and/or its predecessors in title
have taken more gas than their ownership in such Oil and Gas Property
would entitle them to take), and such overproduced position is greater
than that shown on Exhibit 7.1(b)(vi).
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Buyer acknowledges that the wells indicated with an asterisk
(*) on Exhibit 7.1(b)(i) are subject to that certain Assignment of Oil
and Gas Leases with Reservation of Production Payment dated effective
as of August 1, 1995, from Dalen Resources Oil & Gas Co. to TGas
Investments LLC, and Buyer agrees that such Assignment shall not
constitute a Defect as provided in Section 7.1(b)(i), provided that the
Net Profits Account upon which the Production Payment reserved therein
is payable shall be credited with a percentage share of the oil, gas
and other hydrocarbons produced from, or allocated to, such well which
is not less than the percentage share set forth on Exhibit 7.1(b)(i) in
connection with such well in the column headed "NRI" and shall be
charged with a percentage share of the cost of operation of such well
not greater than the percentage share set forth on Exhibit 7.1(b)(i) in
connection with such well in the column headed "WI", and further
provided that the option to purchase such wells which is included in
the TGas Contracts, if exercised, would entitle Buyer to a percentage
share of the oil, gas and other hydrocarbons produced from, or
allocated to, such well which is not less than the NRI set forth on
Exhibit 7.1(b)(i) and would obligate Buyer to bear a percentage share
of the cost of operation of such well not greater than the WI set forth
on Exhibit 7.1(b)(i) in connection with such wells.
Section 7.2. Certain Price Adjustments.
(a) In the event that, as a part of the due diligence review provided
for in Section 7.1 above, Asserted Defects are presented to Seller and Seller is
unable (or unwilling) to cure such Asserted Defects prior to Closing, or in the
event that Buyer has elected to treat an Oil and Gas Property affected by a
casualty loss as if it was an Oil and Gas Property affected by an Asserted
Defect (as provided in Article XII), then:
(i) Buyer and Seller shall, with respect to each Oil and Gas
Property affected by one or more Asserted Defects, attempt to agree
upon an appropriate adjustment to the Purchase Price to account for
such Asserted Defects; and
(ii) with respect to each Oil and Gas Property as to which
Buyer and Seller are unable to agree upon an appropriate adjustment
with respect to all Asserted Defects affecting such Oil and Gas
Property, such Oil and Gas Property will be excluded from the
transaction contemplated hereby, and the Purchase Price will be reduced
by the amount attributed on Exhibit 7.2 to such Oil and Gas Property.
Notwithstanding anything herein to the contrary, Buyer may elect to specify as
an appropriate adjustment to the Purchase Price (A) for an Asserted Defect of
the type which is specified in Section 7.1(b)(i) or Section 7.1(b)(iv), and
which relates to the NRI specified on Exhibit 7.1(b)(i), an amount equal to X
multiplied by Y, where "X" is the amount specified on Exhibit 7.2 for the Oil
and Gas Property to which such Defect relates, and where "Y" is the
proportionate reduction in such NRI (e.g., the amount by which the share of
production to which Seller is actually entitled is less than the NRI specified
for such Oil and Gas Property on Exhibit 7.1(b)(i), divided by such NRI
specified on Exhibit 7.1(b)(i)), or (B) for a Defect of the type specified in
Section 7.1(b)(ii), Section 7.1(b)(v), or Section 7.1(b)(vi), the amount
required to discharge such lien, or the amount represented by the loss of
volumes required to discharge such make up obligation or overproduced position,
which amounts shall, in the case of a make up obligation or overproduced
position, be the discounted present value of the volumes required to discharge
such obligation, determined by using a 10% discount rate and assuming the same
would be discharged as promptly as possible (under the terms of applicable
agreements) after the Closing Date assuming production occurs at the same rate
as projected in projections of production furnished by Buyer as (and represented
by Buyer to be) its projections used in making its decision to purchase (and
valuing such production using prices for production utilized in such
projections).
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(b) Should Seller determine (or should Buyer, in the course of its due
diligence review contemplated by Section 7.1, determine) that the ownership of
the Properties by Seller entitles Seller to a share of the production from a
well listed on Exhibit 7.1(b)(i) greater than the share shown for such well
under the column headed "NRI" on Exhibit 7.1(b)(i), or that Seller is in an
underproduced position with respect to an Oil and Gas Property (e.g., Seller
and/or its predecessors in title have taken less gas than their ownership in
such Oil and Gas Property would entitle them to take), or is in an overproduced
position less than that shown on Exhibit 7.1(b)(vi), then Seller shall be
entitled to an upward adjustment to the Base Purchase Price to account for such
fact, in which case such adjustment shall be handled in a similar manner as
provided above with respect to adjustments for Asserted Defects; provided that
the party making such determination shall notify the other party of the proposed
upward adjustment at or prior to Closing.
Section 7.3. Waiver. Without limiting Section 7.1 and notwithstanding
anything else herein to the contrary, all Defects not raised by Buyer within the
time period specified in Section 7.1 shall be waived by Buyer for all purposes,
and Buyer shall have no right to seek an adjustment to the Purchase Price, make
a claim against Seller or seek indemnification from Seller with respect thereto,
and all proposed upward adjustments not raised by Seller within the time period
specified in Section 7.1 shall be waived by Seller for all purposes, and Seller
shall have no right to seek an adjustment to the Purchase Price, make a claim
against Buyer or seek indemnification from Buyer with respect thereto.
ARTICLE VIII
Conditions Precedent to the Obligations of the Parties
Section 8.1. Conditions Precedent to the Obligations of Buyer. The
obligations of Buyer under this Agreement are subject to each of the following
conditions being met:
(a) Each and every representation of Seller under this Agreement shall
be true and accurate in all material respects as of the date when made and shall
be deemed to have been made again at and as of the time of Closing and shall at
and as of such time of Closing be true and accurate in all respects except as to
changes specifically contemplated by this Agreement or consented to by Buyer.
(b) Seller shall have performed and complied in all material respects
with (or compliance therewith shall have been waived by Buyer) each and every
covenant, agreement and condition required by this Agreement to be performed or
complied with by Seller prior to or at the Closing.
(c) Seller shall have delivered a certificate executed by the president
of Seller dated the Closing Date, representing and certifying in such detail as
Buyer may reasonably request that the conditions set forth in subsections (a)
and (b) above have been fulfilled.
(d) No suit, action or other proceedings shall, on the date of Closing,
be pending or threatened before any court or governmental agency seeking to
restrain, prohibit, or obtain damages or other relief in connection with the
consummation of the transactions contemplated by this Agreement.
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(e) The total of the net Purchase Price reductions (if any) which
result from the application of Section 7.2 do not exceed 5% of the Purchase
Price.
(f) The conditions to the obligation of the limited partner of Buyer to
make the capital contribution to Buyer under Section 3.2(a) of the Agreement of
Limited Partnership of Buyer dated November 12, 1998, have been satisfied in
accordance with the terms of such section.
(g) Buyer shall have received a release of liens, executed in
recordable form by Bankers Trust Company, Agent, in form and substance agreeable
to Buyer, effective as to all liens covering or affecting the Properties.
(h) Buyer shall have received all third-party consents, waivers or
other acts prerequisite to an effective transfer of the TGas Contracts.
If any such condition on the obligations of Buyer under this Agreement is not
met as of the Closing Date, or in the event the Closing does not occur on or
before the Closing Date, and (in either case) Buyer is not in breach of its
obligations hereunder, this Agreement may, at the option of Buyer, be
terminated, in which case the parties shall have no further obligations to one
another hereunder (other than the obligations under Article XIV and Section
15.5, which will survive such termination).
Section 8.2. Conditions Precedent to the Obligations of Seller. The
obligations of Seller under this Agreement are subject to each of the following
conditions being met:
(a) Each and every representation of Buyer under this Agreement shall
be true and accurate in all material respects as of the date when made and shall
be deemed to have been made again at and as of the time of Closing and shall at
and as of such time of Closing be true and accurate in all respects except as to
changes specifically contemplated by this Agreement or consented to by Seller.
(b) Buyer shall have performed and complied in all material respects
with (or compliance therewith shall have been waived by Seller) each and every
covenant, agreement and condition required by this Agreement to be performed or
complied with by Buyer prior to or at the Closing.
(c) No suit, action or other proceedings shall, on the date of Closing,
be pending or threatened before any court or governmental agency seeking to
restrain, prohibit, or obtain damages or other relief in connection with the
consummation of the transactions contemplated by this Agreement.
(d) The total of the net Purchase Price reductions (if any) which
result from the application of Section 7.2 do not exceed 5% of the Purchase
Price.
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(e) Seller shall have received an opinion of Jeffries & Company, in
form, scope and substance agreeable to Seller, to the effect that the
transactions contemplated hereby are financially fair.
(f) Buyer and Seller shall have entered into a mutually acceptable AAPL
Form 610 (1982) Model Form Contract Operating Agreement designating Seller as
contract operator under those Oil and Gas Properties currently owned 100% by
Seller, which shall incorporate the accounting procedure attached as Exhibit 5.6
to the Partnership Agreement.
(g) Seller shall have received the consent of its lenders pursuant to
that certain Amended and Restated Credit Agreement dated as of November 14,
1996, by and among Seller, Bankers Trust Company and ING (U.S.) Capital
Corporation, as Co-Agents, and the Banks named therein, as amended.
If any such condition on the obligations of Seller under this Agreement is not
met as of the Closing Date, or in the event the Closing does not occur on or
before the Closing Date, and (in either case) Seller is not in breach of its
obligations hereunder in the absence of Buyer also being in breach of its
obligations hereunder, this Agreement may, at the option of Seller, be
terminated, in which case the parties shall have no further obligations to one
another hereunder (other than the obligations under Article XIV and Section
15.5, which will survive such termination).
ARTICLE IX
Closing of Transaction
Section 9.1. The Closing. The closing (herein called the "Closing") of
the transaction contemplated hereby shall take place in the offices of Thompson
& Knight, P.C., at 1700 Chase Tower, 600 Travis Street, Houston, Texas, at 10:00
a.m. Central Daylight Time, on November 20, 1998, or at such other date and time
as the Buyer and Seller may mutually agree upon (such date and time being herein
called the "Closing Date").
Section 9.2. Seller's Closing Obligations. At the Closing, Seller
shall:
(a) execute, acknowledge and deliver to Buyer an assignment of
the Properties (the "Assignment"), in the form attached hereto as
Exhibit 9.2(a), effective as to runs of oil and deliveries of gas as of
9:00 o'clock a.m., Central Daylight Time on October 1, 1998 (the
"Effective Date");
(b) execute, acknowledge and deliver to Buyer such assignments
or other instruments as Buyer may reasonably request so as to fully and
effectively transfer and assign the TGas Contracts to Buyer as of the
Effective Date;
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(c) execute, acknowledge and deliver to Buyer assignments of
the Properties on forms promulgated or required by the Bureau of Land
Management, the State of Wyoming, or other authorities having or
asserting regulatory jurisdiction over the Properties;
(d) deliver a copy of the resolutions adopted by the board of
directors of Seller authorizing Seller to execute and deliver this
Agreement and all related documents and instruments and to perform its
obligations hereunder and thereunder, which copy shall be certified by
the secretary or assistant secretary of Seller;
(e) deliver to Buyer a certificates of existence and good
standing issued by the Secretary of State of Nevada and dated no
earlier than five business days prior to the Closing Date; and
(f) to the extent requested by Buyer, execute and deliver to
Buyer (i) letters in lieu of transfer orders (or similar
documentation), in form acceptable to both parties, and, (ii) an
affidavit or other certification (as permitted by such code) that
Seller is not a "foreign person" within the meaning of Section 1445 (or
similar provisions) of the Internal Revenue Code of 1986 as amended
(i.e., Seller is not a non-resident alien, foreign corporation, foreign
partnership, foreign trust or foreign estate as those terms are defined
in such code and regulations promulgated thereunder).
Section 9.3. Buyer's Closing Obligations. At the Closing, Buyer shall:
(a) execute, acknowledge and deliver to Buyer a counterpart of
the Assignment; and
(b) deliver to the Seller, by wire transfer to an account
designated by Seller in a bank located in the United States, an amount
equal to the Adjusted Purchase Price.
Section 9.4. Delivery of Files. No later than 15 days after the
Closing, Seller shall deliver to Buyer such of Seller's contract files, lease
and other title files, production files, well files and other files pertaining
to the ownership and/or operation of the Properties as Buyer may request.
ARTICLE X
Certain Accounting Adjustments.
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Section 10.1. Adjustments. Appropriate adjustments shall be made
between Buyer and Seller so that (a) all expenses (including, without
limitation, all drilling costs, all capital expenditures, and all overhead
charges under applicable operating agreements, and all other overhead charges
actually charged by third parties) which are incurred in the operation of the
Properties after the Effective Date will be borne by Buyer, and all proceeds
(net of applicable production, severance, and similar taxes) from the sale of
oil, gas and/or other minerals produced from the Oil and Gas Properties after
the Effective Date will be received by Buyer, and (b) all expenses which are
incurred in the operation of the Properties before the Effective Date will be
borne by Seller and all proceeds (net of applicable production, severance, and
similar taxes) from the sale of oil, gas and/or other minerals produced
therefrom before the Effective Date will be received by Seller. It is agreed
that, in making such adjustments: (i) oil which was produced from the Oil and
Gas Properties and which was, on the Effective Date, stored in tanks located on
the Oil and Gas Properties (or located elsewhere but used to store oil produced
from the Oil and Gas Properties prior to delivery to oil purchasers) and above
pipeline connections shall be deemed to have been produced before the Effective
Date (it is recognized that such tanks were not gauged on the Effective Date for
the purposes of this Agreement and that determination of the volume of such oil
in storage will be based on the best available data, which may include
estimates), and (ii) ad valorem taxes assessed with respect to a period which
the Effective Date splits shall be prorated based on the number of days in such
period which fall on each side of the Effective Date (with the day on which the
Effective Date falls being counted in the period after the Effective Date), and
(iii) no consideration shall be given to the local, state or federal income tax
liabilities of any party.
Section 10.2. Closing and Post-Closing Accounting Settlements.
(a) At or before Closing, the parties shall determine, based upon the
best information reasonably available to them, the amount of the adjustments
provided for in Section 10.1. If the amount of adjustments so determined which
would result in a credit to Buyer exceed the amount of adjustments so determined
which would result in a credit to Seller, Buyer shall receive a credit, for the
amount of such excess, against the Purchase Price to be paid at Closing, and, if
the converse is true, Buyer shall pay to Seller, at Closing (in addition to
amounts otherwise then owed), the amount of such excess.
(b) On or before 90 days after Closing, Buyer and Seller shall review
any additional information which may then be available pertaining to the
adjustments provided for in Sections 10.1, shall determine if any additional
adjustments (whether the same be made to account for expenses or revenues not
considered in making the adjustments made at Closing, or to correct errors made
in such adjustments) should be made beyond those made at Closing, and shall make
any such adjustments by appropriate payments from Seller to Buyer or from Buyer
to Seller. Following such additional adjustments, no further adjustments shall
be made under this Article X.
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ARTICLE XI
Assumption and Indemnification
Section 11.1. Seller's Indemnification Obligations. Seller shall, on
the date of Closing, agree (and, upon delivery to Buyer of the Assignment, shall
be deemed to have agreed), subject to the limitations and procedures contained
in this Article XI and in Section 15.1, following the Closing, to indemnify and
hold Buyer harmless from and against any and all claims, obligations, actions,
liabilities, damages or expenses (collectively, "Buyer's Losses") (a) resulting
from any misrepresentation or breach of any warranty, covenant or agreement of
Seller contained in this Agreement or any certificate delivered by Seller at the
Closing, or (b) relating to injuries (including death) to persons or damages to
property (including environmental damage), failure to make required payments
under the applicable leases governing the Oil and Gas Properties arising out of
operations prior to the Effective Date, or the obligations of Seller arising
prior to the Effective Date under any of the contracts or agreements assumed by
Buyer pursuant hereto.
Section 11.2. Buyer's Indemnification Obligations. Buyer shall, on the
date of Closing, agree (and, upon delivery to Buyer of the Assignment, shall be
deemed to have agreed), subject to the limitations and procedures contained in
this Article XI and in Section 15.1, following the Closing, to indemnify and
hold Seller harmless from and against any and all claims, obligations, actions,
liabilities, damages, costs or expenses, (collectively, "Seller's Losses") (a)
resulting from any misrepresentation or breach of any warranty, covenant or
agreement of Buyer contained in this Agreement or any certificate delivered by
Buyer at the Closing, or (b) relating to injuries (including death) to persons
or damages to property (including environmental damage), failure to make
required payments under the applicable leases governing the Oil and Gas
Properties arising out of operations after the Effective Date, or the
obligations of Buyer arising after the Effective Date under any of the contracts
or agreements assumed by Buyer pursuant hereto.
Section 11.3. Net Amounts. Any amounts recoverable by any party
pursuant to this Article XI with respect to any Buyer's Loss or Seller's Loss,
as the case may be, shall be increased by any net tax costs to the indemnified
party (taxes incurred with respect to any indemnity payment less tax benefits
resulting from the circumstances serving as the basis for such Buyer's Loss or
Seller's Loss, as the case may be) and shall be decreased by (i) any net tax
benefit to the indenified party (tax benefits less taxes incurred, as calculated
above), and (ii) insurance proceeds or other amounts relating to such Buyer's
Loss or Seller's Loss, as the case may be, paid to such indemnified party by any
person (other than any affiliate of such indemnified party) not a party to this
Agreement.
Section 11.4. Notice of Claim. If indemnification pursuant to Section
11.1 or 11.2 is sought, the party seeking indemnification (the "Indemnitee")
shall give written notice to the indemnifying party of an event giving rise to
the obligation to indemnify, describing in reasonable detail the factual basis
for such claim, and shall allow the indemnifying party to assume and conduct the
defense of the claim or action with counsel reasonably satisfactory to the
Indemnitee, and cooperate with the indemnifying party in the defense thereof;
provided, however, that the omission to give such notice to the indemnifying
party shall not relieve the indemnifying party from any liability which it may
have to the Indemnitee, except to the extent that the indemnifying party is
prejudiced by the failure to give such notice. The Indemnitee shall have the
right to employ separate counsel to represent the Indemnitee if the Indemnitee
is advised by counsel that an actual conflict of interest makes it advisable for
the Indemnitee to be represented by separate counsel and the reasonable expenses
and fees of such separate counsel shall be paid by the indemnifying party.
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Section 11.5. Indemnification Exclusive Remedy. Indemnification
pursuant to the provisions of this Article XI shall be the exclusive remedy of
the parties hereto for any misrepresentation or breach of any warranty, covenant
or agreement contained in this Agreement or in any closing document executed and
delivered pursuant to the provisions hereof or thereof, or any other claim
arising out of the transactions contemplated by this Agreement.
Section 11.6. No Assumption. Notwithstanding anything provided herein
to the contrary, Buyer does not assume any obligation or liability whatsoever
arising out of or relating to the TGas Contracts, to the extent such obligation
or liability is associated with Credit Payments, the Recourse Note, Tax Audits
(as defined in the TGas Contracts), or other tax issues, and Seller hereby
agrees to indemnify and hold Buyer harmless from and against any and all claims,
obligations, actions, liabilities, damages, or expenses, including reasonable
attorney's or consultant's fees and expenses, so arising, whether before or
after Closing.
ARTICLE XII
Casualty Loss
In the event of damage by fire or other casualty to the Properties
after the Effective Date and prior to the Closing, then this Agreement shall
remain in full force and effect, and (unless Buyer and Seller shall otherwise
agree) in such event
(a) as to each such Property so damaged which is an Oil and Gas
Property, then, at Buyer's election, either (i) such Property shall be treated
as if it had an Asserted Defect associated with it and the procedure provided
for in Article 7 shall be applicable thereto, or (B) the Purchase Price will not
be adjusted, and if Seller should be entitled to make any claims under any
insurance policy with respect to such damage, Seller shall, at Seller's
election, either collect (and when collected pay over to Buyer), or assign to
Buyer, such claims, and
(b) as to each such Property which is other than an Oil and Gas
Property, Seller shall, at Seller's election, either collect (and when collected
pay over to Buyer), or assign to Buyer, any and all insurance claims relating to
such loss, and Buyer shall take title to the Property affected by such loss
without reduction of the Purchase Price.
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ARTICLE XIII
Notices
All notices and other communications required under this Agreement
shall (unless otherwise specifically provided herein) be in writing and be
delivered personally, by recognized commercial courier or delivery service
(which provides a receipt), by telecopier (with receipt acknowledged), or by
registered or certified mail (postage prepaid), at the following addresses:
If to Seller: Abraxas Petroleum Corporation
500 N. Loop 1604 East
Suite 100
San Antonio, Texas 78232
Attention: Robert W. Carington
Fax No.: 210-490-8816
If to Buyer: Abraxas Wamsutter L.P.
500 N. Loop 1604 East
Suite 100
San Antonio, Texas 78232
Attention: Robert W. Carington
Fax No.: 210-490-8816
With a copy to: TIFD III-X Inc.
c/o GE Capital Services Structured Finance Group, Inc.
120 Long Ridge Road, Third Floor
Stamford, Connecticut 06927
Attention: Raymond W. Leyden
Fax No.: 203-357-6632
and shall be considered delivered on the date of receipt. Either Buyer or Seller
may specify as its proper address any other post office address within the
continental limits of the United States by giving notice to the other party, in
the manner provided in this Article, at least ten (10) days prior to the
effective date of such change of address.
ARTICLE XIV
Commissions
(a) Seller agrees to indemnify and hold harmless Buyer from and against
any and all claims, obligations, actions, liabilities, losses, damages, costs or
expenses (including court costs and attorneys fees) of any kind or character
arising out of or resulting from any agreement, arrangement or understanding
alleged to have been made by, or on behalf of, Seller with any broker or finder
in connection with this Agreement or the transaction contemplated hereby.
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(b) Buyer agrees to indemnify and hold harmless Seller from and against
any and all claims, obligations, actions, liabilities, losses, damages, costs or
expenses (including court costs and attorneys fees) of any kind or character
arising out of or resulting from any agreement, arrangement or understanding
alleged to have been made by, or on behalf of, Buyer with any broker or finder
in connection with this Agreement or the transaction contemplated hereby.
ARTICLE XV
Miscellaneous Matters
Section 15.1. Survival of Provisions. All representations and
warranties of Seller or Buyer contained in this Agreement, any Schedule or in
any certificate delivered at the Closing shall survive the Closing for a period
of two years from the Closing Date (the "Indemnification Period"). Any claim for
indemnification for a breach of representation or warranty pursuant to this
Agreement must be made prior to the expiration of the Indemnification Period.
Notwithstanding the foregoing, (i) the obligation of each party hereto to
indemnify any other party hereto shall continue after the expiration of the
Indemnification Period with respect to any matter which the party seeking
indemnity hereunder shall have given the other party written notice of as
provided herein prior to the expiration of the Indemnification Period, and (ii)
the obligations of Seller to indemnify Buyer under Section 11.6 of this
Agreement shall continue until the expiration of all applicable state and
federal statutes of limitation that may apply to any party having an interest in
the TGas Contracts.
Section 15.2. Further Assurances. After the Closing, Seller shall
execute and deliver, and shall otherwise cause to be executed and delivered,
from time to time, such further instruments, notices, division orders, transfer
orders and other documents, and do such other and further acts and things, as
may be reasonably necessary to more fully and effectively grant, convey and
assign the Properties to Buyer.
Section 15.3. Binding Effect; Successors and Assigns. The Agreement
shall be binding on the parties hereto and their respective successors and
permitted assigns. Neither party shall have the right to assign its rights under
this Agreement, without the prior written consent of the other party first
having been obtained.
Section 15.4. Imbalances. On the date of Closing (and, upon the
delivery to Buyer of the Assignments), Buyer shall succeed to the position of
Seller with respect to all gas imbalances. As a result of such succession Buyer
shall (i) be entitled to receive any and all benefits, including payments of
proceeds of production in excess of amounts which it would otherwise be entitled
to produce and receive by virtue of ownership of the Oil and Gas Properties,
which Seller would have been entitled to receive by virtue of such positions and
(ii) shall be obligated to suffer any detriments (whether the same be in the
form of obligations to deliver production which would have otherwise been
attributable to its ownership of the Oil and Gas Properties without receiving
full payment therefor, or be in the form of the obligation to make payment in
cash) which Seller would have been obligated to suffer by virtue of such
positions.
Section 15.5. Expenses. Each party shall bear and pay all expenses
incurred by it in connection with the transaction contemplated by this
Agreement.
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Section 15.6. Entire Agreement. This Agreement contains the entire
understanding of the parties hereto with respect to subject matter hereof and
supersedes all prior agreements, understandings, negotiations, and discussions
among the parties with respect to such subject matter. Time is of the essence in
this Agreement.
Section 15.7. Public Statements. Seller and Buyer shall consult with
each other with regard to all publicity and other releases at or prior to
Closing concerning this Agreement and the transactions contemplated hereby and,
except as required by applicable law or the applicable rules or regulations of
any governmental body or stock exchange, neither party shall issue any publicity
or other release without the prior consent of the other party.
Section 15.8. Injunctive Relief. The parties hereto acknowledge and
agree that irreparable damage would occur in the event any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Agreement, and shall be entitled to enforce specifically the provisions
of this Agreement, in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which the parties may be
entitled under this Agreement or at law or in equity.
Section 15.9. Amendments. This Agreement may be amended, modified,
supplemented, restated or discharged (and provisions hereof may be waived) only
by an instrument in writing signed by the party against whom enforcement of the
amendment, modification, supplement, restatement or discharge (or waiver) is
sought.
Section 15.10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
Section 15.11. Counterparts. This Agreement may be executed in
counterparts, all of which are identical and all of which constitute one and the
same instrument. It shall not be necessary for Buyer and Seller to sign the same
counterpart.
27
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Section 15.12. Arbitration. Any dispute arising out of or relating to
this Agreement, any schedule, certificate or other document delivered by any
party in connection with this Agreement or incident to the transactions
contemplated hereby or thereby or the breach, inaccuracy, termination or
validity hereof or thereof or otherwise arising out of or relating to the
transactions contemplated hereby and thereby, or any other agreement among them
or between any of them, whether entered into prior to, on or subsequent to the
date of this Agreement or those arising under any federal, state or local law,
regulation or ordinance, shall be determined by binding arbitration in
accordance with the then current Commercial Arbitration Rules of the American
Arbitration Association. If the amount in controversy in the arbitration exceeds
Two Hundred Fifty Thousand Dollars ($250,000), exclusive of interest, attorneys'
fees and costs, or if a single neutral arbitrator cannot be agreed upon within
thirty (30) calendar days after a dispute has arisen which is to be decided by
arbitration, the arbitration shall be conducted by a panel of three (3) neutral
arbitrators. Otherwise, the arbitration shall be conducted by a single neutral
arbitrator. The parties shall endeavor to select neutral arbitrators by mutual
agreement. If such agreement cannot be reached within thirty (30) calendar days
after a dispute has arisen which is to be decided by arbitration, each party
shall select its own neutral arbitrator within 15 days of the expiration of such
30-day period and the two neutral arbitrators so selected shall select a third
neutral arbitrator within 10 days of the expiration of such 15-day period. The 3
persons thus selected shall be the arbitrators for such arbitration. If three
(3) arbitrators are selected, the arbitrators shall elect a chairperson to
preside at all meetings and hearings. If a dispute is to be resolved by a sole
arbitrator in accordance with the terms hereof, or if the dispute is to be
resolved by a panel of three (3) arbitrators as provided hereinabove, then such
sole arbitrator or the chairperson of such panel, as the case may be, shall be a
member of a state bar engaged in the practice of law in the United States or a
retired member of a state or the federal judiciary in the United States. The
award of the arbitrator(s) shall require a majority of the arbitrators in the
case of a panel of arbitrators, shall be in writing and reasoned, shall be based
on the evidence admitted and the substantive law of the State of Texas and shall
contain an award for each issue and counterclaim. The award shall be made within
thirty (30) days following the close of the final hearing and the filing of any
post hearing briefs authorized by the arbitrator(s). The award of the
arbitrator(s) shall be final and binding on the parties hereto and the subject
matter. Judgment upon the award rendered by the arbitrator(s) may be entered by
any court having jurisdiction. The place of arbitration shall be in Dallas,
Texas. Each party shall be entitled to inspect and obtain a copy of relevant
documents in the possession or control of the other party and to take
depositions of the other parties' employees, agents, representatives and
witnesses (including expert witnesses). All such discovery shall be in
accordance with procedures approved by the arbitrator(s). Unless otherwise
provided in the award, each party shall bear its own costs of discovery. All
discovery shall be expedited, consistent with the nature and complexity of the
claim or dispute and consistent with fairness and justice. The arbitrator(s)
shall have the power to compel any party to comply with discovery requests of
the other parties and to issue binding orders relating to any discovery dispute
which shall be enforceable in the same manner as awards. The arbitrator(s) also
shall have the power to impose sanctions for abuse or frustration of the
arbitration process, including without limitation, the refusal to comply with
orders of the arbitrator(s) relating to discovery and compliance with subpoenas.
Each of the parties hereto hereby irrevocably submits to the jurisdiction of the
courts of the State of Texas for entry of any arbitration decision or to obtain
any preliminary relief which may be necessary and hereby consents to the
enforcement by such courts of any award rendered in such arbitration.
28
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IN WITNESS WHEREOF, this Agreement is executed by the parties hereto on
the date set forth above.
SELLER:
ABRAXAS PETROLEUM CORPORATION
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
BUYER:
ABRAXAS WAMSUTTER L.P.
By: Wamsutter Holdings, Inc.
General Partner
By: ______________________________________
Name: ______________________________________
Title: ______________________________________
29
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EXHIBIT 10.2
PARTNERSHIP AGREEMENT
AGREEMENT OF LIMITED PARTNERSHIP
Abraxas Wamsutter L.P.
Dated as of November 12 , 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Formation of Partnership...................................................1
Section 1.1. Formation...............................................1
Section 1.2. Name....................................................1
Section 1.3. Business................................................1
Section 1.4. Places of Business, Registered Agent and Addresses......2
Section 1.5. Term....................................................2
Section 1.6. Filings.................................................2
ARTICLE II
Certain Definitions and References.........................................3
Section 2.1. Certain Defined Terms...................................3
Section 2.2. References and Construction............................11
ARTICLE III
Capitalization............................................................12
Section 3.1. Capital Contributions of General Partner...............12
Section 3.2. Capital Contributions of Limited Partner...............12
Section 3.3. Request for Additional Capital Contributions
of Limited Partner..............................15
Section 3.4. Reduced Capital Contributions of Limited Partner.......18
Section 3.5. Payments of Capital Contributions......................18
Section 3.6. Non-payment of Capital Contributions...................19
Section 3.7. Interest on and Return of Capital Contributions........21
ARTICLE IV
Allocations and Distributions.............................................21
Section 4.1. Allocation of Costs and Expenses.......................21
Section 4.2. Allocation of Revenues.................................22
Section 4.3. Income Tax Allocations.................................23
Section 4.4. Distributions..........................................25
ARTICLE V
Partnership Property......................................................26
Section 5.1. Title to Partnership Property..........................26
Section 5.2. Execution and Delivery of the Purchase Agreement;
Acquisition of the Assets........................26
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Section 5.3. Additional Acquisitions................................27
Section 5.4. Lease Sales............................................28
Section 5.5. Sales of Production....................................28
Section 5.6. Operations on Partnership Leases.......................29
Section 5.7. Hedge Arrangement......................................30
ARTICLE VI
Management................................................................30
Section 6.1. Power and Authority of General Partner.................30
Section 6.2. Certain Restrictions on General Partner's Power
and Authority...................................30
Section 6.3. Duties and Services of General Partner.................32
Section 6.4. Liability of General Partner...........................33
Section 6.5. Limitations on Indemnification.........................33
Section 6.6. Costs, Expenses and Reimbursement......................34
Section 6.7. Organization Costs.....................................35
Section 6.8. Insurance..............................................35
Section 6.9. Tax Elections..........................................35
Section 6.10. Tax Returns............................................36
Section 6.11. Appointment of Trustee to Receive Payments.............37
ARTICLE VII
Rights and Obligations of Limited Partner.................................37
Section 7.1. Rights of Limited Partner..............................37
Section 7.2. Limitations on Limited Partner.........................37
Section 7.3. Liability of Limited Partner...........................38
Section 7.4. Access of Limited Partner to Data......................38
Section 7.5. Withdrawal and Return of Capital Contribution..........38
ARTICLE VIII
Books, Records, Reports and Bank Accounts.................................39
Section 8.1. Capital Accounts, Books and Records....................39
Section 8.2. Reports................................................41
Section 8.3. Bank Accounts..........................................43
Section 8.4. Information Relating to the Partnership................43
Section 8.5. Certain Notices........................................43
ARTICLE IX
Assignments of Interests and Substitutions................................44
Section 9.1. Assignments by Limited Partner.........................44
Section 9.2. Assignment by General Partner..........................45
Section 9.3. Merger or Consolidation................................45
Section 9.4. Removal of General Partner.............................45
Section 9.5. Rights of General Partner Upon Removal.................46
Section 9.6 Right of First Offer...................................47
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ARTICLE X
Dissolution, Liquidation and Termination..................................48
Section 10.1. Dissolution............................................48
Section 10.2. Withdrawal by General Partner and Reconstitution.......49
Section 10.3. Liquidation and Termination............................50
Section 10.4. Cancellation of Certificate............................52
ARTICLE XI
Representations and Warranties............................................52
Section 11.1. Representations and Warranties of General Partner......52
Section 11.2. Representations and Warranties of Limited Partner......54
ARTICLE XII
Miscellaneous.............................................................55
Section 12.1. Notices................................................55
Section 12.2. Amendments.............................................55
Section 12.3. Partition..............................................55
Section 12.4. Entire Agreement.......................................55
Section 12.5. No Waiver..............................................55
Section 12.6. Applicable Law.........................................55
Section 12.7. Successors and Assigns.................................55
Section 12.8. Exhibits...............................................56
Section 12.9. Survival of Representations and Warranties.............56
Section 12.10. No Third Party Benefit.................................56
Section 12.11. Public Announcements...................................56
Section 12.12. Arbitration............................................56
Section 12.13. Voting Rights..........................................57
Section 12.14. Counterparts...........................................57
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<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP
Abraxas Wamsutter L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement") is made and
entered into this 12th day of November, 1998, by and between Wamsutter Holdings,
Inc., a Wyoming corporation (herein sometimes called the "General Partner"), and
TIFD III-X Inc., a Delaware corporation (herein sometimes called the "Limited
Partner"). In consideration of the mutual covenants and agreements contained
herein, the parties hereto agree as follows:
ARTICLE I
Formation of Partnership
Section I.1. Formation. Subject to the provisions of this Agreement, the
parties hereto do hereby form a limited partnership (the "Partnership") pursuant
to the provisions of the Texas Revised Limited Partnership Act (Article 6132a-1,
Vernon's Texas Civil Statutes) (such Act, as amended from time to time, or any
successor statute or statutes thereto, being called the "Act").
Section I.2. Name. The name of the Partnership shall be Abraxas
Wamsutter L.P. Subject to all applicable laws, the business of the Partnership
shall be conducted in the name of the Partnership unless under the law of some
jurisdiction in which the Partnership does business such business must be
conducted under another name. In such a case, the business of the Partnership in
such jurisdiction may be conducted under such other name or names as the General
Partner shall determine to be necessary so long as it does not affect adversely
the limited liability of the Limited Partner hereunder or jeopardize in any
manner the title to or ownership of any Partnership Leases (as herein defined)
or other assets. The General Partner shall cause to be filed on behalf of the
Partnership such partnership or assumed or fictitious name certificate or
certificates or similar instruments as may from time to time be required by law.
Section I.3. Business. Subject to the other provisions of this
Agreement, the business of the Partnership shall be: (a) to execute, deliver and
perform that certain Purchase and Sale Agreement dated as of November 11, 1998
(the "Purchase Agreement"), by and between Parent (as defined herein), as seller
(and Parent, in its capacity as seller under the Purchase Agreement, is
sometimes referred to herein as "Seller"), and the Partnership, as buyer; (b) to
acquire the Assets (as defined herein) upon the terms and conditions contained
in the Purchase Agreement; (c) to acquire additional Leases (as defined herein);
(d) to hold, maintain, renew, explore, drill, develop and operate the Assets and
such additional Leases; (e) to produce, collect, store, treat, deliver, market,
sell or otherwise dispose of oil, gas and related hydrocarbons and minerals from
the Assets and such additional Leases; (f) to farm-out, sell, abandon and
otherwise dispose of the Assets, additional Leases and other Partnership assets;
(g) to enter into swaps, options, future contracts and other transactions to
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hedge or to otherwise minimize the risk associated with the fluctuation of
prices to be received by the Partnership from the sale of oil, gas and related
hydrocarbons and minerals from the Assets and any additional Leases acquired
pursuant to the terms hereof; and (h) to take all such other actions incidental
to any of the foregoing as the General Partner may determine to be necessary or
appropriate. Notwithstanding the foregoing and any other provision of this
Agreement, the Partnership shall not (i) acquire (A) any additional Leases,
except as expressly provided herein, (B) any carbon-dioxide removal, sulfur
removal or other equipment for the processing or treatment of gas or other
hydrocarbons, whether on or off the Assets or additional Leases acquired
pursuant to the terms hereof (other than equipment which the General Partner
deems necessary or appropriate for the efficient operation of the Assets or
additional Leases acquired pursuant to the terms hereof or the marketing of
hydrocarbons therefrom, which equipment must be acquired as part of and at the
same time as the acquisition of the Assets or an additional Lease or otherwise
in accordance with this Agreement), (C) any refining facilities or (D) any
transportation facilities except pipelines and gathering systems connecting the
Assets or additional Leases acquired pursuant to the terms hereof with other
gathering systems or transmission pipelines, or (ii) engage in the contract
drilling business or any other business except as expressly permitted herein.
Section I.4. Places of Business, Registered Agent and Addresses.
(a) The principal United States office and place of business of the
Partnership and its street address shall be 500 N. Loop 1604 East, Suite 100,
San Antonio, Texas 78232. The General Partner, at any time and from time to
time, may change the location of the Partnership's principal United States
office and place of business as the General Partner shall determine to be
necessary or appropriate, provided notice thereof is concurrently given to the
Limited Partner.
(b) The registered office of the Partnership in Texas shall be 500 N.
Loop 1604 East, Suite 100, San Antonio, Texas 78232, and the registered agent
for service of process on the Partnership shall be the General Partner, a
corporation whose business address is the same as the Partnership's registered
office. The General Partner, at any time and from time to time, may change the
Partnership's registered office or registered agent or both by complying with
the applicable provisions of the Act and giving concurrent notice thereof to the
Limited Partner and may establish, appoint and change additional registered
offices and registered agents of the Partnership in such other states as the
General Partner shall determine to be necessary or advisable.
Section I.5. Term. The Partnership shall be formed and commence upon
the completion of filing for record of an initial certificate of limited
partnership of the Partnership with the Secretary of State of the State of
Texas.
Section I.6. Filings. Upon the request of the General Partner, the
Limited Partner shall promptly execute and deliver all such certificates and
other instruments conforming hereto as shall be necessary for the General
Partner to accomplish all filing, recording, publishing and other acts
appropriate to comply with all requirements for the formation and operation of
the Partnership as a limited partnership under the laws of the State of Texas
and for the qualification or reformation and operation of the Partnership as a
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limited partnership in all other jurisdictions where the Partnership shall
propose to conduct business (including the State of Wyoming). Prior to the
conducting of any business in any jurisdiction, the General Partner shall: (a)
to the full extent necessary to establish limited liability for the Limited
Partner under the laws of such jurisdiction and otherwise to comply with the
laws of such jurisdiction, cause the Partnership to comply with all requirements
for the registration, qualification or reformation of the Partnership to conduct
business as a limited partnership in such jurisdiction and (b) at the request of
the Limited Partner, obtain an opinion of reputable counsel in such jurisdiction
satisfactory in all respects to the Limited Partner as to such registration,
qualification or reformation and as to the limited liability of the Limited
Partner under the laws of such jurisdiction. Thereafter, the General Partner
shall cause the Partnership to continue to comply with all such requirements and
all other requirements necessary to maintain the limited liability of the
Limited Partner in each jurisdiction where the Partnership does business and,
upon timely request of the Limited Partner and within 60 days after the end of
each calendar year commencing with the calendar year ending December 31, 1999,
the General Partner shall furnish to the Limited Partner an opinion or opinions
of legal counsel for the Partnership as to compliance with such requirements and
such limited liability.
ARTICLE II
Certain Definitions and References
Section II.1. Certain Defined Terms. When used in this Agreement, the
following terms shall have the respective meanings assigned to them in this
Section 2.1 or in the sections, subsections or other subdivisions referred to
below:
"Acquisition Cost" shall mean: (a) with respect to the purchase by the
Partnership from the General Partner or its Affiliates of any Lease (exclusive
of a purchase under the Purchase Agreement), the costs as described in clause
(b) immediately below incurred by the General Partner and/or its Affiliates in
acquiring such Lease; and (b) with respect to the acquisition by the Partnership
of any Lease other than those purchased pursuant to the Purchase Agreement or to
clause (a) immediately above, the sum of (i) the price paid or contractually
agreed to be paid for such Lease to the lessor, assignor or grantor of such
Lease, including lease bonuses, advance rentals and other acquisition costs and
(ii) title insurance or examination costs, broker's commissions, attorneys'
fees, due diligence fees, filing fees, recording costs, and transfer and sales
taxes, if any, and other similar costs incurred with respect to such Lease in
connection with its acquisition, but excluding any actual, allocated or imputed
interest expense.
"Act" shall have the meaning assigned to such term in Section 1.1.
"Adjusted Capital Account" shall mean the capital account maintained for
each Partner as of the end of each fiscal year (a) increased by (i) the amount
of any unpaid Capital Contributions unconditionally agreed to be contributed by
such Partner under Article III, if any, and (ii) an amount equal to such
Partner's allocable share of the Partnership's Minimum Gain, as computed on the
last day of such fiscal year in accordance with applicable Treasury Regulations,
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and (b) reduced by (i) the amount of all depletion deductions reasonably
expected to be allocated to such Partner in subsequent years and charged to such
Partner's capital account, (ii) the amount of all losses and deductions
reasonably expected to be allocated to such Partner in subsequent years under
Sections 704(e)(2) and 706(d) of the Internal Revenue Code and Treasury
Regulation ss. 1.751-1(b)(2)(ii), and (iii) the amount of all distributions
reasonably expected to be made to such Partner to the extent they exceed
offsetting increases to such Partner's capital account that are reasonably
expected to occur during (or prior to) the year in which such distributions are
reasonably expected to be made.
"Adjusted Purchase Price" shall have the meaning assigned to it in the
Purchase Agreement.
"Affiliate" shall mean (a) any person directly or indirectly owning,
controlling or holding with power to vote 10% or more of the outstanding voting
securities of the General Partner, (b) any person 10% or more of whose
outstanding voting securities are directly or indirectly owned, controlled or
held with power to vote by the General Partner, (c) any person directly or
indirectly controlling, controlled by or under common control with the General
Partner, (d) any officer, director, member, manager or partner of the General
Partner or any person described in clause (a), (b) or (c) of this paragraph, or
(e) any person related by blood, adoption or marriage to any person referred to
in clause (c) or clause (d) of this paragraph. As used in this Agreement, the
term "person" shall include an individual, an estate, a corporation, a
partnership, a limited liability company, an association or other entity, a
joint stock company and a trust.
"Agreed Rate" shall mean a rate per annum which is equal to the lesser
of (a) a rate which is one percent (1%) above the prime rate of interest of
Bankers Trust Company, New York, New York (or any successor bank), as announced
or published by such bank from time to time (adjusted from time to time to
reflect any changes in such rate determined hereunder) or (b) the maximum rate
from time to time permitted by applicable law.
"Assets" shall mean the "Properties", as such term is defined in the
Purchase Agreement.
"Capital Contributions" shall mean for any Partner at the particular
time in question the aggregate of the dollar amounts of any cash plus the fair
market value of any property contributed to the capital of the Partnership, or,
if the context in which such term is used so indicates, the dollar amounts of
cash or the fair market value of any property agreed to be contributed, or
requested to be contributed, by such Partner to the capital of the Partnership.
A Partner may make a contribution of property to the Partnership only with the
consent of both Partners; further, the fair market value of any such
contribution shall be as agreed upon by both Partners.
"Capital Costs" shall mean (a) all geological and geophysical costs
incurred by the Partnership to the extent any of such costs are incurred in
connection with Partnership wells drilled or proposed to be drilled on the
Assets or any additional Lease acquired pursuant to the terms hereof, (b) all
costs incurred by the Partnership in locating, drilling, completing, equipping,
deepening or sidetracking a well located on the Assets or any additional Lease
acquired pursuant to the terms hereof, including without limitation (i) the
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costs of surveying and staking such well, the costs of any surface damages and
the costs of clearing, coring, testing, logging and evaluating such well, (ii)
the costs of casing, cement and cement services for such well, (iii) the cost of
plugging and abandoning such well (including standard and customary remediation
activities associated therewith) if it is determined that such well would not
produce in commercial quantities and should be abandoned and (iv) all direct
charges and overhead chargeable to the Partnership with respect to such well
under any applicable operating agreement until such time as all operations are
carried out as required by applicable regulations and sound engineering
practices to make such well ready for production, including the installation and
testing of wellhead equipment, or to plug and abandon a dry hole; (c) all costs
incurred by the Partnership in recompleting or plugging back any Partnership
well; (d) all costs incurred by the Partnership in reworking any Partnership
well when the Partnership's reasonably anticipated share of such costs is
greater than $50,000; (e) all costs incurred by the Partnership in locating,
drilling, completing, equipping, deepening or sidetracking any enhanced recovery
producer or injector well (including the costs of all necessary surface
equipment such as steam generators, compressors, water treating facilities,
injection pumps, flow lines and steam lines) or otherwise conducting Enhanced
Recovery Operations; and (f) all costs incurred by the Partnership in
constructing production facilities, pipelines and other facilities necessary to
develop the Assets and additional Leases acquired pursuant to the terms hereof
and produce, collect, store, treat, deliver, market, sell or otherwise dispose
of oil, gas and other hydrocarbons and minerals therefrom; but such term shall
not include any Lease Operating and Production Costs, Acquisition Costs or
Catastrophe Costs.
"Catastrophe Costs" shall mean all costs, expenses and damages incurred
by the Partnership as a result of the failure of the General Partner to cause
the Partnership to obtain or carry the types or amounts of insurance coverage
agreed upon from time to time by the Partners in accordance with Section 6.8,
but such term shall not include (a) the deductible amounts under any insurance
coverage arranged by or on behalf of the Partnership or with respect to its
property or operations to the extent such deductible amounts have been approved
or agreed to by the Limited Partner in accordance with Section 6.8 and (b) any
costs, expenses and damages incurred by the Partnership that are in excess of
the agreed upon insurance coverage maintained in accordance with the terms
hereof.
"Catastrophe Costs Recovery" shall have the meaning assigned to such
term in Section 6.8.
"Contributing Partner" shall have the meaning assigned to such term in
Section 3.6(d).
"Cumulative Payout No. 1" shall mean, with respect to each month, X
minus Y, where:
"X"= the sum of such month's Monthly Payout No. 1 plus all
previous months' Monthly Payout No. 1s; and
"Y" = the sum of (i) the Capital Contribution made by the
Limited Partner pursuant to the terms hereof during such month times the
Payout No. 1 Discount Factor for such month plus (ii) each Capital
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Contribution previously made by the Limited Partner pursuant to the
terms hereof times the Payout No. 1 Discount Factor for the month in
which such Capital Contribution was made.
"Cumulative Payout No. 2" shall mean, with respect to each month, X
minus Y, where:
"X"= the sum of such month's Monthly Payout No. 2 plus all
previous months' Monthly Payout No. 2s; and
"Y" = the sum of (i) the Capital Contribution made by the
Limited Partner pursuant to the terms hereof during such month times the
Payout No. 2 Discount Factor for such month plus (ii) each Capital
Contribution previously made by the Limited Partner pursuant to the
terms hereof times the Payout No. 2 Discount Factor for the month in
which such Capital Contribution was made.
"Cumulative Payout No. 3" shall mean, with respect to each month, X
minus Y, where:
"X"= the sum of such month's Monthly Payout No. 3 plus all
previous months' Monthly Payout No. 3s; and
"Y" = the sum of (i) the Capital Contribution made by the
Limited Partner pursuant to the terms hereof during such month times the
Payout No. 3 Discount Factor for such month plus (ii) each Capital
Contribution previously made by the Limited Partner pursuant to the
terms hereof times the Payout No. 3 Discount Factor for the month in
which such Capital Contribution was made.
"Defaulting Partner" shall have the meaning assigned to such term in
Section 3.6(d).
"Deficit Partner" shall have the meaning assigned to such term in
Section 4.3(i).
"Delivery Date" shall mean the date on which this Agreement has been
fully and unconditionally executed and delivered by each of the parties hereto.
"Depletable Property" shall have the meaning assigned to such term in
Section 4.3(b).
"Enhanced Recovery Operations" shall mean any operations or project
intended to increase the recovery of oil and/or gas from a pool by artificial
means or by the application of energy extrinsic to the pool, which artificial
means or application shall include pressuring, cycling, pressure maintenance,
injection to the pool of a substance or form of energy, or other operations or
projects that would be commonly considered secondary or tertiary operations or
projects, but such term shall not include the injection in a well of a substance
or form of energy for the sole purpose of (a) aiding in the lifting of fluids in
the well, or (b) stimulation of the pool at or near the well by mechanical,
chemical, thermal or explosive means.
"Event of Default" shall have the meaning assigned to such term in
Section 3.6(b).
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"General Partner" shall mean Wamsutter Holdings, Inc., a Wyoming
corporation, in its capacity as general partner of the Partnership and any
person who becomes a substituted general partner of the Partnership pursuant to
the terms hereof.
"GP Monthly Cash Distribution" shall mean, with respect to any month:
(a) the gross proceeds received during such month and
attributable to to any Hedging Transaction multiplied by the GP Sharing
Percentage for such month plus the gross proceeds received during such
month from the sale of hydrocarbons (other than in connection with a
Hedging Transaction) multiplied by the GP Sharing Percentage for such
month; less
(b) Lease Operating and Production Costs paid during such
month multiplied by the GP Sharing Percentage for such month; less
(c) the Management Fee paid during such month multiplied by
the GP Sharing Percentage for such month; less
(d) Hedge Costs paid during such month multiplied by the GP
Sharing Percentage for such month; less
(e) payments made during such month on principal and interest
on Partnership indebtedness multiplied by the GP Sharing Percentage for
such month; less
(f) the amounts which the General Partner reasonably
determines should be added to the Partnership's cash reserves multiplied
by the GP Sharing Percentage (it being agreed that the Partnership's
cash reserves, including all additions thereto, shall not exceed the
remainder of the total Partnership costs and expenses the General
Partner reasonably anticipates will be incurred within a 60 day period
commencing as of the date of the determination of the GP Monthly Cash
Distribution, minus the total Production Sales Proceeds the General
Partner reasonably anticipates will be received by the Partnership
during such period); plus
(g) any cash reserves which the General Partner reasonably
believes are no longer necessary to retain multiplied by the GP Sharing
Percentage for such month; plus
(h) any other funds received by the Partnership during such
month (including insurance proceeds, to the extent not expended by the
Partnership, and the net proceeds derived from the sale by the
Partnership of fixtures and equipment) multiplied by the GP Sharing
Percentage for such month; plus
(i) loan proceeds distributed during such month from
Partnership indebtedness multiplied by the GP Sharing Percentage for
such month.
"GP Sharing Percentage" shall mean, when used with respect to any month,
100% minus the LP Sharing Percentage in effect for such month.
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"Guaranty" shall have the meaning assigned to such term in Section
3.2(d)(x).
"Hedge Costs" shall mean the costs of arranging, modifying or
terminating a Hedging Transaction, or which otherwise arise in respect or as a
result of a Hedging Transaction.
"Hedging Transaction" shall mean any commodity hedging transaction
pertaining to oil, gas and related hydrocarbons and minerals, whether in the
form of a swap agreement, option to acquire or dispose of a futures contract,
whether on an organized commodities exchange or otherwise, or similar type of
financial transaction classified as "notional principal contracts" pursuant to
Treasury Regulation Section 1.512(b)-1(a)(1). Any Hedging Transaction shall be
identified in the books and records of the Partnership as a "hedging
transaction" in the manner and at the times prescribed by Treasury Regulation
ss.1.1221-2(e).
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute or statutes.
"Lease" shall mean a lease, mineral interest, royalty or overriding
royalty, fee right, mineral servitude, license, concession or other right
covering oil, gas and related hydrocarbons (or a contractual right to acquire
such an interest) or an undivided interest therein or portion thereof, together
with all appurtenances, easements, permits, licenses, servitudes and
rights-of-way situated upon or used or held for future use in connection with
such an interest or the exploration, development or operation thereof. A "Lease"
shall also mean and include all rights and interests in all lands and interests
unitized or pooled therewith pursuant to any law, rule, regulation or agreement.
"Lease Operating and Production Costs" shall mean all costs incurred by
the Partnership in connection with the maintenance of the Assets and any
additional Leases acquired pursuant to the terms hereof (except drilling and
similar obligations) and the production and marketing of oil, gas and related
hydrocarbons from completed wells (including wells which have been involved in
Enhanced Recovery Operations) in which the Partnership has an interest pursuant
to this Agreement, including costs incurred for all delay rentals, shut-in
royalties and similar payments, royalties on lost or flared gas or gas used for
which payment is required, labor, fuel, repairs, transportation, supplies,
utility charges, ad valorem, severance, excise and similar taxes, the cost of
reworking any well (except to the extent provided in the definition of Capital
Costs), the costs of plugging and abandoning any well (except to the extent
provided in the definition of Capital Costs) and compensation to well operators,
consultants and others and insurance in connection with the foregoing; but such
term shall not include any Capital Costs, Catastrophe Costs, or Acquisition
Costs.
"Limited Partner" shall mean TIFD III-X Inc., a Delaware corporation,
and any person who becomes a substituted limited partner of the Partnership
pursuant to the terms hereof.
"LP Monthly Cash Distribution" shall mean, with respect to any month:
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(a) the gross proceeds received during such month and
attributable to to any Hedging Transaction multiplied by the LP Sharing
Percentage for such month plus the gross proceeds received during such
month from the sale of hydrocarbons (other than in connection with a
Hedging Transaction) multiplied by the LP Sharing Percentage for such
month; less
(b) Lease Operating and Production Costs paid during such
month multiplied by the LP Sharing Percentage for such month; less
(c) the Management Fee paid during such month multiplied by
the LP Sharing Percentage for such month; less
(d) Hedge Costs paid during such month multiplied by the LP
Sharing Percentage for such month; less
(e) payments made during such month on principal and interest
on Partnership indebtedness multiplied by the LP Sharing Percentage for
such month; less
(f) the amounts which the General Partner reasonably
determines should be added to the Partnership's cash reserves multiplied
by the LP Sharing Percentage (it being agreed that the Partnership's
cash reserves, including all additions thereto, shall not exceed the
remainder of the total Partnership costs and expenses the General
Partner reasonably anticipates will be incurred within a 60 day period
commencing as of the date of the determination of the LP Monthly Cash
Distribution, minus the total Production Sales Proceeds the General
Partner reasonably anticipates will be received by the Partnership
during such period); plus
(g) any cash reserves which the General Partner reasonably
believes are no longer necessary to retain multiplied by the LP Sharing
Percentage for such month; plus
(h) any other funds received by the Partnership during such
month (including insurance proceeds, to the extent not expended by the
Partnership, and the net proceeds derived from the sale by the
Partnership of fixtures and equipment) multiplied by the LP Sharing
Percentage for such month; plus
(i) loan proceeds distributed during such month from
Partnership indebtedness multiplied by the LP Sharing Percentage for
such month.
"LP Sharing Percentage" shall mean, (a) when used with respect to each
month during the Phase I Period, 99%; (b) when used with respect to each month
during the Phase II Period, 65%; (c) when used with respect to each month during
the Phase III Period, 50%; and (d) when used with respect to each month during
the Phase IV Period, 35%.
"Management Fee" shall have the meaning assigned to such term in Section
6.6(b).
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"Minimum Gain" shall mean (a) with respect to Partnership Nonrecourse
Liabilities, the amount of gain that would be realized by the Partnership if it
disposed of (in a taxable transaction) all Partnership properties which are
subject to Partnership Nonrecourse Liabilities in full satisfaction of such
liabilities, computed in accordance with applicable Treasury Regulations and (b)
with respect to each Partner Nonrecourse Debt, the amount of gain that would be
realized by the Partnership if it disposed of (in a taxable transaction) the
Partnership property that is subject to such liability in full satisfaction of
such liability, computed in accordance with applicable Treasury Regulations.
"Monthly Payout No. 1" shall mean, with respect to any month, an amount
equal to the LP Monthly Cash Distribution received by the Limited Partner during
such month times the Payout No. 1 Discount Factor.
"Monthly Payout No. 2" shall mean, with respect to any month, an amount
equal to the LP Monthly Cash Distribution received by the Limited Partner during
such month times the Payout No. 2 Discount Factor.
"Monthly Payout No. 3" shall mean, with respect to any month, an amount
equal to the LP Monthly Cash Distribution received by the Limited Partner during
such month times the Payout No. 3 Discount Factor.
"Organization Costs" shall have the meaning assigned to such term in
Section 6.7.
"Parent" shall mean Abraxas Petroleum Corporation, a Nevada corporation.
"Partner Nonrecourse Debt" shall mean any nonrecourse debt of the
Partnership (or portions thereof) for which any Partner bears the economic risk
of loss.
"Partner Nonrecourse Deductions" shall mean the amount of deductions,
losses and expenses equal to the net increase during the year in Minimum Gain
attributable to a Partner Nonrecourse Debt, reduced (but not below zero) by
proceeds of such Partner Nonrecourse Debt distributed during the year to the
Partners who bear the economic risk of loss for such debt, as determined in
accordance with applicable Treasury Regulations.
"Partners" shall mean the General Partner and the Limited Partner.
"Partnership" shall have the meaning assigned to it in Section 1.1.
"Partnership Nonrecourse Liabilities" shall mean any nonrecourse
liabilities (or portions thereof) of the Partnership for which no Partner bears
the economic risk of loss.
"Payout No. 1 Discount Factor" shall mean, as of any given month, the
value for such month as set forth in Exhibit 2.1--Payout No. 1 Discount Factor.
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"Payout No. 2 Discount Factor" shall mean, as of any given month, the
value for such month as set forth in Exhibit 2.1--Payout No. 2 Discount Factor.
"Payout No. 3 Discount Factor" shall mean, as of any given month, the
value for such month as set forth in Exhibit 2.1--Payout No. 3 Discount Factor.
"Phase I Period" shall mean the period from the Delivery Date until the
end of the first month in which Cumulative Payout No. 1 is greater than or equal
to zero.
"Phase II Period" shall mean the period commencing immediately upon the
expiration of the Phase I Period until the end of the first month in which
Cumulative Payout No. 2 is greater than or equal to zero.
"Phase III Period" shall mean the period commencing immediately upon the
expiration of the Phase II Period until the end of the first month in which
Cumulative Payout No. 3 is greater than or equal to zero.
"Phase IV Period" shall mean the period commencing immediately upon the
expiration of the Phase III Period and ending upon the liquidation and
termination of the Partnership.
"Positive Partner" shall have the meaning assigned to such term in
Section 4.3(i).
"Production Sales Proceeds" shall mean, with respect to any month, the
gross proceeds received by the Partnership from the sale of hydrocarbons
produced from or otherwise attributable to the Properties and any additional
Leases acquired pursuant to the terms hereof.
"Purchase Agreement" shall have the meaning assigned to such term in
Section 1.3.
"Purchase Agreement Closing Date" shall mean the "Closing Date", as such
term is defined in the Purchase Agreement.
"Seller" shall have the meaning assigned to such term in Section 1.3.
"Simulated Basis", "Simulated Gain", "Simulated Depletion" and
"Simulated Loss" shall have the respective meanings assigned to such terms in
Section 8.1(b).
Section 2.2. References and Construction.
(a) All references in this Agreement to articles, sections, subsections
and other subdivisions refer to corresponding articles, sections, subsections
and other subdivisions of this Agreement unless expressly provided otherwise.
(b) Titles appearing at the beginning of any of such subdivisions are
for convenience only and shall not constitute part of such subdivisions and
shall be disregarded in construing the language contained in such subdivisions.
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(c) The words "this Agreement", "this instrument", "herein", "hereof",
"hereby", "hereunder" and words of similar import refer to this Agreement as a
whole and not to any particular subdivision unless expressly so limited.
(d) Words in the singular form shall be construed to include the plural
and vice versa, unless the context otherwise requires.
(e) Examples shall not be construed to limit, expressly or by
implication, the matter they illustrate.
(f) The word "or" is not intended to be exclusive and the word
"includes" and its derivatives means "includes, but is not limited to" and
corresponding derivative expressions.
(g) No consideration shall be given to the fact or presumption that one
party had a greater or lesser hand in drafting this Agreement.
(h) All references herein to $ or dollars shall mean to United States
dollars.
(i) Unless the context otherwise requires or unless otherwise provided
herein, the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments or restatements of such agreement,
instrument or document, provided that nothing contained in this subsection shall
be construed to authorize such renewal, extension, modification, amendment or
restatement.
ARTICLE III
Capitalization
Section III.1. Capital Contributions of General Partner. The General
Partner shall contribute in cash to the Partnership such amounts as shall be
necessary to pay timely the costs and expenses allocated and charged to the
General Partner in Sections 3.3 and 4.1 and elsewhere herein. Such Capital
Contributions shall be paid to the Partnership by the General Partner from time
to time in the appropriate amounts concurrently with each payment to the
Partnership by the Limited Partner of its Capital Contributions or, with respect
to costs allocated solely to the General Partner, when necessary for the
Partnership to pay timely such costs.
Section III.2. Capital Contributions of Limited Partner.
(a) Subject to the provisions of this Section 3.2 and Section 3.5(a) and
except as otherwise provided herein, the Limited Partner shall make a Capital
Contribution to the Partnership in an aggregate amount not to exceed
$59,580,000, which Capital Contribution shall be used exclusively by the
Partnership for the payment of the Limited Partner's allocated share (in
accordance with Section 4.1) of the Adjusted Purchase Price.
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(b) Subject to the provisions of this Section 3.2 and Section 3.5(b) and
except as otherwise provided herein, the Limited Partner shall make a Capital
Contribution to the Partnership in an aggregate amount not to exceed $150,000,
which Capital Contributions shall be used exclusively by the Partnership for the
payment of the Limited Partner's allocated share (in accordance with Section
4.1) of Organization Costs.
(c) Subject to the provisions of this Section 3.2 and Section 3.5(c) and
except as otherwise provided herein, the Limited Partner shall make Capital
Contributions to the Partnership in an aggregate amount not to exceed its
allocated share (in accordance with Section 4.1) of Hedge Costs, which Capital
Contributions shall be used exclusively by the Partnership for such purpose.
(d) Notwithstanding anything to the contrary herein, the obligation of
the Limited Partner to make the Capital Contributions referenced in subsection
(b) above shall be expressly conditioned upon the following:
(i) the Limited Partner shall have determined in its sole
discretion that (A) the Partnership should not exercise its right to
terminate the Purchase Agreement in accordance with the terms thereof
and (B) all conditions precedent to the obligation of the Partnership to
consummate the transactions contemplated under the Purchase Agreement
have been satisfied;
(ii) without limiting paragraph (vi) below, the General
Partner shall have performed its obligations under Section 5.7;
(iii) the Limited Partner shall have received:
(A) an opinion of Cox & Smith Incorporated, or such
other law firm as is reasonably acceptable to the Limited
Partner, dated the Purchase Agreement Closing Date and in
form, scope and content acceptable to the Limited Partner and
covering the matters described in Exhibit 3.2(d)(iii) and such
other matters as the Limited Partner shall reasonably request;
(B) an officers' certificate of the General Partner
dated the Purchase Agreement Closing Date with respect to (1)
the attached articles of incorporation of the General Partner,
and all amendments thereto, (2) the attached bylaws of the
General Partner, and all amendments thereto, (3) the attached
resolutions of the board of directors of the General Partner
authorizing the execution, delivery and performance of all
documents to be executed by the General Partner in connection
with the formation of the Partnership, the execution and
delivery of the Purchase Agreement (both in its capacity as
the general partner of the Partnership and as the seller of
the Assets) and the consummation of the transactions
contemplated hereunder and thereunder, and (4) the incumbency
and specimen signature(s) of the officer(s) of the General
Partner signing the documents to be executed by the General
Partner in connection with the formation of the Partnership,
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the execution and delivery of the Purchase Agreement (both in
its capacity as the general partner of the Partnership and as
the seller of the Assets) and the consummation of the
transactions contemplated hereunder and thereunder;
(C) a tax opinion of Thompson & Knight, P.C., Dallas,
Texas, or such other law firm as is reasonably acceptable to
the Limited Partner, dated the Purchase Agreement Closing Date
and in form, scope and content acceptable to the Limited
Partner;
(D) a partnership formation opinion of Thompson &
Knight, P.C., Dallas, Texas, or such other law firm as is
reasonably acceptable to the Limited Partner, dated the
Purchase Agreement Closing Date and in form, scope and content
acceptable to the Limited Partner;
(E) certificates from appropriate public officials
confirming the existence and good standing of the General
Partner under the laws of the States of Nevada and Texas; and
(F) a certificate of existence confirming the
existence of the Partnership under the laws of the State of
Texas;
(iv) the Partnership shall have qualified to do business in
the State of Wyoming;
(v) all the representations and warranties of the General
Partner contained in this Agreement shall be true and correct in all
material respects as of the date made and (having been deemed to have
been made again on and as of the Purchase Agreement Closing Date in the
same language) shall be true and correct in all material respects on and
as of the Purchase Agreement Closing Date (and the Limited Partner shall
have received a certificate acceptable to it from the General Partner
dated the Purchase Agreement Closing Date to that effect);
(vi) the General Partner shall have performed and complied
with in all material respects all covenants and agreements required by
this Agreement to be performed or complied with by it on or prior to the
Purchase Agreement Closing Date (and the Limited Partner shall have
received a certificate acceptable to it from the General Partner dated
the Purchase Agreement Closing Date to that effect);
(vii) no preliminary or permanent injunction or other order,
decree, or ruling issued by any governmental entity, and no statute,
rule, regulation, or executive order promulgated or enacted by any
governmental entity, shall be in effect which restrains, enjoins,
prohibits or otherwise makes illegal the consummation of the
transactions contemplated under this Agreement or the Purchase
Agreement;
(viii) all consents, approvals, orders, authorizations, and
waivers of, and all declarations, filings, and registrations with,
third parties (including governmental entities) required to be obtained
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or made by or on the part of the parties hereto or to the Purchase
Agreement or otherwise necessary for the consummation of the
transactions contemplated hereunder or under the Purchase Agreement,
shall have been obtained or made and shall be in full force and effect
on and as of the Purchase Agreement Closing Date (excluding consents of
third parties to assignments of the Assets as provided for in the
Purchase Agreement but including the consent of the lenders under
Parent's senior credit facility);
(ix) the Limited Partner shall have received a Phase I
environmental report with respect to the Assets satisfactory to it in
form, scope and content; and
(x) Parent shall have executed and delivered a guaranty in
favor of the Partnership and the Limited Partner substantially in the
form of the instrument attached hereto as Exhibit 3.2(d)(x) in all
material respects (the "Guaranty").
(e) Notwithstanding anything to the contrary herein, the Capital
Contributions referenced in subsections (a), (b) and (c) above shall be the
maximum contribution to the Partnership that the Limited Partner shall be
required to make (unless the Limited Partner otherwise elects as provided in
Section 3.3) and shall be subject to reduction as provided in Section 3.4.
Section III.3. Request for Additional Capital Contributions of Limited
Partner.
(a) Subject to this Section 3.3 and the other terms and provisions
hereof, the General Partner may request additional Capital Contributions from
the Limited Partner to be used exclusively for the payment of its allocated
share (pursuant to Section 4.1) of (i) Capital Costs of the type described in
clause (a) of the definition thereof, (ii) Capital Costs of the type described
in clause (b) of the definition thereof, (iii) Capital Costs of the type
described in clause (c) of the definition thereof, (iv) Capital Costs of the
type described in clause (d) of the definition thereof, (v) Capital Costs of the
type described in clause (e) of the definition thereof, (vi) Capital Costs of
the type described in clause (f) of the definition thereof and (vii) Acquisition
Costs under the circumstances described in Section 5.3. Each of the categories
of expenditures described in clauses (i), (ii), (iii), (iv), (v), (vi) and (vii)
of this Section 3.3(a) may include such contingent amounts as the General
Partner in good faith shall determine to be appropriate under the circumstances.
(b) Requests for additional Capital Contributions pursuant to this
Section 3.3 shall be made by the General Partner and agreed to by the Limited
Partner separately with respect to each of the Capital Costs or Acquisition
Costs specified in subsection (a) above. Requests pursuant to this Section 3.3
shall not be made more often than quarterly each year (i) except for requests
pursuant to clause (vii) of subsection (a) above, (ii) except in the event the
request is attributable to a proposal from an unrelated third party or (iii)
unless an emergency or some other urgent need for funds exist outside of the
reasonable control of the General Partner. Payments of any additional Capital
Contributions agreed to be made by the Limited Partner pursuant to this Section
3.3 shall be requested by the General Partner and made by the Limited Partner in
the manner provided for in Section 3.5(d).
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(c) Notice of any request for additional Capital Contributions made by
the General Partner shall be in writing and sent to the Limited Partner at its
address as provided in Section 12.1. With respect to the category of costs
described in clauses (i), (ii), (iii), (iv), (v) and (vi) of Section 3.3(a),
each request shall cover all of the Capital Costs intended to be incurred during
the next three months (and with respect to any Partnership well or Enhanced
Recovery Operation or facility, the costs estimated to be incurred in connection
with such well or operation or facility). With respect to the category of costs
described in clause (vii) of Section 3.3(a), each request shall contain the
information specified in Section 5.3. Each such request shall also set forth (i)
the date by which the Limited Partner must elect in writing to make the
requested additional Capital Contributions, which date shall not be less than 30
days from the date the General Partner mails or sends such request, unless a
shorter period is provided to the General Partner under any applicable
"authority for expenditure" submitted by an operator other than the General
Partner or an Affiliate, in which event such shorter period shall also be
applicable to the election period of the Limited Partner (provided that in no
event shall such shorter period be less than 15 days), (ii) the purpose or
purposes for which the proceeds of the requested additional Capital
Contributions are to be used, (iii) to the extent practicable, a summary of the
pertinent geological data relating to each well or operation with respect to
which the proceeds that are requested are to be expended and financial
projections with respect to the expenditure of such additional Capital
Contributions and the revenue projected to be received therefrom and (iv) a
summary of the action that the General Partner anticipates it will take under
Section 3.3(d) and any applicable operating agreement if the Limited Partner
does not elect to make such requested additional Capital Contributions. In
connection with any request pertaining to an Enhanced Recovery Operation, the
General Partner shall endeavor to confine such request to the extent possible in
accordance with generally accepted industry standards to those matters or items
which should be conducted in conjunction with each other. Thereafter, the
General Partner shall promptly furnish to the Limited Partner such additional
information concerning the use and application of the requested additional
Capital Contributions as the Limited Partner shall reasonably request. In the
event the Limited Partner does not elect to pay all of the categories of
requested additional Capital Contributions (or operations or acquisitions within
a given category), it may elect to pay all of the Capital Contributions
requested to be used for any of the remaining categories of costs designated in
the General Partner's request as provided above (or, as to a given category, the
costs associated with any other operation or acquisition within such category).
The General Partner shall not use any Capital Contributions received from the
Limited Partner pursuant to this Section 3.3 and designated for payment of one
category of costs to pay any other category of costs.
(d) If the Limited Partner declines to make any additional Capital
Contributions (or any part thereof) requested by the General Partner or fails to
give timely notice to the General Partner pursuant to a request for additional
Capital Contributions made pursuant to Section 3.3(a), the General Partner may
elect to take any action specified in paragraphs (1) through (6) below with
respect to each Lease, Partnership well, operation or project to which the
request pertains, if appropriate:
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(1) With respect to the acquisition of Leases pursuant to
Section 5.3, the General Partner or its Affiliates may purchase or
retain for its or their own account the Leases not acquired by the
Partnership.
(2) The General Partner may cause the Partnership (to the
extent it can do so under any applicable operating agreement) to abandon
the operation or project, in which event all costs (if any) thereafter
incurred in abandoning the operation or project shall be borne by the
Partnership.
(3) The General Partner may cause the Partnership to sell,
farm-out or otherwise dispose of the well or Lease (or the applicable
part thereof) to which such operation or project pertains to any person;
provided, however, that no such sale, farm-out or other disposition may
be made to the General Partner or any Affiliate thereof without the
prior written consent of the Limited Partner.
(4) In the event a well or Lease to which such proposed
operation or project pertains is subject to an operating agreement to
which one or more third persons (which are not Affiliates of the General
Partner) are parties, the General Partner may cause the Partnership to
elect not to participate in the proposed operation and to assume the
status of a "non-consenting party" under such operating agreement;
provided, however, that neither the General Partner nor any of its
Affiliates shall be permitted to pay or shall pay the Partnership's
non-consenting share of costs or expenses or any part thereof with
respect to such operation or project under such operating agreement.
(5) With respect to any well, the General Partner may pay the
requested additional Capital Contributions the Limited Partner declined
to pay, and the amount so paid by the General Partner with respect to
such well shall be credited to a separate account, which separate
account shall be charged and credited as follows:
(x) Subject to subparagraph (y) of this Section
3.3(d)(5), all of the Limited Partner's share of costs and
expenses with respect to such well shall be charged to such
separate account, and such separate account shall be credited
with the Limited Partner's share of revenues from such well
(after deducting all production, severance, excise and similar
taxes relating thereto). Until the total amount credited to
such separate account equals the amount specified in
subparagraph (y) of this Section 3.3(d)(5) with respect to
such well, the General Partner shall be allocated all of the
costs and expenses charged to such separate account, and the
Limited Partner shall be deemed to have relinquished to the
General Partner, and the General Partner shall have allocated
to it and be entitled to receive, all of the revenues credited
to such separate account.
(y) If, as and when the total amount of revenues
received by and credited and allocated to the General Partner
under subparagraph (x) of this Section 3.3(d)(5) shall equal
the sum of the following to the extent they are appropriate:
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a. 300% of the amount charged to such
separate account for Capital Costs; and
b. 100% of the amount charged to such
separate account for Lease Operating and Production
Costs;
no further amounts shall be charged or credited to such
separate account, and the Limited Partner's share of all
revenues and costs and expenses thereafter arising or accruing
with respect to such well shall be allocated, charged and
credited to the Limited Partner.
(6) The General Partner may take such other actions as may be
mutually agreed upon by the Partners.
Section III.4. Reduced Capital Contributions of Limited Partner. In the
event the Partnership or the General Partner properly retains a portion of the
Limited Partner's share of Partnership revenues for the purpose of paying any
Acquisition Costs, Capital Costs, Hedge Costs, or Organization Costs allocated
to the Limited Partner hereunder in accordance with Section 4.4, the amount so
retained and not distributed shall reduce pro tanto the amount of Capital
Contributions the Limited Partner is required to thereafter make.
Section III.5. Payments of Capital Contributions.
(a) The Limited Partner shall pay the Capital Contribution referenced in
Section 3.2(a) on the Delivery Date and, if and to the extent the Partnership
owes the Seller an amount under Article X of the Purchase Agreement as a
post-closing adjustment, on the date on which such post-closing adjustment is
due under the Purchase Agreement.
(b) The Limited Partner shall pay the Capital Contributions referenced
in Section 3.2(b) within five business days of the Limited Partner's receipt of
a request from the General Partner for such purpose.
(c) The Limited Partner shall pay the Capital Contributions referenced
in Section 3.2(c) promptly after receipt of a request from the General Partner
for such purpose.
(d) Except as otherwise provided in subsections (a), (b) and (c) above,
the Limited Partner shall pay its Capital Contributions monthly upon request by
the General Partner in such amounts as are required to pay its share of all
costs and expenses properly allocated to it hereunder. The General Partner may
request on a monthly basis additional payments of the Capital Contributions
agreed to be made by the Limited Partner for the Limited Partner's share of (i)
all costs and expenses estimated to have been and/or to be incurred by the
Partnership during that calendar month except those for which advances have
previously been made or for which payment will be made from another source and
(ii) those costs and expenses estimated to be incurred by the Partnership during
the next succeeding calendar month. Each monthly request for payment shall be
adjusted to the extent the Limited Partners' cumulative share of actual
18
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Partnership disbursements for the preceding calendar month's costs and expenses
is either greater or less than the amounts previously contributed by the Limited
Partner for such purpose. Any request for payment by the Limited Partner of
Capital Contributions shall be in writing and shall set forth (1) the type,
nature or items of Partnership costs or expenses for which such payment will be
used by the Partnership, including without limitation a division of the costs
and expenses as contemplated in clauses (i) and (ii) of this Section 3.5(d) and
the adjustment referred to in this Section 3.5(d), (2) the net amount of the
Capital Contributions to be paid by the Limited Partner and (3) the date by
which payment of such Capital Contributions shall be received, which shall not
be less than five business days from the date the notice is received by the
Limited Partner.
(e) Payments by the Limited Partner of its Capital Contributions shall
be made by wire transfer of immediately available funds to the Partnership's
account as designated by the General Partner by notice to the Limited Partner
pursuant to Section 12.1.
(f) Any additional Capital Contributions agreed to be made by the
Limited Partner pursuant to Section 3.3 may be requested only during the period
commencing on the date they were originally requested by the General Partner
under Section 3.3 and ending three months thereafter with respect to Capital
Contributions to be used to pay Acquisition Costs and six months thereafter with
respect to Capital Contributions to be used to pay Capital Costs and shall only
be requested for and expended on the respective purposes for which they were
agreed to be made.
Section III.6. Non-payment of Capital Contributions.
(a) Except as otherwise provided in the following sentence, the
Partnership shall have the right to pursue the remedies described in this
Section 3.6 and any remedy existing at law or in equity for the collection of
the unpaid amount of the Capital Contributions agreed to be made in Sections 3.1
and 3.2 or hereafter agreed to be made in accordance with Section 3.3, including
without limitation the prosecution of a suit against a defaulting Partner. In
the event of a default by a Partner of its obligation to make Capital
Contributions with respect to its allocable share hereunder of Hedge Costs, the
provisions of subsection (d) below shall be the exclusive remedy of the
Partnership and the other Partner.
(b) In the event that the Limited Partner fails or refuses to make when
due its share of Capital Contributions, the General Partner shall be entitled
(but shall not be obligated) to make such Capital Contributions to the
Partnership which the Limited Partner is obligated to make and the amount so
advanced shall be treated as a loan to the Limited Partner and shall bear
interest from the date of such advance at a rate equal to the Agreed Rate. The
General Partner shall notify the Limited Partner of any such advance and request
payment by the Limited Partner of the amount so advanced, together with interest
thereon from the date of the advance. If the Limited Partner fails or refuses to
pay to the General Partner the amount so advanced, together with interest
thereon from the date of the advance, and if such failure or refusal persists
for a period of 30 days following notice from the General Partner to the Limited
Partner (such occurrence being called herein an "Event of Default"), the General
Partner shall be entitled to proceed under this Section 3.6(b). In addition to
the rights in Section 3.6(a), the Limited Partner hereby grants to the
Partnership a lien upon and security interest in the Limited Partner's interest
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in the Partnership and in or to all assets attributable to and proceeds of and
from such interest in the Partnership to secure the payment of contributions
required under this Agreement, and authorizes the General Partner, upon the
occurrence of an Event of Default, if it elects to proceed under this
alternative, to foreclose such lien or security interest in any manner provided
for by the laws of the State of Texas for the foreclosure of such lien or
security interest (including without limitation the exercise of the rights of a
secured party under the Texas Uniform Commercial Code). If the General Partner
elects this alternative, the Limited Partner shall be liable for all costs and
expenses of the General Partner in instituting and prosecuting such suit or
foreclosing such lien or security interest, including all reasonable attorneys'
fees expended in connection therewith. The Limited Partner hereby agrees that
the General Partner may file one or more financing statements with respect to
the security interest granted hereby in order to perfect such security interest,
and the Limited Partner hereby agrees to execute such financing statements at
the request of the General Partner. The Limited Partner further hereby appoints
the General Partner as its agent and attorney-in-fact for the purpose of signing
and filing any such financing statements, which appointment is coupled with an
interest and expressly made irrevocable. In the event of a non-judicial
foreclosure, the proceeds of the disposition of the Partnership interest of the
Limited Partner shall be applied as follows: (i) first, to the reasonable
expenses incurred by the Partnership in collecting such proceeds; and (ii) next,
to the satisfaction of the portion of the Limited Partner's contribution then
due. The Limited Partner shall be liable for any deficiency, and the General
Partner shall account to the Limited Partner for any surplus. Any purchaser of
the Limited Partner's interest in the Partnership shall assume the obligations
of the Limited Partner under this Agreement and shall succeed to the right of
the Limited Partner as to the allocation of profits and losses of, and as to
distributions from, the Partnership thereafter. The defaulting Limited Partner
hereby grants the General Partner an irrevocable special power of attorney,
coupled with an interest, which shall survive the dissolution, bankruptcy, or
legal disability of the Limited Partner, to take all actions necessary on its
behalf to sell, assign or transfer the Partnership interest of the Limited
Partner to such person or persons as shall acquire such Partnership interest as
provided in this Section 3.6(b) should an Event of Default be deemed to have
occurred with respect to the Limited Partner. In the event that the General
Partner elects to foreclose upon the Limited Partner's interest in the
Partnership, the Partners agree that 30 days prior notice shall be reasonable
notice of any proposed public or private foreclosure sale. Notwithstanding the
foregoing, the General Partner shall not foreclose upon the interest of the
Limited Partner in the Partnership if the Event of Default giving rise to the
exercise of remedies under this Section 3.6 arises out of a bona fide dispute
regarding the interpretation or implementation of this Agreement.
(c) The Partnership may retain any revenues otherwise distributable to
the Limited Partner pursuant to this Agreement in an amount equal to the amount
the Limited Partner failed or refused to contribute as required pursuant to the
terms of this Agreement, together with interest on such past-due amounts at a
rate equal to the Agreed Rate. Any amount so withheld shall be deemed, for all
purposes of this Agreement, to have been distributed to the Limited Partner and,
other than that portion of such amounts representing interest, be deemed to have
been recontributed by the Limited Partner to the capital of the Partnership for
the purposes for which contributions were initially requested. If any dispute as
to whether an Event of Default existed is resolved in favor of the Limited
20
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Partner, then the General Partner shall pay to the Partnership for distribution
to the Limited Partner an amount equal to any amounts wrongly paid by the
Limited Partner to the Partnership which should have instead been paid to the
Partnership by the General Partner, or any amounts distributed by the
Partnership to the General Partner instead of the Limited Partner, in connection
with such Event of Default together with interest thereon at a rate equal to the
Agreed Rate, and all costs and expenses of the Limited Partner in resolving such
dispute, including all attorneys' fees expended in connection therewith. The
General Partner shall give notice of its election of the alternatives listed
above to the Limited Partner, and if the General Partner elects the alternative
provided under Section 3.6(a) and/or Section 3.6(b), the General Partner shall
be free at any time also to proceed under this Section 3.6(c).
(d0 If a Partner (the "Defaulting Partner") fails or refuses to make
Capital Contributions to the Partnership hereunder when due to pay its allocable
share hereunder of Hedge Costs and the other Partner (the "Contributing
Partner") in the Defaulting Partner's stead makes such Capital Contributions to
the Partnership, then the terms and provisions of this Section 3.6(d) shall be
operative. Specifically, in the instance described above, the Contributing
Partner may treat the payment by it of the Defaulting Partner's Capital
Contributions as Capital Contributions from the Contributing Partner, in which
case the Contributing Partner shall be entitled to receive all of the
distributions that would otherwise be paid to the Defaulting Partner hereunder
until that point in time at which the Contributing Partner has received from
such distributions an amount equal to 300% of the amount of the Capital
Contributions made by the Contributing Partner in the Defaulting Partner's
stead; provided, however, that if this option is elected, the Defaulting
Partner's share of the Hedge Costs paid with such Capital Contributions, and any
deductions or losses relating thereto for state or federal income tax purposes,
shall be allocated to the Contributing Partner; and provided further, that the
Defaulting Partner's share of Partnership revenues, and any income or gain
relating thereto for state or federal income tax purposes, shall be allocated to
the Contributing Partner until the revenues so allocated equal the distributions
to be made to the Contributing Partner under this paragraph (ii).
Section III.7. Interest on and Return of Capital Contributions.
(a) No interest shall accrue on any contributions to the capital of the
Partnership; however, all interest which accrues on Partnership funds shall be
allocated and credited to the Partners in accordance with Section 4.2.
(b) No Partner shall have the right to withdraw or be repaid any capital
contributed by such Partner except (a) as provided in Sections 10.2 and 10.3 or
(b) in the instance when the Partnership receives a return of cash funds under
the Purchase Agreement due to an adjustment to the Adjusted Purchase Price (in
which event the General Partner shall cause the Partnership to refund
immediately to the Limited Partner its allocable share of such cash funds).
ARTICLE IV
Allocations and Distributions
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Section IV.1. Allocation of Costs and Expenses. Except as provided in
Sections 3.3 and 3.6, all costs and expenses of the Partnership shall be
allocated and charged to the Partners as follows:
(a) All Catastrophe Costs incurred by the Partnership shall be allocated
100% to the General Partner.
(b) The Adjusted Purchase Price shall be allocated 1% to the General
Partner and 99% to the Limited Partner.
(c) All other costs and expenses of the Partnership not specifically
allocated above shall be allocated (i) to the General Partner in accordance with
its GP Sharing Percentage for the month in which such costs and expenses are
paid and (ii) to the Limited Partner in accordance with its LP Sharing
Percentage for the month in which such costs and expenses are paid.
Section IV.2. Allocation of Revenues.
(a0 Except as provided in Sections 3.3 and 3.6, all revenues of the
Partnership (which shall not include Capital Contributions and loans to the
Partnership) shall be allocated and credited to the Partners as follows:
(i) Insurance proceeds, to the extent not otherwise expended
by the Partnership to preserve, protect or replace Partnership property
in the event of an accident or other occurrence or to pay Partnership
liabilities or other obligations arising from an accident or other
occurrence, shall be allocated between the Partners in the same manner
as the revenues from the sale of the property to which such insurance
proceeds related would be allocated under this Section 4.2. The proceeds
of any Catastrophe Costs Recovery shall be allocated 100% to the General
Partner.
(ii) All revenues used to repay any principal, interest or
other amounts owing with respect to any Partnership borrowings or
indebtedness shall be allocated to the Partners in the same proportions
as the costs and expenses paid with such borrowings or indebtedness were
allocated to the Partners (and, with respect to any indebtedness to
which any property acquired by the Partnership is subject at the time of
its acquisition, in the same proportions as costs are allocated under
Section 4.1(b) at the time such property is acquired by the
Partnership).
(iii) After making the allocation provided for in Section
4.2(a)(ii) and taking into account the revenues allocated therein, all
additional revenues resulting from the sale or other disposition of
Depletable Property (as defined in Section 4.3(b)) shall be allocated to
the Partners in the same percentages as the costs of the property sold
were allocated, to the extent such revenues constitute a recovery of
Simulated Basis of such Depletable Property, up to an amount equal to
the Partnership's Simulated Basis in such property at the time of such
sale or disposition. Thereafter, revenues resulting from any such sale
or disposition shall be allocated to the Partners in a manner which will
22
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cause the aggregate of all revenues allocated to the Partners from such
sale or disposition (to the extent possible) to equal the amounts which
would have been allocated under Section 4.2(a)(iv) in the absence of
this Section 4.2(a)(iii).
(iv) All other revenues of the Partnership not specifically
allocated above shall be allocated (A) to the General Partner in
accordance with its GP Sharing Percentage for the month in which such
revenues are received and (B) to the Limited Partner in accordance with
its LP Sharing Percentage for the month in which such revenues are
received.
(b) All dry hole and bottom hole and similar contributions shall not be
considered to be revenues hereunder but shall be applied to reduce the Capital
Costs of the respective wells to which they relate.
Section IV.3. Income Tax Allocations. Except as otherwise provided
herein, for purposes of any applicable federal, state or local income tax law,
rule or regulation items of income, gain, deduction, loss, credit and amount
realized shall be allocated to the Partners as follows:
(a) Income from the sale of oil or gas production and any credits, if
any, allowed by Section 29 of the Internal Revenue Code relating thereto shall
be allocated in the same manner as revenue therefrom is allocated and credited
pursuant to Section 4.2.
(b) Cost and percentage depletion deductions and the gain or loss on the
sale or other disposition of property the production from which is subject to
depletion (herein sometimes called "Depletable Property") shall be computed
separately by the Partners rather than the Partnership. For purposes of Section
613A(c)(7)(D) of the Internal Revenue Code, the Partnership's adjusted basis in
each Depletable Property shall be allocated to the Partners in proportion to
each Partner's respective share of the costs and expenses which entered into the
Partnership's adjusted basis for each Depletable Property, and the amount
realized on the sale or other disposition of each Depletable Property shall be
allocated to the Partners in proportion to each Partner's respective share of
the revenue from the sale or other disposition of such property provided for in
Section 4.2(a)(iii) or Section 4.2(a)(iv), as applicable. For purposes of
allocating amounts realized upon any such sale or disposition which are deemed
to be received for federal income tax purposes and are attributable to
Partnership indebtedness or indebtedness to which the Depletable Property is
subject at the time of such sale or disposition, such amounts shall be allocated
in the same manner as Partnership revenues used for the repayment of such
indebtedness would have been allocated under Section 4.2(a)(ii).
(c) Items of deduction, loss and credit not specifically provided for
above (other than loss from the sale or other disposition of Partnership
property), including depreciation, cost recovery and amortization deductions,
shall be allocated to the Partners in the same manner that the costs and
expenses of the Partnership that gave rise to such items of deduction, loss and
credit were allocated pursuant to Section 4.1.
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(d0 Gain from the sale or other disposition of Partnership property that
is not specifically provided for above shall be allocated to the Partners in a
manner which reflects each Partner's allocable share of the revenue from the
sale of the Partnership property provided for in Section 4.2, and loss from the
sale or other disposition of Partnership property that is not specifically
provided for above shall be allocated to the Partners in a manner which reflects
each Partner's allocable share of the costs and expenses of the Partnership
property provided for in Section 4.1.
(e) All recapture of income tax deductions resulting from the sale or
other disposition of Partnership property shall, to the maximum extent possible,
be allocated to the Partner to whom the deduction that gave rise to such
recapture was allocated hereunder to the extent that such Partner is allocated
any gain from the sale or other disposition of such property.
(f) Income resulting from the Partnership's receipt of dry hole, bottom
hole or similar contributions shall be allocated in the same manner as the costs
to which they were applied were allocated.
(g) Any other items of Partnership income or gain not specifically
provided for above shall be allocated in the same manner as the revenue that
resulted in such income or gain is allocated and credited pursuant to Section
4.2.
(h) Notwithstanding any of the foregoing provisions of this Section 4.3
to the contrary:
(i) If during any fiscal year of the Partnership there is a
net increase in Minimum Gain attributable to a Partner Nonrecourse Debt
that gives rise to Partner Nonrecourse Deductions, each Partner bearing
the economic risk of loss for such Partner Nonrecourse Debt shall be
allocated items of Partnership deductions and losses for such year
(consisting first of cost recovery or depreciation deductions with
respect to property that is subject to such Partner Nonrecourse Debt and
then, if necessary, a pro rata portion of the Partnership's other items
of deductions and losses, with any remainder being treated as an
increase in Minimum Gain attributable to Partner Nonrecourse Debt in the
subsequent year) equal to such Partner's share of Partner Nonrecourse
Deductions, as determined in accordance with applicable Treasury
Regulations.
(ii) If for any fiscal year of the Partnership there is a net
decrease in Minimum Gain attributable to Partnership Nonrecourse
Liabilities, each Partner shall be allocated items of Partnership income
and gain for such year (consisting first of gain recognized, including
Simulated Gain, from the disposition of Partnership property subject to
one or more Partnership Nonrecourse Liabilities and then, if necessary,
a pro rata portion of the Partnership's other items of income and gain,
and if necessary, for subsequent years) equal to such Partner's share of
such net decrease (except to the extent such Partner's share of such net
decrease is caused by a change in debt structure with such Partner
commencing to bear the economic risk of loss as to all or part of any
Partnership Nonrecourse Liability or by such Partner contributing
capital to the Partnership that the Partnership uses to repay a
Partnership Nonrecourse Liability), as determined in accordance with
applicable Treasury Regulations.
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(iii) If for any fiscal year of the Partnership there is a net
decrease in Minimum Gain attributable to a Partner Nonrecourse Debt,
each Partner shall be allocated items of Partnership income and gain for
such year (consisting first of gain recognized, including Simulated
Gain, from the disposition of Partnership property subject to Partner
Nonrecourse Debt, and then, if necessary, a pro rata portion of the
Partnership's other items of income and gain, and if necessary, for
subsequent years) equal to such Partner's share of such net decrease
(except to the extent such Partner's share of such net decrease is
caused by a change in debt structure or by the Partnership's use of
capital contributed by such Partner to repay Partner Nonrecourse Debt)
as determined in accordance with applicable Treasury Regulations.
(i) The General Partner shall use all reasonable efforts to prevent any
allocation or distribution from causing a negative balance in the Limited
Partner's Adjusted Capital Account. Consistent therewith, and notwithstanding
any of the foregoing provisions of this Section 4.3 to the contrary, if for any
fiscal year of the Partnership the allocation of any loss or deduction (net of
any income or gain) to any Partner would cause or increase a negative balance in
such Partner's Adjusted Capital Account as of the end of such fiscal year (the
"Deficit Partner") after taking into account the provisions of subsection (h) of
this Section 4.3, only the amount of such loss or deduction that reduces the
balance to zero shall be allocated to such Deficit Partner and the remaining
loss or deduction shall be allocated to the Partner whose Adjusted Capital
Account has a positive balance remaining at such time (the "Positive Partner").
After any such allocation, any Partnership income or gain (including Simulated
Gain) that would otherwise be allocated to the Deficit Partner shall be
allocated instead to the Positive Partner up to an amount equal to the
Partnership loss or deduction allocated to the Positive Partner under the
preceding sentence; provided, however, that no allocation of income or gain
realized shall be made under this sentence if the effect of such allocation
would be to cause the Adjusted Capital Account of the Deficit Partner to be less
than zero. If, after taking into account the allocation in the first sentence of
this Section 4.3(i), the Adjusted Capital Account balance of the Deficit Partner
remains less than zero at the end of a fiscal year, a pro rata portion of each
item of Partnership income or gain (including Simulated Gain) otherwise
allocable to the Positive Partners for such fiscal year (or if there is no such
income or gain allocable to the Positive Partners for such fiscal year, all such
income or gain (including Simulated Gain) so allocable in the succeeding fiscal
year or years) shall be allocated to the Deficit Partner in an amount necessary
to cause its Adjusted Capital Account balance to equal zero; provided, that no
allocation under this sentence shall have the effect of causing the Positive
Partner's Adjusted Capital Account to be less than zero. After any such
allocation, any Partnership gain (including Simulated Gain) resulting from the
sale or other disposition of Partnership property that would otherwise be
allocated to the Deficit Partner for any fiscal year under this Section 4.3
shall be allocated instead to the Positive Partner until the amount of gain so
allocated equals the amount of gain (including Simulated Gain) previously
allocated to such Deficit Partner under the preceding sentence of this Section
4.3(i); provided, however, that no allocation of gain (including Simulated Gain)
shall be made under this sentence if the effect of such allocation would be to
cause the Adjusted Capital Account of a Deficit Partner to be less than zero.
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Section IV.4. Distributions.
(a) Within five business days after the end of each month, the General
Partner shall cause the Partnership to make a distribution (i) to the Limited
Partner of its LP Monthly Cash Distribution for such month and (ii) to the
General Partner of its GP Monthly Cash Distribution for such month or of its
allocable share hereunder of any Catastrophe Costs Recovery received during such
month.
(b) Payment of all distributions made by the Partnership to the Limited
Partner shall be made by wire transfer of immediately available funds in
accordance with such written instructions to the General Partner as may be
provided by the Limited Partner from time to time.
(c) Notwithstanding any provision contained in this Agreement to the
contrary, (i) unless the Limited Partner otherwise consents in writing or
defaults in the payment of any Capital Contributions previously agreed to be
made by it, the General Partner shall not be entitled to cause the Partnership
to retain any of the Limited Partner's share of Partnership revenues for the
purpose of paying (directly or indirectly) any Acquisition Costs, Capital Costs,
Hedge Costs, or Organization Costs, or (ii) the Partnership may retain such
insurance proceeds and other amounts as the General Partner shall reasonably
determine are necessary to pay Partnership liabilities and expenses upon the
occurrence of an accident (e.g., a blowout), catastrophe or similar event (and,
in connection therewith, to restore, preserve or protect Partnership property)
or to comply with all applicable environmental laws, ordinances, rules and
regulations.
(d) Nothing contained in this Section 4.4 shall relieve the General
Partner from its obligation to bear 100% of Catastrophe Costs pursuant to
Section 4.1(a).
(e) All distributions in liquidation of a Partner's interest in the
Partnership shall be made in accordance with Section 10.3.
ARTICLE V
Partnership Property
Section V.1. Title to Partnership Property.
(a) All property owned by the Partnership, whether real or personal,
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually, shall have any ownership of such property.
The Partnership shall hold all of its assets in the name of the Partnership. The
General Partner shall promptly take all such action as it shall deem necessary
or appropriate, or as may be required by law, to perfect and preserve the
ownership interest of the Partnership in all Leases, and (if requested by the
Limited Partner) upon recordation of title to a Lease shall promptly supply the
Limited Partner with a copy of such recorded title.
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(b) Prior to drilling a Partnership well on any Lease, the General
Partner shall cause (or determine that an operator has caused) to be done such
title examination and title curative work as the General Partner (or operator)
shall determine to be necessary or appropriate with respect to such Lease;
provided, however, that no well shall be drilled until title to the drill site
shall have been examined and approved by the examining attorney or until any
unsatisfied title requirements shall have been waived by the General Partner (or
operator).
Section V.2. Execution and Delivery of the Purchase Agreement;
Acquisition of the Assets. Immediately after the execution and delivery of this
Agreement by the parties hereto, the General Partner is authorized to, and
shall, execute the Purchase Agreement on behalf of the Partnership, provided,
the Purchase Agreement is substantially in the form of the version submitted to
the Partners as the final draft in all material respects. In the event the
Purchase Agreement is executed and delivered by the General Partner on behalf of
the Partnership in accordance with the immediately preceding sentence, the
General Partner shall cause the Partnership to consummate the acquisition of the
Assets pursuant to the terms and conditions of the Purchase Agreement, provided
that the conditions set forth in Section 3.2(d) to the Limited Partner's
obligation to make the Capital Contribution referenced in Section 3.2(a) have
been satisfied.
Section V.3. Additional Acquisitions. If, during the term of this
Agreement, the General Partner or an Affiliate thereof acquires (or proposes to
acquire) an additional interest or interests in the Assets acquired pursuant to
the terms hereof (in this Section called the "Subject Leases"), the terms and
provisions of this Section 5.3 shall be operative. Specifically, upon the
acquisition (or proposed acquisition) under the circumstances described above,
the General Partner shall notify the Limited Partner, which notice shall (a)
specify the interest the General Partner or its Affiliates have acquired (or
propose to acquire) in the Subject Leases, (b) specify the purchase price (or
proposed purchase price), (c) describe the development and/or Enhanced Recovery
Operations, if any, the General Partner reasonably anticipates will be engaged
in on the Subject Leases and the estimated costs associated therewith, (d)
include a summary of the pertinent geological and geophysical data relating to
the Subject Leases or proposed development/Enhanced Recovery Operations, (e)
include financial projections relating to the Subject Leases and any internally
or externally prepared related engineering or reserve reports, (f) describe the
nature and extent of planned title examination and property related due
diligence (including, without limitation, environmental due diligence) and (g)
such other information as the General Partner deems material. Thereafter, the
General Partner shall promptly furnish to the Limited Partner any additional
information concerning the Subject Leases or the proposed development/Enhanced
Recovery Operations as the Limited Partner may reasonably request (including,
without limitation, the reports of consultants and outside engineers). Subject
to the Limited Partner agreeing to make additional Capital Contributions to the
Partnership with respect to the Subject Leases pursuant to Section 3.3, the
Partnership shall acquire the interest of the General Partner and its Affiliates
in such Subject Leases (or, if applicable, which the General Partner or its
Affiliates propose to acquire therein). Prior to the acquisition by the
Partnership of the Subject Leases, the General Partner shall notify the Limited
Partner of any material change in the nature and extent of the title examination
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and property related due diligence plan and the reason therefor and of any fact
discovered in due diligence that materially adversely affects the economics or
risks associated with the Subject Leases; provided that no such notice need be
given to the Limited Partner if the Limited Partner has elected not to make
additional Capital Contributions with respect thereto. The Limited Partner may
withdraw its election to make additional Capital Contributions with respect to
the proposed acquisition and related activity, at any time prior to the
Partnership committing to acquire the Subject Leases, by so notifying the
General Partner in writing if (i) there is discovered during due diligence a
fact or facts not presented to the Limited Partner in the initial evaluation of
the proposed acquisition that materially adversely affects the economics or
risks associated with the Subject Leases to be acquired and such material
adverse effect cannot be remedied to the reasonable satisfaction of the Limited
Partner prior to the acquisition by the Partnership or (ii) more than three
months have passed since the Limited Partner notified the General Partner of
such Limited Partner's election to make Capital Contributions with respect to
such acquisition and related activity. The interest in each Subject Lease
assigned by the General Partner and each Affiliate thereof to the Partnership
pursuant to this Section 5.3 shall be assigned, conveyed and transferred without
warranty of title, either express or implied, except as to all persons claiming
or to claim the same or any part thereof by, through and under the General
Partner or such Affiliate but not otherwise and with a further warranty that the
General Partner or such Affiliate has not placed any lien, encumbrance, burden
or other restriction on such Lease or, if the General Partner or such Affiliate
has previously placed a lien, encumbrance, burden or other restriction on such
Lease, that such lien, encumbrance, burden or other restriction is being
concurrently released or has been released. In connection with any acquisition
of Leases by the Partnership pursuant to this Section 5.3, the General Partner
or an Affiliate thereof shall not retain from or otherwise burden the interest
in any Lease assigned to the Partnership with any overriding royalty, net
profits interest, carried interest, reversionary interest, production payment or
other burden in favor of itself, its officers, directors and employees or any
other person, except in connection with an acquisition by the General Partner or
such Affiliate pursuant to a transaction where an unrelated third party
transferring the Lease retains such an interest or burden with respect to all of
the Lease acquired by the General Partner or Affiliate. With respect to each
Lease acquired by the Partnership pursuant to this Section 5.3, such acquisition
shall include all rights to all horizons under such Lease which were available
for purchase and considered appropriate for acquisition by the Partnership.
Under no circumstances shall the General Partner or any Affiliate of either
thereof acquire rights to any separate horizon within or under a Lease in which
the Partnership has an interest; provided, that the General Partner may acquire
interests in zones, strata or horizons occurring below the stratigraphic
equivalent of 9,460 feet as depicted in the Compensated Neutron electric log
dated August 3, 1998, of the Abraxas Petroleum Corporation Echo Springs Well
#4-22-19-93, located in the SE-NW-SE of Section 22, T19N, R93W, Carbon County,
Wyoming, also being the same as the top of the Ericson Formation of the Mesa
Verde Group.
Section V.4. Lease Sales.
(a) Except as provided in this Section 5.4, in Section 6.2(d) and
elsewhere herein, the General Partner may sell, farm-out, abandon or otherwise
dispose of any Partnership Lease, on such terms as the General Partner deems
reasonable and in the best interests of the Partnership and the Limited Partner.
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(b) Except as expressly permitted in Section 10.3, neither the General
Partner or any of its Affiliates nor any of their employees shall acquire,
directly or indirectly, any Lease (or any interest therein) from the Partnership
unless the Limited Partner has previously approved in writing such acquisition.
Section V.5. Sales of Production.
(a) The General Partner shall have the right to cause the Partnership to
sell any oil or gas produced by or for the account of the Partnership, including
but not limited to crude oil, condensate, natural gas liquids and natural gas
(including casinghead gas) which may be produced from or allocated to the Assets
or any additional Leases acquired pursuant to the terms hereof, to such
purchaser and on such terms and conditions as the General Partner shall
determine to be in the best interest of the Partnership; provided, however, that
all such sales shall be upon terms and conditions which are the best terms and
conditions available as determined in good faith by the General Partner taking
into account all relevant circumstances, including but not limited to, price,
quality of production, access to markets, minimum purchase guarantees, identity
of purchaser, and length of commitment and, in any event, on terms no less
favorable to the Partnership than the General Partner or any Affiliate thereof
has recently obtained or is obtaining for arm's length sales, exchanges or
dispositions of the General Partner's or such Affiliate's production of similar
quantity and quality in the same geographic area where the Partnership's
production is located; provided, further, that the General Partner's obligations
under this Section shall be subject to the terms of Section 5.7 and subsections
(b) and (c) below.
(b) In marketing the Partnership's gas reserves, the General Partner
covenants and agrees that, to the fullest extent possible, it will cause the
Partnership to market a percentage of the monthly produced gas volumes
attributable to the Assets equal to the volumes of gas then subject to a Hedging
Transaction under a market with a price structure tied to the same commodity
index used in the hedge formula (i.e., CIG Inside FERC's first of the month
index). Further, in connection with the marketing of the Partnership's gas
reserves under a processing arrangement for natural gas liquids which permits
the gas producer to elect whether to retain or reject ethane volumes on a
monthly basis, the General Partner will elect to reject ethane.
(c) Notwithstanding anything to the contrary contained herein, neither
the General Partner nor any of its Affiliates nor any person who is a related
person within the meaning of Section 29(d)(7) of the Internal Revenue Code shall
purchase any oil or gas produced by or for the account of the Partnership.
Section V.6. Operations on Partnership Leases. The General Partner or an
Affiliate, shall act as operator in connection with operations on each
Partnership Lease unless (a) another person (other than the General Partner or
an Affiliate) is currently serving as operator under an agreement to which a
Lease is subject or (b) any third party or third parties (not Affiliates of the
General Partner) jointly owning such Lease and with a controlling interest will
not otherwise agree. As to those Partnership Leases with respect to which the
General Partner is not the operator, the General Partner shall take such actions
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and exercise such rights and remedies which are reasonably available to it to
cause the actual operator to properly develop, maintain and operate such Leases.
In the event the Partnership and any third party jointly own any Lease and
operations thereon are conducted pursuant to an operating agreement, (i) if the
third party is designated as operator thereunder, the Partnership shall pay the
costs and expenses charged to it thereunder and (ii) if the General Partner or
any of its Affiliates is designated as operator, the General Partner or such
Affiliate shall receive for its account from the third party such third party's
share of all compensation and reimbursement provided to the operator thereunder;
provided, however, that the charges to the Partnership by the General Partner or
any of its Affiliates (regardless of whether there is an operating agreement or
regardless of whether or not a third party is also a party thereto) shall not
exceed those set forth in or permitted by this Agreement or the "Accounting
Procedure" (as herein called) attached hereto as Exhibit 5.6 (although the
operating agreement, if any, may otherwise provide), and in no event shall the
terms of any such operating agreement vary or effect this Agreement or the
Accounting Procedure or the duties and obligations of the General Partner
hereunder. The General Partner, or any Affiliate, shall not substitute another
party as operator or assign its obligations as operator with respect to any
Partnership Lease where it acts as operator, unless the Limited Partner requests
in the event the General Partner is removed as such pursuant to Section 9.4 or
the Limited Partner dissolves the Partnership pursuant to any of subsections
(c), (e), (f), (g) or (i) of Section 10.1 (and the General Partner agrees to use
its reasonable best efforts to cause the person designated by the Limited
Partner to be the successor operator).
Section V.7. Hedge Arrangement. The General Partner covenants and agrees
that, at the request of the Limited Partner and subject to the condition
described below, the General Partner will cause the Partnership on the Delivery
Date, to hedge up to 85% of the Partnership's proved producing gas reserves
attributable to the Assets on such terms and conditions as are satisfactory to
the Limited Partner. The General Partner covenants and agrees that, at the
request of the Limited Partner and subject to the condition described below, it
will execute on behalf of the Partnership such additional Hedging Transactions
of the Partnership's proved producing reserves attributable to the Assets and
any additional Leases acquired pursuant to the terms hereof on such terms and
conditions as are reasonably satisfactory to the Limited Partner. Any Hedging
Transaction contemplated hereunder shall be a "hedging transaction" as described
in Treasury Regulation ss.1.1221-2 to reduce the risk of price changes for oil
and gas produced by the Partnership in volumes equal to the notional amounts
provided in the documents evidencing such Hedging Transaction. At the time of
the execution and delivery by the Partnership of the documents evidencing a
Hedging Transaction, the General Partner shall take such additional steps as may
be necessary to identify the Hedging Transaction in the books and records of the
Partnership as a "hedging transaction" in the manner and at the time prescribed
by Treasury Regulation ss.1.1221-2(e).
ARTICLE VI
Management
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Section VI.1. Power and Authority of General Partner. Except as provided
in Section 6.2 and elsewhere in this Agreement and except as otherwise provided
by applicable law, the General Partner shall have full and exclusive power and
authority on behalf of the Partnership to manage, control, administer and
operate the properties, business and affairs of the Partnership in accordance
with this Agreement and to do or cause to be done any and all acts deemed by the
General Partner to be necessary or appropriate thereto.
Section VI.2. Certain Restrictions on General Partner's Power and
Authority. Notwithstanding any other provisions of this Agreement to the
contrary, the General Partner shall not have the power or authority to, and
shall not, do, perform or authorize any of the following without the prior
written consent of the Limited Partner:
(a) To borrow any money in the name or on behalf of the Partnership, or
otherwise draw, make, execute and issue promissory notes and other negotiable or
non-negotiable instruments and evidences of indebtedness, except that the
General Partner may borrow money in the name and on behalf of the Partnership in
such amounts as the General Partner shall reasonably determine are necessary to
preserve and protect Partnership property upon the occurrence of an accident
(e.g., a blowout), catastrophe or similar event or to comply with all applicable
environmental laws, ordinances, rules and regulations;
(b) To mortgage, pledge, assign in trust or otherwise encumber any
Partnership property, or to assign any monies owing or to be owing to the
Partnership, except to secure the payment of any borrowing permitted in Section
6.2(a) and except for customary liens contained in or arising under any
operating agreements, construction contracts and similar agreements executed by
or binding on the Partnership with respect to amounts not yet due or not yet
delinquent (or, if delinquent, that are being contested by the General Partner
in good faith) or except for statutory liens for amounts not yet due or not yet
delinquent (or, if delinquent, that are being contested by the General Partner
in good faith), provided that in no event shall the General Partner mortgage,
pledge, assign in trust or otherwise encumber the Partnership's right to receive
Capital Contributions from the Limited Partner;
(c) To guarantee in the name or on behalf of the Partnership the payment
of money or the performance of any contract or other obligation of any person
except for responsibilities customarily assumed under operating agreements
considered standard in the industry;
(d) To sell, assign, farm-out, abandon or otherwise dispose of any
Partnership Lease except (i) where the Lease disposed of consists solely of
horizons or depths which do not have attributable to them any proved reserves,
(ii) as provided in Sections 3.3(d)(3) and 3.3(d)(4), or (iii) for such Leases
or interests therein as the General Partner shall reasonably determine to be
necessary to raise funds to pay Partnership liabilities and expenses (other than
Catastrophe Costs) upon the occurrence of an accident, catastrophe or similar
event (and, in connection therewith, to restore, preserve and protect
Partnership property) or to comply with all applicable environmental or other
laws, ordinances, rules and regulations;
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(e) To make any advance payments of compensation or other consideration
to the General Partner or any of its Affiliates;
(f) To bind or obligate the Partnership with respect to any matter
outside the scope of the Partnership business;
(g) To merge or consolidate the Partnership with any partnership or
other person or entity, convert the Partnership to a general partnership or
other entity or agree to an exchange of interests with any other person;
(h) To use the Partnership name, credit or property for other than
Partnership purposes;
(i) To loan any Partnership funds to the General Partner or any of its
Affiliates;
(j) To enter into a Hedging Transaction, except as provided in Section
5.7, and to amend or terminate any agreements or other document evidencing a
Hedging Transaction or waive any rights of the Partnership thereunder;
(k) To acquire any Lease in violation of the terms of this Agreement;
(l) To alter, supplement, modify or amend the Purchase Agreement or any
other document or instrument executed in connection therewith, waive any of the
General Partners' or the Partnership's rights or any of Seller's duties and
obligations thereunder, or make any election, determination or agreement
thereunder;
(m) To compromise or settle any lawsuit, administrative matter or other
dispute where the amount the Partnership may recover or might be obligated to
pay, as applicable, is in excess of $25,000;
(n) To enter into any contract or agreement with the General Partner or
any Affiliate thereof for the rendering of services or the sale or lease of
supplies (except that the foregoing shall not preclude the General Partner from
serving as operator in accordance with Section 5.6); or
(o) Except as expressly provided herein, to take any action with
respect to the assets or property of the Partnership which benefits the General
Partner or any of its Affiliates to the detriment of the Limited Partner or the
Partnership, including, among other things, utilization of funds of the
Partnership as compensating balances for its own benefit.
Section VI.3. Duties and Services of General Partner.
(a) The General Partner shall comply in all respects with the terms of
this Agreement and shall use its reasonable best efforts (i) to cause its
Affiliates to comply with the terms of this Agreement and (ii) in the conduct of
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the business and operations of the Partnership to cause the Partnership (A) to
comply with the terms and provisions of all agreements to which the Partnership
is a party or to which its properties are subject, (B) to comply with all
applicable laws, ordinances or governmental rules and regulations to which the
Partnership is subject (including all applicable federal, state and local
environmental laws, ordinances, rules and regulations), (C) to obtain and
maintain all licenses, permits, franchises and other governmental authorizations
necessary with respect to the ownership of Partnership properties and the
conduct of Partnership business and operations and (D) to develop and implement
a program to promote compliance with applicable environmental laws, ordinances,
rules and regulations and to minimize prudently any liabilities or potential
liabilities under this Section 6.3(a)(ii) including the development of a written
environmental management system.
(b) With respect to the maintenance, exploration, development and
operation of the Assets and any additional Leases acquired pursuant to the terms
hereof, the General Partner shall have the standard of care of a reasonably
prudent and diligent operator.
(c) With respect to the Limited Partner and its interests in the
Partnership, the General Partner shall have the duties set forth in Section 4.04
of the Texas Revised Partnership Act and shall discharge such as provided in
Section 4.04(d) of the Texas Revised Partnership Act, provided that (i) the
General Partner shall at all times act with integrity and in good faith and
utilize its reasonable best efforts in all activities relating to the conduct of
the business of the Partnership and in resolving conflicts of interest; (ii)
during the existence of the Partnership, the General Partner shall devote such
time and effort to the Partnership business and operations as shall be necessary
to promote fully the interests of the Partnership and the mutual best interests
of the Partners; however, and subject to the foregoing and the other express
provisions of this Agreement, it is specifically understood and agreed that the
General Partner shall not be required to devote full time to Partnership
business; and (iii) subject to the other express provisions of this Agreement,
the Limited Partner acknowledges that the General Partner currently engages in
and possesses, and agrees that the General Partner may continue to engage in and
possess, interests in other business ventures of any and every type and
description, independently or with others, including without limitation the
ownership, acquisition, exploration, development, operation and management of
oil and gas properties, oil and gas drilling programs and partnerships similar
to this Partnership, and (subject to the other express provisions of this
Agreement) neither the Partnership nor the Limited Partner shall by virtue of
this Agreement have any right, title or interest in or to such independent
ventures. With respect to the maintenance and safekeeping of Partnership funds,
the General Partner shall owe the Partnership and the Limited Partner a
fiduciary duty.
(d) The General Partner covenants and agrees that it or its Affiliates
will at all times retain and have available to it and the Partnership a
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professional staff and outside consultants which together will be reasonably
adequate in size, experience and competency to discharge properly the duties and
functions of the General Partner hereunder and under any applicable operating
and other agreements, including without limitation, engineers, geologists and
other technical personnel, attorneys, accountants and secretarial and clerical
personnel.
Section VI.4. Liability of General Partner. The General Partner shall
not be liable, responsible or accountable in damages or otherwise to the
Partnership or the Limited Partner for, and (subject to Section 6.5) the
Partnership shall indemnify and save harmless the General Partner from any
costs, expenses, losses or damages (including attorneys' fees and expenses,
court costs, judgments and amounts paid in settlement) incurred by reason of its
being General Partner, provided it has acted in good faith on behalf of the
Partnership and the Limited Partner and in a manner reasonably believed by it to
be within the scope of the authority granted to it by this Agreement and in the
best interests of the Partnership, and provided further that (i) the General
Partner was not guilty of a material breach of this Agreement, gross negligence,
willful or wanton misconduct or breach of fiduciary duty with respect to such
acts or omissions, and (ii) the satisfaction of any indemnification and any
saving harmless shall be from and limited to Partnership assets (which shall be
converted to cash to the extent necessary in a manner appropriate to protect the
interests of all Partners) and not from any Capital Contributions to be made by
the Limited Partner hereunder, and the Limited Partner shall not have any
personal liability on account thereof.
Section VI.5. Limitations on Indemnification. The rights of the General
Partner under Section 6.4 with respect to indemnification from the Partnership
shall be subject to the provisions of Article 11 of the Act. Any indemnification
under Section 6.4 shall be made by the Partnership only as permitted herein and,
unless the General Partner was wholly successful on the merits, only upon a
determination by a court upon the request of the General Partner or by
independent legal counsel selected by the General Partner and satisfactory to
the Limited Partner in a written opinion that indemnification of the General
Partner is permitted (a) under the circumstances because it has met the
applicable standard of conduct set forth in Section 6.4 and (b) pursuant to
Article 11 of the Act.
Section VI.6. Costs, Expenses and Reimbursement.
(a) Subject to the other express provisions of this Agreement, all
direct, third-party out of pocket costs and expenses reasonably incurred in the
Partnership's business shall be paid from Partnership funds, including costs of
obtaining audits of the Partnership's books and records (including the fees and
expenses of the Partnership's independent public accountants), the fees and
expenses attributable to the preparation of the Partnership's tax returns and
reports, the fees and expenses of the independent petroleum engineer referenced
in Section 8.2(f), outside legal costs, general taxes and other direct,
third-party out of pocket costs and expenses of the Partnership.
(b) Commencing on the Purchase Agreement Closing Date, the Partnership
shall pay, and the General Partner shall be entitled to receive, a monthly fee
(the "Management Fee") in an amount equal to 1% of Net Operating Income (as
defined below) for such month; provided, that the General Partner shall not be
paid the Management Fee for any month (or portion thereof) in which the
Partnership's right to receive revenues has been assigned to a trustee pursuant
to Section 6.11, if the General Partner withdraws from the Partnership or if the
General Partner has been removed as provided herein; provided further, that the
General Partner shall not be paid the Management Fee for any month (or portion
thereof) during which the business and affairs of the Partnership are being
wound up for liquidation purposes pursuant to Section 10.3, if the General
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Partner is not acting as liquidator hereunder. With respect to the month during
which the Purchase Agreement Closing Date occurs and the last month during which
the Management Fee is payable hereunder if the obligation to pay such fee
terminates prior to the last day of such month, the monthly Management Fee shall
be prorated based on the number of days during such month in which the General
Partner is entitled to receive the Management Fee divided by the total number of
days in such month. As used in this subsection (b), the term "Net Operating
Income" shall mean, with respect to a given month, (i) the gross proceeds for
such month received by the Partnership and attributable to any Hedging
Transaction plus (ii) the gross proceeds for such month received by the
Partnership from the sale of hydrocarbons (other than in connection with a
Hedging Transaction) minus (iii) any Hedging Costs for such month minus (iv)
Lease Operating and Production Costs for such month.
(c) Except as provided in Section 5.6, this Section 6.6 and in Section
6.7, the General Partner and its Affiliates shall not be paid any fee,
compensation or reimbursement or be entitled to or charge the Partnership for or
on account of their services, services of their officers, employees or
consultants, fees or compensation of those geologists, geophysicists and
engineers who are employed by them or otherwise retained by them, office
expense, overhead or any other general or administrative costs or expense.
Section VI.7. Organization Costs. The Partnership from time to time
shall pay directly, or shall reimburse the General Partner and the Limited
Partner for any payment by them of, the following fees and expenses incurred in
connection with the initial organization of the Partnership ("Organization
Costs"): (a) all reasonable fees and expenses incurred by them (including fees
for outside legal services) in connection with the preparation and filing of all
certificates, opinions and documents required pursuant to Sections 1.2 and 1.6;
(b) the fees and expenses of the outside consultants retained by the Limited
Partner in connection with its determination to execute and deliver this
Agreement, including Cawley Gillespie & Associates, Inc. and Woodward -Clyde);
(c) all reasonable fees and expenses of legal counsel to the Limited Partner in
connection with (i) the negotiation, preparation and execution of this
Agreement, the Purchase Agreement and all related documents, (ii) the due
diligence review of the Assets and (iii) the closing of the transactions
contemplated under the Purchase Agreement; and (d) all reasonable fees and
expenses of legal counsel to the Limited Partner in connection with the Limited
Partner's consideration of any waiver of its rights under this Agreement or any
proposed amendment or supplement to this Agreement.
Section VI.8. Insurance. The General Partner shall cause the Partnership
to obtain (and maintain during the entire term of the Partnership), or the
General Partner shall carry for the benefit of the Partnership, insurance
coverage in such amounts, with provisions for such deductible amounts and for
such purposes as the General Partner and the Limited Partner have agreed upon
below and thereafter shall agree upon in writing on or about July 1 of each
year. Where appropriate, the General Partner may include the Partnership or the
Limited Partner as additional insureds on any policies otherwise carried by the
General Partner and the costs thereof shall be allocated to the Partnership on a
basis mutually agreed upon in writing by the General Partner and the Limited
Partner from time to time. The Partners hereby agree that the General Partner
shall initially carry for the benefit of the Partnership insurance coverage in
the amounts, with provisions for such deductible amounts and for the purposes,
specified in Exhibit 6.8. Thereafter, the Partners shall review and endeavor in
good faith to agree upon the Partnership's insurance coverage as provided above.
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In the event the General Partner incurs any Catastrophe Costs pursuant to the
terms hereof, the Partners agree that the General Partner shall be subrogated to
any claims or actions the Partnership may have attributable to or arising from
the events or circumstances with respect to which the Catastrophe Costs were
incurred; provided, that the maximum amount that the General Partner shall be
entitled to recover pursuant to the rights granted under this sentence (and the
extent of such subrogation) shall be the amount of the Catastrophe Costs so
incurred (which amount shall be herein called the "Catastrophe Costs Recovery").
Section VI.9. Tax Elections.
(a) The General Partner shall make the following elections on behalf of
the Partnership:
(i) To elect, in accordance with Section 263(c) of the
Internal Revenue Code and applicable regulations and comparable state
law provisions, to deduct as an expense all intangible drilling and
development costs with respect to productive and non-productive wells
and the preparation of wells for the production of oil or gas;
(ii) To elect the calendar year as the Partnership's fiscal
year if permitted by applicable law;
(iii) To elect the accrual method of accounting;
(iv) If requested by the Limited Partner, to elect, in
accordance with Sections 734, 743 and 754 of the Internal Revenue Code
and applicable regulations and comparable state law provisions, to
adjust basis in the event any Partnership interest is transferred in
accordance with this Agreement or any Partnership property is
distributed to any Partner;
(v) To elect to treat all organizational and start-up costs of
the Partnership as deferred expenses amortizable over 60 months under
Sections 195 and 709 of the Internal Revenue Code; and
(vi) To elect with respect to such other federal, state and
local tax matters as the General Partner and the Limited Partner shall
agree upon from time to time.
(b) No Partner shall elect or cause the Partnership to elect to be
treated as an association taxable as a corporation.
(c) The General Partner agrees to use its best efforts to cause any tax
partnership which governs any of the Assets or additional Leases hereafter
acquired pursuant to the terms hereof to make an election under Section 754 of
the Internal Revenue Code if such election would be beneficial to the
Partnership.
Section VI.10. Tax Returns. The General Partner shall prepare and timely
file all federal, state and local income and other tax returns and reports as
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may be required as a result of the business of the Partnership, which returns
shall be signed by the independent certified public accountants of the
Partnership. Not less than 30 days prior to the date (as extended) on which the
Partnership intends to file its federal income tax return or any state income
tax return, the return proposed to be filed by the General Partner shall be
furnished to the Limited Partner for review and comments. In addition, not more
than 10 days after the date on which the Partnership actually files its federal
income tax return or any state income tax return, a copy of the return so filed
by the General Partner shall be furnished to the Limited Partner. The General
Partner shall be designated the tax matters partner under Section 6231 of the
Internal Revenue Code and shall promptly notify the Limited Partner if any tax
return or report of the Partnership is audited or if any adjustments are
proposed by any governmental body. In addition, the General Partner shall
promptly furnish to the Limited Partner all notices concerning administrative or
judicial proceedings relating to federal income tax matters as required under
the Internal Revenue Code. During the pendency of any such administrative or
judicial proceeding, the General Partner shall furnish to the Limited Partner
periodic reports, not less often than monthly, concerning the status of any such
proceeding. Without the consent of the Limited Partner, the General Partner
shall not extend the statute of limitations, file a request for administrative
adjustment, file suit concerning any tax refund or deficiency relating to any
Partnership administrative adjustment or enter into any settlement agreement
relating to any Partnership item of income, gain, loss, deduction or credit for
any fiscal year of the Partnership.
Section VI.11. Appointment of Trustee to Receive Payments. The Limited
Partner may cause the Partnership at the Partnership's expense to assign the
Partnership's right to receive revenues to a trustee named by the Limited
Partner (a) if the General Partner has committed fraud, willful or intentional
misconduct or gross negligence in the performance of its duties hereunder, (b)
if the General Partner has defaulted in the performance of its obligation
hereunder to make a distribution of cash or property due and owing to the
Limited Partner, (c) if the General Partner is in default in the performance or
observance of any other material agreement, covenant, term, condition or
obligation hereunder, which default must have continued for not less than 30
days after the General Partner has knowledge thereof or after written notice
thereof given by the Limited Partner has been received by the General Partner,
(d) if a representation or warranty made by the General Partner herein or by the
General Partner or any of its officers in any writing furnished in connection
with or pursuant to this Agreement shall be false in material respect on the
date as of which made, or (e) upon the occurrence of any of the events described
in either Section 4.02(a)(4) or in Section 4.02(a)(5) of the Act (except that
with respect to Section 4.02(a)(5) the operative number of days shall be 60
instead of those set forth in such Section). Such trustee shall receive and hold
Partnership revenues for the benefit of all the Partners, but shall not have the
rights of the General Partner hereunder. The trustee's sole right and
responsibility shall be to receive Partnership funds and disburse them in
accordance with the other provisions of this Agreement. In the event a trustee
is appointed pursuant to this Section 6.11 and the default is cured or the
action or event under or with respect to the bankruptcy law is completely
dismissed or eliminated, the General Partner and the Limited Partner shall, at
the request of either the General Partner or the Limited Partner, cause the
trustee to be discharged at the Partnership's expense; provided that in the
judgment of the Limited Partner, its interest under this Agreement will not be
adversely affected by any such discharge.
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ARTICLE VII
Rights and Obligations of Limited Partner
Section VII.1. Rights of Limited Partner. In addition to the other
rights specifically set forth herein, the Limited Partner shall have the right
to: (a) have the Partnership books and records (including without limitation
those required in Section 1.07 of the Act) kept at the principal United States
office of the Partnership and at all reasonable times to inspect and copy any of
them, (b) have on demand true and full information of all things affecting the
Partnership and a formal account of Partnership affairs whenever circumstances
render it just and reasonable, (c) have dissolution and winding up by decree of
court as provided for in the Act, (d) consult with or advise the General Partner
and (e) exercise all rights of a limited partner under the Act (except to the
extent otherwise specifically provided for herein).
Section VII.2. Limitations on Limited Partner. The Limited Partner shall
not have the authority or power in its capacity as a Limited Partner to act as
agent for or on behalf of the Partnership or any other Partner, to do any act
which would be binding on the Partnership or any other Partner, or to incur any
expenditures on behalf of or with respect to the Partnership. The General
Partner shall not hold out or represent to any third party that the Limited
Partner has any such right or power or that the Limited Partner is anything
other than a "limited partner" in the Partnership.
Section VII.3. Liability of Limited Partner. The Limited Partner shall
not be liable for the debts, liabilities, contracts or other obligations of the
Partnership except to the extent of any unpaid Capital Contributions agreed to
be made by the Limited Partner as set forth in Section 3.2 (which shall be
subject to reduction as provided for in Section 3.4), any additional Capital
Contributions hereafter agreed to be made by the Limited Partner in accordance
with Section 3.3 (which shall also be subject to reduction as provided for in
Section 3.4) and the Limited Partner's share of the assets (including
undistributed revenues) of the Partnership; and in all events, the Limited
Partner shall be liable and obligated to make payments of its Capital
Contributions only as and when such payments are due in accordance with the
terms of this Agreement, and the Limited Partner shall not be required to make
any loans to the Partnership. The Partnership shall indemnify and hold harmless
the Limited Partner in the event it (a) becomes liable for any debt, liability,
contract or other obligation of the Partnership except to the extent expressly
provided in the preceding sentence or (b) is directly or indirectly required to
make any payments with respect thereto.
Section VII.4. Access of Limited Partner to Data. During the term of the
Partnership, the Partnership may acquire or have access to geophysical,
geological and other similar data and information. The Limited Partner and its
agents and representatives, at any time either during the term of or after
termination of the Partnership, shall have the right to inspect, review and copy
any such data or information (or studies, maps, evaluations or reports derived
therefrom) which relates to the Assets or other Leases which the Partnership
owns or has owned or which has been paid for with Partnership funds and to
consult with the Partnership's independent certified public accountants and
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independent petroleum engineers and the General Partner's technical personnel
with respect to Partnership matters. Upon liquidation of the Partnership, copies
of all such documents shall be distributed to the General Partner and to the
Limited Partner if so requested by it.
Section VII.5. Withdrawal and Return of Capital Contribution. The
Limited Partner shall not be entitled to (a) withdraw from the Partnership
except upon the assignment by the Limited Partner of all of its interest in the
Partnership and the substitution of such Limited Partner's assignee as a Limited
Partner of the Partnership in accordance with Section 9.1, or (b) the return of
its Capital Contributions except to the extent, if any, that distributions made
pursuant to the express terms of this Agreement may be considered as such by law
or by unanimous agreement of the Partners, or upon dissolution and liquidation
of the Partnership, and then only to the extent expressly provided for in this
Agreement and as permitted by law.
ARTICLE VIII
Books, Records, Reports and Bank Accounts
Section VIII.1. Capital Accounts, Books and Records.
(a) Except as may otherwise be required by this Agreement, the General
Partner shall keep books of account for the Partnership in accordance with
generally accepted accounting principles consistently applied in accordance with
the terms of this Agreement. Such books shall be maintained at the principal
United States office of the Partnership and shall be maintained by the General
Partner for review by the Limited Partner during the term of the Partnership and
for a period of five years thereafter. The calendar year shall be selected as
the accounting year of the Partnership and the books of account shall be
maintained on an accrual basis.
(b) An individual capital account shall be maintained by the Partnership
for each Partner as provided below:
(i) The capital account of each Partner shall, except as
otherwise provided herein, be (A) credited by such Partner's cash
Capital Contributions when made, (B) credited by the fair market value
of any property contributed to the Partnership by such Partner (net of
liabilities secured by such contributed property that the Partnership is
considered to assume or take subject to under Section 752 of the
Internal Revenue Code), (C) credited with the amount of any item of
taxable income or gain and the amount of any item of income or gain
exempt from tax allocated to such Partner (taking into account any
reallocation pursuant to Sections 3.3 and 3.6), (D) credited with the
Partner's share of Simulated Gain as provided in paragraph (ii) of this
Section 8.1(b), (E) debited by the amount of any item of tax deduction
or loss allocated to such Partner (taking into account any reallocation
pursuant to Sections 3.3 and 3.6), (F) debited with the Partner's share
of Simulated Loss and Simulated Depletion as provided in paragraph (ii)
of this Section 8.1(b), (G) debited by such Partner's allocable share of
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expenditures of the Partnership not deductible in computing the
Partnership's taxable income and not properly chargeable as capital
expenditures, including any non-deductible book amortizations of
capitalized costs, and (H) debited by the amount of cash or the fair
market value of any property distributed to such Partner (net of
liabilities secured by such distributed property that such Partner is
considered to assume or take subject to under Section 752 of the
Internal Revenue Code). Immediately prior to any distribution of assets
by the Partnership that is not pursuant to a liquidation of the
Partnership or all or any portion of a Partner's interest therein, the
Partners' capital accounts shall be adjusted by (X) assuming that the
distributed assets were sold by the Partnership for cash at their
respective fair market values as of the date of distribution by the
Partnership and (Y) crediting or debiting each Partner's capital account
with its respective share of the hypothetical gains or losses, including
Simulated Gains and Simulated Losses, resulting from such assumed sales
in the same manner as each such capital account would be debited or
credited for gains or losses on actual sales of such assets.
Notwithstanding the foregoing sentence, the Partnership shall not
distribute any property in kind to any Partner except as provided in
Section 10.3.
(ii) The allocation of basis prescribed by Section
613A(c)(7)(D) of the Internal Revenue Code and provided for in Section
4.3(b) and each Partner's separately computed depletion deductions shall
not reduce such Partner's capital account, but such Partner's capital
account shall be decreased by an amount equal to the product of the
depletion deductions that would otherwise be allocable to the
Partnership in the absence of Section 613A(c)(7)(D) of the Internal
Revenue Code (computed without regard to any limitations which
theoretically could apply to any Partner) times such Partner's
percentage share of the adjusted basis of the property (determined under
Section 4.3(b)) with respect to which such depletion is claimed (herein
called "Simulated Depletion"). The Partnership's basis in any Depletable
Property as adjusted from time to time for the Simulated Depletion
allocable to all Partners (and where the context requires, each
Partner's allocable share thereof, which share shall be determined in
the same manner as the allocation of basis prescribed in Section 4.3(b))
is herein called "Simulated Basis". No Partner's capital account shall
be decreased, however, by Simulated Depletion deductions attributable to
any Depletable Property to the extent such deductions exceed such
Partner's allocable share of the Partnership's remaining Simulated Basis
in such property. The Partnership shall compute simulated gain
("Simulated Gain") or simulated loss ("Simulated Loss") attributable to
the sale or other disposition of a Depletable Property based on the
difference between the amount realized from such sale or other
disposition and the Simulated Basis of such property, as theretofore
adjusted. Any Simulated Gain shall be allocated to the Partners and
shall increase their respective capital accounts in the same manner as
the amount realized from such sale or other disposition in excess of
Simulated Basis shall have been allocated pursuant to Section 4.3(b).
Any Simulated Loss shall be allocated to the Partners and shall reduce
their respective capital accounts in the same percentages as the costs
of the property sold were allocated up to an amount equal to each
Partner's share of the Partnership's Simulated Basis in such property at
the time of such sale.
(iii) Any adjustments of basis of Partnership property
provided for under Sections 734 and 743 of the Internal Revenue Code and
comparable provisions of state law (resulting from an election under
Section 754 of the Internal Revenue Code or comparable provisions of
state law) and any election by an individual Partner under Section
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59(e)(4) of the Internal Revenue Code to amortize such Partner's share
of intangible drilling and development costs shall not affect the
capital accounts of the Partners (unless otherwise required by
applicable Treasury Regulations), and the Partners' capital accounts
shall be debited or credited pursuant to the terms of this Section 8.1
as if no such election had been made.
(iv) Capital accounts shall be adjusted, in a manner
consistent with this Section 8.1, to reflect any adjustments in items of
Partnership income, gain, loss or deduction that result from amended
returns filed by the Partnership or pursuant to an agreement by the
Partnership with the Internal Revenue Service or a final court decision.
(v) In the case of property carried on the books of the
Partnership at an amount which differs from its adjusted basis, the
Partners' capital accounts shall be debited or credited for items of
depreciation, cost recovery, Simulated Depletion, amortization and gain
or loss (including Simulated Gain or Simulated Loss) with respect to
such property computed in the same manner as such items would be
computed if the adjusted tax basis of such property were equal to such
book value, in lieu of the capital account adjustments provided above
for such items, all in accordance with Treasury Regulation ss.
1.704-1(b)(2)(iv)(g).
(vi) It is the intention of the Partners that the capital
accounts of each Partner be kept in the manner required under Treasury
Regulation ss. 1.704-1(b)(2)(iv). To the extent any additional
adjustment to the capital accounts is required by such regulation, the
General Partner is hereby authorized to make such adjustment after
notice to the Limited Partner.
Section VIII.2. Reports. The General Partner shall deliver to the
Limited Partner the following financial statements and reports at the times
indicated below:
(a) Monthly, within 30 days after the end of the month for which such
report is given, while the Partnership has any direct drilling operations in
progress, a report disclosing in reasonable detail the progress of such drilling
operations on a well-by-well basis and such other information as the General
Partner may determine or the Limited Partner shall reasonably request.
(b) Monthly, within 30 days after the end of the month for which such
report is given, (i) a general description of the Assets and any additional
Leases acquired pursuant to the terms hereof, except succeeding reports need
contain only material changes (if any) regarding the Assets and such Leases,
(ii) a list of wells in which the Partnership has an interest, a description of
the status thereof and the interest of the Partnership therein, except
succeeding reports need contain only material changes (if any) regarding any
such well, (iii) a statement of the cost of each well completed or abandoned and
an explanation of the abandonment of any well which has been abandoned after
production from such well has commenced and (iv) a description of each sale,
farmout or other transfer or disposition by the Partnership of any Lease
occurring during such month, including the reasons therefor, parties thereto and
terms thereof.
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(c) Monthly, within 30 days after the end of each month for which such
report is given, a schedule prepared on a cash basis setting forth (i) total
Partnership costs and revenues, (ii) the portions of such costs and revenues
allocated to the General Partner and the Limited Partner, (iii) a reconciliation
of such allocations of costs and revenues to the specific allocation provisions
of this Agreement, (iv) a description of each borrowing occurring during such
month pursuant to 6.2(a), including the reasons therefor, parties thereto and
terms thereof, together with total Partnership borrowings then outstanding and
(v) the cumulative amounts due to or owing by the Partnership pursuant to any
Hedging Transaction through the end of such month for the current settlement
period with respect thereto.
(d) Monthly, within 30 days after the end of each month for which such
report is given and prepared on a cash basis, a schedule prepared on a Lease
basis setting forth with respect to each Partnership well and Lease (i)
production figures, (ii) revenues, (iii) operating expenses, (iv) taxes and (v)
production price and sales reports.
(e) Quarterly within 45 days after the end of each fiscal quarter of the
Partnership and annually within 90 days after the end of each fiscal year of the
Partnership (commencing with the fiscal year ending December 31, 1998, in the
instance of the annual report), (i) financial statements as of the end of and
for such period, including a balance sheet and statements of income, Partners'
equity, status of Payout and cash flows, prepared in accordance with generally
accepted accounting principles and, with respect to the annual financial
statements, accompanied by a report of the Partnership's independent certified
public accountants stating that (A) their examination was made in accordance
with generally accepted auditing standards and that in their opinion such
financial statements fairly present the Partnership's financial position,
results of operations and cash flow in accordance with generally accepted
accounting principles consistently applied, and (B) in the normal course of
making the examination and reporting on the financial statements described
above, nothing came to their attention which caused them to believe that (1) the
revenues and costs and expenses allocated to the Partners hereunder were not
allocated in accordance with the specific allocation provisions of this
Agreement and (2) the General Partner failed to comply in any material respect
with this Agreement, or, if they did conclude that the General Partner so
failed, a statement specifying the nature and period of existence of such
failure, (ii) a schedule reflecting for such period the total costs of the
Partnership and the costs charged to the General Partner and the costs charged
to the Limited Partner, the total revenues of the Partnership and the revenues
credited to the account of the General Partner and to the account of the Limited
Partner and a reconciliation of such expenses and revenues to the provisions of
Article IV and Sections 3.3 and 3.6, (iii) a summary itemization by type and/or
classification of the total fees, compensation and reimbursement paid by the
Partnership (or indirectly on behalf of the Partnership) to the General Partner
and its Affiliates, which summaries shall be accompanied by a report of the
Partnership's independent certified public accountants stating that in preparing
such summaries nothing came to their attention which caused them to believe that
any transaction between the General Partner or an Affiliate thereof and the
Partnership did not comply with Section 6.2(n) or Section 6.6, or if they did so
conclude, a statement specifying such noncompliance, and (iv) a schedule
reflecting the capital account balances of each Partner prepared pursuant to the
provisions of Section 8.1(b). The independent certified public accountants for
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the Partnership shall be Ernst & Young LLP or such other nationally recognized
firm of independent certified public accountants as shall be designated by the
General Partner and approved by the Limited Partner.
(f) Annually within 90 days after the end of each fiscal year of the
Partnership, beginning with the fiscal year ending December 31, 1998, a report
containing (i) an estimation of the oil and gas reserves, classified by
appropriate categories, as of the end of the preceding fiscal year attributable
to the interest of the Partnership and of the Limited Partner therein, (ii) a
projection of the rate of production of and net income from such reserves with
respect to each such interest, (iii) a calculation of the present worth of such
net income discounted at a rate or rates designated from time to time by the
Limited Partner, and (iv) a schedule or complete description of all assumptions,
estimates and projections made or used in the preparation of such report,
including without limitation estimated future product prices, capital
expenditures, operating expenses and taxes. Each such report shall be prepared
in accordance with customary and generally accepted standards and practices for
petroleum engineers, and shall be based on such assumptions as to costs, product
prices and similar factors as (x) prescribed by Rule 4-10 of Regulation S-X
promulgated by the Securities and Exchange Commission and (y) the Limited
Partner shall designate from time to time and shall be prepared by an
independent petroleum engineer designated by the General Partner and approved by
the Limited Partner.
(g) Annually within 90 days after the end of each fiscal year of the
General Partner, audited financial statements of the General Partner.
(h) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent by Parent to its
stockholders and all registration statements, periodic reports and other
statements filed by Parent with any securities exchange or any similar
governmental authority.
(i) Such other reports and financial statements as the General Partner
shall determine or as the Limited Partner shall reasonably request from time to
time.
The cost of such reporting paid to third parties (except pursuant to
Sections 8.2(g) and (h)) shall be paid by the Partnership as a Partnership
expense.
Section VIII.3. Bank Accounts. The General Partner shall cause one or
more accounts to be maintained in the name of the Partnership in one or more
banks which each have capital, surplus and undivided profits of at least
$250,000,000, which accounts shall be used for the payment of expenditures
incurred by the Partnership in connection with the business of the Partnership
and in which shall be deposited any and all receipts of the Partnership. All
amounts shall be and remain the property of the Partnership and shall be
received, held and disbursed by the General Partner for the purposes specified
in this Agreement. There shall not be deposited in any of such accounts any
funds other than funds belonging to the Partnership, and no other funds shall in
any way be commingled with such funds.
Section VIII.4. Information Relating to the Partnership. Upon request,
the General Partner shall supply to the Limited Partner any information
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requested regarding the Partnership or its activities. During ordinary business
hours, the Limited Partner and its authorized agents and representatives shall
have reasonable access to all books, records and materials in the Partnership's
offices regarding the Partnership or its activities and, at the risk of the
Limited Partner, to the drill site of each Partnership well.
Section VIII.5. Certain Notices. The General Partner shall promptly
notify the Limited Partner in writing:
(a) of the occurrence of any material adverse change in the
Partnership's operations or properties;
(b) of any default by the General Partner in the performance
of any of its obligations hereunder;
(c) of any claim against the Partnership of $25,000 or more or
any notice to the Partnership of potential liability under applicable
environmental laws which might exceed such amount;
(d) in the event the General Partner changes the location of
its principal office or principal place of business; and
(e) in the event the Limited Partner become entitled to
dissolve the Partnership pursuant to Section 10.1, immediately after the
General Partner becomes aware of such event.
ARTICLE IX
Assignments of Interests and Substitutions
Section IX.1. Assignments by Limited Partner.
(a) The interest of the Limited Partner in the Partnership shall be
assignable in whole or in part, subject to the following: (i) no such assignment
shall be made if such assignment would result in the violation of any applicable
federal or state securities laws, (ii) the Partnership shall not be required to
recognize any such assignment until the instrument conveying such interest has
been delivered to the General Partner for recordation on the books of the
Partnership and (iii) the Limited Partner shall have first complied with Section
9.6.
(b) Unless an assignee becomes a substituted Limited Partner in
accordance with the provisions set forth below, such assignee shall not be
entitled to any of the rights granted to the Limited Partner hereunder, other
than the right to receive allocations of income, gain, loss, deduction, credit
and similar items and distributions to which the assignor would otherwise be
entitled, to the extent such items are assigned.
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(c) An assignee of the interest of the Limited Partner, or any portion
thereof, shall become a substituted Limited Partner entitled to all of the
rights of the Limited Partner if, and only if (i) the assignor gives the
assignee such right, (ii) the General Partner, in its sole and absolute
discretion, consents to such substitution and (iii) the assignee executes and
delivers such instruments, in form and substance reasonably satisfactory to the
General Partner, as the General Partner may deem necessary or desirable to
effect such substitution and to confirm the agreement of the assignee to be
bound by all of the terms and provisions of this Agreement. Upon the
satisfaction of such requirements, the General Partner shall concurrently (or as
of such later date as shall be provided for in any applicable written
instruments furnished to the General Partner) admit any such assignee as a
substituted Limited Partner of the Partnership and reflect such admission and
the date thereof in the records of the Partnership.
(d) The Partnership and the General Partner shall be entitled to treat
the record owner of any Partnership interest as the absolute owner thereof in
all respects and shall incur no liability for distributions of cash or other
property made in good faith to such owner until such time as a written
assignment of such interest that complies with the terms of this Agreement has
been received by the General Partner.
Section IX.2. Assignment by General Partner. The interest of the General
Partner in the Partnership shall not be assigned, mortgaged, pledged, subjected
to a security interest or otherwise encumbered, in whole or in part, without the
prior written consent of the Limited Partner in its sole and absolute
discretion.
Section IX.3. Merger or Consolidation. Notwithstanding the provisions of
Sections 9.1 or 9.2, the merger or consolidation by a Partner with another
corporation shall not be considered an assignment of an interest in the
Partnership, and upon the merger or consolidation of such Partner, the resulting
corporation shall continue as a Partner.
Section IX.4. Removal of General Partner.
(a) Subject to the provisions hereof, the Limited Partner may remove the
General Partner with cause and select a new General Partner to operate and carry
on the business and affairs of the Partnership. As used in this Section 9.4 and
in Section 9.5, "with cause" shall mean the occurrence of any of the following:
(i) the commission by the General Partner of fraud, willful or intentional
misconduct or gross negligence in the performance of its duties hereunder; (ii)
a default by the General Partner in the performance of its obligation to cause
the Partnership to make a distribution of cash or property due and owing to the
Limited Partner; (iii) a default by the General Partner in the performance or
observation of any other material agreement, covenant, term, condition or
obligation hereunder, which default must have continued for not less than 30
days after the General Partner has knowledge thereof or after written notice
thereof given by the Limited Partner has been received by the General Partner;
(iv) a representation or warranty made by the General Partner herein or by the
General Partner or any of its officers in any writing furnished in connection
with or pursuant to this Agreement shall be false in any material respect on the
date as of which made; (v) the occurrence of any of the events described in
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Section 4.02(a)(4) or Section 4.02(a)(5) of the Act with respect to the General
Partner or Parent (except that with respect to Section 4.02(a)(5), the operative
number of days shall be 60 instead of the numbers set forth in such Section);
(vi) a material adverse change in Parent's financial condition taken on a
consolidated basis that may have a material adverse effect on the Partnership,
as reasonably determined by the Limited Partner in its sole discretion; (vii) a
material adverse change in the Partnership's operations or properties (including
the value thereof) as reasonably determined by the Limited Partner in its sole
discretion, taking into account whether such material adverse change is due to
factors beyond the reasonable control of the General Partner; (viii) the General
Partner is no longer a wholly-owned subsidiary of Parent; (ix) a default by
Parent in the performance or observation of any agreement, covenant, term or
condition or obligation under the Guaranty; and (x) a representation or warranty
made by Parent or by Parent or any of its officers in any writing furnished in
connection with or pursuant to this Agreement or the Guaranty shall be false in
any material respect on the date as of which made.
(b) For purposes of illustration, but not by way of limitation, a
material adverse change in Parent's financial condition taken on a consolidated
basis for purposes of clause (vi) of subsection (a) above may be deemed to
include (i) the failure of the Parent to pay any portion, when such portion is
due, of any of its indebtedness or a breach or default by Parent of any
agreement or instrument by which such indebtedness is issued, evidenced,
governed or secured, and any such failure, breach or default continues beyond
any applicable period of grace provided therefor; (ii) a breach or default by
Parent of any other material agreement or other instrument to which Parent is a
party or by which it or any of its properties are bound; (iii) the entry against
Parent of a final, non-appealable judgment for the payment of money; and (iv)
the issuance of a writ of attachment or any similar process by any tribunal
against all or any substantial part of Parent's assets.
(c) For purposes of illustration, but not by way of limitation, a
material adverse change in the Partnership's operations or properties (including
the value thereof) for purposes of clause (vii) of subsection (a) above may be
deemed to include (i) if cumulative production attributable to such properties
for any 12-month period is less than 85% of the forecasted production for such
period as set forth in that certain reserve report prepared by Cawley Gillespie
& Associates, Inc. dated October 1, 1998 (in this subsection, the "CGA Report")
(and determined on a mmbtu basis), or (ii) if cumulative lease operating costs,
on an mcf equivalent basis, for any 12-month period are greater than 115% of the
forecasted lease operating costs for such period as set forth in the CGA Report,
taking into account (in the instance of both clause (i) or clause (ii), whether
such decrease in production or increase in lease operating costs, as applicable,
is due to factors beyond the reasonable control of the General Partner.
(d) Any successor General Partner will be named in, and its appointment
as such will be effective as of a date specified in, a notice to the General
Partner from the Limited Partner exercising its right to remove the General
Partner and select the successor General Partner. The removal of the General
Partner shall be effective only if and when the following conditions have been
satisfied: (i) a successor General Partner shall have been selected and shall
have agreed to accept the responsibilities of a General Partner; and (ii) this
Agreement and the Certificate of Limited Partnership of the Partnership shall
have been duly amended to name the new General Partner. To the extent required
by the laws of any jurisdiction to which the Partnership or this Agreement is
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subject, the Partners hereby unanimously consent to the admission of such
successor General Partner and hereby appoint such successor General Partner as
the agent and attorney in fact for each Partner (including without limitation
the retiring General Partner) for the purpose of signing, swearing to and filing
an amendment to the certificate of limited partnership of the Partnership and
all other necessary or appropriate documents in connection with the substitution
of such successor General Partner.
(e) The provisions of this Section 9.4 shall not be the sole remedy of
the Limited Partner in the event the General Partner is removed with cause, and
in such event the Partnership and/or the Limited Partner shall have all other
rights and remedies as shall be available to them pursuant to this Agreement, at
law or in equity to redress any wrong or damage arising from the event or
circumstances giving rise to the General Partner's removal with cause.
Section IX.5. Rights of General Partner Upon Removal. In the event the
General Partner is removed in accordance with Section 9.4, the incoming General
Partner shall have the right to purchase from the removed General Partner a one
percent general partner interest in the Partnership at a price equal to the
appraised value thereof. Such appraised value shall be determined by a qualified
independent appraiser who is mutually agreed upon by both the removed General
Partner and the incoming General Partner within 30 days after the selection of
the incoming General Partner. If the removed General Partner and the incoming
General Partner cannot mutually agree upon a single independent appraiser within
such period, they shall each select their own independent appraiser and those
two appraisers shall select a third independent appraiser. The cost of such
appraisal shall be borne by the removed General Partner. The incoming General
Partner's option to acquire such interests must be exercised by notice in
writing to the removed General Partner not more than 20 days after the selection
of the incoming General Partner and the purchase price for such interest shall
be paid in cash not more than 30 days after receipt by the parties of the report
of the appraiser setting forth the appraised value. In the event the incoming
General Partner does not elect to purchase the one percent general partner
interest of the removed General Partner pursuant to the provisions of this
Section 9.5, such interest shall be converted to a limited partner interest in
the Partnership. Further, in any event any remaining general partner interest of
the removed General Partner in the Partnership (i.e., the additional interests
to be received after the Cumulative Payout No. 1, Cumulative Payout No.2 or
Cumulative Payout No. 3) shall be converted to a limited partner interest in the
Partnership and the removed General Partner shall continue as a limited partner
in accordance with Section 6.02 of the Act, but without any right to vote,
consent, approve or otherwise make any determination under this Agreement;
provided, that after such conversion any amendment to this Agreement that would
change (a) the status of the removed General Partner as a limited partner
hereof, (b) the removed General Partner's participation in the income, gain,
loss, credits or distributions of the Partnership, (c) the removed General
Partner's obligation to contribute capital to the Partnership or (d) this
proviso, shall require the written consent of the removed General Partner.
Section 9.6 Right of First Offer.
(a) Each time the Limited Partner proposes to make any sale or other
disposition of all or any portion of its interest in the Partnership (other than
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a sale or other disposition to a person controlling, controlled by or under
common control with the Limited Partner and whether or not the Limited Partner
has received an offer for such interest), the Limited Partner shall so inform
the General Partner by notice in writing (in this Section 9.6, the "Transfer
Notice") describing the interest (or portion thereof) that is the subject of
such proposed disposition (in this Section 9.6, the "Offered Interest") and the
other terms and conditions of such proposed disposition, including any
consideration proposed to be received for the Offered Interest (and, if the
proposed Disposition is to be wholly or partly for consideration other than
money, the Transfer Notice shall state the amount of the monetary consideration,
if any, and shall describe all non-monetary consideration and state the fair
market value thereof). If the General Partner disagrees with the fair market
value of the non-monetary consideration as described in the Transfer Notice,
then such fair market value shall be determined by an independent appraiser
agreed upon by both Partners (provided, that if Partners cannot agree upon an
independent appraiser within 15 days of the Transfer Notice, they shall each
elect their own independent appraiser within 10 days after the expiration of
such 15-day period and those two independent appraisers shall select a third
independent appraiser within 10 days after the expiration of such 10-day
period). By giving the Transfer Notice, the Limited Partner shall be deemed to
have granted to the General Partner an option to purchase all of the Offered
Interest for the price and upon the terms set forth in the Transfer Notice (as
modified by any such appraiser(s)). Such option may be exercised with respect to
all (but not less than all) the Offered Interest by the General Partner giving
notice in writing of its intention to exercise the option which is delivered to
the Limited Partner within thirty days after the later of the General Partner's
receipt of the Transfer Notice or the selection of the three independent
appraisers (if applicable). If the General Partner does not deliver any such
notice to the Limited Partner within such thirty-day period, all of such Offered
Interest may be disposed of by the Limited Partner for the price and on the
terms and conditions set forth in the Transfer Notice (as modified by any such
appraiser(s)), at any time within 120 days after the expiration of the
thirty-day option period, but any such disposition shall be subject to Section
9.1.
(b) If the General Partner timely exercises any option to purchase the
Offered Interest pursuant to Section 9.6(a), the purchase price of such Offered
Interest shall be the monetary consideration set forth in the Transfer Notice
plus the fair market value of any non-monetary consideration set forth in the
Transfer Notice (as modified by any such appraiser(s)) and shall be payable by
the General Partner to the Limited Partner in cash. The closing of the purchase
and sale of an Offered Interest shall take place on the 15th day following the
date of delivery to the Limited Partner of the General Partner's notice of
election to purchase the Offered Interest (or if such day is a Saturday, Sunday,
or legal holiday in the State of Connecticut, the first day thereafter that is
not a Saturday, Sunday, or legal holiday) at 10:00 a.m., local time, in the
office of the Limited Partner set forth on the Limited Partner's signature page
of this Agreement, or on such other date and at such other time and place as may
be agreed to by both Partners. At the closing, the Limited Partner shall take
all action necessary to convey the Offered Interest to the General Partner, free
of all liens and encumbrances.
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ARTICLE X
Dissolution, Liquidation and Termination
Section X.1. Dissolution. The Partnership shall be dissolved upon the
occurrence of any of the following:
(a) The occurrence of December 31, 2018.
(b) The consent in writing of the General Partner and the Limited
Partner.
(c) The election of the Limited Partner by written notice to the General
Partner if at the time such notice is given (i) the General Partner has
committed fraud, willful or intentional misconduct or gross negligence in the
performance of its duties hereunder, (ii) the General Partner has defaulted in
the performance of its obligation hereunder to make a distribution of cash or
properties due and owing to the Limited Partner, (iii) the General Partner has
defaulted in the performance or observation of any other material agreement,
covenant, term, condition or obligation hereunder, which default must have
continued for not less than 30 days after the General Partner has knowledge
thereof or after written notice thereof given by the Limited Partner has been
received by the General Partner, or (iv) a representation or warranty made by
the General Partner herein or by the General Partner or any of its officers in
any writing furnished in connection with or pursuant to this Agreement shall be
false in any material respect on the date as of which made.
(d) The sale or other disposition of all or substantially all of the
assets of the Partnership.
(e) The occurrence of an event of withdrawal from the Partnership by the
General Partner as provided for in Section 4.02(a) of the Act.
(f) The election of the Limited Partner by written notice to the General
Partner if at the time such notice is given (i) the General Partner has breached
Section 9.2 or (ii) the General Partner has merged or consolidated with another
entity.
(g) The election of the Limited Partner by written notice to the General
Partner at any time after the third anniversary of the Delivery Date.
(h) The failure of the Partnership to consummate the transactions
contemplated by the Purchase Agreement.
(i) The election of the Limited Partner by written notice to the General
Partner (i) if the General Partner is no longer a wholly-owned subsidiary of
Parent, (ii) upon a default by Parent in the performance or observation of any
agreement, covenant, term or condition or obligation under the Guaranty, which
default must have continued for not less than 30 days after the Parent has
knowledge thereof or after written notice thereof given by the Limited Partner
has been received by the Parent, (iii) if a representation or warranty made by
Parent or by Parent or any of its officers in any writing furnished in
connection with or pursuant to this Agreement or the Guaranty shall be false in
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any material respect on the date as of which made, or (iv) upon the occurrence
of any of the events described in Section 4.02(a)(4) or Section 4.02(a)(5) of
the Act with respect to Parent (except that with respect to Section 4.02(a)(5),
the operative number of days shall be 60 instead of the numbers set forth in
such Section).
(j) The occurrence of any other event which under the Act causes the
dissolution of a limited partnership.
Section X.2. Withdrawal by General Partner and Reconstitution.
(a) Except as specifically permitted in Section 9.2, the General Partner
covenants and agrees not to (i) withdraw voluntarily from the Partnership,
either directly, by dissolution, by transfer of its Partnership interest or by
any other voluntary act (including without limitation any event of withdrawal
from the Partnership by the General Partner as provided in Section 4.02(a) of
the Act), or (ii) allow seizure, attachment, garnishment, foreclosure or other
taking of its Partnership interest. Notwithstanding anything to the contrary
contained in this Section 10.2, in Section 10.1 or elsewhere in this Agreement,
the General Partner shall not merge or consolidate with, or assign or transfer
its interest in the Partnership to, any third party (including an Affiliate or
any other party related to the General Partner) if such merger, consolidation,
assignment or transfer will result in the termination of the Partnership for tax
purposes. If the General Partner breaches any provision of this Section 10.2 or
Section 9.2, if an event described in Section 10.1(e) occurs, or if an election
is made by the Limited Partner to dissolve the Partnership pursuant to Section
10.1(f) or Section 10.1(i), all interests and amounts which the General Partner
would otherwise receive under Section 10.3 (as General Partner but not as
Limited Partner, unless such limited partnership interest is held by the General
Partner as a result of Section 9.4 of this Agreement if the General Partner has
been removed for cause) shall be reduced by the following applicable percentages
of such interest and amount: 90% if the withdrawal occurs prior to the
expiration of the Phase I Period; 75% if the withdrawal occurs after the
expiration of the Phase I Period but prior to the expiration of the Phase II
Period; 50% if the withdrawal occurs after the expiration of the Phase II Period
but prior to the expiration of the Phase III Period; and 10% if the withdrawal
occurs during the Phase IV Period. The distribution to the Limited Partner of
assets which would otherwise be distributable to the General Partner in
accordance with this Section 10.2 shall constitute liquidated damages to the
Limited Partner for a violation by the General Partner of the covenant and
agreement contained in the first sentence of this Section 10.2, the parties
having agreed that the amount of actual damages would be difficult or impossible
to calculate.
(b) Notwithstanding the foregoing Section 10.2(a) or any other provision
of this Agreement, (i) the Partnership may be reconstituted and its business
continued without being wound up as provided for in Section 8.03 of the Act and
(ii) the provisions of Section 6.02 (including without limitation subsection (b)
thereof) of the Act shall be applicable to the Partnership except that the right
to recover damages from the withdrawing General Partner pursuant to Section
6.02(a) of the Act shall be governed by Section 10.2(a) of this Agreement.
Section X.3. Liquidation and Termination. Upon dissolution of the
Partnership (unless it is reconstituted and its business continued without being
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wound up as provided for in Section 10.2(b)), the General Partner shall act as
liquidator or may appoint in writing one or more liquidators who shall have full
authority to wind up the affairs of the Partnership and make final distribution
as provided herein; provided, however, that if one of the events specified in
Section 10.1(c),(e), (f), (g) or (i) has occurred as a result of an act by the
General Partner, the liquidator shall be a person selected in writing by the
Limited Partner. The liquidator shall continue to operate the Partnership
properties with all of the power and authority of the General Partner.
The steps to be accomplished by the liquidator are as follows:
(a) As promptly as possible after dissolution and again after final
liquidation, the liquidator shall cause a proper accounting to be made by the
Partnership's independent accountants of the Partnership's assets, liabilities
and operations through the last day of the month in which the dissolution occurs
or the final liquidation is completed, as appropriate.
(b) The liquidator shall pay all of the debts and liabilities of the
Partnership (including all expenses incurred in liquidation) or otherwise make
adequate provision therefor (including without limitation the establishment of a
cash escrow fund for contingent liabilities in such amount and for such term as
the liquidator may reasonably determine). After making payment or provision for
all debts and liabilities of the Partnership, the Partners' capital accounts
shall then be adjusted by (i) assuming the sale of all remaining assets of the
Partnership for cash at their respective fair market values (as determined by an
appraiser mutually determined by the Partners within 30 days after receipt by
the Limited Partner of notice that the liquidator has paid or made provision for
all debts and liabilities of the Partnership) as of the date of termination of
the Partnership, (ii) assuming the distribution of such cash at such time in the
percentages required under Sections 4.2 and 4.4, taking into account whether
Cumulative Payout No. 1, Cumulative Payout No. 2 or Cumulative Payout No. 3 has
occurred or would occur as a result of such distribution, and (iii) debiting or
crediting each Partner's capital account with its respective share of the
hypothetical gains or losses resulting from such assumed sales in the same
manner as each such capital account would be debited or credited for gains or
losses on actual sales of such assets. In the event that the Limited Partner
fails to notify the General Partner of its selection of an appraiser pursuant to
the preceding sentence within the time period specified therein, the General
Partner shall be entitled to select such appraiser. The liquidator shall then by
payment of cash or property (valued as of the date of termination of the
Partnership at its fair market value by the appraiser selected in the manner
provided above) distribute to the Partners such amounts as are required to pay
the positive balances of their respective capital accounts. To the extent
possible and provided that the ownership of such property would not be in
violation of any rule or regulation then applicable to the Limited Partner, such
a distribution shall be in kind unless otherwise agreed to by the General
Partner and the Limited Partner. In making distributions of property in
satisfaction of such capital account balances, the liquidator shall distribute,
to the extent possible, undivided interests in each Lease in the same
percentages as the Partners share revenues from such Lease. Each Partner shall
have the right to designate another person to receive any property which
otherwise would be distributed in kind to that Partner pursuant to this Section
10.3 and Section 10.2 if that Section is applicable. Any distributions to the
Partners in liquidation of the Partnership shall be made by the later of the end
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of the taxable year in which the liquidation occurs, or 90 days after the date
of such liquidation. For purposes of the preceding sentence, the term
"liquidation" shall have the same meaning as set forth in Treasury Regulation
ss. 1.704-1(b)(2)(ii)(g) as in effect at such time.
(c) Any Leases distributed to the Partners shall be subject to the
operating agreements then in effect with respect to such Leases; provided,
however, that if any of such Leases is subject to an operating agreement to
which an unaffiliated third person is not a party, such Leases shall be subject
to a standard form operating agreement as shall be agreed upon by the Partners.
Upon written request made by any Partner, the liquidator shall sell the
Partnership Leases and other properties and assets that otherwise would be
distributable to such Partner under this Section 10.3 at the best cash price
available therefor and distribute such cash (after deducting all expenses
reasonably relating to such sale) to such Partner. Such sale shall be on behalf
of such Partner and shall be treated as the sale by such Partner of its interest
in such properties, and any gain or loss attributable to such sale and any
proceeds therefrom shall be for the account of such Partner.
(d) The provisions of subsections (b) and (c) of this Section 10.3 shall
be subject to the effect of Section 10.2 if that Section is applicable.
(e) Except as expressly provided herein, the liquidator shall comply
with any applicable requirements of the Act and all other applicable laws
pertaining to the winding up of the affairs of the Partnership and the final
distribution of its assets.
The distribution of cash and/or property to the Limited Partners in
accordance with the provisions of this Section 10.3 shall constitute a complete
return to the Limited Partner of its Capital Contributions and a complete
distribution to the Limited Partner of its interests in the Partnership and all
Partnership property. No Partner with a negative balance in its capital account
shall be liable to the Partnership or any other Partner for the amount of such
negative balance upon dissolution and liquidation.
Section X.4. Cancellation of Certificate. Upon the completion of the
distribution of Partnership assets as provided herein, the Partnership shall be
terminated, and the liquidator (or the Partners if necessary) shall cause the
cancellation of the certificate of limited partnership of the Partnership and
shall take such other actions as may be necessary to terminate the Partnership.
ARTICLE XI
Representations and Warranties
Section XI.1. Representations and Warranties of General Partner. The
General Partner represents, warrants and covenants to the Limited Partner as
follows:
(a) The General Partner is a corporation duly organized, validly
existing and in good standing under the laws of the State of Wyoming and is a
wholly-owned subsidiary of Parent.
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(b) The General Partner is duly qualified or will qualify to transact
business in every jurisdiction where the character of the properties owned or
held by the Partnership or where the nature of the business transacted by the
Partnership makes qualification by it necessary or appropriate in order for the
Partnership to conduct its business.
(c) The General Partner has the requisite corporate power and authority
to execute and deliver this Agreement and to perform its obligations hereunder
(including, without limitation, the power and authority to act as General
Partner of the Partnership).
(d) The execution, delivery and performance by the General Partner of
this Agreement has been duly and validly authorized by all requisite corporate
action, and no other corporate or shareholder action is required to be taken to
authorize such execution, delivery and performance.
(e) The execution, delivery and performance by the General Partner of
this Agreement is within its corporate powers and will not (i) be in
contravention of or violate any provisions of its charter or other governing
documents, as amended to the date hereof, or (ii) be in contravention of or
result in any breach or constitute a default under any applicable law, rule,
regulation, judgment, license, permit or order or any loan, note or other
agreement or instrument to which the General Partner is a party or by which it
or any of its properties are bound.
(f) When delivered to the Limited Partner, this Agreement will have been
duly and validly executed and will be binding upon the General Partner and
enforceable in accordance with the terms hereof.
(g) Except for a change of law over which the General Partner has no
control (and the General Partner shall immediately notify the Limited Partner
when the General Partner learns of such occurrence), the foregoing
representations, warranties and covenants shall remain true and accurate during
the term of the Partnership, and the General Partner will neither take action
nor permit action to be taken which would cause any of the foregoing
representations to become untrue or inaccurate.
(h) No consent, approval, authorization or order of any court or
governmental agency or authority or of any third party which has not been
obtained is required in connection with the execution, delivery and performance
by the General Partner of this Agreement except for the filing of certain
documents with respect to the qualification or reformation and operation of the
Partnership as a limited partnership under the laws of any state in which the
Partnership owns properties or conducts business so as to require such
qualification.
(i) Neither the General Partner nor any of its Affiliates has employed
or retained any broker, agent or finder in connection with this Agreement or the
transactions contemplated herein, or paid or agreed to pay any brokerage fee,
finder's fee, commission or similar payment to any person on account of this
Agreement or the transactions provided for herein; and the General Partner shall
indemnify and hold harmless the Partnership and the Limited Partner from any
costs, including attorneys' fees, and liability arising from the claim of any
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broker, agent or finder employed or retained by the General Partner in
connection with the Partnership or this Agreement.
(j) As of the date hereof none of the financial statements or other
written documents or information delivered herewith or heretofore by or on
behalf of the General Partner to the Limited Partner in connection with the
General Partner, this Agreement, the Assets and the operations to be conducted
hereunder contains any untrue statement of a material fact or omits to state any
material fact (other than facts which the Limited Partner recognizes to be
industry risks normally associated with the oil and gas business) necessary to
keep the statements contained herein or therein from being misleading. There is
no fact peculiar to the General Partner or the Assets (other than facts which
the Limited Partner recognizes to be industry risks normally associated with the
oil and gas business) which materially adversely affects or in the future may
(so far as the General Partner can now foresee) materially adversely affect (i)
the business, property or assets, or financial condition of the General Partner
or (ii) the Assets, and which has not been set forth in this Agreement or in the
other documents, certificates and statements furnished to the Limited Partner by
or on behalf of the General Partners prior to the date hereof in connection with
the transactions contemplated hereby.
(k) To the best knowledge of the General Partner, the General Partner
and its Affiliates and persons acting on their behalf have not taken any action,
or failed to take any action, which has caused the organization of the
Partnership and the issuance of the interests in the Partnership to come within
the registration requirements of the Securities Act of 1933, as amended, or any
applicable state blue sky laws.
(l) There is no pending or, to the best of the General Partner's
knowledge, threatened judicial, administrative or arbitral action, suit or
proceeding against or investigation of the General Partner which is not fully
insured against (except standard deductible amounts) and which might materially
and adversely affect the financial condition of the General Partner or its
ability to perform its obligations under this Agreement.
(m) During the preceding 12-month period, the General Partner and its
Affiliates and persons acting on their behalf have not sold (except to a limited
number of persons who have represented themselves to be accredited investors, as
defined in Rule 501 promulgated by the Securities and Exchange Commission) any
interest in the Partnership or similar interests; with respect to any sales of
interests similar to the Partnership by the General Partner and its Affiliates
and persons acting on their behalf subsequent to the Delivery Date, the General
Partner shall do nothing which would require the registration of these interests
under the Securities Act of 1933, and the rules and regulations promulgated
thereunder, as well as applicable state securities laws.
Section XI.2. Representations and Warranties of Limited Partner. The
Limited Partner represents, warrants and covenants to the General Partner as
follows:
(a) It is duly organized, validly existing and in good standing under
the laws of its state of incorporation.
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(b) It has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.
(c) The execution, delivery and performance of this Agreement are within
its powers and do not (i) contravene or violate any provisions of its
Certificate or Articles of Incorporation or Bylaws, as amended to the date
hereof, or (ii) contravene or result in any breach of or constitute a default
under any applicable law, rule or regulation or any loan, note or other
agreement or instrument to which it is a party or by which it or any of its
properties are bound.
(d) When delivered to the General Partner, this Agreement will be duly
and validly executed by the Limited Partner and will be binding upon it in
accordance with the terms hereof.
(e) Neither it nor any person acting on its behalf has employed or
retained any broker, agent or finder in connection with the transactions
provided for herein, or agreed to pay any brokerage fee, finder's fee,
commission or similar payment to any person on account of the transactions
provided for herein.
(f) It is acquiring its interest in the Partnership as an investment and
not with a view to the resale or other distribution to the public; provided,
however, that the disposition of its interest shall at all times be and remain
within its control.
(g) As of the Delivery Date, it is a wholly-owned subsidiary of General
Electric Capital Corporation.
(h) It is an "accredited investor" with the meaning of Regulation D
promulgated by the Securities and Exchange Commission under the Securities Act
of 1933, as amended.
ARTICLE XII
Miscellaneous
Section XII.1. Notices. All notices, elections, demands or other
communications required or permitted to be made or given pursuant to this
Agreement shall be in writing and shall be considered as properly given or made
if given by (a) personal delivery, (b) expedited delivery service with proof of
delivery, (c) first class mail postage prepaid, or (d) prepaid telegram, telex
or facsimile (provided that such telegram, telex or facsimile is confirmed by
expedited delivery service in the manner previously described). Each partner's
address for notices and other communications hereunder shall be that set forth
opposite such Partner's signature hereto; provided, however, that when in this
Agreement it is provided that a time period shall commence when a notice is
received, such time period shall commence upon actual receipt by the addressee
regardless of when the notice is given or made. The Limited Partner may change
its address by giving notice in writing to the General Partner of its new
address, and the General Partner may change its address by giving notice in
writing to the Limited Partner of its new address.
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Section XII.2. Amendments. This Agreement may be changed, modified, or
amended only by an instrument in writing duly executed by all Partners.
Section XII.3. Partition. Each of the Partners hereby irrevocably waives
for the term of the Partnership any right that such Partner may have to maintain
any action for partition with respect to the Partnership property.
Section XII.4. Entire Agreement. This Agreement and the other documents
contemplated hereunder constitute the full and complete agreement of the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral, between the parties hereto
with respect to the subject matter hereof.
Section XII.5. No Waiver. The failure of any Partner to insist upon
strict performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall not
be a waiver of such Partner's right to demand strict compliance in the future.
No consent or waiver, express or implied, to or of any breach or default in the
performance of any obligation hereunder shall constitute a consent or waiver to
or of any other breach or default in the performance of the same or any other
obligation hereunder.
Section XII.6. Applicable Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted,
construed and enforced in accordance with the laws of the State of Texas.
Section XII.7. Successors and Assigns. Subject to Article IX, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.
Section XII.8. Exhibits. Exhibits 2.1--Payout No. 1 Discount Factor,
2.1--Payout No. 2 Discount Factor, 2.1--Payout No. 3 Discount Factor,
3.2(d)(iii), 3.2(d)(x), 5.6 and 6.8 to this Agreement are attached hereto. Each
Exhibit is incorporated herein by reference and made a part hereof for all
purposes and references to this Agreement shall also include such Exhibit unless
the context in which used shall otherwise require.
Section XII.9. Survival of Representations and Warranties. All
representations, warranties and covenants made by the General Partner or the
Limited Partner in this Agreement or any other document contemplated thereby or
hereby shall be considered to have been relied upon by the other party hereto
and shall survive the execution and delivery of this Agreement or such other
document, regardless of any investigation made by or on behalf of any such
party.
Section XII.10. No Third Party Benefit. Nothing in this Agreement,
either express or implied, is intended to or shall confer upon any person other
than the parties hereto, and their respective successors and permitted assigns,
any rights, benefits, or remedies of any nature whatsoever under or by reason of
this Agreement.
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Section XII.11. Public Announcements. Except as may be required by
applicable law or by obligations pursuant to any listing agreement with any
national securities exchange, neither the General Partner nor the Limited
Partner shall issue any press release or otherwise make any public statement
with respect to this Agreement or the transactions contemplated hereby without
the prior written approval of the other party, which approval shall not be
unreasonably withheld. Any such press release or public statement required by
applicable law or by obligations pursuant to any listing agreement with any
national securities exchange shall only be made after reasonable notice to the
other party.
Section XII.12. Arbitration. Any dispute arising out of or relating to
this Agreement, any schedule, certificate or other document delivered by any
party in connection with this Agreement or incident to the transactions
contemplated hereby or thereby or the breach, inaccuracy, termination or
validity hereof or thereof or otherwise arising out of or relating to the
transactions contemplated hereby and thereby, or any other agreement among them
or between any of them, whether entered into prior to, on or subsequent to the
date of this Agreement or those arising under any federal, state or local law,
regulation or ordinance, shall be determined by binding arbitration in
accordance with the then current Commercial Arbitration Rules of the American
Arbitration Association. If the amount in controversy in the arbitration exceeds
Two Hundred Fifty Thousand Dollars ($250,000), exclusive of interest, attorneys'
fees and costs, or if a single neutral arbitrator cannot be agreed upon within
thirty (30) calendar days after a dispute has arisen which is to be decided by
arbitration, the arbitration shall be conducted by a panel of three (3) neutral
arbitrators. Otherwise, the arbitration shall be conducted by a single neutral
arbitrator. The parties shall endeavor to select neutral arbitrators by mutual
agreement. If such agreement cannot be reached within thirty (30) calendar days
after a dispute has arisen which is to be decided by arbitration, each party
shall select its own neutral arbitrator within 15 days of the expiration of such
30-day period and the two neutral arbitrators so selected shall select a third
neutral arbitrator within 10 days of the expiration of such 15-day period. The 3
persons thus selected shall be the arbitrators for such arbitration. If three
(3) arbitrators are selected, the arbitrators shall elect a chairperson to
preside at all meetings and hearings. If a dispute is to be resolved by a sole
arbitrator in accordance with the terms hereof, or if the dispute is to be
resolved by a panel of three (3) arbitrators as provided hereinabove, then such
sole arbitrator or the chairperson of such panel, as the case may be, shall be a
member of a state bar engaged in the practice of law in the United States or a
retired member of a state or the federal judiciary in the United States. The
award of the arbitrator(s) shall require a majority of the arbitrators in the
case of a panel of arbitrators, shall be in writing and reasoned, shall be based
on the evidence admitted and the substantive law of the State of Texas and shall
contain an award for each issue and counterclaim. The award shall be made within
thirty (30) days following the close of the final hearing and the filing of any
post hearing briefs authorized by the arbitrator(s). The award of the
arbitrator(s) shall be final and binding on the parties hereto and the subject
matter. Judgment upon the award rendered by the arbitrator(s) may be entered by
any court having jurisdiction. The place of arbitration shall be in Dallas,
Texas. Each party shall be entitled to inspect and obtain a copy of relevant
documents in the possession or control of the other party and to take
depositions of the other parties' employees, agents, representatives and
witnesses (including expert witnesses). All such discovery shall be in
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accordance with procedures approved by the arbitrator(s). Unless otherwise
provided in the award, each party shall bear its own costs of discovery. All
discovery shall be expedited, consistent with the nature and complexity of the
claim or dispute and consistent with fairness and justice. The arbitrator(s)
shall have the power to compel any party to comply with discovery requests of
the other parties and to issue binding orders relating to any discovery dispute
which shall be enforceable in the same manner as awards. The arbitrator(s) also
shall have the power to impose sanctions for abuse or frustration of the
arbitration process, including without limitation, the refusal to comply with
orders of the arbitrator(s) relating to discovery and compliance with subpoenas.
Each of the parties hereto hereby irrevocably submits to the jurisdiction of the
courts of the State of Texas for entry of any arbitration decision or to obtain
any preliminary relief which may be necessary and hereby consents to the
enforcement by such courts of any award rendered in such arbitration.
Section XII.13. Voting Rights. Without affecting rights with respect to
allocations and distributions and the rights, duties and obligations of the
General Partner hereunder, at no time will a majority of the voting interests
under ordinary circumstances with respect to the Partnership be held by the
General Partner.
Section XII.14. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
constitute but one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
GENERAL PARTNER:
WAMSUTTER HOLDINGS, INC.
By: __________________________
____________,_____________
ADDRESS FOR NOTICE PURPOSES:
500 N. Loop 1604 East
Suite 100
San Antonio, Texas 78232
Attention: Robert Carington
Telecopy No.: 210-490-8816
SIGNATURE PAGE--Agreement of Limited Partnership providing for the formation
of Abraxas Wamsutter L.P.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
LIMITED PARTNER:
TIFD III-X INC.
By:________________________
______________,_________
ADDRESS FOR NOTICE PURPOSES:
c/o GE Capital Corp.--SFG
120 Long Ridge Road - 3rd Floor
Stamford, Connecticut 06927-1550
Attention: Global Asset Management Operations
Telecopy No.: 203-961-2017
SIGNATURE PAGE--Agreement of Limited Partnership providing for the
formation of Abraxas Wamsutter L.P.
<PAGE>
EXHIBIT 99.1
NEWS RELEASE
NEWS RELEASE
- -------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE www.abraxaspetroleum.com
FOR MORE INFORMATION CONTACT:
JACK M. RONEY
VICE PRESIDENT/CORPORATE DEVELOPMENT
ABRAXAS PETROLEUM CORPORATION TO SELL
WYOMING NATURAL GAS PROPERTIES
SAN ANTONIO, TX - (November 12, 1998) - Abraxas Petroleum Corporation (NASDAQ:
AXAS) today announced a definitive agreement to sell its natural gas producing
properties in the Wamsutter area of southwestern Wyoming's Green River Basin. A
partnership between a wholly-owned subsidiary of Abraxas and an affiliate of GE
Capital Structured Finance Group (SFG) will acquire the reserves for
approximately $60.2 million. Abraxas will retain certain deep rights and
unproven leasehold interests and Section 29 tax credits, plus a 1% equity
interest in the partnership, which could increase to 35% and higher based upon
achievement of certain agreed upon rates of return. Abraxas will continue to
operate the properties. The effective date of the transaction is October 1, 1998
and the transaction is expected to close before November 30, 1998.
The properties consist of approximately 11,300 gross acres (8,700 net acres) and
57 gross wells (44 net wells). Independent petroleum consultants, DeGolyer and
MacNaughton, estimate that as of December 31, 1997, the properties had total
proved reserves of 76.6 BCFE.
Robert L. G. Watson, Chief Executive Officer of Abraxas, stated "The sale of the
Wyoming properties is consistent with our strategy of selling fully developed
properties so that we can maintain financial flexibility and redeploy proceeds
to new acquisition, exploration and development activities with upside
potential."
Abraxas Petroleum Corporation is a San Antonio-based crude oil and natural gas
exploration and production company that also processes natural gas. It operates
primarily along the Texas Gulf Coast, in the Permian Basin of western Texas,
western Canada and southwestern Wyoming.
GE Capital Structured Finance Group is active in both investing in and financing
conventional and Section 29 reserve acquisitions, asset monetizations, gas
gathering, processing, storage, transmission and distribution. SFG provides
specialized financial products and services to, and acts as an equity investor
with clients in the energy, commercial and industrial, telecommunications and
transportation sectors, worldwide. Headquartered in Stamford, Connecticut, SFG
has more than 350 professionals in 15 offices globally.
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GE Capital, with assets of over US$250 billion, is a global, financial services
company with 28 specialized businesses. It is a wholly-owned subsidiary of
General Electric Company, a diversified manufacturing, technology, and services
company with operations worldwide.
Safe Harbor for forward-looking statement: Statements in this release looking
forward in time involve known and unknown risks and uncertainties, which may
cause the Company's actual results in future periods to be materially different
from any future performance suggested in this release. Such factors may include,
but may not be necessarily limited to, changes in the prices received by the
Company for crude oil and natural gas. In addition, the Company's future crude
oil and natural gas production is highly dependent upon the Company's level of
success in acquiring or finding additional reserves. Further, the Company
operates in an industry sector where securities values are highly volatile and
may be influenced by economic and other factors beyond the Company's control. In
the context of forward-looking information provided for in this release,
reference is made to the discussion of risk factors detailed in the Company's
filing with the Securities and Exchange Commission during the past 12 months.
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