<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 6, 1995
SOUTHERN MINERAL CORPORATION
________________________________________________________________________________
(Exact name of registrant as specified in charter)
Nevada 0-8043 36-2068676
________________________________________________________________________________
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
17001 Northchase, Suite 690, Houston, Texas 77060-2138
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 872-7621
________________________________________________________________________________
(Former name or former address, if changed since last report.)
<PAGE> 2
Item 7. Financial Statements, Proforma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
The audited financial statements for Diverse GP III ("DGP III"), a Texas
general partnership of which an undivided 15% interest is the sole asset of SMC
Production Co., formerly named Diverse Production Co. ("DPC"), are filed as a
part of the originally filed Form 8-K dated April 6, 1995. The Registrant
considers its purchase of DPC to be an acquisition of DPC's 15% investment in
DGP III. DPC's other assets and operations were sold or otherwise disposed of
before the Registrant's April 6, 1995 acquisition of DPC. Because such other
assets and operations are not relevant to the interests acquired by the
Registrant, historical financial information for DPC is not included herein.
The Registrant is not aware of any other DPC assets, liabilities, or contingent
liabilities other than the 15% investment in DGP III.
(b) Pro Forma Financial Information
On April 6, 1995, the Registrant consummated the transactions contemplated
by an Exchange Agreement executed March 2, 1995 by and among DPC, the
shareholders of DPC and the Registrant (the "Agreement"). DPC's sole asset is
its investment in 15% of DGP III, which is engaged in the acquisition,
exploitation and production of oil and gas reserves. Before April 6, 1995, DPC
and DGP III had the same beneficial owners. Pursuant to the Agreement, the
Registrant issued 2,193,919 shares of its common stock and granted options for
the purchase of 325,000 of its common stock to the DPC shareholders in exchange
for all of DPC's capital stock. The stock options granted under the Agreement
are exercisable at any time before April 7, 2000 at a purchase price of $1.25
per share. The Registrant will account for this acquisition as a purchase and
record the transaction at a purchase price of $1.00 per share, the average
trade price of a share of the Registrant's common stock as reported on the
NASDAQ SmallCap Market during the period March 30, 1995 to April 13, 1995.
The unaudited pro forma condensed consolidated balance sheet as of March 31,
1995 and the unaudited pro forma condensed consolidated statements of
operations for the twelve months and three months ended December 31, 1994 and
March 31, 1995, respectively, are consolidations of such statements of the
Registrant and DPC under the assumptions set forth below in the accompanying
notes and are subject to change. In addition, the Registrant considers its
purchase of DPC to be an acquisition of DPC's 15% investment in DGP III. DPC
sold or otherwise disposed of its other assets and operations before the April
6, 1995 consummation of the transactions contemplated by the Agreement.
Because such other assets and operations are not relevant to the interests
acquired by the Registrant, such financial information for DPC is not included
herein. The Registrant is not aware of any other DPC assets, liabilities, or
contingent liabilities other than the 15% investment in DGP III.
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The unaudited pro forma condensed consolidated balance sheet as of March 31,
1995 presents the acquisition of DPC as if it had occurred at March 31, 1995,
while the unaudited condensed consolidated statements of operations for the
twelve months ended December 31, 1994 and three months ended March 31, 1995
present the transaction as if it had occurred at January 1, 1994.
The unaudited pro forma financial statements should be read in conjunction
with the separate financial statements and notes thereto of DGP III included in
the Registrant's originally filed report on Form 8-K dated April 6, 1995 and
the Registrant's financial statements and notes thereto included in its
previously filed Form 10-K for its fiscal year ended December 31, 1994 and Form
10-QSB for its fiscal quarter ended March 31, 1995. The unaudited pro forma
financial statements are not necessarily indicative of the financial position
or results of operations of the consolidated companies that might have occurred
or as it may be in the future.
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<PAGE> 4
Index to Unaudited Pro Forma Financial Statements
<TABLE>
<CAPTION>
Page Number
<S> <C>
Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 1995 5
Pro Forma Condensed Consolidated Statement of
Operations for the Twelve Months Ended
December 31, 1994 6
Pro Forma Condensed Consolidated Statement of
Operations for the Three Months Ended
March 31, 1995 7
Notes to Pro Forma Condensed Consolidated Financial
Statements for the Balance Sheet as of March 31, 1995,
the Statement of Operations for the Twelve Months
Ended December 31, 1994 and the Statement of
Operations for the Three Months Ended March 31, 1995 8
</TABLE>
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<PAGE> 5
SOUTHERN MINERAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
As of March 31, 1995
(Unaudited)
(000's Omitted)
<TABLE>
<CAPTION> Pro Forma
Adjustments
Southern SMC --------------
Mineral Production Note Pro Forma
Corporation Co. (1) Amount Ref. Consolidated
----------- ---------- ------ ---- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $51 $96 -- $147
Marketable securities 1,499 -- -- 1,499
Receivables 204 126 -- 330
Other 60 -- -- 60
------ ---- ------ ------
Total Current Assets 1,814 222 -- 2,036
------ ---- ------ ------
Property and Equipment, net 1,344 751 1,315 (2) 3,486
76 (3)
Other Assets 42 4 -- 46
------ ---- ------ ------
$3,200 $977 $1,391 $5,568
====== ==== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $185 $99 76 (3) $360
------ ---- ------ ------
Total Current Liabilities 185 99 76 360
------ ---- ------ ------
Deferred Income Taxes -- -- -- --
Stockholders' Equity
Common Stock 42 13 22 (2) 64
(13) (4)
Additional paid-in capital 853 804 2,171 (2) 3,024
(804) (4)
Retained earnings 2,167 61 (61) (4) 2,167
------ ---- ------ ------
3,062 878 1,315 5,255
Treasury stock (47) -- -- (47)
------ ---- ------ ------
Total Stockholders' Equity 3,015 878 1,315 5,208
------ ---- ------ ------
$3,200 $977 $1,391 $5,568
====== ==== ====== ======
</TABLE>
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<PAGE> 6
SOUTHERN MINERAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
For the Twelve Months Ended December 31, 1994
(Unaudited)
(000's Omitted, Except for Share and Per
Share Amounts)
<TABLE>
<CAPTION> Pro Forma
Adjustments
Southern SMC ---------------
Mineral Production Note Pro Forma
Corporation Co. (1) Amount Ref. Consolidated
----------- ---------- ------ ----- ------------
<S> <C> <C> <C> <C>
Revenues
Oil and gas $1,747 $835 -- $2,582
Interest 56 -- -- 56
Other 86 131 -- 217
--------- ---- ---- ---------
1,889 966 -- 2,855
--------- ---- ---- ---------
Expenses
Production 548 401 -- 949
Exploration 1,566 6 -- 1,572
Depletion and depreciation 704 192 83 (5) 979
Valuation reduction 1,724 -- -- 1,724
General and administrative 903 43 -- 946
Other 135 -- -- 135
--------- ---- ---- ---------
5,580 642 83 6,305
--------- ---- ---- ---------
Net income (loss) before
income taxes (3,691) 324 (83) (3,450)
Income tax benefit (558) -- -- (6) (558)
--------- ---- ---- ---------
Net income (loss) ($3,133) $324 ($83) ($2,892)
========= ==== ==== =========
Net loss per share ($0.78) ($0.46)
========= =========
Average common and common
equivalent shares outstanding 4,024,421 6,268,340
========= =========
</TABLE>
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<PAGE> 7
SOUTHERN MINERAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1995
(Unaudited)
(000's Omitted, Except for Share and Per
Share Amounts)
<TABLE>
<CAPTION> Pro Forma
Adjustments
Southern SMC ---------------
Mineral Production Note Pro Forma
Corporation Co. (1) Amount Ref. Consolidated
----------- ---------- ------ ----- ------------
<S> <C> <C> <C> <C>
Revenues
Oil and gas $442 $197 -- $639
Interest 21 -- -- 21
Other 9 53 -- 62
--------- --- ---- ---------
472 250 -- 722
--------- --- ---- ---------
Expenses
Production 93 124 -- 217
Exploration 165 -- -- 165
Depletion and depreciation 101 51 19 (5) 171
Valuation reduction -- -- -- --
General and administrative 214 14 -- 228
Other -- -- -- --
--------- --- ---- ---------
573 189 19 781
--------- --- ---- ---------
Net income (loss) before
income taxes (101) 61 (19) (59)
Income tax benefit -- -- -- (6) --
--------- --- ---- ---------
Net income (loss) ($101) $61 ($19) ($59)
========= === ==== =========
Net income (loss) per share ($0.02) ($0.01)
========= =========
Average common and common
equivalent shares outstanding 4,074,421 6,268,340
========= =========
</TABLE>
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<PAGE> 8
Southern Mineral Corporation
Notes to Pro Forma Condensed Consolidated Financial Statements
for the Balance Sheet As of March 31, 1995,
for the Statement of Operations for the Twelve Months
Ended December 31, 1994 and for the Statement of
Operations for the Three Months Ended March 31, 1995
(Unaudited)
Note 1: The sole asset of SMC Production Co., formerly named Diverse
Production Co. ("DPC") is its undivided 15% interest in Diverse GP
III ("DGP III"), a Texas general partnership engaged in the
acquisition, exploitation and production of oil and gas reserves.
The financial statements of DPC presented herein have been compiled
based on its 15% investment in DGP III.
Note 2: Reflects shares issued by Registrant for all of the outstanding
capital stock of DPC.
Note 3: Reflects additional acquisition costs incurred by Registrant for DPC.
The Registrant had recorded approximately $78,000 of such costs in
its March 31, 1995 balance sheet.
Note 4: To eliminate DPC's equity.
Note 5: To record the increase in depletion and depreciation expense as a
result of the increase in the carrying value of property and
equipment attributable to the investment in DGP III.
Note 6: For the pro forma results of the twelve months ended December 31,
1994 and of the three months ended March 31, 1995 the income tax
benefit was limited by the Registrant's inability to recognize all of
the tax benefits of its net operating loss ("NOL") and future
deductible temporary differences in the calculation of its tax
expense under Statement of Financial Accounting Standards No. 109.
However, these amounts are expected to be available to reduce future
tax liabilities in years in which the Registrant has taxable
earnings. As reported in its Form 10-K for the year ended December
31, 1994, the Registrant estimated that for Federal tax purposes, it
had NOL carryforwards of approximately $1,987,000 which are available
to offset future Federal taxable income through 2010. If the DPC
acquisition had occurred at January 1, 1994, the Registrant estimates
that its NOL carryforward for Federal tax purposes at March 31, 1995
would approximate $1,460,000.
Note 7: Sales of oil and gas hydrocarbons are the Registrant's principal
source of revenues and cash flows. Future sales of such products are
dependent on the Registrant's ownership of currently producing oil
and gas reserves and its primary business activity, which is the
acquisition, exploitation and production of oil and gas reserves.
Registrant's acquisition of a 15% interest in DGP III through its
acquisition of DPC has significantly increased the Registrant's
proven reserves. The table below sets out the Registrant's proven
reserve quantities and standardized measure of discounted future net
cash flows as if the acquisition of DPC had occurred effective
December 31, 1994 and has been prepared using the information
contained in Note 7 of the notes to the financial statements of
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<PAGE> 9
DGP III as of December 31, 1994 included in the Registrant's
originally filed Form 8-K dated April 6, 1995, and Note 10 of the
notes to the financial statements included in the Registrant's
Form 10-K for the year ended December 31, 1994 previously filed with
the Securities and Exchange Commission. Accordingly, the following
information is subject to the limitations, qualifications and other
information disclosed in such financial statement notes.
<TABLE>
<CAPTION>
Southern SMC
Mineral Production Pro Forma
Corporation Co. (A) Consolidated
------------ ---------- ------------
<S> <C> <C> <C>
Proved Reserve Quantities:
Oil and Natural Gas Liquids (BBLs) 228,000 185,000 413,000
========== ========== ==========
Natural Gas (MMCF) 786,000 1,960,000 2,746,000
========== ========== ==========
Standardized measure of discounted
future net cash flows $2,334,000 $2,382,000 $4,716,000
========== ========== ==========
</TABLE>
(A) For "Proved Reserve Quantities", represents 15% of the amount
of the line indicated as Proved Developed and Undeveloped
Reserves (at) December 31, 1994 set forth in the section
titled "Estimated Quantities of Proved Oil and Gas Reserves
(Unaudited)" in Note 7 to DGP III's financial statements
included in Registrant's originally filed Form 8-K dated April
6, 1995. For the "Standardized measure of discounted future
net cash flows", represents 15% of the amount of such
indicated line set forth in the section titled "Standardized
Measure of Discounted Future Net Cash Flows Relating to Proved
Oil & Gas Reserves - (Unaudited)" in Note 7 to DGP III's
financial statements included in Registrant's originally filed
Form 8-K dated April 6, 1995.
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<PAGE> 10
Exhibits
(10) (i) Exchange Agreement by and among Diverse Production Co., the
Shareholders of Diverse Production Co., and Southern Mineral
Corporation dated March 2, 1995 (incorporated by reference to
Exhibit (a) (10)(i) of Item 14, Part IV of the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994).
(1) Stock Option Agreement dated April 6, 1995 between Southern
Mineral Corporation and B. Travis Basham (previously filed
with original Form 8-K dated April 6, 1995).
(2) Stock Option Agreement dated April 6, 1995 between Southern
Mineral Corporation and Venucot Inc. (previously filed with
original Form 8-K dated April 6, 1995).
(3) Stock Option Agreement dated April 6, 1995 between Southern
Mineral Corporation and Thomas R. Fuller (previously filed
with original Form 8-K dated April 6, 1995).
(4) Stock Option Agreement dated April 6, 1995 between Southern
Mineral Corporation and Michmatt, Inc. (previously filed with
original Form 8-K dated April 6, 1995).
(5) Stock Option Agreement dated April 6, 1995 between Southern
Mineral Corporation and Donald H. Wiese, Jr. (previously filed
with original Form 8-K dated April 6, 1995).
(6) Stock Option Agreement dated April 6, 1995 between Southern
Mineral Corporation and DHW Energy, Inc. (previously filed
with original Form 8-K dated April 6, 1995).
(7) Stock Option Agreement dated April 6, 1995 between Southern
Mineral Corporation and Spencer L. Youngblood (previously
filed with original Form 8-K dated April 6, 1995).
(8) Stock Option Agreement dated April 6, 1995 between Southern
Mineral Corporation and Kona, Inc. (previously filed with
original Form 8-K dated April 6, 1995).
(9) Stock Option Agreement dated April 6, 1995 between Southern
Mineral Corporation and L. Todd Gremillion (previously filed
with original Form 8-K dated April 6, 1995).
(10) Registration Rights Agreement dated April 6, 1995 between
Southern Mineral Corporation and B. Travis Basham (previously
filed with original Form 8-K dated April 6, 1995).
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<PAGE> 11
(11) Registration Rights Agreement dated April 6, 1995 between
Southern Mineral Corporation and Venucot, Inc. (previously
filed with original Form 8-K dated April 6, 1995).
(12) Registration Rights Agreement dated April 6, 1995 between
Southern Mineral Corporation and Thomas R. Fuller (previously
filed with original Form 8-K dated April 6, 1995).
(13) Registration Rights Agreement dated April 6, 1995 between
Southern Mineral Corporation and Michmatt, Inc. (previously
filed with original Form 8-K dated April 6, 1995).
(14) Registration Rights Agreement dated April 6, 1995 between
Southern Mineral Corporation and Donald H. Wiese, Jr.
(previously filed with original Form 8-K dated April 6, 1995).
(15) Registration Rights Agreement dated April 6, 1995 between
Southern Mineral Corporation and DHW Energy, Inc. (previously
filed with original Form 8-K dated April 6, 1995).
(16) Registration Rights Agreement dated April 6, 1995 between
Southern Mineral Corporation and Spencer L. Youngblood
(previously filed with original Form 8-K dated April 6, 1995).
(17) Registration Rights Agreement dated April 6, 1995 between
Southern Mineral Corporation and Kona, Inc. (previously filed
with original Form 8-K dated April 6, 1995).
(18) Registration Rights Agreement dated April 6, 1995 between
Southern Mineral Corporation and L. Todd Gremillion
(previously filed with original Form 8-K dated April 6, 1995).
(19) Stock Option Agreement dated April 6, 1995 between Southern
Mineral Corporation and Robert R. Hillery (previously filed
with original Form 8-K dated April 6, 1995).
(20) Diverse GP III General Partnership Agreement effective 29th
September, 1990, as amended (filed herewith).
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<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHERN MINERAL CORPORATION
Date June 9, 1995 By /s/ JOHN MISITIGH
--------------------------------------
John Misitigh
Vice President, Secretary & Treasurer
(Chief Accounting Officer)
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<PAGE> 1
EXHIBIT (10)(i)(20)
DIVERSE GP III
GENERAL PARTNERSHIP AGREEMENT
This General Partnership Agreement ("Agreement") is made and entered
into by and among Diverse Energy Investments, Inc., a Texas Corporation
("DEI"), Thomas R. Fuller, a Texas resident ("Fuller"), Thomas G. Stevens, a
Texas resident ("Stevens") and L. Todd Gremillion, a Texas resident
("Gremillion"). DEI, Fuller, Stevens and Gremillion are sometimes hereinafter
collectively referred to as the "Partners" and individually referred to as a
"Partner."
For and in consideration of the mutual covenants and agreements set
forth herein, the Partners hereby agree as follows:
A G R E E M E N T:
ARTICLE I
FORMATION OF GENERAL PARTNERSHIP
Section 1.1 Formation. Pursuant to the terms and provisions of
the Texas Uniform Partnership Act, Article 6132b of the Revised Civil Statutes
of the State of Texas, as amended ("Act"), the Partners have formed, and hereby
confirm the formation of, a Texas general partnership ("Partnership"). Except
as otherwise specifically provided for herein, the rights and liabilities of
the Partners shall be as provided for in the Act.
Section 1.2 Name. The name of the Partnership shall be "Diverse
GP III" and, except as otherwise determined by the Managers (as that term is
defined in Section 6.3 below), the business of the Partnership shall be
conducted under such name.
Section 1.3 Principal Office. Except as otherwise determined by
the Managers, the principal office of the Partnership shall be located at 16414
San Pedro, Suite 340, San Antonio, Texas 78232.
Section 1.4 Term. The Partnership's term ("Term") shall commence
on the execution date of this Agreement and shall continue until terminated
pursuant to the provisions of Section 11.2 below.
ARTICLE II
PURPOSES AND POWERS
Section 2.1 Purpose. The purposes of the Partnership are, and
the sole and exclusive business of the Partnership shall be, to
<PAGE> 2
acquire, own, operate, develop, lease, sell, exchange or otherwise dispose of
those certain oil and gas properties.
Section 2.2 Powers. To accomplish the purposes of the
Partnership, the Partnership shall have the power to take any lawful action
which is permitted by the Act and which is reasonably related to the purposes
of the Partnership.
ARTICLE III
OWNERSHIP INTERESTS
Section 3.1 Ownership of Assets. Title and ownership in and to
all assets subject to this Agreement shall be vested in the Partnership. Prior
to the termination of the Partnership, except as otherwise provided in this
Agreement, each Partner hereby expressly waives any right he may have to
require any partition and/or distribution of all or any part of the assets
owned by the Partnership.
Section 3.2 Ownership of Partnership. Each Partner's percentage
ownership interest in the Partnership ("Ownership Interest") is as follows:
<TABLE>
<S> <C>
DEI 70%
Fuller 23%
Stevens 4%
Gremillion 3%
Total 100%
</TABLE>
ARTICLE IV
CAPITAL CONTRIBUTIONS
Section 4.1 Initial Capital Contribution Obligations.
Immediately upon the execution of this Agreement, the Partners shall make
capital contributions to the Partnership, in cash or by check, as follows:
<TABLE>
<S> <C>
DEI $ 700,000.00
Fuller 230,000.00
Stevens 40,000.00
Gremillion 30,000.00
-------------
Total $1,000,000.00
</TABLE>
Section 4.2 Additional Capital Contribution Obligations. If at
any time, the current cash requirements of the Partnership exceed the total of
all cash then held by the Partnership, the
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Partners agree to contribute cash to the Partnership, in proportion to their
respective Ownership Interests, in a total amount sufficient to allow the
Partnership to satisfy all such cash requirements on a timely basis.
Section 4.3 Default. If any Partner fails to timely contribute
the entire amount of his additional capital contribution obligations pursuant
to Section 4.2 above, the Managers shall have the right, but not the
obligation, to fund such defaulting Partner's additional capital contribution,
equally or in such other proportion as they may agree. If the Managers elect
to exercise the right granted under this Section 4.3, (a) the amount so funded
by the Managers shall, for all purposes, be treated as a nonrecourse loan from
the funding Managers to the defaulting Partner, which loan shall be secured by
such defaulting Partner's interest in the Partnership and shall bear interest
at the prime rate of interest from time to time established by NCNB-Texas
National Bank, San Antonio, Texas plus three percent (3%) of the maximum rate
of nonusurious interest allowed by applicable law, whichever is lesser, and (b)
the funding Managers shall thereupon receive the defaulting Partner's share of
all cash distributions made by the Partnership pursuant to Section 5.4 below
until such loan, both principal and interest, shall have been repaid in full.
If the Managers do not elect to exercise the right granted under this Section
4.3, the oil and gas property or properties for which the defaulted additional
capital contribution was necessary, shall be immediately distributed by the
Partnership to the Partners, in proportion to their respective Ownership
Interests.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
Section 5.1 Capital Accounts. A capital account ("Capital
Account") shall be established and maintained for each partner. It shall be
credited with (a) the amount of cash contributed by the Partner to the
Partnership and (b) the amount of income and gains allocated to the Partner by
the Partnership. It shall be debited with (y) the amount of cash distributed
to the Partner by the Partnership and (z) the amount of losses and deductions
allocated to the Partner by the Partnership.
Section 5.2 Allocations. For federal and state income tax
reporting purposes, each Partner's distributive share of each item of
Partnership income, gain, loss, deduction and credit shall be determined and
allocated based on such Partner's respective Ownership Interest.
Section 5.3 Available Cash. For purposes of the Agreement, the
term "Available Cash" means, at the time determined, the amount by which the
total of all cash held by the Partnership is in excess
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of the reasonable working capital requirements of the Partnership.
Section 5.4 Distributions. Available Cash shall be distributed
by the Partnership to the Partners as often as is practicable. Each Partner's
distributive share of all Available Cash distributed by the Partnership shall
be determined and, subject to the provisions of Section 4.3 above, distributed
based on such Partner's respective Ownership Interest.
ARTICLE VI
MANAGEMENT
Section 6.1 Control and Management. Except as otherwise provided
in Section 6.3 below, all right, power and authority to manage and control the
affairs of the Partnership, including, without limitation, the right, power and
authority to take any and all actions which are customary or reasonably related
to the purposes of the Partnership, shall be vested in the Partners.
Section 6.2 Voting Requirement. The prior written consent of
Partners owning at least 85% of all of the Ownership Interests shall be
required to take any action authorized pursuant to Section 6.1 above,
including, but not limited to, the following:
(i) admitting additional partners to the
Partnership; and
(i) amending this Agreement.
Section 6.3 Operational Control and Management. Notwithstanding
the provisions of Section 6.1 above, B. Travis Basham, Donald H. Wiese, Jr.,
Spencer L. Youngblood and Fuller are hereby appointed operational managers
("Managers") of the Partnership, and as such, each shall have the right to
manage and control the operational affairs of the Partnership, including,
absent express direction from all of the Partners to the contrary, the right,
power and authority to take any and all actions on behalf of the Partnership
which are necessary or appropriate to carry out the day-to-day management of
the Partnership, including, but not limited to, the right, power and authority
to:
(a) make reasonable expenditures on behalf of the
Partnership;
(b) enter into contracts on behalf of the Partnership on
such terms and conditions as are necessary or appropriate;
(c) perform all of the obligations of the Partnership and
enforce all of the rights of the Partnership under the
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<PAGE> 5
terms and conditions of all contracts and agreements entered into by
the Partnership;
(d) employ, and dismiss from employment, all employees,
agents, independent contractors, brokers, attorneys and accountants;
and
(e) execute, acknowledge, swear to and deliver any and
all documents and instruments necessary or appropriate to effectuate
(i) any and all of the foregoing and (ii) any and all actions taken by
the partners pursuant to Sections 6.1 and 6.2 above.
Section 6.4 Disagreement. If the Managers ever fail to agree as
to the proper course of action for the Partnership to take with respect to one
or more of the oil and gas properties held by the Partnership, then the oil and
gas property or properties with respect to which the Managers cannot agree
shall be immediately distributed by the Partnership to the Partners, in
proportion to their respective Ownership Interests.
Section 6.5 Reimbursement. The Managers shall be entitled to,
and shall receive, reimbursement for any and all reasonable direct and indirect
costs and/or expenses of the Partnership paid or incurred by either of them on
behalf of the Partnership, including, without limitation, any and all
reasonable costs and expenses incurred by any delegatee of either of the
Managers in the performance of his delegated management responsibilities if
such costs and expenses would otherwise have been paid or payable by a Manager
or the Partnership.
Section 6.6 Liability. The Managers shall conduct the
operational affairs of the Partnership in a prudent and businesslike manner,
but shall not be liable, responsible or accountable in damages or otherwise to
the Partnership or any Partner for any action taken or not taken on behalf of
the Partnership, unless such action or omission constitutes fraud, gross
negligence or willful misconduct.
Section 6.7 Indemnity. The Managers shall be indemnified and held
harmless by the Partnership and the Partners from and against any and all
claims, demands, liabilities, costs expenses, damages and causes of action, of
any nature whatsoever, arising out of or incidental to their management of the
operational affairs of the Partnership, except where the claim at issue is
based upon (a) the proven fraud, gross negligence or willful misconduct of the
Managers or (b) the proven material breach by the managers of any material
provision of this Agreement. The indemnification rights herein contained shall
be cumulative of, and in addition to, any and all rights, remedies and
recourses to which the Managers shall be entitled by contract, at law or in
equity. Further, the indemnification rights herein contained shall include the
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<PAGE> 6
reasonable attorneys' fees and/or other expenses incurred by the Managers in
connection with the settlement or final adjudication of any legal proceeding.
Section 6.8 Removal. The Managers may be removed, and new
managers appointed, upon 30 days notice, with or without cause, only with the
written consent of all of the Partners.
Section 6.9 In Kind Distributions. If (a) one or more oil and
gas properties held by the Partnership are distributed in kind to the Partners
and (b) the Operator under the Joint Operating Agreement controlling operations
on said properties continues to bill and hold the Partnership or the Managers
responsible for the costs and expenses of operating said properties, then the
Partnership or the Managers will administer the properties under an A.A.P.L.
Form 610-1982 Model Form Operating Agreement, with certain provisions as
outlined in Exhibit "A" attached hereto and by this reference made a part
hereof for all purposes.
ARTICLE VII
ACCOUNTING MATTERS
Section 7.1 Records and Books of Account. The Managers shall
keep, or cause to be kept, separate, accurate and complete records and books of
account pertaining solely to the activities of the Partnership and containing
an accurate and complete record of all transactions and other matters relative
to the business of the Partnership. Such records and books of account shall be
(a) maintained on the cash basis method of accounting, (b) kept at the office
of the Partnership, either of the Managers or the office of the accountants for
the Partnership or either of the Manager's and (c) available to any Partner for
inspection and audit at any time during normal business hours.
Section 7.2 Separate Operating Account. The Managers shall
establish and maintain a separate operating account ("Operating Account") for
the Partnership. All funds received by the Partnership shall be deposited into
the Operating Account.
Section 7.3 Fiscal and Taxable Years. For accounting and federal
income tax reporting purposes, the fiscal and taxable years of the Partnership
shall be the calendar year.
Section 7.4 Financial Statements. As soon as practicable after
the end of each fiscal quarter of the partnership, the Managers shall prepare
and deliver, or cause to be prepared and delivered, to each Partner a quarterly
and year-to-date report of the operations of the Partnership, including a
balance sheet and income statement.
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<PAGE> 7
Section 7.5 Income Tax Returns. As soon as practicable after the
end of each taxable year of the Partnership, the Managers shall prepare and
file, or shall cause to be prepared and filed, all required federal and state
income tax returns of the Partnership. As soon as practicable after filing any
such return, the Managers shall deliver a copy of such return, together with a
copy of all relevant schedules and supporting documents, to each Partner.
ARTICLE VIII
TRANSFER RESTRICTIONS
Section 8.1 Restriction on Transferability. Except as otherwise
specifically provided in this Agreement, no Partner or other holder of an
interest in the Partnership ("Partnership Interest") shall voluntarily sell,
assign, transfer, convey, encumber or otherwise dispose of all or any part of
his Partnership Interest without the prior written consent of all the other
Partners. For purposes of this Agreement, the term "voluntarily sell, assign,
transfer, convey, encumber or otherwise dispose of" means any transfer or
attempted transfer of legal or equitable title to a Partnership Interest other
than a transfer resulting from a default by, or the insolvency, bankruptcy,
death or divorce of, a partner or a Partner's spouse.
Section 8.2 Voluntary Transfers. Notwithstanding the provisions
of Section 8.1 above, if a Partner receives a bona fide, noncollusive offer
("Third Party Offer") to buy all or any portion of his Partnership Interest,
such Partner ("Selling Partner") may voluntarily sell in accordance with the
Third Party Offer if he first complies with the provisions of this Section 8.2.
In order to comply with the provisions of this Section 8.2, the Selling Partner
must first offer, in writing, to sell such interest ("Offered Interest") to the
other Partners ("Non-Selling Partners"). Such offer ("Offer") must state the
exact price and terms upon which the sale is to be made, which price and terms
shall be identical to those of the Third Party Offer. Thereafter, the
Non-Selling Partners can either accept or reject the Offer. Acceptance of the
Offer must be in writing and delivered to the Partnership, with a copy sent to
the Selling Partner, within 30 days from the date the Offer is received. If
one or more Non-Selling Partners ("Accepting Partners") accept the Offer, the
Selling Partner must sell, and the Accepting Partner(s) must purchase, in
proportion to their respective Ownership Interests or in such other proportion
as they may agree, all of the Offered Interest at the price and on the terms
specified in the Offer. If the Non-Selling Partners do not accept the Offer,
then, for a period of 30 days beginning on the date the Offer lapses, the
Selling Partner shall be free to sell the Offered Interest, and the purchaser
thereof shall be free to purchase and retain the Offered
-7-
<PAGE> 8
Interest as an assignee thereof; provided, however, that any such sale must be
at a price not less than and on terms no less onerous than those specified in
the Offer, and further provided that such Offered Interest shall remain, and
the purchaser thereof shall become, fully subject to the provisions of this
Agreement, including particularly this Article VIII. All costs and expenses
incurred by the Partnership in connection with the purchase and sale of an
Offered Interest pursuant to this Section 8.2 shall be reimbursed to the
Partnership by the Selling Partner.
Section 8.3 Effect of Violation. In the event that any
Partnership Interest ("Transferred Interest") is voluntarily sold, assigned,
transferred, conveyed, encumbered or otherwise disposed of, other than pursuant
to the provisions of Section 8.2 above, (a) such sale, assignment, transfer,
conveyance, encumbrance or other disposition shall be null and void and (b)
such Transferred Interest shall be treated as having been involuntarily sold,
assigned, transferred, conveyed, encumbered or otherwise disposed of (as
defined in Section 8.4 below) and, as a result, shall be subject to the option
provisions of Section 8.4 below; provided, however, that for purposes of such
option provisions the then current fair market value of the Transferred
Interest shall be deemed to be equal to the lesser of (y) its then current fair
market value as determined pursuant to Section 8.5 below or (z) the price at
which it was sold, assigned, transferred, conveyed, encumbered or otherwise
disposed of.
Section 8.4 Involuntary Transfers. For purposes of this
Agreement, the term "involuntarily sold, assigned, transferred, conveyed,
encumbered or otherwise disposed of" means any transfer or attempted transfer
of legal or equitable title to all or any portion of a Partner's Partnership
Interest resulting from a default by, or the insolvency, bankruptcy, death or
divorce of, a Partner or a Partner's spouse. In the event that all or any
portion of the Partnership Interest ("Assigned Interest") of any Partner or
other holder of a Partnership Interest ("Assigning Partner") is involuntarily
assigned, transferred, conveyed, encumbered or otherwise disposed of, such
Assigned Interest shall immediately become subject to an option ("Option") in
favor of the Partners other than the Assigning Partner ("Non-Assigning
Partners") to purchase such Assigned Interest at its then current fair market
value. Within 10 days after determining that such a sale, assignment,
transfer, conveyance or other disposition has occurred, the Partnership shall
send written notice ("Option Notice") of such event to all Non-Assigning
Partners. Thereafter, the Non-Assigning Partners can either exercise the
Option or not. Exercise of the Option must be in writing and delivered to the
Partnership, with a copy sent the holder of the Assigned Interest ("Assignee"),
within 30 days from the date the Option Notice is actually received. If one or
more Non-Assigning Partners ("Exercising Partners") exercise the Option, the
fair market value of the Assigned Interest shall be determined pursuant to
Section
-8-
<PAGE> 9
8.5 below and thereafter, if such Exercising Partners still desire to purchase
the Assigned Interest, the Assignee shall sell, and the Exercising Partners
shall purchase, in proportion to their respective Ownership Interest or in such
other proportion as they may agree, all of the Assigned Interest at a price
equal to the then current fair market value thereof and on the terms specified
in Section 8.6 below. If the Non-Assigning Partners do not exercise the
Option, the Assignee is then free to retain the Assigned Interest as an
assignee thereof; provided, however that such Assigned Interest shall remain,
and such Assignee shall become, fully subject to the provisions of this
Agreement, including particularly this Article VIII. All costs and expenses
incurred by the Partnership in connection with the purchase and sale of an
Assigned Interest pursuant to this Section 8.4 shall be reimbursed to the
Partnership by the Assigning Partner.
Section 8.5 Fair Market Value. The fair market value of any
Assigned Interest shall be determined by agreement between the Assignee and the
Exercising Partners or, if no such agreement can be reached, as follows:
(a) the Assignee shall select an independent appraiser
("Assignee's Appraiser") actively engaged in the appraisal of oil and
gas properties for a period of not less than 5 years;
(b) the Exercising Partners shall select an independent
appraiser ("Purchaser's Appraiser") actively engaged in the appraisal
of oil and gas properties for a period of not less than 5 years;
(c) the Assignee's Appraiser and the Purchaser's
Appraiser shall select an independent appraiser ("Third Appraiser")
actively engaged in the appraisal of oil and gas properties for a
period of not less than 5 years;
(d) the Assignee's Appraiser, the Purchaser's Appraiser
and the Third Appraiser shall each determine the fair market value of
the Assigned Interest as of the date the Assigned Interest was sold,
assigned, transferred, conveyed, encumbered or otherwise disposed of;
(e) the fair market values so determined shall be added
together and the sum thereof shall be divided by three; and
(f) the resulting quotient shall be deemed to be the then
current fair market value of the Assigned Interest for purposes of
this Agreement and shall be binding on all parties concerned.
Section 8.6 Terms of Purchase. Any purchase of an Assigned
Interest pursuant to the Option granted in Section 8.4 above shall be
consummated at a closing ("Closing") to be held at the principal
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<PAGE> 10
office of the Partnership within 30 days from the date the then current fair
market value of the Assigned Interest is determined pursuant to Section 8.5
above. At the Closing:
(a) each purchaser of all or any portion of the Assigned
Interest shall deliver to the Assignee (i) cash in an amount equal to
the then current fair market value of that portion of the Assigned
Interest purchased by said purchaser's option or (ii) at such
purchaser's option, cash, in an amount equal to 50% of the then
current fair market value of that portion of the Assigned Interest
purchased by said purchaser, and said purchaser's promissory note, the
principal amount of which shall be equal to 50% of the then current
fair market value of that portion of the Assigned Interest purchased
by said purchaser, payable to the order of the Assignee in five equal
annual installments of principal and interest, with interest accruing
on the unpaid principal balance thereof at a floating rate per annum
equal to the lesser of (aa) the prime rate of interest established by
NCNB-Texas National Bank, San Antonio, Texas plus three percent (3%)
or (bb) the maximum nonusurious rate of interest allowed under
applicable law, with the first such payment being due and payable on
the first anniversary of the Closing, and secured by that portion of
the Assigned Interest purchased by said purchaser; and
(b) the Assignee shall transfer and deliver that portion
of the Assigned Interest purchased by each purchaser thereof to said
purchaser(s), free and clear of any and all liens, claims, charges,
limitations, agreements, restriction and encumbrances, of any kind
(other than those imposed by this Agreement).
Section 8.7 Void Transfers. If any Partnership Interest is sold,
assigned, transferred, conveyed, encumbered or otherwise disposed of other than
in accordance with the terms and conditions of this Agreement, such sale,
assignment, transfer, conveyance, encumbrance or other disposition shall be
null and void and of no effect whatsoever, and the Partnership and the Partners
shall treat it accordingly.
ARTICLE IX
ADDITIONAL RIGHTS AND RESTRICTIONS
Section 9.1 DEI and Fuller.
(a) Encumbrances. Notwithstanding the provisions of
Article VIII above, or any other provision in this Agreement to the
contrary, DEI and Fuller shall each have the right to encumber their
respective Partnership Interest by granting a security interest
covering said Partnership Interest and/or by
-10-
<PAGE> 11
collaterally assigning said Partnership Interest for the purpose of
securing the repayment of one or more loans to said Partners.
DEI and Fuller shall each have the additional right to require
the Partnership to grant a mortgage, deed of trust or other similar
lien covering an undivided interest equal to their Ownership Interest
share of one or more oil and gas properties held by the Partnership as
additional security for the repayment of one or more loans to said
Partners.
Further, any sale, assignment, transfer, conveyance or other
disposition of any Partnership Interest so encumbered pursuant to the
foreclosure or enforcement of any such security interest, mortgage or
collateral assignment shall not be subject to, or require compliance
with, the provisions of Article VIII above.
(b) Assignments. DEI and Fuller shall each have the
right to require the Partnership to assign to said Partners their
Ownership Interest share of all, but not less than all, of the oil and
gas properties held by the Partnership.
Section 9.2 Stevens and Gremillion. Notwithstanding the
provisions of Section 8.2 above, Stevens or Gremillion shall not be entitled to
transfer less than his entire Partnership Interest pursuant to the provisions
of Section 8.2 above.
ARTICLE X
DISSOLUTION
Section 10.1 Dissolution. The Partnership shall be immediately
dissolved upon the earliest to occur of the following:
(a) the fiftieth anniversary of the execution date of this
Agreement;
(b) the receipt by the Partnership from DEI of its election
to dissolve the Partnership;
(c) the receipt by the Partnership from Fuller of his
election to dissolve the Partnership;
(d) the bankruptcy of any Partner or the Partnership;
(e) the prior written consent of 85% of the Partners;
(f) the sale, assignment, transfer, conveyance or other
disposition of substantially all of the assets of the Partnership; or
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<PAGE> 12
(g) any other circumstance which, by law, would require the
Partnership to be dissolved.
Section 10.2 Bankruptcy Defined. The bankruptcy of any Partner or
the Partnership shall be deemed to have occurred upon the earliest to occur of
the following:
(a) the filing of an application for, or the consent to, the
appointment of a custodian, including a receiver, trustee, assignee
under a general assignment for the benefit of creditors or agent, of
his assets;
(b) the filing of a voluntary petition under any chapter of
Title 11 of the United States Code or any other Act of Congress
relating to bankruptcy or a pleading in any court of record admitting
in writing his inability to pay his debts as they come due;
(c) the making of a general assignment for the benefit of his
creditors;
(d) the filing of an answer admitting the material
allegations of, his consent to, or default in answering, an
involuntary petition filed against him under any chapter of Title 11
of the United States Code or any other Act of Congress relating to
bankruptcy; or
(e) the entry of any order, judgment or decree by any court
of competent jurisdiction constituting an order for relief under any
chapter of Title 11 of the United States Code or any other Act of
Congress relating to bankruptcy or appointing a custodian, including a
receiver, trustee, assignee under a general assignment for the benefit
of creditors or agent, of his assets, and such order, judgment or
decree continuing unstayed and in effect for a period of 30 days.
Section 10.3 Effect of a Partner's Bankruptcy. In the event that
the Partnership is dissolved as a result of the bankruptcy of any Partner
("Bankrupt Partner"), the Partnership Interest ("Bankrupt Interest") of such
Bankrupt Partner shall be treated as having been involuntarily sold, assigned,
transferred, conveyed, encumbered or otherwise disposed of and, as a result,
shall be subject to the provisions of Article VIII above. In the event that
the Bankrupt Interest is purchased by the Partners other than the Bankrupt
Partner pursuant to the Option granted in Section 8.4 above, the Partnership
shall be immediately reconstituted and continued as if the dissolution had not
occurred.
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<PAGE> 13
ARTICLE XI
LIQUIDATION AND TERMINATION
Section 11.1 Liquidation. In the event that the Partnership is
dissolved pursuant to Section 10.1 above and is not reconstituted and continued
pursuant to Section 10.3 above, the Managers shall act as liquidating trustees
("Liquidating Trustees") for the Partnership and shall immediately proceed to
terminate the business of the Partnership. Thereafter, the Liquidation
Trustees shall:
(a) determine, or have determined, the fair market value of
all assets owned by the Partnership;
(b) attempt to sell such assets as they deem necessary,
appropriate or desirable to sell at such prices and on such terms as
they deem necessary, appropriate or desirable, and
(c) make, or cause to be made, a proper accounting of the
Capital Account of each Partner, allocating thereof such Partner's
distributive share of each item of income, gain, loss, deduction and
credit realized and recognized by the Partnership since the
Partnership's last accounting. For purposes of such accounting, (i)
any asset of the Partnership not sold by the Liquidating Trustees
shall be valued at its then current fair market value, as determined
by the Liquidating Trustees, and treated as sold by the Partnership
for cash in an amount equal to such fair market value and (ii) the
hypothetically resulting gain or loss shall be deemed to have been
allocated to the Partners as provided for in Section 5.2 above and the
Partners' Capital Accounts shall be adjusted as provided for in
Section 5.1 above.
The proceeds of any sale made pursuant to this Section 11.1 and
undivided interests in any assets not so sold, will, except as may be otherwise
provided by law, be distributed as follows:
(d) First, there will be distributed to Partnership creditors
(excluding the Partners for claims arising under this Section 11.1),
and among them in the priority provided by law, funds and/or assets,
to the extent available, sufficient to extinguish current Partnership
liabilities and obligations, including the costs and expenses of
liquidation.
(e) Second, any remaining proceeds and/or assets shall be
distributed pro rata to the Partners based on each such Partner's then
existing credit Capital Account balance. Any assets so distributed to
the Partners in kind shall be distributed based on the fair market
value thereof.
(f) Thereafter, if any Partner has a debit Capital
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<PAGE> 14
Account balance, such Partner shall be obligated to contribute cash to
the Partnership in an amount sufficient to reduce such debit balance
to zero. Any cash so contributed to the Partnership shall be
distributed as provided for in Section 11.1(d) and (e) above.
Notwithstanding anything to the contrary set forth in Section 11.1(d),
(e) and (f) above, if, after the payment of current Partnership liabilities and
obligations to the extent of the funds and/or assets available for that
purpose, the Liquidating Trustees determine that additional funds will be
required to meet Partnership costs and expenses theretofore incurred or for
which the Partnership may become responsible, then the Liquidating Trustees
will be obligated to retain such required amounts, if available (or as and when
they become available), before any Partnership cash or assets are distributed
to the Partners for claims arising under this Section 11.1
Section 11.2 Termination. Upon the final distribution of all
proceeds of sales and all remaining assets of the Partnership pursuant to
Section 11.1 above, the Partnership shall terminate and the Liquidating
Trustees shall have the authority to execute and record all documents required
to effectuate the dissolution and termination of the Partnership.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Notices. Except as otherwise specifically provided
herein, all notices, consents, approvals and/or other communications required
or permitted to be given pursuant to this Agreement shall be in writing and
shall be deemed to be given and delivered when actually received by a party or
7 days after being placed in the United States mail, with postage prepared for
first class delivery, in an envelope properly addressed:
(a) if to the Partnership, to:
the principal office of the Partnership as determined
pursuant to Section 1.3 above
(b) if to DEI, to:
Diverse Energy Investments, Inc.
16414 San Pedro, Suite 340
San Antonio, Texas 78232
(c) if to Fuller, to:
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<PAGE> 15
Mr. Thomas R. Fuller
1212 Main Street
Suite 351
Houston, Texas 77002
(d) if to Stevens, to:
Thomas G. Stevens
1212 Main Street
Suite 850
Houston, Texas 77002
(e) if to Gremillion, to:
L. Todd Gremillion
1100 Louisiana Street
Suite 4200
Houston, Texas 77002
(f) or, to such other address as any Partner may specify upon
30 days' written notice to the Partnership and all the other Partners.
Section 12.2 Controlling Law. This agreement and the rights and
obligations of the Partners hereunder shall be governed by, and construed in
accordance with, the laws of the State of Texas.
Section 12.3 Successors and Assigns. This Agreement and all the
terms, provisions and conditions hereof shall be binding upon, and shall inure
to the benefit of, the Partners, their respective legal representative, heirs,
successors and assigns; provided, however, that nothing herein contained shall
negate or diminish the restrictions set forth in this Agreement, including,
without limitation, those set forth in Article VIII above.
IN WITNESS WHEREOF, this Agreement is executed and effective this 29th
day of September, 1990.
"Partners"
Diverse Energy Investments, Inc.
By: /s/
---------------------------
B. Travis Basham
Chairman
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<PAGE> 16
By: /s/
--------------------------
Thomas R. Fuller
By: /s/
--------------------------
Thomas G. Stevens
By: /s/
--------------------------
L. Todd Gremillion
-16-
<PAGE> 17
AMENDMENT NO. 1 TO DIVERSE GP III GENERAL PARTNERSHIP AGREEMENT
In accordance with Section 6.3 of Diverse GP III General Partnership
Agreement dated September 29, 1990, such Agreement is hereby amended as
follows:
Add to Section 6.3 as follows:
(f) execute on behalf of and in the name of the
Partnership contracts, bids, leases, assignments,
relinquishments, bonds, rights-of-way and all other documents
whereby the Partnership seeks, acquires or disposes of any
Outer Continental Shelf oil or gas leases or interests and to
bind the Partnership in connection therewith. The persons
named in Section 6.3 above each shall have the authority to
execute any and all documents in their capacity as Managers of
the Partnership.
IN WITNESS WHEREOF, this Amendment is executed this 27th day of
February, 1992., to be effective December 1, 1991.
"PARTNERS"
DIVERSE ENERGY INVESTMENTS, INC.
By: /s/
-----------------------------
B. Travis Basham
Chairman
By: /s/
-----------------------------
Thomas R. Fuller; otherwise
known as T. R. Fuller
By: /s/
-----------------------------
Thomas G. Stevens
By: /s/
-----------------------------
L. Todd Gremillion
<PAGE> 18
APPROVAL OF TRANSFER AND
AMENDMENT NO. 2 TO DIVERSE GP III GENERAL PARTNERSHIP AGREEMENT
(1) In accordance with Section 8.1 of Diverse GP III General
Partnership Agreement dated September 29, 1990, all partners hereby
approve the transfer of Diverse Energy Investments, Inc.'s seventy
percent ownership in the partnership to Kona, Inc. ("Kona"), Venucot,
Inc. ("VEN"), and DHW Energy, Inc. ("DHW"), one-third each and the
transfer of Thomas R. Fuller's twenty-three percent interest to
Michmatt, Inc. ("Michmatt"). The new ownership is as follows:
<TABLE>
<S> <C>
Michmatt, Inc. 23%
Kona, Inc. 23 1/3%
DHW Energy, Inc. 23 1/3%
Venucot, Inc. 23 1/3%
Stevens 4%
Gremillion 3%
------
TOTAL 100%
</TABLE>
All references to DEI will be replaced with "Kona, VEN, and
DHW," and all references to Fuller will be replaced with "Michmatt."
(2) In accordance with Section 6.3 of Diverse GP III General
Partnership Agreement dated September 29, 1990, such Agreement is
hereby amended as follows:
(a) Change Section 6.2 to read:
Voting Requirement. Prior written consents of partners
owning at least 46% of all the Ownership Interests plus Fuller shall
be required to take any action authorized pursuant to Section 6.1
above, including, but not limited to, the following:
(i) admitting additional partners to the
Partnership; and
(ii) amending this Agreement.
(b) Change Section 8.1 to read as follows:
Restriction on Transferability. Except as otherwise
specifically provided in this Agreement, no Partner or other holder of
an interest in the Partnership ("Partnership Interest") shall
voluntarily sell, assign, transfer, convey, encumber or otherwise
dispose of all or any part of his Partnership Interest without the
prior written consent of all the other Partners. For purposes of this
Agreement, in case of Corporation ownership of the Partnership
Interest, the sale or disposition of controlling interest in the
Corporation shall constitute the disposition of all or any part of a
Partnership Interest. For purposes of this Agreement, the term
"voluntarily sell, assign, transfer, convey, encumber or
<PAGE> 19
otherwise dispose of" means any transfer or attempted transfer of
legal or equitable title to a Partnership Interest other than a
transfer resulting from a default by, or the insolvency, bankruptcy,
death or divorce of, a Partner or a Partner's spouse.
(c) Change Section 8.6 (a) to read as follows:c
(a) each purchaser of all or any portion of the Assigned
Interest shall deliver to the Assignee cash in an amount equal to the
then current fair market value of that portion of the Assigned
Interest purchased by said purchaser's option.
IN WITNESS WHEREOF, this Amendment is executed this 20th day of May,
1992, to be effective January 1, 1992.
"PARTNERS"
DIVERSE ENERGY INVESTMENTS, INC.
By: /s/ By: /s/
-------------------------- ---------------------------
B. Travis Basham, CEO Thomas G. Stevens
By: /s/ By: /s/
-------------------------- --------------------------
Thomas R. Fuller; otherwise L. Todd Gremillion
known as T. R. Fuller
KONA, INC.
By: /s/
--------------------------
Spencer L. Youngblood
President
VENUCOT, INC.
By: /s/
---------------------------
B. Travis Basham
President
DHW ENERGY, INC.
By: /s/
--------------------------
Donald H. Wiese, Jr.
President
MICHMATT, INC.
By: /s/
-------------------------
Thomas R. Fuller
President
<PAGE> 20
AMENDMENT NO. 3 TO DIVERSE GP III GENERAL PARTNERSHIP AGREEMENT
Section 9.1(a) of the General Partnership Agreement dated September
29, 1990 is hereby amended to read as follows:
Section 9.1 Kona, VEN, DHW and Michmatt
(a) Encumbrances. Notwithstanding the provisions of
Article VIII above or any other provision in this Agreement to the
contrary, Kona, VEN, DHW and Michmatt shall each have the right to
encumber their respective Partnership Interest by granting a security
interest covering said Partnership Interest and/or by collaterally
assigning said Partnership Interest for the purpose of securing the
repayment of one or more loans to said Partners.
Kona, VEN, DHW and Michmatt shall each have the additional
right to require the Partnership to grant a mortgage, deed of trust,
collateral assignment, security agreement or other lien covering an
undivided interest equal to their Ownership Interest share of one or
more oil and gas properties held by the Partnership as security for
the payment of one or more loans to said Partners made by any person,
firm or corporation. Such right may be exercised by the execution of
a security agreement, deed of trust, mortgage, collateral assignment
or other security document by such Partner whose interest in the oil
and gas properties is to be encumbered, acting in behalf of the
Partnership, to secure such loan or loans made by such Partner.
Further, any sale, assignment, transfer, conveyance or other
disposition of any Partnership Interest or oil and gas properties so
encumbered pursuant to the foreclosure or enforcement of any such
security interest, mortgage, collateral assignment or other security
document shall not be subject to, or require compliance with, the
provisions of Article VIII above.
This Amendment may be executed in counterparts, each of which shall be
considered an original and binding upon the party signing same.
IN WITNESS WHEREOF, this Amendment is executed this 21st day of May,
1992, to be effective as of January 1, 1992.
"PARTNERS"
By: /s/
---------------------------
Thomas G. Stevens
<PAGE> 21
By: /s/
---------------------------
L. Todd Gremillion
KONA, INC.
By: /s/
---------------------------
Spencer L. Youngblood
President
VENUCOT, INC.
By: /s/
---------------------------
B. Travis Basham
President
DHW ENERGY, INC.
By: /s/
---------------------------
Donald H. Wiese, Jr.
President
MICHMATT, INC.
By: /s/
---------------------------
Thomas R. Fuller
President
<PAGE> 22
AMENDMENT NO. 4 TO DIVERSE GP III GENERAL PARTNERSHIP AGREEMENT
This AMENDMENT NO. 4 TO DIVERSE GP III GENERAL PARTNERSHIP AGREEMENT
("Amendment No. 4") when executed by all of the Partners of Diverse GP III, a
Texas General Partnership (the "Partnership"), shall evidence an amendment of
that certain agreement dated September 29, 1990 and entitled "DIVERSE GP III
GENERAL PARTNERSHIP AGREEMENT" (the "Partnership Agreement").
The undersigned Partners of the Partnership agree that the Partnership
Agreement shall be amended in the following particulars, which amendment shall
be effective for all purposes as of the Effective Date set forth hereinafter:
1. The provisions of Section 2.1 of the Partnership Agreement are hereby
amended to be restated as follows:
"Section 2.1 Purpose. The purposes of the Partnership are, and the
sole and exclusive business of the Partnership shall be, to acquire
and own, operate, develop, lease, sell, exchange or otherwise dispose
of:
(i) oil and gas properties, and
(ii) partnership interests or other equity interests in
legal entities which own oil and gas properties.
2. Thomas G. Stevens has assigned his interest to the other Partners,
accordingly the provisions of Section 3.2 of the Partnership Agreement are
hereby amended to be restated as follows:
"Section 3.2 Ownership of Partnership. Each Partner's percentage
ownership interest in the Partnership ("Ownership Interest") is as
follows:
<TABLE>
<S> <C>
DHW Energy, Inc. 24.305%
Gremillion 3.125%
Kona, Inc. 24.305%
Michmatt, Inc. 23.960%
Venucot, Inc. 24.305%
</TABLE>
The undersigned Partners do hereby affirm that the Partnership
Agreement continues in full force and effect in accordance with all of its
terms, except as set forth hereinabove and in prior Amendments of the
Partnership Agreement. This Amendment No. 4 shall be effective for all
purposes as of the following date: January 1, 1993 ("Effective Date").
<PAGE> 23
IN WITNESS OF THE FOREGOING, this Amendment No. 4 has been executed by
the Partners of the Partnership as set forth below. Thomas G. Stevens has
executed this Amendment No. 4 to acknowledge the transfer of his Ownership
Interest in the Partnership to the remaining Partners as set forth above.
IN WITNESS WHEREOF, this Amendment is hereby executed on this 18th
day of February, 1993.
"PARTNERS"
By: /s/
---------------------------
Thomas G. Stevens
By: /s/
---------------------------
L. Todd Gremillion
KONA, INC.
By: /s/
---------------------------
Spencer L. Youngblood
President
VENUCOT, INC.
By: /s/
---------------------------
B. Travis Basham
President
DHW ENERGY, INC.
By: /s/
---------------------------
Donald H. Wiese, Jr.
President
MICHMATT, INC.
By: /s/
---------------------------
Thomas R. Fuller
President
<PAGE> 24
APPROVAL OF TRANSFER AND
AMENDMENT NO. 5 TO DIVERSE GP III GENERAL PARTNERSHIP AGREEMENT
This AMENDMENT NO. 5 TO DIVERSE GP III GENERAL PARTNERSHIP AGREEMENT
("Amendment No. 5") when executed by all of the Partners of Diverse GP III, a
Texas General Partnership (the "Partnership"), shall evidence an amendment of
that certain agreement dated September 29, 1990 and entitled "DIVERSE GP III
GENERAL PARTNERSHIP AGREEMENT" (the "Partnership Agreement").
(1) In accordance with Section 8.1 of Diverse GP III General Partnership
Agreement dated September 29, 1990, all partners hereby approve the
transfer of 15% of their interest in the Partnership to Diverse
Production Co. The new ownership is as follows:
<TABLE>
<S> <C>
Michmatt, Inc. 20.367%
Kona, Inc. 20.659%
DHW Energy, Inc. 20.659%
Venucot, Inc. 20.659%
L. Todd Gremillion 2.656%
Diverse Production Co. 15%
</TABLE>
The undersigned Partners of the Partnership agree that the Partnership
Agreement shall be amended in the following particulars, which amendment shall
be effective for all purposes as of the Effective Date set forth hereinafter:
(2) The provisions of Section 3.2 of the Partnership Agreement are hereby
amended to be restated as follows:
<TABLE>
<S> <C>
Michmatt, Inc. 20.367%
Kona, Inc. 20.659%
DHW Energy, Inc. 20.659%
Venucot, Inc. 20.659%
L. Todd Gremillion 2.656%
Diverse Production 15.000%
</TABLE>
The undersigned Partners do hereby affirm that the Partnership
Agreement continues in full force and effect in accordance with all of its
terms, except as set forth hereinabove and in prior Amendments of the
Partnership Agreement. This Amendment No. 5 shall be effective for all
purposes as of the following date: December 31, 1994 ("Effective Date").
IN WITNESS OF THE FOREGOING, this Amendment No. 5 has been executed by
the Partners of the Partnership as set forth below.
<PAGE> 25
IN WITNESS WHEREOF, this Amendment is hereby executed on this 28th
day of February, 1995.
"PARTNERS"
By: /S/
----------------------------
L. Todd Gremillion
KONA, INC.
By: /S/
----------------------------
Spencer L. Youngblood
President
VENUCOT, INC.
By: /S/
----------------------------
B. Travis Basham
President
DHW ENERGY, INC.
By: /S/
----------------------------
Donald H. Wiese, Jr.
President
MICHMATT, INC.
By: /S/
----------------------------
Thomas R. Fuller
President
DIVERSE PRODUCTION CO.
By: /S/
----------------------------
B. Travis Basham
President
<PAGE> 26
April 6, 1995
Diverse Production Co.
Southern Mineral Corporation
17001 Northchase, Suite 690
Houston, Texas 77060
Gentlemen:
This letter is delivered to you in connection with today's
consummation of the transactions contemplated by that certain Exchange
Agreement, dated March 2, 1995 (the "Agreement"), by and among Southern Mineral
Corporation, a Nevada corporation ("SMC"), Diverse Production Co., a Texas
corporation (together with its successors and permitted assigns, "DPC"), and
the Diverse Shareholders. All undefined capitalized terms used herein have the
meaning given them in the Agreement. The term "Partnership Agreement" means
that certain Diverse GP III General Partnership Agreement dated September 29,
1990, as amended to date hereof. The term "Partners" means the following
Diverse Shareholders who also are partners of the Partnership: Michmatt, Inc.,
DHW Energy, Inc., Kona, Inc., Venucot, Inc. and L. Todd Gremillion.
SMC is in part waiving the condition to its obligation to close set
forth in Section 4.1(k) of the Agreement requiring SMC's receipt of evidence
that an undivided 15% of the Partnership's assets are subject to no Liens in
favor of the International Bank of Commerce ("IBC"), and that such undivided
15% of the Partnership's assets are those attributable to DPC's interest in the
Partnership. The Partners acknowledge that SMC is willing to consummate the
Closing without IBC releases in reliance upon the acknowledgements and
agreements of (i) IBC set forth in its letter to SMC dated April 5, 1995, and
(ii) the Partners set forth herein. Without limiting the Partners' obligations
under Section 6.1 of the Agreement, the Partners will use commercially
reasonable efforts to cause IBC to prepare and deliver such releases in
recordable form within a commercially reasonable time after Closing and will
cooperate with IBC in connection therewith.
The Partners covenant to DPC and SMC that the Partnership Agreement
will be amended to reflect that (i) any adverse action taken by IBC or any
other creditor of a partner of the Partnership (collectively "Creditor")
against the Partnership or its assets will not adversely affect the aggregate
undivided interest in the Partnership's assets which, immediately before such
adverse action, is attributable to all Non-Defaulting Partners' interests in
the Partnership, and (ii) each Defaulting Partner shall indemnify and hold each
Non-Defaulting Partner harmless from any losses which it suffers as a result
thereof. "Non-Defaulting Partner" means any partner of the Partnership in
respect of whom a Creditor has not, in a particular instance, taken adverse
action. "Defaulting Partner" means any partner of the Partnership who is not a
Non-Defaulting Partner. The Partners will in good faith cooperate with each
other and DPC to negotiate the precise terms and conditions of such amendments.
By their execution and delivery to the Partners of a counterpart of this
letter, DPC and
<PAGE> 27
Diverse Production Co.
Southern Mineral Corporation
April 6, 1995
Page 2
SMC acknowledge and agree that DPC will cooperate with the Partners in good
faith to negotiate the precise terms and conditions of such amendments.
The Partners further covenant to DPC and SMC that the Partnership
Agreement will be amended to provide that (i) DPC may encumber its interest in
the Partnership and cause Partnership assets attributable thereto to be
encumbered to the same extent as any other partner of the Partnership is
permitted to do so (e.g., as in current Section 9.1(a) of the Partnership
Agreement), (ii) DPC may cause the Partnership to make in-kind distributions of
its assets to DPC, proportionate to DPC's interest in the Partnership, to the
same extent as any other partner of the Partnership is permitted to do so
(e.g., as in current Section 9.1(b) of the Partnership Agreement), and (iii)
DPC may cause the Partnership's dissolution to the same extent as any other
partner of the Partnership is permitted to do so (e.g., as in current Section
10.1 of the Partnership Agreement).
The Partners, DPC and SMC agree to cooperate with each other in good
faith to negotiate such other amendments to the Partnership Agreement which may
be appropriate in light of SMC's ownership of DPC upon consummation of the
Closing, including, without limitation, Sections 6.2 (voting requirement), and
8.1 (transfer restrictions and related change of control provisions). The
Partners, DPC and SMC promptly shall begin the negotiations contemplated by
this letter with the mutual intent of amending the Partnership Agreement in
accordance herewith as soon as practicable but no later than May 10, 1995.
This letter agreement may be executed in one or more counterparts,
each of which is an original and all of which together constitute one and the
same instrument.
MICHMATT, INC.
By: /s/
----------------------------
Thomas R. Fuller, President
DHW ENERGY, INC.
By: /s/
----------------------------
Donald H. Wiese, Jr.,
President
KONA, INC.
By: /s/
----------------------------
Spencer L. Youngblood,
President
[SIGNATURES CONTINUE ON NEXT PAGE]
<PAGE> 28
Diverse Production Co.
Southern Mineral Corporation
April 6, 1995
Page 3
VENUCOT, INC.
By: /s/
----------------------------
B. Travis Basham, President
L. TODD GREMILLION
/s/
------------------------------
L. Todd Gremillion
ACKNOWLEDGED AND AGREED TO ON
THIS 6TH DAY OF APRIL 1995 BY:
DIVERSE PRODUCTION CO.
By: /s/
---------------------------
B. Travis Basham, President
SOUTHERN MINERAL CORPORATION
By: /s/
---------------------------
Steven H. Mikel, President
