1
EXHIBIT 10.1
--------------------------------------------------------------------------------
AGREEMENT OF LIMITED PARTNERSHIP
------------------------------
TITAN RESOURCES, L.P.
------------------------------
Dated as of March 31, 1995
--------------------------------------------------------------------------------
2
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; Names and
Addresses of Partners . . . . . . . . . . . . . . . 2
SECTION 1.5. Term . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.6. Filings . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.7. Title to Partnership Property . . . . . . . . . . . . 3
ARTICLE II DEFINITIONS AND REFERENCES . . . . . . . . . . . 3
SECTION 2.1. Defined Terms . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.2. References and Titles . . . . . . . . . . . . . . . . 5
ARTICLE III CAPITALIZATION . . . . . . . . . . . . . . 6
SECTION 3.1. Capital Contributions of Partners . . . . . . . . . . 6
SECTION 3.2. Issuances of Additional Securities . . . . . . . . . 6
SECTION 3.3. Return of Contributions . . . . . . . . . . . . . . . 8
ARTICLE IV ALLOCATIONS AND DISTRIBUTIONS . . . . . . . . . . 8
SECTION 4.1. Allocation Among Limited Partners. . . . . . . . . . 8
SECTION 4.2. Allocation of Costs and Expenses . . . . . . . . . . 8
SECTION 4.3. Allocation of Revenues . . . . . . . . . . . . . . . 8
SECTION 4.4. Income Tax Allocations . . . . . . . . . . . . . . . 9
SECTION 4.5. Distributions . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V MANAGEMENT . . . . . . . . . . . . . . . 12
SECTION 5.1. Power and Authority of General Partner . . . . . . . 12
SECTION 5.2. Certain Restrictions on General Partner's Power
and Authority . . . . . . . . . . . . . . . . . . . . 14
SECTION 5.3. Duties and Services of the General Partner . . . . . 15
SECTION 5.4. Liability of Partners and Indemnification . . . . . . 16
SECTION 5.5. Contracts with Affiliates . . . . . . . . . . . . . . 17
SECTION 5.6. Reimbursement of General Partner . . . . . . . . . . 17
SECTION 5.7. Insurance . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.8. Tax Elections . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.9. Tax Returns . . . . . . . . . . . . . . . . . . . . . 17
SECTION 5.10. Tax Matters Partner . . . . . . . . . . . . . . . . . 18
SECTION 5.11. Withdrawal by the General Partner . . . . . . . . . . 18
SECTION 5.12. Certain Decisions . . . . . . . . . . . . . . . . . . 18
3
ARTICLE VI RIGHTS OF LIMITED PARTNERS . . . . . . . . . . . 19
SECTION 6.1. Rights of Limited Partners . . . . . . . . . . . . . 19
SECTION 6.2. Limitations on Limited Partners . . . . . . . . . . . 20
SECTION 6.3. Liability of Limited Partners . . . . . . . . . . . . 20
SECTION 6.4. Withdrawal and Return of Capital Contributions . . . 20
ARTICLE VII BOOKS, REPORTS, MEETINGS AND CONFIDENTIALITY . . . . . . 20
SECTION 7.1. Capital Accounts, Books and Records . . . . . . . . . 20
SECTION 7.2. Bank Accounts . . . . . . . . . . . . . . . . . . . . 22
SECTION 7.3. Reports . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 7.4. Meetings of Partners . . . . . . . . . . . . . . . . 23
SECTION 7.5. Confidentiality . . . . . . . . . . . . . . . . . . . 23
ARTICLE VIII DISSOLUTION, LIQUIDATION AND TERMINATION . . . . . . . 24
SECTION 8.1. Dissolution . . . . . . . . . . . . . . . . . . . . . 24
SECTION 8.2. Reconstitution . . . . . . . . . . . . . . . . . . . 24
SECTION 8.3. Liquidation and Termination . . . . . . . . . . . . . 24
ARTICLE IX ASSIGNMENTS OF INTERESTS . . . . . . . . . . . 25
SECTION 9.1. Assignment by Partners . . . . . . . . . . . . . . . 25
SECTION 9.2. Removal of the General Partner . . . . . . . . . . . 26
SECTION 9.3. Right of General Partner Upon Removal . . . . . . . . 27
ARTICLE X REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 28
SECTION 10.1. Representations and Warranties . . . . . . . . . . . . 28
ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . 30
SECTION 11.1. Notices . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 11.2. Amendment . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 11.3. Partition . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 11.4. Entire Agreement . . . . . . . . . . . . . . . . . . . 30
SECTION 11.5. Severability . . . . . . . . . . . . . . . . . . . . . 30
SECTION 11.6. No Waiver . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 11.7. Applicable Law . . . . . . . . . . . . . . . . . . . . 30
SECTION 11.8. Successors and Assigns . . . . . . . . . . . . . . . . 30
SECTION 11.9. Counterparts . . . . . . . . . . . . . . . . . . . . . 31
SCHEDULE 1
NAMES, ADDRESSES AND CAPITAL CONTRIBUTIONS
OF THE LIMITED PARTNERS
-ii-
4
AGREEMENT OF LIMITED PARTNERSHIP
OF
TITAN RESOURCES, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement"), dated as of
March 31, 1995, is made by and among Titan Resources I, Inc., a Texas
corporation, as the general partner (the "General Partner"), and the persons
who have executed a counterpart signature page to this Agreement as the Limited
Partners (individually, a "Limited Partner" and collectively, the "Limited
Partners").
ARTICLE I
FORMATION OF PARTNERSHIP
SECTION 1.1. Formation. Subject to the provisions of this Agreement,
the parties do hereby form a Partnership which shall be considered and
construed as a limited partnership pursuant to the provisions of the Texas
Revised Limited Partnership Act, Article 6132a-1, Vernon's Texas Civil
Statutes, as amended from time to time, and any successor statute or statutes
(the "Act").
SECTION 1.2. Name. The name of the Partnership shall be Titan
Resources, 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 or unless the General Partner determines
that it is advisable to conduct Partnership business under another name. In
such a case, the business of the Partnership in such jurisdiction or in
connection with such determination may be conducted under such other name or
names as the General Partner shall determine to be necessary. 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 1.3. Business. The business of the Partnership shall be (a) to
explore for, develop, produce, store, treat, process, gather, transport,
purchase or market oil, gas and related hydrocarbons, (b) to acquire properties
which may be used in oil and gas activities, including but not limited to (i)
leasehold interests, mineral interests and royalty interests, (ii) plants,
pipelines, ▇▇▇▇▇, facilities, equipment and other assets relating to such
activities or properties and (iii) contracts, easements, servitudes, permits,
licenses and other rights relating to the foregoing; (c) to farmout, sell,
abandon and otherwise dispose of Partnership assets; (d) to effectuate
commodity hedging transactions in order to 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 Partnership properties; (e)
to purchase or otherwise acquire, and to sell or otherwise dispose of,
securities of issuers engaged in the foregoing activities, including each and
every kind of security, whether recourse or nonrecourse to the issuer and
without regard to whether such securities are publicly traded, readily
marketable or restricted as to transfer or resale; (f) to purchase, possess,
sell, transfer or otherwise deal in, and to exercise all rights, powers,
privileges and other incidents of ownership or possession with respect to,
securities held or owned by the Partnership; (g) to
5
participate in any of the foregoing activities either directly or indirectly
through another partnership, joint venture, corporation or other arrangement;
and (h) to take all such other actions incidental to any of the foregoing as
the General Partner may determine to be necessary or desirable.
SECTION 1.4. Places of Business; Registered Agent; Names and Addresses
of Partners.
(a) The address of the principal United States office and place of
business of the Partnership and its street address shall be ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇. The General Partner, at any time and
from time to time, may change the location of the Partnership's principal place
of business and may establish such additional place or places of business of
the Partnership as the General Partner shall determine to be necessary or
desirable.
(b) The registered office of the Partnership in the State of Texas
shall be ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, and the
registered agent for service of process on the Partnership shall be the General
Partner, 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 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.
(c) The General Partner is the sole general partner of the
Partnership. The General Partner's mailing address and the street address of
its business is ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇.
(d) The mailing address and street address of each of the Limited
Partners is set forth on Schedule 1 of this Agreement.
SECTION 1.5. Term. The Partnership shall be formed and commence upon
the execution by the General Partner and the Limited Partners of this Agreement
on the date hereof and the concurrent completion of filing for record an
initial certificate of limited partnership of the Partnership with the
Secretary of State of the State of Texas, and the Partnership shall continue
until terminated in accordance with Article VIII.
SECTION 1.6. Filings. Upon the request of the General Partner, the
Limited Partners shall promptly execute and deliver all such certificates and
other instruments conforming hereto as shall be necessary for the General
Partner to accomplish all filing, recording, publishing and other acts
appropriate to comply with all requirements for the formation and operation of
a limited partnership under the laws of the State of Texas and for the
qualification and operation of a limited partnership (or a partnership in which
the Limited Partners have limited liability) in all other jurisdictions where
the Partnership shall propose to conduct business. Prior to conducting
business in any jurisdiction, the General Partner shall use its reasonable good
faith efforts to cause the Partnership to comply with all requirements for the
qualification of the Partnership to conduct business as a limited partnership
(or a partnership in which the Limited Partners have limited liability) in such
jurisdiction.
-2-
6
SECTION 1.7. Title to Partnership Property. All property owned by the
Partnership, whether real or personal, tangible or intangible, shall be deemed
to be owned by the Partnership as an entity, and no Partner, individually,
shall have any ownership of such property. The Partnership may hold its
property in its own name or in the name of a nominee which may be the General
Partner or any of its Affiliates or any trustee or agent designated by it.
ARTICLE II
DEFINITIONS AND REFERENCES
SECTION 2.1. Defined Terms. When used in this Agreement, the following
terms shall have the respective meanings set forth below:
"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 provided in Section 7.1(b), (a) increased by (i) the amount of
any unpaid Capital Contributions agreed to be contributed by such Partner under
Article III, if any, (ii) an amount equal to such Partner's allocable share of
Minimum Gain as computed on the last day of such fiscal year in accordance with
the applicable Treasury Regulations, and (iii) the amount of Partnership
liabilities allocable to such Partner under Section 752 of the Internal Revenue
Code with respect to which such Partner bears the economic risk of loss to the
extent such liabilities do not constitute Partner Nonrecourse Debt, and (b)
reduced by (i) 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 Section 1.751-
1(b)(2)(ii)(d), and (ii) 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.
"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, and (d) any officer, director, member, partner or sanguinal or affinal
kin of the General Partner or any person described in subsection (a), (b) or
(c) 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, a joint stock company, a trust or any other
entity.
"Capital Contributions" shall mean for any Partner at the particular
time in question the aggregate of the dollar amounts of any cash, or the fair
market value 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.
-3-
7
"Confidential Information" shall mean, without limitation, all
proprietary information of the Partnership, including business opportunities of
the Partnership, intellectual property, and any other information heretofore or
hereafter acquired, developed or used by the Partnership relating to its
business, including without limitation any confidential information contained
in any lease files, well files and records, land files, abstracts, title
opinions, title or curative matters, contract files, seismic records,
production records, electric logs, core data, pressure data, production
records, geological and geophysical reports and related data, memoranda, notes,
records, drawings, manuals, correspondence, financial and accounting
information, customer lists, statistical data and compilations, patents,
copyrights, trademarks, trade names, inventions, formulae, methods, processes,
agreements, contracts, manuals or any other documents relating to the business
of the Partnership, developed by, or originated by any third party and brought
to the attention of, the Partnership.
"General Partner" shall mean Titan Resources I, Inc., a Texas
corporation, and any person who becomes a substituted general partner of the
Partnership pursuant to the terms hereof.
"▇▇▇▇▇▇▇▇▇" shall mean ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and any successor statute or statutes.
"Limited Partners" shall mean the persons who from time to time shall
execute a counterpart signature page to this Agreement as the Limited Partners,
and any person who becomes a substituted Limited Partner of the Partnership
pursuant to the terms hereof.
"Majority Interest" of the Limited Partners, as to any agreement,
election, vote or other action of the Limited Partners, shall mean those
Limited Partners whose combined Sharing Ratios exceed 50% of the Sharing Ratios
of all Limited Partners.
"Minimum Gain" shall mean (i) 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 that are
subject to Partnership Nonrecourse Liabilities in full satisfaction of
Partnership Nonrecourse Liabilities, computed in accordance with applicable
Treasury Regulations, or (ii) 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
Partner Nonrecourse Debt in full satisfaction of such Partner Nonrecourse Debt,
computed in accordance with applicable Treasury Regulations.
"Partner Nonrecourse Debt" shall mean any nonrecourse debt of the
Partnership 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
-4-
8
distributed during the year to the Partners who bear the economic risk of loss
for such debt, as determined in accordance with applicable Treasury
Regulations.
"Partners" shall mean the General Partner and the Limited Partners.
"Partnership" shall mean Titan Resources, L.P., a Texas limited
partnership.
"Partnership Nonrecourse Liabilities" shall mean nonrecourse liabilities
(or portions thereof) of the Partnership for which no Partner bears the
economic risk of loss.
"Partnership Securities" shall have the meaning set forth in Section
3.2(a) hereof.
"Sharing Ratio" shall mean for any Limited Partner, the proportion that
such Limited Partner's Units bear to the total number of Units outstanding as
of the date of such determination (unless any class or series of Units issued
pursuant to Section 3.2 shall have designations, preferences or special rights
such that a Unit of such class or series shall represent a greater or lesser
interest than a Unit of any other class or series, in which event the Sharing
Ratio represented by a Unit of such class or series shall be that determined in
accordance with such designations, preferences and special rights as are fixed
by the General Partner pursuant to Section 3.2 with respect to such class or
series of Units).
"Simulated Basis", "Simulated Depletion", "Simulated Gain", and
"Simulated Loss" shall have the meanings assigned to them in Section 7.1(b).
"Unit" shall mean a unit of Partnership interest of a Limited Partner
representing a percentage interest in the Partnership equal to a fraction, the
numerator of which is one and the denominator of which is the total number of
Units outstanding. At the time of the formation of the Partnership, Schedule 1
reflects that each Limited Partner shall receive one Unit in consideration for
each dollar of Capital Contributions made to the Partnership, and that the
total number of Units outstanding is 20,334,600. Notwithstanding the preceding
sentences of this definition, the Partnership shall have the right to issue any
class or series of Units pursuant to Section 3.2 that shall have designations,
preferences or special rights such that a Unit of such class or series shall
represent a greater or lesser interest in the Partnership than a Unit of any
other class or series, in which event the interest in the Partnership
represented by a Unit of such class or series shall be that determined in
accordance with such designations, preferences and special rights as are fixed
by the General Partner pursuant to Section 3.2 with respect to such class or
series of Units.
SECTION 2.2. References and Titles. 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. Titles appearing at the
beginning of any of such subdivisions are for convenience only and shall not
constitute part of such subdivisions and shall be disregarded in construing the
language contained in such subdivisions. The words "this Agreement," "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. Pronouns in masculine, feminine and neuter genders shall be construed
to
-5-
9
include any other gender, and words in the singular form shall be construed to
include the plural and vice versa, unless the context otherwise requires.
ARTICLE III
CAPITALIZATION
SECTION 3.1. Capital Contributions of Partners.
(a) 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 Section 4.2. Such Capital
Contributions shall be paid to the Partnership by the General Partner from time
to time in the appropriate amounts.
(b) Within five days of the execution of this Agreement, each Limited
Partner shall make the Capital Contribution to the Partnership of cash and/or
services as is reflected opposite each such Limited Partner's name on Schedule
1 attached hereto and made a part hereof. The Partners agree that the value of
the services contributed to the Partnership by Sydney ▇. ▇▇▇▇▇▇, ▇▇., ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇ and R. ▇▇▇▇ ▇▇▇▇▇, the partners of The Windrock Group, Ltd., in
payment for their services rendered in connection with the formation of the
Partnership shall have the value set forth on Schedule 1, which amounts shall
be added to the capital account of such Limited Partners in accordance with
Section 7.1(b). Such amount set forth opposite each Limited Partner's name
shall represent the maximum Capital Contribution to the Partnership that such
Limited Partner shall be required to make to the Partnership (unless the
General Partner requests and such Limited Partner otherwise elects to make
additional Capital Contributions and thereby acquire additional Units in the
Partnership). In return for such Capital Contribution, the entirety of each
Limited Partner's interest in the Partnership shall consist of the number of
Units set forth opposite such Limited Partner's name on Schedule 1, which
entitle each such Limited Partner to all of the rights and obligations of a
Limited Partner pursuant to this Agreement.
SECTION 3.2. Issuances of Additional Securities.
(a) The General Partner is hereby authorized to cause the Partnership
to issue, in addition to the Units issued at the time of the formation of the
Partnership, such additional Units, or classes or series thereof, or options,
rights, warrants or appreciation rights relating thereto, or any other type of
equity security that the Partnership may lawfully issue ("Partnership Equity
Securities"), any unsecured or secured debt obligations of the Partnership or
debt obligations of the Partnership convertible into any class or series of
equity securities of the Partnership ("Partnership Debt Securities")
(collectively, "Partnership Securities"), upon compliance with this Section
3.2. The General Partner may cause the Partnership to issue such Partnership
Securities at any time and from time to time if (i) the Partnership shall have
a need for additional Capital Contributions for any proper Partnership purpose
and (ii) the General Partner shall provide each existing Limited Partner with
the right to acquire such newly-issued Partnership Securities so that such
Limited Partner may retain its Sharing Ratio at the time immediately prior to
the issuance of such Partnership Securities. Notwithstanding the immediately
preceding sentence, the General Partner may waive the requirements thereof in
the event that (x) a Majority Interest of the
-6-
10
Limited Partners consent to waive the requirements of subsection (ii) of such
sentence prior to the issuance of any such Partnership Securities, (y) the
General Partner issues options to acquire Partnership Securities to employees
of the Partnership or employees of the General Partner engaged primarily in the
business and affairs of the Partnership pursuant to an incentive option plan
theretofore adopted by the General Partner or (z) the General Partner shall
issue such Partnership Securities for consideration other than for cash.
Subject to the immediately preceding sentences, the General Partner may issue
such Partnership Securities to such persons for such consideration and on such
terms and conditions as shall be established by the General Partner in its sole
discretion. The General Partner shall have sole discretion, subject to the
guidelines set forth in this Section 3.2 and the requirements of the Act, in
determining the consideration and terms and conditions with respect to any
future issuance of Partnership Securities.
(b) Additional Partnership Securities to be issued by the Partnership
pursuant to this Section 3.2 shall be issuable in one or more classes, or one
or more series of any of such classes, with such designations, preferences and
relative, participating, optional or other special rights, powers, and duties,
including rights, powers and duties senior to existing classes and series of
Partnership Securities, all as shall be fixed by the General Partner in the
exercise of its sole and complete discretion, subject to Texas law and the
terms of the Agreement, including, without limitation, (i) the allocations of
items of Partnership income, gain, loss and deduction to each such class or
series of Partnership Securities; (ii) the right of each such class or series
of Partnership Securities to share in Partnership distributions; (iii) the
rights of each such class or series of Partnership Securities upon dissolution
and liquidation of the Partnership; (iv) whether such class or series of
additional Partnership Securities is redeemable by the Partnership and, if so,
the price at which, and the terms and conditions upon which, such class or
series of additional Partnership Securities may be redeemed by the Partnership;
(v) whether such class or series of additional Partnership Securities is issued
with the privilege of conversion and, if so, the rate at which, and the terms
and conditions upon which, such class or series of Partnership Securities may
be converted into any other class or series of Partnership Securities; (vi) the
terms and conditions upon which each such class or series of Partnership
Securities will be issued and assigned or transferred; and (vii) the right, if
any, of each such class or series of Partnership Securities to vote on
Partnership matters, including matters relating to the relative rights,
preferences and privileges of each such class or series.
(c) The General Partner is hereby authorized and directed to take all
actions which it deems appropriate or necessary in connection with each
issuance of Partnership Securities pursuant to this Section 3.2 and to amend
this Agreement in any manner which it deems appropriate or necessary to provide
for each such issuance, to admit additional Limited Partners in connection
therewith and to specify the relative rights, powers and duties of the holders
of the Partnership Securities being so issued. The General Partner shall do
all things necessary to comply with the Act and is authorized and directed to
do all things it deems to be necessary or advisable in connection with any
future issuance of Partnership Securities, including compliance with any
statute, rule, regulation or guideline of any federal, state or other
governmental agency or any national securities exchange on which any
Partnership Securities are listed for trading.
-7-
11
SECTION 3.3. Return of Contributions. No interest shall accrue on any
contributions to the capital of the Partnership, and no Partner shall have the
right to withdraw or to be repaid any capital contributed by such Partner
except as otherwise specifically provided in this Agreement.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
SECTION 4.1. Allocation Among Limited Partners. Except as set forth in
Section 4.3(a), each Limited Partner shall share Partnership profits and losses
and all related items of income, gain, loss, deduction and credit allocated,
charged or credited to the Limited Partners herein in accordance with the
Sharing Ratio of such Limited Partner.
SECTION 4.2. Allocation of Costs and Expenses. All costs and expenses
of the Partnership shall be allocated and charged to the Partners 1% to the
General Partner and 99% to the Limited Partners.
SECTION 4.3. Allocation of Revenues.
(a) 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 shall be allocated among the Partners
in the same proportions as costs and expenses were allocated and charged
hereunder at the time of the accident or other occurrence giving rise to such
insurance proceeds.
(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 4.2 at the time such property
is acquired by the Partnership).
(iii) After making the allocation provided for in Section
4.3(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 4.4(b)) shall be allocated, to the extent such
revenues constitute a recovery of Simulated Basis of such property, to the
Partners in the same percentages as the costs of the property sold were
allocated up to an amount equal to each Partner's share of the Partnership's
Simulated Basis in such property at the time of such sale. Thereafter,
revenues resulting from any such sale or disposition shall be allocated to the
Partners in a manner which will cause the aggregate of all revenues allocated
to the Partners from such sale or disposition and all prior sales or other
dispositions of depletable property (to the extent possible) to equal the
amounts which would have been allocated under paragraph (iv) of this Section
4.3(a) in the absence of this paragraph (iii).
-8-
12
(iv) All other revenues of the Partnership not specifically
allocated above shall be allocated 1% to the General Partner and 99% to the
Limited Partners.
(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 costs
of the respective ▇▇▇▇▇ to which they relate.
SECTION 4.4. 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 (together with any
credits associated with such production under Section 29 of the Internal
Revenue Code) shall be allocated in the same manner as revenue therefrom is
allocated and credited pursuant to Section 4.3.
(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 4.3. 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 4.3(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 borne.
(d) Gain from the sale or other disposition of Partnership property
that is not specifically provided for above shall be allocated to the Partners
in a manner which reflects each Partner's allocable share of the revenue from
the sale of the Partnership property provided for in Section 4.3, 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 4.2.
(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
-9-
13
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 such revenue is
allocated and credited pursuant to Section 4.3.
(h) Notwithstanding any of the provisions of this Section 4.4 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 from the
disposition of Partnership property subject to one or more Partnership
Nonrecourse Liabilities and then, if necessary, for subsequent years)
equal to such Partner's share of such net decrease (except to the extent
such Partner's share of such net decrease is caused by a change in debt
structure with such Partner commencing to bear the economic risk of loss
as to all or part of any Partnership Nonrecourse Liability or by such
Partner contributing capital to the Partnership that the Partnership
uses to repay a Partnership Nonrecourse Liability), as determined in
accordance with applicable Treasury Regulations.
(iii) If for any fiscal year of the Partnership there is a net
decrease in Minimum Gain attributable to a Partner Nonrecourse Debt,
each Partner shall be allocated items of Partnership income and gain for
such year (consisting first of gain recognized 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 the Partner's Nonrecourse Debt) as determined in
accordance with applicable Treasury Regulations.
-10-
14
(i) If for any fiscal year of the Partnership the allocation of any
loss or deduction (net of any income or gain) to any Partner would cause or
increase a negative balance in such Partner's Adjusted Capital Account as of
the end of such fiscal year (a "Deficit Partner") after taking into account the
provisions of subsection (h) of this Section 4.4, only the amount of such loss
or deduction that reduces the balance to zero shall be allocated to such
Deficit Partner and the remaining loss or deduction shall be allocated to the
Partners whose Adjusted Capital Accounts have a positive balance remaining at
such time (the "Positive Partners") in proportion to such positive balances.
After any such allocation, any Partnership income or gain that would otherwise
be allocated to the Deficit Partner shall be allocated instead to the Positive
Partners up to an amount equal to the Partnership loss or deduction allocated
to the Positive Partners under the preceding sentence; provided, however, that
no allocation of income, gain or amount realized shall be made under this
sentence if the effect of such allocation would be to cause the Adjusted
Capital Account of a Deficit Partner to be less than zero. If, after taking
into account the allocation in the first sentence of this Section 4.4(i), the
Adjusted Capital Account balance of a Deficit Partner remains less than zero at
the end of a fiscal year, a pro rata portion of each item of Partnership income
or gain 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 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, however,
that no allocation under this sentence shall have the effect of causing any
Positive Partner's Adjusted Capital Account to be less than zero. After any
such allocation, any Partnership gain resulting from the sale or other
disposition of Partnership property that would otherwise be allocated to a
Deficit Partner for any fiscal year under this Section 4.4 shall be allocated
instead to the Positive Partners until the amount of gain so allocated equals
the amount of gain previously allocated to such Deficit Partner under the
preceding sentence of this Section 4.4(i); provided, however, that no
allocation of gain shall be made under this sentence if the effect of such
allocation would be to cause the Adjusted Capital Account of a Deficit Partner
to be less than zero.
SECTION 4.5. Distributions. The General Partner may distribute funds
of the Partnership which the General Partner reasonably determines are not
needed for the payment of existing or foreseeable Partnership obligations and
expenditures to the Partners at such times and in such amounts as the General
Partner, in its sole discretion, determines to be appropriate. Subject to the
next sentence of this Section 4.5 and applicable law, the General Partner shall
distribute to the Partners within 90 days after the end of each year an amount
equal to the highest marginal federal income tax rate for ordinary income to
individuals multiplied by such Partner's share of the net income of the
Partnership for such year that would be considered ordinary income plus the
highest capital gains rate multiplied by such Partner's share of the net income
of the Partnership for such year that would be considered net capital gains
income. Notwithstanding the immediately preceding sentence, (a) at any time
prior to the termination of Section 1 of the Voting and Shareholders Agreement
among the General Partner, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Natural Gas Partners, L.P. and
Natural Gas Partners II, L.P. dated even date with this Agreement, those
Limited Partners whose combined Sharing Ratios exceed 75% of the Sharing Ratios
of all Limited Partners may waive the requirement of the immediately preceding
sentence, and (b) at any time subsequent to the termination of Section 1 of the
Voting and Shareholders Agreement, a Majority Interest of the Limited Partners
may waive the requirement of the immediately
-11-
15
preceding sentence. All such distributions shall be made to the Partners 1% to
the General Partner and 99% to the Limited Partners.
ARTICLE V
MANAGEMENT
SECTION 5.1. Power and Authority of General Partner.
(a) The General Partner shall conduct, direct and exercise full
control over all activities of the Partnership. Except as otherwise expressly
provided in Section 5.2 and elsewhere in this Agreement, all management powers
over the business and affairs of the Partnership shall be exclusively vested in
the General Partner, and the Limited Partners shall have no right of control
over the business and affairs of the Partnership. In addition to the powers
now or hereafter granted a general partner of a limited partnership under the
Act or which are granted to the General Partner under any other provision of
this Agreement, the General Partner shall have full power and authority to do
all things deemed necessary or desirable by it to conduct the business of the
Partnership in the name of the Partnership, including, without limitation
(except as aforesaid), the right and power to:
(1) acquire leases, mineral interests, royalty or overriding
royalty interests, fee rights, licenses, concessions or other rights
covering oil, gas and related hydrocarbons (or contractual rights to
acquire any such 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 any such interest or the exploration, development
or operation thereof, and otherwise act for, in the name of and on
behalf of the Partnership with respect to such properties, all in
accordance with the terms of this Agreement;
(2) purchase or otherwise acquire other real or personal
property of every nature considered necessary or appropriate to carry on
and conduct the business of the Partnership;
(3) borrow monies for the purchase, development, exploration
and maintenance of Partnership assets and other aspects of the
Partnership's business and from time to time to draw, make, execute and
issue promissory notes and other negotiable or non-negotiable
instruments and evidences of indebtedness; to secure the payment of the
sums so borrowed and to mortgage, pledge or assign in trust all or any
part of the property of the Partnership, and to assign any monies owing
or to be owing to the Partnership;
(4) enter into any agreements of joint venture or partnership
or for sharing of risks, expenses or profits, with any person, firm,
corporation, government or agency thereof engaged in any business or
transaction in which the Partnership is authorized to engage;
-12-
16
(5) explore and prospect by geological, geophysical or other
methods for the location of anomalies or other indications favorable to
the accumulation of oil and gas, including specifically the power to
contract with third parties for such purposes;
(6) maintain, develop, operate, manage and defend Partnership
property; to drill, test, plug and abandon or complete and equip, rework
and recomplete any number of ▇▇▇▇▇ on Partnership properties for the
production of oil and gas located thereunder; to contract with third
parties for such purposes; to carry out a program or programs of
enhanced recovery operations on Partnership properties and to do any and
all other things necessary or appropriate to carry out the terms and
provisions of this Agreement which would or might be done by a normal
and prudent operator in the development, operation and management of its
own property;
(7) enter into and execute operating agreements, drilling
contracts, farmouts, dry and bottom hole and acreage contribution
letters, participation agreements, gas processing agreements and any
other agreements customarily employed in the oil and gas industry in
connection with the acquisition, sale, development, exploration or
operation of oil and gas properties, agreements as to rights-of-way and
any and all other instruments or documents considered by the General
Partner to be necessary or appropriate to carry on and conduct the
business of the Partnership, for such consideration and on such terms as
the General Partner may determine to be in the best interests of the
Partnership;
(8) sell the production accruing to Partnership properties and
to execute gas sales contracts, casinghead gas contracts, transfer
orders, division orders, or any other instruments in connection with the
sale of production from the Partnership's interest in such properties;
(9) farm-out, sell, assign, convey or otherwise dispose of,
for such consideration and upon such terms and conditions as the General
Partner may determine to be in the best interests of the Partnership,
all or any part of the Partnership property, any interest therein, or
any interest payable therefrom, and in connection therewith to execute
and deliver such deeds, assignments and conveyances containing such
warranties as the General Partner may determine to be appropriate;
(10) purchase, lease, rent or otherwise acquire or obtain the
use of facilities, machinery, equipment, tools, materials and all other
kinds and types of real or personal property that may in anyway be
deemed necessary, convenient, or advisable in connection with carrying
on the business of the Partnership;
(11) pay delay rentals, bonus payments, shut-in gas royalty
payments, property taxes, surface damages, rights-of-way, easements and
any other amounts necessary or appropriate to the maintenance or
operation of any Partnership property;
(12) make and to enter into such agreements and contracts with
such parties and to give such receipts, releases and discharges with
respect to any and all of the foregoing
-13-
17
and any matters incident thereto as the General Partner may deem
advisable or appropriate;
(13) procure and maintain in force such insurance as the
General Partner shall deem prudent to serve as protection against
liability for loss and damage which may be occasioned by the activities
to be engaged in by the Partnership or the General Partner on behalf of
the Partnership;
(14) quitclaim, surrender, release or abandon any Partnership
property, with or without consideration therefor;
(15) enter into commodity hedging transactions of any type
whatsoever;
(16) exercise of all rights, powers, privileges and other
incidents of ownership or possession with respect to securities and
other assets owned by the Partnership;
(17) prepay in whole or in part, refinance, recast, increase,
modify or extend any liabilities affecting the Partnership property and
in connection therewith execute any extensions or renewals of
encumbrances on any or all of the Partnership property;
(18) contract on behalf of the Partnership for the employment
and services of employees and/or independent contractors, such as
lawyers, financial advisors, underwriters, consultants and accountants;
(19) take, or refrain from taking, all actions, not expressly
proscribed or limited by this Agreement, as may be necessary or
appropriate to accomplish the purposes of the Partnership;
(20) institute, prosecute, defend, mediate, arbitrate and
settle lawsuits or other judicial or administrative proceedings brought
on or in behalf of, or against, the Partnership or the Partners in
connection with activities arising out of, connected with, or incidental
to this Agreement, and to engage counsel or others in connection
therewith; and
(21) take such other acts as may be incidental to the acts and
things expressly authorized by this Agreement.
(b) In accomplishing all of the foregoing and in fulfilling its
obligations pursuant to this Agreement, the General Partner may, in its sole
discretion, retain or use any Affiliates' personnel, properties and equipment
or the General Partner may hire or rent those of third parties and may employ
on a temporary or continuing basis outside accountants, attorneys, consultants
and others on such terms as the General Partner deems advisable. No person,
firm or corporation dealing with the Partnership shall be required to inquire
into the authority of the General Partner to take any action or make any
decision.
SECTION 5.2. Certain Restrictions on General Partner's Power and
Authority. Notwithstanding anything else expressed or implied to the contrary
in this Agreement, the General
-14-
18
Partner shall not have the power or authority to cause the Partnership to, and
shall not do, perform or authorize any of the following acts without having
previously obtained the consent of a Majority Interest of the Limited Partners,
which consent may be obtained at a meeting of the Partners or by means of a
written consent of a Majority Interest of the Limited Partners:
(a) do any act in contravention of this Agreement or the
organizational documents (including, without limitation, the provisions of
Article Four of the Bylaws) of the General Partner;
(b) confess a judgment against the Partnership;
(c) possess property, or assign rights in specific property, for
other than a Partnership purpose;
(d) knowingly perform any act that would subject any Limited Partner
to liability as a general partner in any jurisdiction;
(e) mortgage, pledge, assign in trust or otherwise encumber the
Partnership's right to receive Capital Contributions from the Limited Partners;
(f) 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
other than the Partnership;
(g) make any advance payments of compensation or other consideration
to the General Partner or any of its Affiliates, except to the extent expressly
permitted herein;
(h) use the Partnership name, credit or property for other than
Partnership purposes;
(i) merge or consolidate the Partnership with any other person; or
(j) 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 an Affiliate thereof to the detriment of the Limited Partners or the
Partnership, including, among other things, utilization of funds of the
Partnership as compensating balances for the benefit of the General Partner.
SECTION 5.3. Duties and Services of the General Partner. The General
Partner shall comply in all respects with the terms of this Agreement. In the
conduct of the business and operations of the Partnership, the General Partner
shall (a) use its reasonable good faith efforts to cause the Partnership (i) to
comply with the terms and provisions of all agreements to which the Partnership
is a party or to which its properties are subject, (ii) to comply with all
applicable laws, ordinances or governmental rules and regulations to which the
Partnership is subject and (iii) 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 the Partnership's
business and operations and (b) attend to other day-to-day affairs of the
Partnership in a manner which is in the best interests of the Partnership. The
General Partner shall be obligated to perform the duties, responsibilities and
obligations of the General Partner hereunder
-15-
19
only to the extent that funds of the Partnership are available therefor.
During the existence of the Partnership, the General Partner shall devote such
time and effort to the Partnership's business as may be necessary to promote
adequately the interests of the Partnership and the mutual interests of the
Partners.
SECTION 5.4. Liability of Partners and Indemnification.
(a) The General Partner, the Limited Partners and their Affiliates,
and their partners, officers, directors, employees and agents, shall not be
liable, responsible or accountable in damages or otherwise to the Partnership
or the other Partners for any acts or omissions that do not constitute gross
negligence, willful misconduct, a breach of fiduciary duty or a breach of the
express terms of this Agreement, and the Partnership shall indemnify to the
maximum extent permitted under the Act and save harmless the General Partner
and the Partners and their Affiliates, and their partners, officers, directors,
employees and agents (individually, "Indemnitee") from all liabilities for
which indemnification is permitted under the Act. Any act or omission
performed or omitted by an Indemnitee on advice of legal counsel or an
independent consultant who has been employed or retained by the Partnership
shall be presumed to have been performed or omitted in good faith without gross
negligence or willful misconduct. THE PARTIES RECOGNIZE THAT THIS PROVISION
SHALL RELIEVE ANY SUCH INDEMNITEE FROM ANY AND ALL LIABILITIES, OBLIGATIONS,
DUTIES, CLAIMS, ACCOUNTS AND CAUSES OF ACTION WHATSOEVER ARISING OR TO ARISE
OUT OF ANY ORDINARY NEGLIGENCE BY ANY SUCH INDEMNITEE, AND SUCH INDEMNITEE
SHALL BE ENTITLED TO INDEMNIFICATION FROM ACTS OR OMISSIONS THAT MAY CONSTITUTE
ORDINARY NEGLIGENCE.
(b) The Partnership shall, to the maximum extent permitted under the
Act, pay or reimburse expenses incurred by an Indemnitee in connection with the
Indemnitee's appearance as a witness or other participation in a proceeding
involving or affecting the Partnership at a time when the Indemnitee is not a
named defendant or respondent in the proceeding.
(c) The General Partner shall have the right to require that any
contract entered into by the Partnership provide that the General Partner shall
have no personal liability for the obligations of the Partnership thereunder.
(d) The indemnification provided by this Section 5.4 shall be in
addition to any other rights to which each Indemnitee may be entitled under any
agreement or vote of the Partners, as a matter of law or otherwise, both as to
action in the Indemnitee's capacity as a Partner or an officer, director,
employee or agent of a Partner or as a person serving at the request of the
Partnership as set forth above and to action in another capacity, and shall
continue as to an Indemnitee who has ceased to serve in such capacity and shall
inure to the benefit of the heirs, successors, assigns, administrators and
personal representatives of the Indemnitees.
(e) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of this indemnification provision.
-16-
20
(f) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 5.4 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
SECTION 5.5. Contracts with Affiliates. The Partnership may enter into
contracts and agreements with any Partner and/or any of its Affiliates for the
rendering of services and the sale and lease of supplies and equipment on such
arms-length terms that (i) are no less favorable to the Partnership than those
available from unrelated third parties and (ii) are approved by the board of
directors of the General Partner in accordance with the terms of its bylaws.
SECTION 5.6. Reimbursement of General Partner. The Partnership shall
pay or reimburse to the General Partner, as a Partnership expense, all
reasonable direct and indirect costs and expenses incurred by the General
Partner in organizing the Partnership and in managing and conducting the
business and affairs of the Partnership, including, without limitation, (i) all
costs and expenses incurred in any business of the Partnership, (ii)
secretarial, telephone, office rent and other office expenses, (iii) salaries
and other compensation expenses of employees, officers and directors, (iv)
other administrative expenses, (v) travel expenses, (vi) legal and accounting
costs and expenses and (vii) expenses incurred in providing or obtaining such
other professional, technical, administrative services and advice as the
General Partner may deem necessary or desirable. The General Partner may
utilize the services of any of its Affiliates in the course of conducting the
business and affairs of the Partnership, and the Partnership may pay, and any
such Affiliate shall be entitled to receive, a reasonable fee for any services
performed at the request of the General Partner for the Partnership. The
General Partner shall determine which expenses are allocable to the Partnership
in a manner which is fair and reasonable to the General Partner and the
Partnership, and if such allocation is made by the General Partner in good
faith it shall be conclusive in the absence of manifest error.
SECTION 5.7. Insurance. The General Partner shall acquire and maintain
for the Partnership at its expense insurance covering such risks and in such
amounts as the General Partner shall from time to time determine to be
necessary or appropriate.
SECTION 5.8. Tax Elections. The General Partner shall make such tax
elections on behalf of the Partnership as it shall deem appropriate in its sole
discretion.
SECTION 5.9. Tax Returns. The General Partner shall deliver necessary
tax information to each Partner after the end of each fiscal year of the
Partnership. Not less than 60 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 but in any event no earlier than March 1 of each year, the
return proposed to be filed by the General Partner shall be furnished to the
Limited Partners for review, comments and approval. No such federal income tax
return or state income tax return may be filed with the appropriate
governmental authority unless specifically approved by a Majority Interest of
the Limited Partners. In addition, not more than 10 days after the date on
which the Partnership files its federal income tax return or any state income
tax return, a copy of the return so filed by the General Partner shall be
furnished to the Limited Partners.
-17-
21
SECTION 5.10. Tax Matters Partner. The General Partner shall be
designated the tax matters partner under Section 6231 of the Internal Revenue
Code. The General Partner is authorized to take such actions and to execute
and file all statements and forms on behalf of the Partnership which may be
permitted or required by the applicable provisions of the Internal Revenue Code
or Treasury Regulations issued thereunder. The General Partner shall have full
and exclusive power and authority on behalf of the Partnership to represent the
Partnership (at the Partnership's expense) in connection with all examinations
of the Partnership's affairs by tax authorities, including resulting
administrative and judicial proceedings, and to expend Partnership funds for
professional services and costs associated therewith. Such power and authority
shall include, without limitation, the power and authority to extend the
statute of limitations, file a request for administrative adjustment, file suit
concerning any Partnership tax matter, and to enter into a settlement agreement
relating to any Partnership tax matter.
SECTION 5.11. Withdrawal by the General Partner. The General Partner
shall not voluntarily withdraw from the Partnership unless a Majority Interest
of the Limited Partners shall consent to such withdrawal. In the event that a
Majority Interest of the Limited Partners shall consent to the withdrawal of
the General Partner, the General Partner shall not be deemed to be liable with
respect to any debts or liabilities that the Partnership incurs subsequent to
the date of withdrawal, provided that such withdrawal shall not diminish or in
any way affect the liability of the General Partner with respect to any debts
or liabilities that the Partnership incurred prior to such date.
SECTION 5.12. Certain Decisions. (a) Unless otherwise expressly
provided in this Agreement (i) whenever a conflict of interest exists or arises
between the General Partner, on the one hand, and the Partnership or the
Limited Partners, on the other hand, or (ii) whenever this Agreement provides
that the General Partner shall act in a manner which is or provide terms which
are fair and are reasonable to the Partnership or the Limited Partners, the
General Partner shall resolve such conflict of interest, take such action or
provide such terms considering, in each case, the relative interests of each
party to such conflict, agreement, transaction or situation and the benefits
and burdens relating to such interests, any customary or accepted industry
practices, and any applicable generally accepted accounting or engineering
practices or principles, and in the absence of bad faith by the General
Partner, the resolution, action or terms so made, taken or provided by the
General Partner shall not constitute a breach of this Agreement or a breach of
any standard of care or duty imposed herein or under the Act or any other
applicable law, rule or regulation. Unless otherwise expressly provided in
this Agreement, any provision contained herein shall control to the fullest
extent possible if it is in conflict with such standard of care or duty, the
Act or any other applicable law, rule or regulation; and each Partner hereby
waives such standard of care or duty under the Act and such applicable law,
rule or regulation and agrees that the same shall be modified and/or waived to
the extent necessary to permit the General Partner to act as described above
and to give effect to the foregoing provisions of this Section 5.12.
(b) Whenever in this Agreement the General Partner is permitted or
required to make a decision (i) in its "sole discretion" or "discretion", or
under a grant of similar authority or latitude, the General Partner shall be
entitled to consider only such interests and factors as it desires and shall
have no duty or obligation to give any consideration to any interests or
factors affecting the Partnership or the Limited Partners or (ii) in "good
faith" or under another express
-18-
22
standard, the General Partner shall act under such express standard and shall
not be subject to any other or different standards imposed by this Agreement or
under the Act or any other applicable law, rule or regulation. Each Partner
hereby consents and agrees that the General Partner may so act, waives any
standard of care or duty imposed in this Agreement or under the Act or any
other applicable law, rule or regulation, waives the rights and protection
provided and afforded thereby, and agrees that the same shall be modified
and/or waived to the extent necessary to permit the General Partner to act as
described above and to give effect to the foregoing provision of this Section
5.12.
(c) With respect to each transaction between the General Partner, on
the one hand, and the Partnership or the Limited Partners, on the other hand,
which is authorized by or consummated in accordance with Section 5.12(a) or
(b), or with respect to any actions taken by the General Partner with respect
to the Partnership, each Limited Partner hereby (i) consents and agrees to and
ratifies each such transaction to the extent that the Act and the laws of any
jurisdiction to which the Partnership or this Agreement is subject require the
consent to or approval or ratification of such transaction and (ii) agrees that
such consent, agreement and ratification shall be valid and effective despite
the fact that it is necessarily being given in advance and without full
disclosure of the facts and circumstances that will pertain to future
transactions of such nature.
(d) No transaction between the General Partner, on the one hand, and
the Partnership or the Limited Partners, on the other hand, or any actions
taken by the General Partner with respect to the Partnership, will be void or
voidable solely for this reason and/or under the Act or any other applicable
law, rule or regulation, and no person having an interest in any such
transaction shall have any liability to the Partnership or any Partner solely
by virtue of such relationship or conflict, if the material facts as to the
relationship and transaction are disclosed or are known to the Limited Partners
and the transaction is approved by a Majority Interest of the Limited Partners;
provided, however, that this Section 5.12(d) shall not imply any duty or
obligation upon the General Partner to seek or obtain any such approval.
ARTICLE VI
RIGHTS OF LIMITED PARTNERS
SECTION 6.1. Rights of Limited Partners. Each of the Limited Partners
shall have the right to: (a) have the Partnership books and records
(including, without limitation, those required under the Act) kept at the
principal United States office of the Partnership and at all reasonable times
to inspect and copy any of them at the sole expense of such Limited Partner;
(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 of the
Partnership by decree of court as provided for in the Act; and (d) exercise all
rights of a limited partner under the Act (except to the extent otherwise
specifically provided herein). Notwithstanding the foregoing, the Limited
Partners shall not have the right to receive data pertaining to the properties
of the Partnership if the General Partner is subject to a valid
-19-
23
agreement prohibiting the distribution of such data or if the General Partner
shall otherwise determine that such data is Confidential Information.
SECTION 6.2. Limitations on Limited Partners. The Limited Partners
shall not: (a) be permitted to take part in the business or control of the
business or affairs of the Partnership; (b) have any voice in the management or
operation of any Partnership property; or (c) have the authority or power 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. No
Partner shall hold out or represent to any third party that the Limited
Partners have any such power or right or that the Limited Partners are anything
other than "limited partners" in the Partnership.
SECTION 6.3. Liability of Limited Partners. The Limited Partners shall
not be liable for the debts, liabilities, contracts or other obligations of the
Partnership except (a) for any unpaid Capital Contributions agreed to be made
by such Limited Partner, (b) to the extent of the Limited Partners' share of
the assets (including undistributed revenues) of the Partnership and (c) as
otherwise provided in the Act.
SECTION 6.4. Withdrawal and Return of Capital Contributions. No
Limited Partner shall be entitled to (a) withdraw from the Partnership except
upon the assignment by such Limited Partner of all of its interest in the
Partnership in accordance with Article IX, 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 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 VII
BOOKS, REPORTS, MEETINGS AND CONFIDENTIALITY
SECTION 7.1. Capital Accounts, Books and Records.
(a) The General Partner shall keep books of account for the
Partnership in accordance with the terms of this Agreement. Such books shall
be maintained at the principal office of the Partnership.
(b) An individual capital account shall be maintained by the
Partnership for each Partner as provided below:
(i) The capital account of each Partner shall, except as
otherwise provided herein, be (A) credited by such Partner's Capital
Contributions when made, (B) credited by the fair market value of any property
contributed to the Partnership by such Partner (net of liabilities secured by
such contributed property that the Partnership is considered to assume or take
subject to under Section 752 of the Internal Revenue Code), (C) credited with
the amount of any item of taxable income or gain and the amount of any item of
income or gain exempt from tax
-20-
24
allocated to such Partner, (D) credited with the Partner's share of Simulated
Gain as provided in subparagraph (ii) of this Section 7.1(b), (E) debited by
the amount of any item of tax deduction or loss allocated to such Partner, (F)
debited with the Partner's share of Simulated Loss and Simulated Depletion as
provided in subparagraph (ii) of this Section 7.1(b), (G) debited by such
Partner's allocable share of expenditures of the Partnership not deductible in
computing the Partnership's taxable income and not properly chargeable as
capital expenditures, including any non-deductible book amortizations of
capitalized costs, and (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 8.3.
(ii) The allocation of basis prescribed by Section
613A(c)(7)(D) of the Internal Revenue Code and provided for in Section 4.4(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 4.4(b)) with respect to which such depletion is claimed (herein
called "Simulated Depletion"). The Partnership's basis in any oil or gas
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 4.4(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 4.4(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.
-21-
25
(iii) Any adjustments of basis of Partnership property provided
for under Sections 734 and 743 of the Internal Revenue Code and comparable
provisions of state law (resulting from an election under Section 754 of the
Internal Revenue Code or comparable provisions of state law) and any election
by an individual Partner under Section 59(e)(4) of the Internal Revenue Code to
amortize such Partner's share of intangible drilling and development costs
shall not affect the capital accounts of the Partners (unless otherwise
required by applicable Treasury Regulations), and the Partners' capital
accounts shall be debited or credited pursuant to the terms of this Section 7.1
as if no such election had been made.
(iv) Capital accounts shall be adjusted, in a manner consistent
with this Section 7.1, 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 contributed to the Partnership by
a Partner, and in the case of any revaluation of the Partners' capital accounts
as required under applicable Treasury Regulations, the Partners' capital
accounts shall be debited or credited for items of depreciation, cost recovery,
Simulated Depletion, amortization and gain or loss with respect to any such
contributed or revalued property computed in the same manner as such items
would be computed if the adjusted tax basis of such property were equal to its
fair market value on the date of its contribution or revaluation, in lieu of
the capital account adjustments provided above for such items, all in
accordance with Treasury Regulation Section 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 Section 1.704-1(b)(2)(iv). To the extent any additional adjustment
to the capital accounts is required by such regulation, the General Partner is
hereby authorized to make such adjustment after notice to the Limited Partners.
SECTION 7.2. Bank Accounts. The General Partner shall cause one or
more accounts to be maintained in a bank (or banks) which is a member of the
Federal Deposit Insurance Corporation or some other financial institution,
which accounts shall be used for the payment of the 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. The General
Partner shall determine the number of and the persons who will be authorized as
signatories on each such bank account. The General Partner may invest the
Partnership funds in such money market accounts or other investments as the
General Partner shall determine to be necessary or appropriate.
SECTION 7.3. Reports. The Partnership shall provide each Partner with
the following financial statements and reports at the times indicated below:
(a) Monthly within 30 days after the end of each month, financial
statements with respect to such month, including income statements, balance
sheets and cash flow statements. Such financial statements shall be subject to
audit by any of the Partners at any time at their request at their own expense.
-22-
26
(b) Annually within 75 days after the end of each fiscal year of the
Partnership, financial statements, including income statements, balance sheets
and cash flow statements with respect to such fiscal year, which financial
statements shall be audited by an independent certified public accounting firm
appointed by the General Partner and acceptable to a Majority Interest of the
Limited Partners. Such financial statements shall be subject to audit by any
of the Partners at any time at their request at their own expense.
(c) As soon as practicable, but in no event later than 60 days after
the close of each semi-annual period (i.e, the periods ending on June 30 and
December 31 of each year) of the Partnership, a reserve report as of the last
day of such semi-annual period prepared by a petroleum engineer (who may be an
employee of the General Partner or the Partnership) designated by the General
Partner and acceptable to a Majority Interest of the Limited Partners that sets
forth with respect to the Partnership as a whole, proved reserves, future net
revenues relating thereto (based upon pricing and other assumptions specified
by the General Partner) and the present discounted value of such future net
revenues (the rate of discount to be specified by the General Partner).
(d) Such other reports and financial information as the General
Partner shall determine from time to time.
SECTION 7.4. Meetings of Partners. The General Partner shall hold
meetings of the Partners from time to time to inform and consult with the
Limited Partners concerning the Partnership's assets and such other matters as
the General Partner deems appropriate. Such meetings shall be held at such
times and places, as often and in such manner as shall be determined by the
General Partner. Unless objected to by a Majority Interest of the Limited
Partners, the General Partner at its election may separately inform and consult
with the Limited Partners for the above purposes without the necessity of
calling and/or holding a meeting of the Limited Partners. Notwithstanding the
foregoing provisions of this Section 7.4, the Limited Partners shall not be
permitted to take part in the business or control of the business of the
Partnership; it being the intention of the parties that the involvement of the
Limited Partners as contemplated in this Section 7.4 is for the purpose of
informing the Limited Partners with respect to various Partnership matters,
explaining any information furnished to the Limited Partners in connection
therewith, answering any questions the Limited Partners may have with respect
thereto and receiving any ideas or suggestions the Limited Partners may have
with respect thereto; it being the further intention of the parties that the
General Partner shall have full and exclusive power and authority on behalf of
the Partnership to acquire, manage, control and administer the assets, business
and affairs of the Partnership in accordance with Section 5.1 of this Agreement
and the other applicable provisions of this Agreement.
SECTION 7.5. Confidentiality. No Partner shall use, publish,
disseminate or otherwise disclose, directly or indirectly, any Confidential
Information that should come into the possession of such Partner for other than
a proper Partnership purpose. No Partner shall disclose any such Confidential
Information except as expressly authorized by this Agreement or by the General
Partner, or as required by law or governmental or regulatory authority. Each
Partner shall instruct all Affiliates (including their representatives, agents
and counsel) to comply with this Section 7.5. If a Partner is required by law
or court order to disclose information that would
-23-
27
otherwise be Confidential Information under this Agreement, such Partner shall
immediately notify the General Partner of such notice and provide the General
Partner the opportunity to resist such disclosure by appropriate proceedings.
ARTICLE VIII
DISSOLUTION, LIQUIDATION AND TERMINATION
SECTION 8.1. Dissolution. The Partnership shall be dissolved upon the
occurrence of any of the following:
(a) The occurrence of December 31, 2003.
(b) The sale, disposition or termination of all or substantially all
of the property then owned by the Partnership.
(c) The occurrence of an event of withdrawal from the Partnership by
the General Partner as provided for in this Agreement or the Act.
(d) The consent in writing of the General Partner and a Majority
Interest of the Limited Partners.
(e) The occurrence of any event which, under the Act, causes the
dissolution of a limited partnership.
SECTION 8.2. Reconstitution. Upon the dissolution of the Partnership
as a result of an event described in Section 8.1(c) or, to the extent permitted
under the Act, Section 8.1(e), the Partnership may be reconstituted and its
business continued without being wound up as provided in Section 8.03 of the
Act, and the provisions of Section 6.02 of the Act shall be applicable.
SECTION 8.3. Liquidation and Termination. Upon dissolution of the
Partnership, unless reconstituted under Section 8.2, the General Partner or, if
the withdrawal of the General Partner caused the dissolution of the
Partnership, a person selected by a Majority Interest of the Limited Partners,
shall act as liquidator or shall appoint one or more liquidators who shall have
full authority to wind up the affairs of the Partnership and make final
distribution as provided herein. 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, if requested by any Partner, 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
-24-
28
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 selected by the
liquidator) as of the date of termination of the Partnership, (ii) assuming the
distribution of such cash at such time in the percentages required under
Section 4.5, 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 with gains or losses on actual sales of such assets. 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. Such a distribution shall be in cash or in kind as determined by the
liquidator. Any distribution to the Partners in liquidation of the Partnership
shall be made by the later of either the end of the taxable year in which the
liquidation occurs or 90 days after the date of such liquidation. For purposes
of the preceding sentence, the term "liquidation" shall have the same meaning
as set forth in Treasury Regulation Section 1.704-1(b)(2)(ii) as in effect at
such time. 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 8.3.
(c) 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.
(d) Notwithstanding any provision in this Agreement to the contrary,
no Partner shall be obligated to restore a deficit balance in its capital
account at any time.
The distribution of cash and/or property to the Partners in accordance
with the provisions of this Section 8.3 shall constitute a complete return to
the Partners of their Capital Contributions and a complete distribution to the
Partners of their interest in the Partnership and all Partnership property.
ARTICLE IX
ASSIGNMENTS OF INTERESTS
SECTION 9.1. Assignment by Partners.
(a) No Partner's interest in the Partnership or rights therein shall
be assigned, mortgaged, pledged, subjected to a security interest or otherwise
encumbered, in whole or in part, without the prior written consent of the other
Partners; provided, however, that each of Natural Gas Partners, L.P., a
Delaware limited partnership, and Natural Gas Partners II, L.P., a Delaware
limited partnership, shall have the right to assign its respective interest to
its respective partners
-25-
29
without such consent. Any attempt by a Partner to assign its interest without
the required consent shall be void ab initio.
(b) Unless an assignee of an interest in the Partnership becomes a
substituted Partner in accordance with the provisions set forth below, such
assignee shall not be entitled to any of the rights granted to a Partner
hereunder, other than the right to receive allocations of income, gains,
losses, deductions, credits and similar items and distributions to which the
assignor would otherwise be entitled, to the extent such items are assigned.
(c) An assignee of an interest in the Partnership shall become a
substituted Partner entitled to all of the rights of a Partner if, and only if,
(i) the assignor gives the assignee such right, (ii) the General Partner and
Limited Partners whose combined Sharing Ratios exceed 80% of the Sharing Ratios
of all Limited Partners consent in writing to such substitution, the granting
or denying of which shall be in such Partners' sole discretion, (iii) the
assignee executes and delivers such instruments, in form and substance
satisfactory to the General Partner (if the assignee is the assignee of a
Limited Partner), or 80% in interest of the Limited Partners (if the assignee
is the assignee of the General Partner), as the General Partner (or 80% in
interest of the Limited Partners, as the case may be) 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, and
(iv) if the General Partner so requires, the assignee reimburses the
Partnership for any costs incurred by the Partnership in connection with such
assignment and substitution. Upon the satisfaction of such requirements, such
assignee shall be admitted as of such date as shall be provided for in any
document evidencing such assignment as a substituted Partner of the
Partnership.
(d) The Partnership and the General Partner shall be entitled to
treat the record owner of any Partnership interest as the absolute owner
thereof in all respects and shall incur no liability for distributions of cash
or other property made in good faith to such owner until such time as a written
assignment of such interest that complies with the terms of this Agreement has
been received by the General Partner.
SECTION 9.2. Removal of the General Partner. Subject to the provisions
hereof and provided that the combined Sharing Ratios of the Limited Partners
that elect a new General Partner to continue the Partnership must exceed 50%,
(a) at any time prior to the termination of Section 1 of the Voting and
Shareholders Agreement among the General Partner, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Natural
Gas Partners, L.P. and Natural Gas Partners II, L.P. dated even date with this
Agreement, those Limited Partners whose combined Sharing Ratios exceed 75% of
the Sharing Ratios of all Limited Partners may remove the General Partner and
select a new General Partner to operate and carry on the business and affairs
of the Partnership and (b) at any time subsequent to the termination of Section
1 of the Voting and Shareholders Agreement, a Majority Interest of the Limited
Partners may remove the General Partner and select a new General Partner to
operate and carry on the business and affairs of the Partnership. Any such
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 Partners exercising the 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:
-26-
30
(a) A successor General Partner shall have been selected and shall
have agreed to accept the responsibilities of a General Partner and shall have
made arrangements to release the removed General Partner from personal
liability on all permitted Partnership indebtedness; and if the Partnership
creditors will not consent to such release, the new General Partner shall
indemnify, in a manner reasonably satisfactory to the removed General Partner,
the removed General Partner for such liability.
(b) This Agreement and the Certificate of Limited Partnership of the
Partnership shall have been duly amended to name the new General Partner. To
the extent required by the laws of any jurisdiction to which the Partnership or
this Agreement is subject, the Partners hereby unanimously consent to the
admission of such successor General Partner and hereby appoint such successor
General Partner as the agent and attorney in fact for each Partner (including
without limitation the retiring General Partner) for the purpose of signing,
swearing to and filing an amendment to the certificate of limited partnership
of the Partnership and all other necessary or appropriate documents in
connection with the substitution of such successor General Partner.
(c) Either (i) a favorable ruling shall have been received by the
Partnership from the Internal Revenue Service to the effect that neither the
grant nor the exercise of the powers described in this Section 9.2 will
adversely affect the tax status of the Partnership, or any of the Partners, or
(ii) counsel for the Limited Partners shall have delivered to the Limited
Partners an opinion to the same effect.
The provisions of this Section 9.2 shall not be the sole remedy of the
Limited Partners in the event the General Partner is removed, and in such event
the Partnership and/or the Limited Partners shall have all other rights and
remedies as shall be available to them pursuant to this Agreement, at law or in
equity to redress any wrong or damage, if any, arising from the event or
circumstances giving rise to the General Partner's removal.
SECTION 9.3. Right of General Partner Upon Removal. In the event the
General Partner is removed in accordance with Section 9.2, 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 equally by the Partnership and by the
removed General Partner. The incoming General Partner's option to acquire such
interest 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 9.3, or in the event that
the General Partner owns an interest in the Partnership in excess of one
percent, the remaining interest of the General Partner, if any, shall be
converted
-27-
31
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.
ARTICLE X
REPRESENTATIONS AND WARRANTIES
SECTION 10.1. Representations and Warranties. Each Limited Partner
acknowledges and agrees that its interest in the Partnership (the "Partnership
Interest") is being purchased for such Limited Partner's own account as part of
a private offering, exempt from registration under the Securities Act of 1933,
as amended (the "Securities Act") and all applicable state securities or blue
sky laws, for investment only and not with a view to the distribution nor other
sale thereof and that an exemption from registration under the Securities Act
or any applicable state securities laws under the Securities Act or any
applicable state securities laws may not be available if the Partnership
Interest is acquired by such Limited Partner with a view to resale or
distribution thereof under any conditions or circumstances as would constitute
a distribution of such Partnership Interest within the meaning and purview of
the Securities Act or the applicable state securities laws. Accordingly, each
Limited Partner represents and warrants to the General Partner, the Partnership
and all other interested parties that:
(a) Such Limited Partner has sufficient financial resources to
continue such Limited Partner's investment in the Partnership for an indefinite
period.
(b) Such Limited Partner has adequate means of providing for its
current needs and contingencies and can afford a complete loss of its
investment in the Partnership.
(c) No other person will acquire, directly or indirectly, any
interest in such Limited Partner's Partnership Interest (or any portion
thereof) as a result of such Limited Partner's acquisition of such Partnership
Interest pursuant to this Agreement.
(d) It is such Limited Partner's intention to acquire and hold its
Partnership Interest solely for its private investment and for its own account
and with no view or intention to distribute, resell, assign, pledge, mortgage,
hypothecate, or otherwise transfer or dispose of such Partnership Interest (or
any portion thereof).
(e) Such Limited Partner has no contract, undertaking, agreement, or
arrangement with any person to sell or otherwise transfer to any person, or to
have any person sell on behalf of such Limited Partner, its Partnership
Interest (or any portion thereof), and such Limited Partner is not engaged in
and does not plan to engage within the foreseeable future in any discussion
with any person relative to the sale or any transfer of its Partnership
Interest (or any portion thereof).
(f) Such Limited Partner is not aware of any occurrence, event, or
circumstance upon the happening of which such Limited Partner intends to
attempt to sell, transfer, or otherwise dispose of its Partnership Interest (or
any portion thereof), and such Limited Partner does not
-28-
32
have any present intention of selling, transferring, or otherwise disposing of
its Partnership Interest (or any portion thereof) after the lapse of any
particular period of time.
(g) Such Limited Partner, by making other investments of a similar
nature and/or by reason of its business and financial experience or the
business and financial experience of those persons it has retained to advise
such Limited Partner with respect to its investment in the Partnership, is a
sophisticated investor who has the capacity to protect its own interest in
investments of this nature and is capable of evaluating the merits and risks of
this investment.
(h) Such Limited Partner has had all documents, records, books and
due diligence materials pertaining to this investment made available to such
Limited Partner and such Limited Partner's accountants and advisors; such
Limited Partner has also had an opportunity to ask questions of and receive
answers from the General Partner concerning this investment; and such Limited
Partner has all of the information deemed by such Limited Partner to be
necessary or appropriate to evaluate the investment and the risks and merits
thereof.
(i) Such Limited Partner has a close business association with the
General Partner or certain of its Affiliates thereby making the Limited Partner
a well-informed investor for purposes of this investment.
(k) Such Limited Partner is aware of the following:
(i) The Partnership is newly organized and has no financial or
operating history and, further, the investment in the Partnership is
speculative and involves a high degree of risk of loss by the Limited
Partner of its entire investment, with no assurance of any income from
such investment;
(ii) No federal or state agency has made any finding or
determination as to the fairness of the investment, or any
recommendation or endorsement, of such investment;
(iii) There are substantial restrictions on the transferability
of the Partnership Interest of such Limited Partner, there will be no
public market for the Partnership Interest and, accordingly, it may not
be possible for such Limited Partner readily to liquidate its investment
in the Partnership in case of emergency; and
(iv) Any federal or state income tax benefits which may be
available to such Limited Partner may be lost through changes to
existing laws and regulations or in the interpretation of existing laws
and regulations; such Limited Partner in making this investment is
relying, if at all, solely upon the advice of its own tax advisors with
respect to the tax aspects of an investments in the Partnership.
(l) Such Limited Partner further covenants and agrees that (A) its
Partnership Interest will not be resold unless the provisions set forth in
Article IX above are complied with, and (B) such Limited Partner shall have no
right to require registration of its Partnership Interest under the Securities
Act or applicable state securities laws, and, in view of the nature of the
Partnership and its business, such registration is neither contemplated nor
likely.
-29-
33
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. 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) United States mail, (c) expedited
delivery service with proof of delivery, or (d) via facsimile with confirmation
of delivery, addressed to the respective addressee(s). Any Partner may change
its address by giving notice in writing to the other Partners of his or her new
address.
SECTION 11.2. Amendment. This Agreement may be changed, modified or
amended only by an instrument in writing agreed upon by the General Partner and
a Majority Interest of the Limited Partners; provided, however, that the
provisions of Section 8.1(a) may not be amended to extend the term of the
Partnership beyond December 31, 2005 without the approval of Limited Partners
whose combined Sharing Ratios are at least 80% of the Sharing Ratios of all
Limited Partners. The General Partner shall notify all Partners upon final
adoption of any proposed amendment.
SECTION 11.3. 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 11.4. Entire Agreement. This Agreement constitutes the full
and complete agreement of the parties hereto with respect to the subject matter
hereof.
SECTION 11.5. Severability. Every provision in this Agreement is
intended to be severable. If any term or provision hereof is illegal or
invalid for any reason whatsoever, such illegality or invalidity shall not
affect the validity of the remainder of this Agreement.
SECTION 11.6. 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
constitute 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 11.7. 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 11.8. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns; provided, however, that no
Partner may sell, assign, transfer or otherwise dispose of all
-30-
34
or any part of its rights or interest in the Partnership or under this
Agreement except in accordance with Article IX.
SECTION 11.9. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be an original and all of which shall
constitute but one and the same document.
* * * *
[SIGNATURE PAGES OF PARTNERS ATTACHED]
-31-
35
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
GENERAL PARTNER:
TITAN RESOURCES I, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
36
LIMITED PARTNER SIGNATURE PAGE (INDIVIDUAL)
The undersigned, desiring to become a Limited Partner of the
Partnership, hereby agrees to all of the terms and provisions of the Agreement
of Limited Partnership, and agrees to be bound by the terms and provisions of
this Limited Partner Signature Page which, together with other Limited Partner
Signature Pages, is hereby incorporated into the said Agreement of Limited
Partnership. The undersigned hereby joins and executes the said Agreement of
Limited Partnership, hereby authorizing this Limited Partner Signature Page to
be attached thereto. The place of residence or principal business address of
the undersigned is as shown below.
IN WITNESS WHEREOF, the undersigned has executed this Limited Partner
Signature Page to the Agreement of Limited Partnership as of the date set forth
hereinafter.
Date: March 31, 1995 INDIVIDUAL LIMITED PARTNER:
--------------------------
1.
-------------------------------------
(Signature of Limited Partner)
2.
-------------------------------------
(Name of Limited Partner-printed)
37
LIMITED PARTNER SIGNATURE PAGE (ENTITY)
The undersigned, desiring to become a Limited Partner of the
Partnership, hereby agrees to all of the terms and provisions of the Agreement
of Limited Partnership, and agrees to be bound by the terms and provisions of
this Limited Partner Signature Page which, together with other Limited Partner
Signature Pages, is hereby incorporated into the said Agreement of Limited
Partnership. The undersigned hereby joins and executes the said Agreement of
Limited Partnership, hereby authorizing this Limited Partner Signature Page to
be attached thereto. The place of residence or principal business address of
the undersigned is as shown below.
IN WITNESS WHEREOF, the undersigned has executed this Limited Partner
Signature Page to the Agreement of Limited Partnership as of the date set forth
hereinafter.
Date: March 31, 1995 ENTITY LIMITED PARTNER:
----------------------
1.
----------------------------------------
(Name of Entity Printed)
2.
----------------------------------------
(Name of General Partner or Trustee of
Entity, if applicable)
3.
----------------------------------------
(Signature of Officer or Trustee)
4.
----------------------------------------
(Name of Officer Printed)
5.
----------------------------------------
(Title of Officer)