- 10 -
subject to credits from actual production. The first two minimum
annual royalty payments were to consist of a cash payment and a
promissory note. All remaining payments were to consist of
individual promissory notes. The first 3 notes were to be
denoted as “recourse” notes, while the remaining 17 notes were to
be considered “nonrecourse” notes. The first note was to be
executed on the date the lease was created, and each subsequent
note was to be delivered to JAD on the same date of each
successive year. This payment pattern was to continue for the
shorter of 20 years or the life of the lease. The following
table depicts the manner in which the offering materials
presented the discharge of the annual royalty payments:
Source 1980 1981 1982 1983-99
Cash $750,000 $250,000 -- --
Recourse 9,250,200 9,750,000 $10,000,000
note
Nonrecourse
notes --- --- --- $10,000,000
(each)
Total 10,000,000 10,000,000 10,000,000 170,000,000
The partnership agreement was structured such that the $29
million in notes issued by the limited partners to purchase the
partnership units represented the limited partners’ personal
liability for the first three annual notes of the partnership for
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Last modified: May 25, 2011