PAINEWEBBER/GEODYNE ENERGY INCOME LIMITED PARTNERSHIP III-G
AGREEMENT OF LIMITED PARTNERSHIP
TABLE OF CONTENTS
ARTICLE ONE
Defined Terms A-1
ARTICLE TWO
Name, Place of Business and Office; Term
Section 2.1 Name, Place of Business and Office, Agent A-11
Section 2.2 Purpose A-11
Section 2.3 Term A-11
ARTICLE THREE
Partners and Capital
Section 3.1 General Partner A-12
Section 3.2 Limited Partner and Unit Holders A-12
Section 3.3 Application of Capital Contributions A-12
Section 3.4 Certain Returns of Capital A-13
Section 3.5 Partnership Capital A-13
Section 3.6 Liability of Partners A-14
ARTICLE FOUR
Management
Section 4.1 Management and Control of the Partnership A-14
Section 4.2 Authority of the General Partner A-15
Section 4.3 Sales, Purchases and Operation of Producing
Properties; Additional Financing A-19
Section 4.4 Prohibited Transactions A-24
Section 4.5 Restrictions on the Authority of the
General Partner A-25
Section 4.6 Construction of Gas Gathering Lines A-26
Section 4.7 Contracts With the General Partner and
Affiliates A-27
Section 4.8 Farmouts A-27
Section 4.9 Other Operations A-28
Section 4.10 Prosecution, Defense and Settlement of
Claims; Indemnification A-28
Section 4.11 Duties and Obligations of the General
Partner A-29
Section 4.12 Compensation of the General Partner A-31
Section 4.13 Dealer Manager A-32
ARTICLE FIVE
Allocations and Distributions
Section 5.1 Allocation of Costs and Expenses A-32
Section 5.2 Allocation of Revenues A-32
Section 5.3 Allocations Among Unit Holders A-33
Section 5.4 Capital Accounts A-34
Section 5.5 Allocations for Federal Income Tax Purposes A-38
Section 5.6 Minimum Interest of General Partner A-38
Section 5.7 Distributions A-39
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ARTICLE SIX
Withdrawal or Removal of General Partner or General Partner's
Interest in Partnership Properties
Section 6.1 Withdrawal of General Partner or General
Partner's Interest in Partnership Properties A-39
Section 6.2 Assignment of General Partner Interest A-40
Section 6.3 Removal of General Partner A-40
Section 6.4 Option to Purchase Interest From Former
General Partner A-41
Section 6.5 Power to Admit Successor General Partner A-41
Section 6.6 Incapacity of the General Partner A-42
Section 6.7 Termination of Contracts with General Partner A-42
ARTICLE SEVEN
Assignment of Limited Partner Interests to Unit Holders
Section 7.1 Assignments of the Interests of Depositary A-42
Section 7.2 Rights of Unit Holders A-44
Section 7.3 Conversion of Units into Limited Partner
Interests A-44
ARTICLE EIGHT
Transferability of Units
Section 8.1 Assignments of Units A-45
Section 8.2 Substituted Limited Partners A-48
Section 8.3 Eligible Investors A-49
Section 8.4 Death, Incompetency or Dissolution of a
Unit Holder A-49
ARTICLE NINE
Dissolution, Liquidation and Termination of the Partnership
Section 9.1 Events Causing Dissolution A-50
Section 9.2 Liquidation A-51
ARTICLE TEN
Books and Records; Accounting; Tax Elections; Etc.
Section 10.1 Books and Records A-53
Section 10.2 Accounting Basis for Tax and Reporting
Purposes; Fiscal Year A-54
Section 10.3 Bank Accounts A-54
Section 10.4 Reports A-54
Section 10.5 Elections A-56
ARTICLE ELEVEN
Amendments; Merger
Section 11.1 Proposal and Adoption of Amendments Generally A-56
Section 11.2 Amendments on Admission or Removal of
General Partner A-57
Section 11.3 Merger A-57
Section 11.4 Exchange Offers A-58
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ARTICLE TWELVE
Consents, Voting and Meetings
Section 12.1 Methods of Giving Consent A-59
Section 12.2 Meetings of Unit Holders A-59
Section 12.3 Limitations on Requirements for Consents A-60
Section 12.4 Submissions to Unit Holders A-60
Section 12.5 Acting Without Concurrence of General Partner A-60
ARTICLE THIRTEEN
The Depositary
Section 13.1 Depositary Receipts A-61
Section 13.2 Depositary or Affiliate as Transfer Agent
And Registrar A-62
Section 13.3 Duties of Depositary A-62
Section 13.4 Depositary Not a Trustee, Issuer, Etc. A-63
Section 13.5 Indemnification of the Depositary A-63
Section 13.6 Limitation of Expense Reimbursements A-63
ARTICLE FOURTEEN
Miscellaneous Provisions
Section 14.1 Notification to the Partnership or the
General Partner A-64
Section 14.2 Binding Provisions A-64
Section 14.3 Applicable Law A-64
Section 14.4 Separability of Provisions ▇-▇▇
▇▇▇▇▇▇▇ ▇▇.▇ ▇▇▇▇▇▇▇▇▇▇▇ of the General Partner as
Attorney-in-Fact A-64
Section 14.6 Entire Agreement A-65
Section 14.7 Paragraph Titles ▇-▇▇
▇▇▇▇▇▇▇ ▇▇.▇ ▇▇▇▇▇▇▇▇▇▇▇▇ A-65
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PAINEWEBBER/GEODYNE ENERGY INCOME LIMITED PARTNERSHIP III-G
AGREEMENT OF LIMITED PARTNERSHIP
Agreement of Limited Partnership, dated as of September 20, 1991, between
Geodyne Production Company, a Delaware corporation, as General Partner, and
Geodyne Depositary Company, a Delaware corporation, as the Limited Partner.
WHEREAS, the parties hereto wish to form a limited partnership under the
Oklahoma Revised Uniform Limited Partnership Act pursuant to this Agreement of
Limited Partnership;
NOW, THEREFORE, in consideration of the mutual promises and agreements
made herein, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE ONE
DEFINED TERMS
The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Article One. The
singular shall include the plural and the masculine gender shall include the
feminine, the neuter and vice versa, as the context requires.
"Accountants" shall mean Ernst & Young or such other nationally recognized
firm of independent certified public accountants as shall be engaged from time
to time by the General Partner for the Partnership.
"Acquisition Reserve Report" shall mean a Hydrocarbon reserve report made
available to the Partnership prepared by a qualified petroleum engineering firm
acceptable to the General Partner in connection with the proposed acquisition of
a Producing Property, which shall include statements (i) identifying reserves of
Hydrocarbons referred to in such report as Proved Developed Producing Reserves,
Proved Developed Non-Producing Reserves or Proved Undeveloped Reserves, as the
case may be, and identifying all computations and determinations made for
purposes of such report, including, without limitation, the present and future
prices for Hydrocarbons and the present and future costs to produce and develop
such Hydrocarbons used in such computations and determinations, (ii) with
respect to the determination of the nature and extent of the reserves of
Hydrocarbons reflected in such report, that the collection, analysis and
evaluation of the basic physical data upon which such determination is based
were performed by such qualified petroleum engineering firm or, if such data
were collected by another Person, that such qualified petroleum engineering firm
has made inquiry with respect to the methods employed in such collection, (iii)
specifying the respective amounts of Proved Developed Producing Reserves, Proved
Developed Non-Producing Reserves and Proved Undeveloped Reserves contained
therein, and (iv) indicating such qualified petroleum engineering firm's opinion
as to the respective estimated present values of future net revenues of each
category of reserves contained therein determined in accordance with criteria
satisfactory to the General Partner and otherwise in accordance with sound
engineering and industry practices, including such standards and practices as
may be promulgated by the Society of Petroleum Engineers of the American
Institute of Mining and Metallurgical Engineers. Any such report may state
A-1
that such qualified petroleum engineering firm expresses no opinion and makes no
warranty or representation with respect to the proposed acquisition of such
Producing Property and that such qualified petroleum engineering firm is relying
on information furnished by the General Partner as to the historical volumes of
any Hydrocarbons actually produced and as to the proposed ownership interest of
the Partnership in such Producing Property.
"Acquisitions and Operations Fee" shall mean the fee paid by the
Partnership to the General Partner pursuant to Section 4. 12B of this Agreement
in connection with the Partnership's acquisition of Producing Properties and the
conduct of its business operations.
"Act" shall mean the Oklahoma Revised Uniform Limited Partnership Act, as
amended from time to time.
"Activation" or "Activated" shall mean the date on which the Certificate
of Limited Partnership is filed with the Oklahoma Secretary of State.
"Affiliate" shall mean, when used with reference to a specified Person:
(a) any Person directly or indirectly owning, controlling, or holding with power
to vote 10% or more of the outstanding voting securities of the specified
Person; (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
specified Person; (c) any Person directly or indirectly controlling, controlled
by, or under common control with, the specified Person; (d) any Person who is an
officer, director, partner or trustee of, or serves in a similar capacity with
respect to, the specified Person or of which the specified Person is an officer,
director, partner or trustee, or with respect to which the specified Person
serves in a similar capacity; and (e) the spouse or any relative of the
specified Person sharing the same household. Notwithstanding the foregoing, no
Person shall be deemed to be an Affiliate solely by reason of its ownership of
units or limited partnership interests in a limited partnership.
"Affiliated Program" shall mean a drilling or income program (whether in
the form of a limited partnership, general partnership, joint venture or
otherwise), whether currently existing or hereafter formed, interests in which
were or are offered to Persons or entities not engaged in a trade or business
within the oil and gas industry (other than by virtue of its participation in an
Affiliated Program) and of which the General Partner or an Affiliate thereof
serves as general partner, venturer, sponsor or manager.
"Agreement" shall mean this Agreement of Limited Partnership as originally
executed and as amended from time to time.
"Capital Account" shall mean, as to any Partner, an account maintained on
the books of the Partnership in accordance with the provisions of Section 5.4
below.
"Capital Contribution" shall mean the cash contribution of a Partner to
the Partnership.
"Certificate of Limited Partnership" shall mean the certificate of limited
partnership, and any and all amendments thereto and restatements thereof, filed
on behalf of the Partnership as required under the Act.
A-2
"Code" shall mean the Internal Revenue Code of 1986, as amended (or any
corresponding provisions of succeeding law).
"Commercial Well" shall mean any Partnership Well which is capable of
producing Hydrocarbons in commercial quantities, including those ▇▇▇▇▇ which are
shut-in or which have not been abandoned within 60 days following the
commencement of production. For purposes of this definition, production shall
refer to the commencement of the commercial marketing of Hydrocarbons, and shall
not include any spot sales of Hydrocarbon production as a result of testing
procedures.
"Commissions" shall mean the cash fees payable to the Dealer Manager and
the Selected Dealers in connection with their participation in the offering of
Units.
"Consent" shall mean the consent of a Person, given as provided in Section
12.1, to do the act or thing for which the consent is solicited, or the act of
granting such consent, as the context may require.
"Dealer Manager" shall mean PaineWebber Incorporated, a Delaware
corporation.
"Depositary" shall mean Geodyne Depositary Company, a Delaware
corporation, as the sole initial Limited Partner or any Person who at the time
of reference thereto has been admitted to the Partnership with the consent of
the General Partner as a successor to the interest of Geodyne Depositary Company
in the Partnership, which will upon the Activation of the Partnership acquire
and hold on behalf of the Unit Holders the Limited Partner interests
attributable to the Units issued to the Unit Holders.
"Depositary Receipt" shall mean a document issued in registered form by
the Depositary evidencing the ownership of one or more Units.
"Development Drilling" shall mean all drilling and completing, or plugging
and abandoning (after a determination that a well is not a Commercial Well), of
a Partnership Well drilled to the same reservoir from which another well or
other ▇▇▇▇▇ on a Lease or an offset Lease are being produced, or the
recompletion of an existing Partnership Well; provided, however, that
Development Drilling shall not include any Identified Development Drilling.
"Direct Administrative Costs" shall mean the actual and necessary direct
costs attributable to services provided to the Partnership by parties other than
the General Partner or its Affiliates, whether incurred by or for the benefit of
the Partnership directly or incurred by the General Partner or its Affiliates,
including the annual audit fees, legal fees and expenses, the cost of reviewing
tax returns and reports, the cost of evaluations prepared by Independent
Petroleum Engineers pursuant to Section 10.4C of this Agreement and all other
such costs directly incurred by or for the benefit of the Partnership. Direct
Administrative Costs shall not include any Organization and Offering Costs or
any General and Administrative Costs.
A-3
"Eligible Investor" shall mean a person who is qualified to hold an
interest in oil and gas Leases on federal lands, including offshore areas under
federal laws and regulations in effect from time to time. As of the date of this
Agreement, the term "Eligible Investor" means: (i) a citizen of the United
States who has attained the age of majority under the laws of the state in which
he resides, (ii) an association (including a partnership, joint tenancy or
tenancy in common) organized or existing under the laws of the United States or
any state or territory thereof, all of the members of which are citizens of the
United States or (iii) a corporation organized under the laws of the United
States or any state or territory thereof, of which corporation, to the best of
its knowledge, not more than 5% of the voting stock, or of all the stock, is
owned or controlled by citizens of countries that deny to United States citizens
privileges to own stock in corporations holding oil and gas Leases similar to
the privileges of non-United States citizens to own stock in corporations
holding an interest in federal Leases, and, in each case, whose interest, direct
or indirect, in federal oil and gas Leases, applications, offers and options
therefor does not exceed 246,000 acres in the same state, of which no more than
200,000 acres are under option, nor does it exceed 300,000 acres in each of the
northern and southern leasing districts of Alaska, of which no more than 200,000
acres are held under option in each of such districts.
"Engineering Review Letter" shall mean a document prepared by a qualified
petroleum engineering firm acceptable to the General Partner in connection with
the proposed acquisition of a Producing Property, which shall include statements
indicating that (i) such qualified petroleum engineering firm has reviewed an
oil and gas reserve report prepared by the engineering staff of Geodyne
Resources, Inc. or an Affiliate, (ii) in the opinion of such qualified petroleum
engineering firm, the reserve report was prepared in accordance with sound
engineering and industry practices, including such standards and practices as
may be promulgated by the Society of Petroleum Engineers of the American
Institute of Mining and Metallurgical Engineers, and (iii) with respect to the
determination of the nature and extent of the reserves of Hydrocarbons reflected
in such report, such qualified petroleum engineering firm has made inquiry with
respect to the methods employed in the collection, analysis and evaluation of
the basic physical data upon which such determination is based.
"Farmout" shall mean an arrangement whereby the owner of a Lease or
Working Interest agrees to assign his interest in certain specific acreage to
the assignee, retaining some interest such as an overriding royalty interest,
oil and gas payment, offset acreage or other type of interest, subject to the
drilling of one or more specific ▇▇▇▇▇ or other performance as a condition of
the assignment.
"Fiscal Year" shall mean the calendar year.
"General and Administrative Costs" shall mean all customary and routine
legal, accounting, data processing, depreciation (other than depreciation
relating to real property), geological, engineering, travel, office rent,
telephone, secretarial, employee compensation and benefits, and other items of a
general and administrative nature, whether like or unlike the foregoing, and any
other incidental expenses reasonably necessary to the conduct of the
Partnership's business, and generated by the General Partner or any Affiliate
other than an Affiliated Program computed on a cost basis, determined by the
A-4
General Partner in accordance with generally accepted accounting principles and
subject to review by the Accountants in connection with the annual audit of the
Partnership and its Affiliates. General and Administrative Costs shall not
include any Direct Administrative Costs or Organization and Offering Costs of
the Partnership.
"General Partner" shall mean Geodyne Production Company, a Delaware
corporation, acting in such capacity, and any other Person admitted as an
additional or substituted General Partner pursuant to the provisions of Article
Six of this Agreement.
"Hydrocarbons" shall mean crude oil, natural gas, condensate, natural gas
liquids and other liquid or gaseous hydrocarbons and any minerals produced in
association therewith.
"Identified Development Drilling" shall mean all drilling and completing,
or plugging and abandoning (after a determination that a well is not a
Commercial Well), of a Partnership Well drilled by or on behalf of the
Partnership to a reservoir on a Lease or an offset Lease constituting all or a
portion of a Producing Property or the recompletion of an existing Partnership
Well, where (i) the drilling or recompletion of such Partnership Well commences
after the acquisition of such Producing Property by the Partnership and is
conducted in order to commence production of Hydrocarbons from Proved
Undeveloped Reserves identified in the Acquisition Reserve Report or Engineering
Review Letter prepared in connection with such Producing Property, (ii) the
costs of development of the Proved Undeveloped Reserves were taken into account
in such Acquisition Reserve Report or Engineering Review Letter in valuing such
Proved Undeveloped Reserves attributable to such Producing Property, and (iii) a
portion of the cost paid by the Partnership for such Producing Property is
attributed by such Acquisition Reserve Report or Engineering Review Letter to
such Proved Undeveloped Reserves. The term, Identified Development Drilling,
shall also refer to any Partnership ▇▇▇▇▇ drilled or recompleted on a Producing
Property subsequent to the initial Identified Development Drilling conducted on
such Producing Property in order to commence production of Hydrocarbons from
Proved Undeveloped Reserves (in addition to those identified in the related
Acquisition Reserve Report or Engineering Review Letter) which have been
categorized by the General Partner as such by virtue of production obtained from
prior Identified Development Drilling conducted on such Producing Property. Any
reference to costs incurred in connection with Identified Development Drilling
shall include the interest, commitment fees and other financing charges and
expenses of Partnership borrowings incurred to finance Identified Development
Drilling.
"Improved Recovery" shall mean all methods of supplementing natural forces
and mechanisms of primary recovery or otherwise increasing the ultimate recovery
from a Partnership Property, including, but not limited to, water flooding,
pressure maintenance, gas cycling, fluid injection, polymer flooding, chemical
flooding and the use of miscible displacement fluids.
A-5
"Incapacity" or "Incapacitated" shall mean the entry of any order for
relief under any bankruptcy law (except that, in the case of the General
Partner, the term "bankruptcy" shall mean only being subject to Chapter 7 of the
Bankruptcy Code of 1984), the adjudication of interdiction, of incompetence, or
of insanity, or the death, dissolution or termination (other than by merger or
consolidation under which the surviving entity agrees to assume all of the
obligations and responsibilities of the merged or consolidated Person set forth
in this Agreement), as the case may be, of any Person.
"Independent Petroleum Engineer" shall mean a Person with no material
relationship to the General Partner or its Affiliates who is in the business of
rendering fair market value opinions regarding the value of oil and gas
properties based upon the evaluation of all pertinent economic, financial,
geologic and engineering information available to the General Partner.
"Investment Income" shall mean all interest and dividend income earned on
temporary investments of the Partnership at any time prior to the time at which
an amount equal to the Capital Contributions to the Partnership available for
the acquisition of Producing Properties have been (i) expended or (ii) returned
pursuant to Section 3.4 of this Agreement.
"I/P Partnership" shall mean a partnership formed as a part of the program
captioned "PaineWebber/Geodyne Institutional/Pension Energy Income Partners" and
any subsequent Affiliated Program formed by the General Partner or any Affiliate
for investment primarily by pension and other tax-exempt plans and accounts.
"Lease" shall mean a lease, mineral interest, royalty or overriding
royalty covering Hydrocarbons (or a contractual right to acquire such an
interest), or an undivided interest therein or portion thereof, together with
all easements, permits, licenses, servitudes and rights-of-way situated upon, or
used or held for future use in connection with, the exploration, development or
operation of such interest.
"Limited Partner" shall mean the Depositary and any Substituted Limited
Partners.
"Net Profits Interest" shall mean an interest in one or more Producing
Properties which entitles the holder thereof to a share of the gross revenues
from the production of Hydrocarbons from the Producing Property or Properties
less all operating, production, development, transportation, transmission and
marketing expenses, and all severance, sales, ad valorem and excise taxes
attributable to such production.
"Notification" shall mean a writing, containing the information required
by this Agreement to be communicated to any Person, hand delivered or sent by
registered or certified mail, return receipt requested, postage prepaid, to such
Person at the last address of such Person reflected on the official records of
the Partnership, the date of the certified receipt (or such other evidence of
receipt) therefor being deemed the date of the giving of Notification; provided,
however, that any written communication containing the information sent or
delivered to the Person and actually received by the Person shall constitute
Notification for all purposes of this Agreement.
A-6
"Operating Costs" shall mean all expenditures made and costs incurred by
the Partnership with respect to (i) the production and marketing of Hydrocarbons
from completed Partnership ▇▇▇▇▇, including labor, fuel, repairs, hauling,
materials, supplies, utility charges and other costs incident to or therefrom,
costs of maintaining inventories incidental to the operations of Producing
Properties, costs of making transfers of lease and well equipment to and from
Partnership ▇▇▇▇▇, ad valorem and severance taxes, insurance and casualty loss
expense, and compensation to well operators or others for services rendered in
conducting such operations; (ii) the interest, commitment fees and other finance
charges and expenses of Partnership borrowings incurred in connection with
Development Drilling and Improved Recovery projects; and (iii) processing
facilities, pipelines, gas sales facilities, Improved Recovery projects, and
other procedures and facilities necessary to produce efficiently and market the
Hydrocarbon reserves from a Producing Property, all to the extent such costs and
expenditures are not Property Acquisition Costs.
"Organization and Offering Costs" shall mean all costs and expenses
incurred by the General Partner and its Affiliates in connection with the
organization and activation of the Partnership, including, without limitation,
the legal, printing, accounting and other direct and indirect costs incurred in
connection with preparing this Agreement and the preparation and filing of a
Certificate of Limited Partnership, the costs incurred with respect to the
registration for offer and sale of the Units under applicable federal and state
securities laws, the wholesale offering and marketing fees and expenses of the
Dealer Manager and a subsidiary of Geodyne Resources, Inc. which is a registered
broker-dealer, and other front-end fees. Organization and Offering Costs shall
not include the Commissions paid to the Dealer Manager or reallowed to the
Selected Dealers, but shall include fees and expenses (including expense
reimbursements) paid to Persons in connection with the offering and issuance of
Units, including due diligence expenses.
"Partner" shall mean the General Partner or any Limited Partner of the
Partnership.
"Partnership" shall mean the limited partnership formed hereby.
"Partnership Account" shall mean the bank account or accounts established
by the General Partner pursuant to Section 10.3 of this Agreement.
"Partnership Property" shall mean all interest, property and right of any
type owned by the Partnership.
"Partnership Well" shall mean any well in which the Partnership has an
interest.
"Payout" shall mean that time at which cash distributions have been made
by the Partnership to the Unit Holders (together with their predecessors in
interest) in an aggregate amount equal to $100 for each whole Unit held by each
such Unit Holder.
"Person" shall mean any individual, partnership, corporation, trust or
other entity.
A-7
"Prior Limited Partnership" shall mean any limited partnership activated
prior to the Activation of the Partnership of which depositary units or units of
limited partnership interest were offered and sold pursuant to the Prospectus or
pursuant to the prospectus prepared for the PaineWebber/Geodyne Energy Income
Program I, the PaineWebber/Geodyne Energy Income Program II or the
PaineWebber/Geodyne Institutional/Pension Energy Income Partners or any
subsequent Affiliated Programs pursuant to which I/P Partnerships are formed.
"Producing Property" shall mean any property (or interest in such
property) with a well or ▇▇▇▇▇ capable of producing Hydrocarbons in commercial
quantities or properties unitized with such properties or properties adjacent to
such properties which are acquired as an incidental part of the acquisition of
such properties. The term also includes well machinery and equipment, gathering
systems, storage facilities or processing installations or other equipment and
property associated with the production of Hydrocarbons. Interests in properties
may include Working Interests, production payments, Royalties and other
nonworking and nonoperating interests.
"Property Acquisition Costs" shall mean, without duplication, the sum of
(1) the prices paid by the Partnership or the General Partner or an Affiliate to
an unaffiliated Person to acquire a Producing Property ultimately sold to the
Partnership, including the price paid to acquire a purchase option with respect
to a Producing Property, lease bonuses and equipment costs associated therewith;
(2) title insurance or examination costs, brokers commissions and finders' fees,
filing fees, recording fees, transfer taxes, if any, and like charges in
connection with the acquisition of Producing Properties; (3) delay rentals and
ad valorem taxes paid by the buyer with respect to such property to the date of
its transfer to the Partnership; (4) interest and other financing fees and costs
actually incurred by the General Partner or its Affiliates to acquire or
maintain such Producing Properties prior to their transfer to the Partnership;
and (5) all reasonable, necessary and actual expenses incurred by the General
Partner or an Affiliate in connection with the acquisition of Producing
Properties and paid to third parties who are not Affiliates for geological,
geophysical, seismic, land, engineering, drafting, accounting, auditing, legal
and other like services, including the Partnership's costs incurred (to the
extent consistent with generally accepted industry standards) in connection with
the Partnership's review of proposed acquisitions of Producing Properties,
whether or not acquired and the preparation and review of Acquisition Reserve
Reports and Engineering Review Letters, all allocated to the property in
accordance with the allocation procedures used by the General Partner, any of
its Affiliates or the Partnership; provided that the portion of the General
Partner's or Affiliates' expenses allocated to the property, as set forth in
items (3), (4) and (5), shall have been incurred not more than 36 months prior
to the property transaction.
"Property Investment Period" shall have the meaning set forth in Section
5.2.
"Prospect" shall mean an area in which the Partnership owns or intends to
own one or more oil and gas interests which is geographically defined on the
basis of geological data by the General Partner and which is reasonably
anticipated by the General Partner to contain at least one reservoir.
A-8
"Prospectus" shall mean the prospectus pursuant to which the Units were
offered, including all supplements or amendments thereto delivered in such
offering, if any.
"Proved Reserves" shall mean those quantities of Hydrocarbons, which, upon
analysis of geologic and engineering data, appear with reasonable certainty to
be recoverable in the future from known Hydrocarbon reservoirs under existing
economic and operating conditions. Proved Reserves are limited to those
quantities of Hydrocarbons which can be expected, with little doubt, to be
recoverable commercially at current prices and costs, under existing regulatory
practices and with existing conventional equipment and operating methods.
Depending upon their status of development, such Proved Reserves shall be
subdivided into the following classifications and have the following
definitions:
(a) "Proved Developed Reserves" shall mean Proved Reserves which
can be expected to be recovered through existing ▇▇▇▇▇ with existing
equipment and operating methods. This classification shall include:
(1) "Proved Developed Producing Reserves" which are Proved
Developed Reserves which are expected to be produced from existing
▇▇▇▇▇; and
(2) "Proved Developed Non-Producing Reserves" which are
Proved Developed Reserves which exist behind the casing of existing
▇▇▇▇▇, or at minor depths below the present bottom of such ▇▇▇▇▇,
which are expected to be produced through these ▇▇▇▇▇ in the
predictable future, where the cost of making Hydrocarbons available
for production should be relatively small compared to the cost of a
new well.
Additional Hydrocarbons expected to be obtained through the
application of Improved Recovery techniques are included as "Proved
Developed Reserves" only after testing by a pilot project or after the
operation of an installed program has confirmed through production
responses that increased recovery will be achieved.
(b) "Proved Undeveloped Reserves" shall mean all reserves which
are expected to be recovered from new ▇▇▇▇▇ on undrilled acreage or from
existing ▇▇▇▇▇ where a relatively major expenditure is required for
recompletion. Such reserves on undrilled acreage are limited to those
drilling units offsetting productive units which are reasonably certain of
production when drilled; provided that Proved Reserves for other undrilled
units can be claimed where it can be demonstrated with certainty, based on
accepted geological, geophysical and engineering studies and data, that
there is continuity of production from an existing productive formation.
No estimates for Proved Undeveloped Reserves are attributable to any
acreage for which Improved Recovery is contemplated, unless the techniques
to be employed have been proved effective by actual tests in the same area
and reservoir.
A-9
"Revenues" are the Partnership's gross revenues from all sources,
including interest income, proceeds from sales of production, the Partnership's
share of revenues from partnerships or joint ventures of which it is a member,
proceeds from sales or other dispositions of Hydrocarbon properties or other
Partnership assets, provided that contributions to Partnership capital by the
Partners and the proceeds of any Partnership borrowings are specifically
excluded.
"Royalty" shall mean an interest, including an overriding royalty but
excluding a Net Profits Interest, in gross production or the proceeds therefrom
which does not require the owner thereof to bear any of the cost of production,
development operation or maintenance.
"Selected Dealer" shall mean a member in good standing of the National
Association of Securities Dealers, Inc. which has been selected by the Dealer
Manager to offer and sell the Units.
"State" shall mean the State of Oklahoma.
"Subscription Agreement" shall mean the Subscription Agreement in the form
attached to the Prospectus as Exhibit B.
"Subsequent Limited Partnership" shall mean any limited partnership
activated after the Activation of the Partnership of which Units are offered and
sold pursuant to the Prospectus.
"Substituted Limited Partner" shall mean any Unit Holder admitted to the
Partnership as a Substituted Limited Partner pursuant to Section 7.3 or Sections
8.1 and 8.2 of this Agreement.
"Unit" shall mean an increment of the attributes of the interest as a
Limited Partner that is either (i) assigned to a Unit Holder by the Depositary
and is evidenced by a Depositary Receipt or (ii) unless the context otherwise
requires, is held directly by a Substituted Limited Partner and, in either case,
which increment represents a subscription amount of $100.
"Unit Holders" shall mean any Person who holds Depositary Receipts in
accordance with Section 7.1 or Section 8.1 hereof as reflected in the records of
the Partnership and the Depositary and, unless the context otherwise requires,
any Person who becomes a Substituted Limited Partner.
"Unit Holders' Subscriptions" shall mean the aggregate dollar amount
(initially subscribed for by Unit Holders) determined by multiplying the number
of Units issued to the Unit Holders by $100.
"Working Interest" shall mean the interest (whether held directly or
indirectly) in a Lease which is burdened with the obligation to pay some portion
of the expense of production, development, operation or maintenance. A Working
Interest does not include a Net Profits Interest.
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ARTICLE TWO
NAME, PLACE OF BUSINESS AND OFFICE; TERM
Section 2.1 Name, Place of Business and Office Agent
----------------------------------------------------
The Partnership shall be conducted under the name PaineWebber/Geodyne
Energy Income Limited Partnership III-G. The business of the Partnership may,
however, be conducted under any other name deemed necessary or desirable by the
General Partner in order to comply with applicable laws. The office and
principal place of business of the Partnership shall be c/o Geodyne Production
Company, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇. The
agent for service of process on the Partnership shall be Geodyne Production
Company, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇. The
General Partner may change the principal place of business and the location of
such office and may establish such additional offices as it deems advisable from
time to time; provided, however, that in the event the principal place of
business of the Partnership shall be changed, the General Partner shall provide
Notification thereof to the Unit Holders. The General Partner shall not be
obligated to provide a copy of the certificate of limited partnership as filed
with the Oklahoma Secretary of State to the Depositary or Unit Holders. A Unit
Holder may obtain a copy of such certificate of limited partnership by making a
written request therefor to the General Partner.
Section 2.2 Purpose
-------------------
The business and purpose of the Partnership shall be to acquire, own,
hold, operate, explore, develop, trade, sell and exchange Hydrocarbon properties
and processing and transportation facilities and interests therein of all kinds
onshore and offshore in the continental United States, including, without
limitation, interests in general or limited partnerships, joint ventures and
other entities that hold or are formed to acquire interests in such properties
or interests; to engage in Development Drilling, Identified Development Drilling
or other drilling operations specifically authorized by this Agreement, and
enhanced recovery operations thereon; to produce, process, transport, market,
purchase and trade Hydrocarbons and products thereof; to purchase, lease, own,
hold, operate, sell and exchange all equipment, machinery, facilities, systems
and plants necessary or appropriate for such purposes; and to do any and all
things necessary or proper in connection with or incident to the foregoing
activities.
Section 2.3 Term
----------------
The Partnership shall continue in force and effect for a period of ten
(10) years from the date of its Activation, provided that the General Partner
may extend the term of the Partnership for up to five periods of two years each
if it believes each such extension is in the best interests of the Unit Holders,
or until dissolution prior thereto pursuant to the provisions hereof.
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ARTICLE THREE
PARTNERS AND CAPITAL
Section 3.1 General Partner
---------------------------
A. The name, address and Capital Contribution of the General Partner
are set forth in Schedule A which is attached hereto and incorporated herein
by reference.
B. The General Partner shall not be required to make any additional
Capital Contribution except as set forth in the next sentence and in Sections
3.4 and 9. 2C. The General Partner shall contribute an amount of cash sufficient
to pay its share of costs allocated to it pursuant to Section 5.1 of this
Agreement as such costs are, incurred to the extent that the amount of Revenues
allocated to it (and/or the amount of Partnership borrowings incurred on its
behalf) is insufficient to pay such costs.
Section 3.2 Limited Partner and Unit Holders
--------------------------------------------
A. The name, address and Capital Contribution of the Depositary as
Limited Partner are set forth in Schedule A which is attached hereto and
incorporated herein by reference.
B. Neither the Depositary nor any Unit Holder shall be required to
make any additional Capital Contribution to the Partnership.
C. The Depositary shall engage in no business activity and shall incur no
liabilities other than acting as Depositary for the Partnership or any other
limited partnership that is an Affiliated Program. The Depositary shall not
amend its Certificate of Incorporation or By-laws without the prior Consent of
the Unit Holders holding a majority of the outstanding Units.
Section 3.3 Application of Capital Contributions
------------------------------------------------
The General Partner shall deposit in the Partnership Account the Capital
Contributions and apply such Capital Contributions to (i) pay to the General
Partner the aggregate amount due pursuant to Section 4. 12B in consideration of
the General Partner's payment of Organization and Offering Costs, (ii) pay
Commissions, and (iii) pay to the General Partner the Acquisitions and
Operations Fee. The balance of such Capital Contributions shall be held in the
Partnership Account to be applied to the payment of Property Acquisition Costs
and, to the extent not payable out of Revenues or Investment Income, Operating
Costs, General and Administrative Costs, Direct Administrative Costs and other
Partnership costs; provided, however, that such funds may be temporarily
invested prior to the payment of such costs in accordance with Section 10.3.
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Section 3.4 Certain Returns of Capital
--------------------------------------
A. Any portion of the Capital Contribution of the Partnership (except for
necessary operating capital) that has not been expended or that is not, or in
the determination of the General Partner, will not be committed for expenditure
by the second anniversary of the Activation of the Partnership will promptly be
refunded to the Unit Holders as a return of part of their Capital Contributions
at the earlier of such determination of the second anniversary of the Activation
of the Partnership. In addition, the General Partner shall contribute cash to
the Partnership (with respect to which its Capital Account will be credited) in
an amount equal to that portion of the total of (i) the amount paid to the
General Partner in respect of the Acquisitions and Operations Fee, (ii) the
amount paid to the General Partner in consideration of its payment of the
Organization and Offering Costs, and (iii) the Commissions, which are
attributable (on a proportionate basis) to the unexpended amount of Capital
Contributions so refunded, which cash shall be refunded to the Unit Holders
together with the unexpended Capital Contributions so refunded. All amounts so
refunded to the Unit Holders shall reduce dollar for dollar their Capital
Accounts.
B. The Prospectus may provide that if certain conditions (which may
include the condition that the General Partner, on behalf of the Partnership,
has acquired or entered into a commitment to acquire interests in Producing
Properties which the General Partner believes will meet certain objectives
described in such Prospectus) have not been satisfied on or before a specified
date, the Partnership will return all Unit Holders' Subscriptions together with
all interest earned thereon. If such conditions are a term of the offering of
the Units and by such specified date such conditions have not been met, then the
General Partner will return all Unit Holders' Subscriptions together with all
interest thereon and the Partnership shall thereupon be dissolved and terminated
in accordance with the terms hereof. To the extent any Acquisitions and
Operations Fees, payments in respect of Organization and Offering Costs and
Commissions have been paid, the General Partner will make cash contributions to
the Partnership in the same manner as provided in Section 3. 4A.
Section 3.5 Partnership Capital
-------------------------------
A. No Partner shall be paid interest on any Capital Contribution to
the Partnership or on such Partner's Capital Account, notwithstanding any
disproportion therein as between Partners.
B. Except as provided in Sections 3.4, 6.1 and 9.2 of this Agreement,
neither the General Partner nor any Unit Holder shall have the right to withdraw
from the Partnership or to withdraw or receive any return of its Capital
Contribution. Under circumstances involving a return of any Capital
Contribution, no Unit Holder shall have priority over any other Unit Holder nor
shall any Unit Holder have the right to receive any property other than cash,
except as may otherwise be provided in this Agreement.
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Section 3.6 Liability of Partners
---------------------------------
A. Except as provided in the Act, neither the Depositary nor the Unit
Holders shall be personally liable for any debts, liabilities, contracts or
obligations of the Partnership. To the extent that any distribution is deemed to
constitute a return of capital under the Act, the General Partner shall not seek
to recover any distribution unless the General Partner has applied all other
available Partnership assets to the payment of liabilities of the Partnership
and the liabilities of the Partnership, other than to Partners, have not been
fully paid, satisfied, assumed or discharged. The Unit Holders that are not
Substituted Limited Partners shall have no obligation to return any funds
distributed to them by the Partnership that are later determined to be a return
of the Capital Contributions. In no event shall the Depositary or any Unit
Holder be obligated to make any contribution to the Partnership for any purpose
whatsoever other than Capital Contributions of the Depositary representing the
proceeds of the offering of Units.
B. Each of the General Partner and any successor or additional General
Partner subsequently admitted to the Partnership agrees that it shall remain
liable for any obligation or recourse liability of the Partnership incurred
during the period in which it is a General Partner and to the extent the
Partnership has incurred liability.
ARTICLE FOUR
MANAGEMENT
Section 4.1 Management and Control of the Partnership
-----------------------------------------------------
A. Subject to the Consent of the Unit Holders as and when required by this
Agreement, the General Partner, within the authority granted to it under and in
accordance with the provisions of this Agreement, shall have the full and
exclusive right to manage and control the business and affairs of the
Partnership and to make all decisions regarding the business of the Partnership
and shall have all of the rights, powers and obligations of a general partner of
a limited partnership under the laws of the State.
B. The Depositary and the Unit Holders, as such, shall not participate in
the management of or have any control over the Partnership's business nor shall
the Depositary or the Unit Holders, as such, have the power to represent, act
for, sign for or bind the General Partner or the Partnership. The Depositary and
each of the Unit Holders hereby Consent to the exercise by the General Partner
of the powers conferred on it by this Agreement.
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Section 4.2 Authority of the General Partner
--------------------------------------------
A. In addition to any other rights and powers which the General Partner
may possess under this Agreement and the Act, the General Partner shall, except
and subject to the extent otherwise provided or limited in this Agreement, have
all specific rights and powers required or appropriate to its management of the
Partnership's business which, by way of illustration but not by way of
limitation, shall include the following rights and powers to:
(i) expend the Capital Contributions of the Partners and
apply Partnership Revenues in furtherance of the business of the
Partnership;
(ii) acquire, explore, develop, manage and operate Hydrocarbon
properties and processing and transportation facilities of all kinds and
interests therein (including interests in corporations and partnerships
owning Hydrocarbon properties and processing and transportation facilities
of all kinds if in the General Partner's judgment such purchase is a
necessary or advisable step in acquiring interests in Producing Properties
held by any such corporation or partnership, provided, no such purchase
will be made for the purpose of investment in the securities of any such
corporation or partnership, the Partnership will not conduct or
participate in a hostile tender offer, and no such purchase will be made
unless there is assurance that sufficient control of the corporation or
partnership can be obtained in the initial acquisition to liquidate it,
and it is determined the purchase would not thereby render the Partnership
an investment company within the meaning of the Investment Company Act of
1940, and provided further the Partnership's interest in the underlying
assets of any such corporation or partnership is distributed as soon as
practical thereafter to the Partnership in redemption for the
Partnership's interest in such corporation or partnership) of all kinds
and hold all such property, interests and units in the name of the
Partnership; provided, however, that in connection therewith, the General
Partner shall, contemporaneously with the acquisition of a Producing
Property, or as soon as practicable thereafter, file or cause to be filed
for recordation an appropriate conveyance or agreement evidencing the
Partnership's interest in such Producing Property in the jurisdiction
where such Producing Property is located pursuant to such jurisdiction's
Uniform Commercial Code (or comparable law) and/or in the real property
records of the clerk or recorder of the county in which the Producing
Property is situated; and, provided, further, that filings of such
conveyances or agreements shall also be made as the General Partner
believes necessary to establish the Partnership's priority of interest;
and, provided, further, Producing Properties may be held in the name of
Geodyne Nominee Corporation, or such other entity designated by the
General Partner whose only business is to hold title, as nominee for the
Partnership if such action is deemed by the General Partner to be
necessary or beneficial to the Partnership and the nominee conducts no
other business or operations; provided, however, no Producing Properties
shall be held in the name of a nominee on a permanent basis unless the
General Partner obtains either a ruling from the Internal Revenue Service
or an opinion of qualified tax counsel to the effect that such arrangement
does not change the ownership status of the Partnership for federal income
tax purposes;
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(iii) execute such instruments and agreements, do such acts,
employ such persons and contract for such services as the General Partner
determines are necessary or appropriate to conduct the Partnership's
business, including the employment of the General Partner or any Affiliate
as an operator, and the entering into management and advisory contracts;
(iv) execute, in the name of the Partnership, contracts for the
sale of Hydrocarbons and division orders and transfer orders as necessary
or incident to the sale of production on behalf of the Partnership;
(v) produce, treat, transport and market Hydrocarbons, execute
processing contracts and transportation contracts and enter into contracts
for the marketing or sale of Hydrocarbons and other marketing agreements
in the name of the Partnership, whether or not extending beyond the term
of the Partnership;
(vi) execute offers for United States and any state Leases on
behalf of the Partnership; execute and file requests for approval of
assignments of interests in United States and any state Leases, together
with any and all contracts for the option, sale or purchase of such Leases
or the sale or purchase of any products therefrom; execute any plans of
development under unit agreements, conveyances, subleases, mortgages,
deeds of trust, affidavits or reports concerning the drilling of ▇▇▇▇▇ and
production, designations of operator, Lease bonds, operator's bonds and
consents of surety; and in general do all things necessary or desirable on
behalf of the Partnership regarding any United States or state Leases or
offers therefor;
(vii) enter into any partnership agreement, sharing arrangement
or joint venture with any Person acceptable to the General Partner and
which is engaged in any business or transaction in which the Partnership
is authorized to engage, provided that the Partnership shall not be deemed
thereby to be an "investment company" for purposes of the Investment
Company Act of 1940, as amended;
(viii) enter into and execute drilling contracts, Farmout
agreements, operating agreements, unitization agreements, pooling
agreements, unit or pooling designations, recycling contracts, dry hole,
bottom hole and acreage contribution letters and agreements, participation
agreements, agreements and conveyances respecting rights-of-way,
agreements respecting surface and subsurface storage and any other
agreements customarily employed in the oil and gas industry in connection
with the acquisition, exploration, development, operation or abandonment
of any Leases, and any and all other instruments or documents considered
by the General Partner to be necessary or appropriate to conduct the
business of the Partnership;
(ix) pay or elect not to pay delay rentals on Partnership
Properties as appropriate in the judgment of the General Partner, it being
understood that the General Partner will not be liable for failure to make
correct or timely payments of delay rentals if such failure were due to
any reason other than negligence or lack of good faith;
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(x) abandon or otherwise dispose of any interest in Hydrocarbon
properties acquired for the Partnership upon such terms and for such
consideration as the General Partner may determine;
(xi) sell production payments payable out of all or any part of
any one or more of the Producing Properties acquired by the Partnership
and devote and expend the proceeds of any such sale for any of the
purposes of the Partnership for which the proceeds of borrowings may be
applied;
(xii) borrow monies from time to time, for the purposes and
subject to the limitations stated in Section 4.3C, in the form of recourse
or nonrecourse borrowings, or otherwise draw, make, execute and issue
promissory notes and other negotiable or nonnegotiable instruments and
evidences of indebtedness, and secure the payments of the sums so borrowed
and mortgage, pledge or assign in trust all or any part of Partnership
Property, including Producing Properties, production and proceeds of
production, or assign any monies owing or to be owing to the Partnership,
and engage in any other means of financing customary in the petroleum
industry; provided, however, that a creditor who makes a nonrecourse loan
to the Partnership shall not have or acquire, at any time as a result of
making the loan, any direct or indirect interest in the profits, capital
or property of the Partnership other than as a secured creditor;
(xiii) invest Capital Contributions and other Partnership
funds temporarily in the investments set forth in Section 10.3;
(xiv) employ on behalf of the Partnership agents, employees,
accountants, lawyers, geologists, geophysicists, landpersons, clerical
help and such other assistance and consulting and other services as the
General Partner may deem necessary or convenient and to pay therefor such
remuneration as the General Partner may deem reasonable and appropriate;
(xv) purchase, lease, rent or otherwise acquire or obtain the use
of machinery, equipment, tools, materials, and all other kinds and types
of real or personal property that may in any way be deemed necessary,
convenient or advisable in connection with carrying on the business of the
Partnership, purchase and establish adequate inventories of equipment and
material required or expected to be required in connection with its
operations, dispose of tangible lease and well equipment for use or used
in connection with Partnership Property, and incur expenses for travel,
telephone, telegraph, insurance and for such other things, whether similar
or dissimilar, as may be deemed necessary or appropriate for carrying on
and performing the business of the Partnership;
(xvi) enter into such agreements and contracts with such parties
and give such receipts, releases and discharges with respect to any and
all of the foregoing and any matters incident thereto as the General
Partner may deem advisable or appropriate;
A-17
(xvii) guarantee the payment of money or the performance of any
contract or obligation by any person, firm or corporation on behalf of
the Partnership;
(xviii) ▇▇▇ and be sued, pursue and participate in arbitration
proceedings, complain and defend and settle and compromise claims or
causes of action in the name and on behalf of the Partnership;
(xix) make such classifications and determinations as the General
Partner deems advisable, having due regard for any relevant generally
accepted accounting principles and oil and gas industry practices;
(xx) purchase insurance, or extend the General Partner's or its
Affiliates' insurance, at the Partnership's expense, to protect the
Partnership Property and the business of the Partnership against loss, and
to protect the General Partner against liability to third parties arising
out of Partnership activities, such insurance to be in such limits, to be
subject to such deductibles and to cover such risks as the General Partner
deems appropriate;
(xxi) pay all ad valorem taxes levied or assessed against the
Partnership Properties, all taxes upon or measured by the production of
Hydrocarbons therefrom and all other taxes (other than income taxes)
directly related to operations conducted by the Partnership;
(xxii) enter into agreements on behalf of the Partnership with
Affiliates;
(xxiii) sell or otherwise dispose of for value all or substantially
all of the properties and other assets of the Partnership to the General
Partner or any of its Affiliates or Affiliated Programs or any other
Person and receive for the Partnership consideration consisting of cash,
securities, other property or any other form of consideration, or any
combination thereof, at such prices and in such forms of consideration as
it deems in the best interests of the Unit Holders; provided, however,
that no such sale shall be consummated without the prior Consent of the
Unit Holders pursuant to the provisions of Section 4. 5D of this
Agreement. In the event of the dissolution of the Partnership followed by
any such sale of the Partnership's assets, the General Partner shall,
subject to the provisions of Section 9.2 of this Agreement, be appointed
the Liquidating Agent for the Partnership;
(xxiv) make, exercise or deliver any general assignment for the
benefit of the Partnership's creditors, but only upon the prior Consent of
the Unit Holders pursuant to the provisions of Section 4.5D;
(xxv) take such other action and perform such other acts as may be
deemed appropriate to carry out the business of the Partnership;
(xxvi) perform all duties imposed by Sections 6221 through 6232 of
the Code on the General Partner as "tax matters partner" of the
Partnership, including (but not limited to) the following: (a) the power
to conduct all audits and other administrative proceedings with respect to
Partnership tax items; (b) the power to extend the statute
A-18
of limitations for all Partners with respect to Partnership tax items; (c)
the power to file a petition with an appropriate federal court for review
of a final Partnership administrative adjustment; and (d) the power to
enter into a settlement with the Internal Revenue Service on behalf of,
and binding upon, each of the Unit Holders having less than a 1% interest
in Revenues unless such Unit Holder notifies the Internal Revenue Service
and the General Partner that the General Partner may not act on its
behalf; and
(xxvii) cause the Partnership to redeem or repurchase the Units held
by a Unit Holder at a purchase price determined by the General Partner if
at any time the Partnership or General Partner receives an opinion of
counsel that there exists substantial risks of cancellation or forfeiture
of any property in which the Partnership has an interest because of the
citizenship or other status of that Unit Holder.
B. No person, firm or corporation dealing with the Partnership shall be
required to inquire into the authority of the General Partner to take or refrain
from taking any action or make or refrain from making any decision, but any
person so inquiring shall be entitled to rely upon a certificate of the General
Partner as to its due authorization.
Section 4.3 Sales, Purchases and Operation of Producing Properties;
Additional Financing
-------------------------------------------------------------------
A. Producing Properties whose purchase price exceeds 10% of the Unit
Holders' Subscriptions may be acquired by the Partnership only if an Acquisition
Reserve Report or an Engineering Review Letter has been received and evaluated
by the General Partner with respect thereto.
B. Neither the General Partner, Geodyne Resources, Inc. nor any Person
controlled by Geodyne Resources, Inc. shall sell, transfer or convey any or all
of its interest in Producing Properties to the Partnership or purchase or
acquire any oil and gas properties or interest from the Partnership, directly or
indirectly, except pursuant to transactions that are fair and reasonable to the
Unit Holders under the circumstances at the time any such transaction is
consummated. Except as otherwise provided in Section 4.3E below, such
transactions shall be further subject to the following restrictions:
(i) Prior to the date on which the Partnership has acquired its
final Producing Property, neither the General Partner, Geodyne Resources,
Inc. nor any Person controlled by Geodyne Resources, Inc. (other than an
Affiliated Program) shall acquire any Producing Property after the
Activation of the Partnership unless the General Partner shall have
determined that the acquisition by the Partnership of such Producing
Property, or an interest therein, would not be in the best interests of
the Partnership;
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(ii) Any purchase or sale of a Producing Property from or to the
General Partner or any Affiliate shall be made at the Property Acquisition
Cost for such Producing Property as adjusted for intervening operations,
unless the General Partner or such Affiliate has reasonable grounds to
believe that cost is materially more or less than the fair market value of
such property, in which case such sale or purchase shall be made at a
price equal to the fair market value thereof as determined by an
Independent Petroleum Engineer;
(iii) If the General Partner sells, transfers or conveys any oil,
gas or other mineral interest or property to the Partnership, it must, at
the same time, sell the Partnership an equal proportionate interest in all
its other property in the same Prospect. A sale, transfer or conveyance to
the Partnership of less than the entire ownership interest of the General
Partner or any Affiliate is only permitted if: (a) the interests retained
or obtained by the General Partner or Affiliate and acquired by the
Partnership are either (x) proportionate, uniform and undivided Working
Interests if the Producing Property acquired by the Partnership is a
Working Interest or (y) proportionate, uniform and undivided Royalty
Interests if the Producing Property acquired by the Partnership is a
Royalty, (b) the respective obligations of the General Partner or
Affiliate and the Partnership are substantially the same, and (c) the
interest of the General Partner or its Affiliate in revenues does not
exceed the amount proportionate to its interest. The General Partner and
its Affiliate may not retain or obtain any overrides or other burdens on
the interest obtained by the Partnership, and may not enter into any
Farmouts with respect to its retained interest, except to nonaffiliated
third parties or to an Affiliated Program;
(iv) In the event the General Partner or any Affiliate proposes
to acquire an interest in a Prospect in which the Partnership has an
interest or in a Prospect abandoned by the Partnership within one year
preceding such proposed acquisition, the General Partner or Affiliate
shall offer the interest to the Partnership; and if cash or financing is
not available to the Partnership to purchase such interest, neither the
General Partner nor Affiliate shall acquire an interest in such Prospect.
The term "abandon" for the purpose of this subparagraph shall mean the
termination, either voluntary or by operation of the Lease or otherwise,
of all of the Partnership's interest in the Prospect. This subsection
shall not apply after the lapse of five years of the Activation of the
Partnership or to any Affiliated Program where the interest of the General
Partner is less than or equal to its interest in the Partnership, there is
no duplication of fees to the General Partner, and the General Partner
does not obtain a greater benefit from purchase of the interest by the
Affiliated Program than it would if the interest were purchased by the
Partnership;
(v) During the existence of the Partnership and before it
has ceased operations, neither the General Partner nor any Affiliate
(excluding any Affiliated Program where the interest of the General
Partner is less than or equal to its interest in the Partnership) shall
acquire, retain or drill for its own account any oil and gas interest
in any Prospect upon which the Partnership possesses an interest,
except for transactions which comply with Section 4.3B(iii) or 4.8. In
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the event the Partnership abandons its interest in a Prospect, this
restriction shall continue for one year following abandonment. The
geological limits of a Prospect owned by the Partnership shall be enlarged
or contracted on the basis of subsequently acquired geological data to
define the productive limits of a reservoir and must include all of the
acreage determined by the subsequent data to be encompassed by such
reservoir. If, during the period of five years from the Activation of the
Partnership, the geological limits of a Prospect, as so enlarged,
encompass any interest held by the General Partner or an Affiliate of the
General Partner (excluding an Affiliated Program where the interest of the
General Partner is identical to or less than its interest in the
Partnership), such interest shall be sold to the Partnership in accordance
with the provisions of Section 4.3B(iv) and any net income previously
received by the General Partner or Affiliate shall be paid over to the
Partnership. If the General Partner acquires additional acreage or
interests in a Prospect of the Partnership, it must sell such to the
Partnership and is prohibited from retaining any such interest, except as
may be permitted by Section 4.3B. Notwithstanding the foregoing, the
Partnership will not be required to expend additional funds to acquire any
such interest unless funds are available from the Capital Contributions of
the Partners;
(vi) Producing Properties may be sold, Farmed-out or otherwise
transferred from or to an Affiliated Program only pursuant to transactions
that comply with Sections 4.3B (iii), 4.3B(iv) or 4.8, provided that the
compensation arrangement or any other interest or right of the General
Partner or any Affiliate is the same in the Partnership and Affiliated
Program, or, if different, the compensation of the General Partner does
not exceed the lower of the compensation it would have received in the
Partnership or the Affiliated Program;
(vii) Any Sale of inventory or other materials by the Partnership
to the General Partner or Affiliate shall be made at the applicable rates
set forth in the standard form of the accounting procedure then
recommended by the Council of Petroleum Accountants Societies of North
America;
(viii) Any operating agreements pursuant to which the General
Partner or any Affiliate acts as operator of Producing Properties shall be
of a nature customary in the industry and payments to the General Partner
or any Affiliate for acting as operator shall not exceed the compensation
which would be paid by unaffiliated third parties in the same geographic
area for similar goods and services. Reimbursement of the General
Partner's overhead pursuant to such operating agreement will not be
duplicative of any reimbursement of General and Administrative Costs made
pursuant to Section 4.12; and
(ix) To the extent the General Partner or any Affiliate acquires
an interest in a Producing Property in which the Partnership acquires an
interest, the General Partner or Affiliate shall pay its allocable portion
of the cost of the preparation of the Acquisition Reserve Report or
Engineering Review Letter, as the case may be, respecting such Producing
Property.
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For purposes of subparagraph (ii) above, each adjustment for intervening
operations shall be a reduction in the amount of the Property Acquisition Costs
equal to the amount of revenues attributable to the interests in the Producing
Properties from the time of their acquisition by the General Partner or such
Affiliate until they are subsequently transferred to a Partnership less the
total amount of (x) the expenditures made and costs incurred, if any, by the
General Partner or its Affiliate in the production and marketing of oil and gas
from ▇▇▇▇▇ located on the Producing Properties; (y) an imputed interest charge
on the amount of the funds of the General Partner or Affiliate used to acquire
the interests in the Producing Properties for which no actual interest costs
were incurred, from the time of the expenditure thereof to acquire the interests
in the Producing Properties until the recovery or reimbursement thereof pursuant
to this Agreement at a rate equal to the lesser of the weighted average rate of
interest then being paid by the General Partner or such Affiliate on its
outstanding indebtedness or the prime rate of interest then being charged by
Norwest Bank Minnesota, N. A., provided that such interest rate shall in no
event exceed the maximum allowed by law; and (z) expenditures made and costs
incurred by the General Partner or such Affiliate, if any, for processing
facilities, pipelines, gas sales facilities, Improved Recovery projects,
drilling costs and other procedures and facilities necessary to produce
efficiently and market the oil and gas reserves from a Producing Property, all
to the extent such costs and expenditures are not Property Acquisition Costs.
C. The General Partner may not expend any amount of Partnership funds over
the term of the Partnership for the payment of Partnership costs (other than
recompletion costs) incurred in connection with Development Drilling and
Identified Development Drilling in excess of 10% of the sum of: (i) the amount
of the Unit Holders' Subscriptions, plus (ii) the Partnership's permissible
borrowings. If the General Partner determines that funds in addition to the
Capital Contributions are required for the payment of Partnership costs (other
than Property Acquisition Costs), the General Partner may apply or reserve
Revenues or Investment Income for the payment of such Partnership costs and/or
the General Partner may cause the Partnership to borrow funds for the payment of
Partnership costs incurred in connection with Development Drilling, Identified
Development Drilling, Improved Recovery operations, and capital expenditures or
abandonment costs for processing and transportation facilities; provided,
however, that the aggregate outstanding principal amount of such borrowings
shall not at any one time exceed an amount equal to 20% of the Unit Holders'
Subscriptions. No creditor who makes a nonrecourse loan to the Partnership may
have or acquire, at any time as a result of making the loan, any direct or
indirect interest in the profits, capital or property of the Partnership other
than as a secured creditor.
D. The General Partner shall have the authority to secure the payment of
borrowings incurred by it for its own account or for purposes of paying its
allocable share of Partnership costs by assigning to lenders all or part of its
rights to receive distributions of Partnership Revenues, and by granting such
lenders a security interest or mortgage in an undivided interest in any
Partnership Property not to exceed its percentage interest in Revenues;
provided, however, that the General Partner shall retain unencumbered at least a
1% interest in each item of Partnership Property, and each item of Partnership
Revenues, gain, loss, deduction and credit. Notwithstanding anything to the
contrary in this Agreement, in the event of any sale or foreclosure of the
General Partner's interest in full or partial
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satisfaction of such borrowings, appropriate adjustments shall be made in the
Capital Accounts of the General Partner and Unit Holders and in the method by
which Revenues and costs are allocated to the General Partner and Unit Holders
to assure that the Partnership will not bear any of the costs attributable to
such sold or foreclosed interest and that the General Partner will not share or
participate in any of the capital, Revenues, costs or distributions attributable
to such sold or foreclosed interest except to the extent of the unencumbered
interest retained by the General Partner. The General Partner shall indemnify
the Partnership and the Unit Holders against any expenses resulting from a sale
or foreclosure of the General Partner's interest.
E. The provisions of Section 4.3B notwithstanding, if the Partnership
intends to acquire Working Interests, acquisitions of Net Profits Interests by
one or more I/P Partnerships may be made in connection with the Partnership's
acquisitions of Working Interests. Net Profits Interests acquired by an I/P
Partnership may either be carved-out of the Working Interests or reserved from
the Working Interests by the sellers of such Working Interests on such basis as
the General Partner determines. The Net Profit Interests acquired by an I/P
Partnership may not exceed 75% of the net profits attributable to the aggregate
Working Interests in all of the Producing Properties acquired by the
Partnerships together. The primary factor in determining the sharing of net
profits between the Working Interests acquired by the Partnership and the Net
Profits Interest acquired by the I/P Partnership will be the amount of money
contributed to each acquisition by each purchaser. In fixing such sharing
percentages, the General Partner need not give special consideration to risks
associated with the ownership of the Working Interests or to costs of equipment
which will be owned by the Partnership as a Working Interest owner if such costs
will be amortized against the proceeds of oil and gas production in arriving at
the amount of net profits from which the I/P Partnership's (as Net Profits
Interest holder) share of production is determined. If the amount of money
contributed by each purchaser ever is not the primary factor in determining such
sharing of net profits, then the sharing will be based upon a valuation of the
respective interests made by a Independent Petroleum Engineer If the I/P
Partnership acquires a Royalty interest in a Producing Property in which a
Working Interest is acquired by the Partnership, each participant's portion of
the purchase price will be determined on the basis of an appraisal by a
Independent Petroleum Engineer of the fair market values of the respective
interests in the property being acquired (taking into account the tax
consequences applicable to the several participants). If the General Partner or
an Affiliate other than an Affiliated Program acquires an interest in any such
property acquisition, such appraisal will be performed by an Independent
Petroleum Engineer and if the aggregate revenue interest of the General Partner
and its Affiliates in any Affiliated Program participating in such a property
acquisition is greater than their aggregate revenue interest in the I/P
Partnership, then with respect to the property interests so acquired the greater
aggregate revenue interest shall be reduced so as not to exceed the lesser
revenue interest.
F. The General Partner may cause the Partnership to acquire assets which
may otherwise not be considered suitable for investment or operation by the
Partnership if they are acquired as part of a package consisting primarily of
Producing Properties; provided, however, that in the event any such assets are
acquired by the Partnership, the General Partner shall use its best efforts to
sell or otherwise dispose of such assets for value as
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soon as practical and any proceeds realized from such sale or disposition shall
be allocated among the General Partner and the Unit Holders in the same
proportions as the costs thereof were charged to their respective accounts.
Section 4.4 Prohibited Transactions
-----------------------------------
Notwithstanding any other provision of this Agreement to the contrary, the
following transactions are expressly prohibited:
(i) the Partnership shall not make any loans to or purchase
a production payment from the General Partner or any Affiliate;
(ii) neither the General Partner nor any Affiliate shall make
any loans to the Partnership except at a rate of interest not in excess of
the interest cost incurred by the General Partner or Affiliates or the
amount of interest that would be charged to the Partnership (without
regard to the General Partner's or Affiliate's financial abilities or
guarantees) by unrelated banks on comparable loans for the same purpose,
whichever is lower, and the General Partner and Affiliates shall not
receive points or financing charges or fees regardless of the amount;
(iii) except as expressly contemplated hereby, no agent,
attorney, accountant or other independent consultant or contractor who is
also employed on a full-time basis by the General Partner or any Affiliate
shall be compensated by the Partnership for his or her services;
(iv) other than those received for the account of the
Partnership, no rebates may be received by the General Partner or any
Affiliate in connection with Partnership operations or expenditures, nor
may the General Partner or any Affiliate participate in any reciprocal
business arrangement that would circumvent any of the provisions of this
Agreement;
(v) on a monthly basis, costs paid and revenues received by the
General Partner or an Affiliate for the account of the Partnership shall
be determined and the net amount resulting from such monthly settlement
shall be deposited into a Partnership Account and no funds which, after
such monthly settlement, are determined to be held for the account of the
Partnership shall be kept in any account other than a Partnership Account,
and the General Partner shall not employ, or permit any other Person to
employ, such funds in any manner except for the benefit of the
Partnership; it being understood that the General Partner may invest
Partnership funds temporarily in the investments set forth in Section 10.3
of this Agreement pending their use by the Partnership. After such monthly
settlement, Partnership funds may not be commingled with separate funds of
the General Partner or any other Person; and
(vi) the Partnership shall not make any advance payment to the
General Partner or its Affiliates, except where necessary to secure tax
benefits of prepaid drilling costs.
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Section 4.5 Restrictions on the Authority of the General Partner
----------------------------------------------------------------
A. Anything in this Agreement to the contrary notwithstanding, it
is agreed that:
(i) the General Partner and its Affiliates shall not take any
action with respect to the assets or property of the Partnership which
does not benefit primarily the Partnership, including:
(a) the utilization of Partnership funds as
compensating balances for the benefit of the General Partner or
an Affiliate of the General Partner; and
(b) the commitment of future production from
Partnership Properties;
(ii) all benefits from marketing arrangements or other
relationships affecting property of the General Partner or its Affiliates
and the Partnership shall be fairly and equitably apportioned according to
the respective interests of each;
(iii) neither the General Partner nor any Affiliate may profit
itself by Development Drilling, Identified Development Drilling or
Improved Recovery operations in contravention of its fiduciary obligation
to the Partnership; and
(iv) neither the General Partner nor any Affiliate shall render
to the Partnership any oil field, equipage, drilling or other services nor
sell or lease to the Partnership any equipment or supplies unless:
(a) such Person is engaged, independently of the
Partnership and as an ordinary and ongoing business, in the business
of rendering such services or selling or leasing such equipment and
supplies to a substantial extent to other Persons in the oil and gas
industry in addition to drilling and income programs in which the
General Partner and its Affiliates have an interest;
(b) the compensation, price or rental therefor is
competitive with the compensation, price or rental of other Persons
in the area engaged in the business of rendering comparable services
or selling or leasing comparable equipment and supplies which could
reasonably be made available to the Partnership; and
(c) the drilling services are billed on either a per
foot, per day or per hour rate, or some combination thereof;
provided that, if such Person is not engaged in a business within the meaning of
subdivision (a), then such compensation, price or rental shall be the cost of
such services, equipment or supplies to such Person or the competitive rate
which could be obtained in the area, whichever is less.
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B. The General Partner shall not have the authority to:
(i) do any act in contravention of this Agreement or which
would make it impossible to carry on the ordinary business of the
Partnership;
(ii) confess a judgment against the Partnership;
(iii) possess Partnership Property or assign, pledge or
hypothecate rights in specific Partnership Property for other than a
Partnership purpose except as otherwise permitted in Section 4.3D;
(iv) admit a Person as a General Partner or a Substituted
Limited Partner or permit any transfer of Units except as otherwise
provided herein; or
(v) knowingly perform any act which would result in loss of the
Depositary's or any Substituted Limited Partner's status as a limited
partner under the Act or the laws of the State or the loss of limited
liability under the laws of any other jurisdiction in which the
Partnership is doing business, or would subject the Depositary or any Unit
Holder to liability as a general partner in any jurisdiction including use
of the Depositary's or a Unit Holder's name in conducting the business of
the Partnership.
C. The General Partner shall not lease, sell, abandon or otherwise dispose
of any assets of the Partnership to the General Partner or to any of its
Affiliates, except as otherwise permitted by this Agreement; provided, however,
that if the Partnership should own any inventory or other materials, such
inventory or materials may be transferred to the General Partner or any of its
Affiliates at the applicable rates set forth in the standard form of accounting
procedure then recommended by the Council of Petroleum Accountants Societies of
North America.
D. Notwithstanding any other provision of this Agreement to the contrary,
without the prior Consent of Unit Holders owning 50% or more of the outstanding
Units granted pursuant to the provisions of Article Twelve of this Agreement,
the General Partner shall not:
(i) lease, sell or dispose of all or substantially all of the
Partnership's assets except pursuant to Article Nine of this Agreement;
(ii) make, exercise or deliver any general assignment for the
benefit of the Partnership's creditors; or
(iii) except as set forth in Sections 8.1F or 11.1A, amend any
provision of this Agreement.
Section 4.6 Construction of Gas Gathering Lines
-----------------------------------------------
The General Partner may cause the Partnership to construct gas gathering
lines if, in the opinion of the General Partner, it would be economically
feasible and otherwise consistent with prudent operating practice to do so. The
costs of any such gathering lines will be deemed to be
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Operating Costs and shall be charged to the accounts of the General Partner and
Unit Holders as such. The General Partner may, in its discretion, construct, or
cause an Affiliate of the General Partner or other person to construct,
gathering lines from Partnership ▇▇▇▇▇ to gas transmission systems. Whenever the
General Partner constructs, or causes an Affiliate of the General Partner to
construct, a gathering line from a Partnership Well to a gas transmission
system, the Partnership shall pay the General Partner or such Affiliate an
amount that is not greater than the compensation that an unrelated party could
have reasonably charged in an arm's-length transaction for similar services in
the area as a transmission fee for the transmission of all gas through the
gathering system so constructed, and no other transmission fee shall be paid to
the General Partner or to any Affiliate.
Section 4.7 Contracts with the General Partner and Affiliates
-------------------------------------------------------------
All services (other than services provided pursuant to this Agreement)
provided to the Partnership by the General Partner or any Affiliate for which it
is compensated shall be embodied in a written contract precisely setting forth
the services to be rendered and the compensation to be paid. Each contract
relating to a transaction between the Partnership and the General Partner or any
Affiliate shall contain a provision which shall permit termination of the
contract by the affirmative vote of Unit Holders owning more than 50% of the
outstanding Units without penalty on 30 days' prior written notice.
Section 4.8 Farmouts
--------------------
The General Partner may dispose of Producing Properties by Sale or Farmout
when it, exercising the standard of a prudent operator, determines that (a) the
Partnership lacks sufficient funds to conduct Development Drilling, Identified
Development Drilling or Improved Recovery operations on the properties and
cannot obtain suitable alternative financing for such Development Drilling,
Identified Development Drilling or Improved Recovery operations; (b) the
properties have been downgraded by events occurring after assignment to the
Partnership to the point that additional Development Drilling, Identified
Development Drilling, Improved Recovery operations or continued production would
no longer be desirable to the Partnership; (c) Development Drilling, Identified
Development Drilling or Improved Recovery operations on the properties would
result in an excessive concentration of Partnership funds on a Producing
Property creating, in the opinion of the General Partner, undue risk to the
Partnership; or (d) the best interests of the Partnership would be served by the
Sale or Farmout. The Partnership shall not conduct any drilling of ▇▇▇▇▇ other
than Development Drilling and Identified Development Drilling; provided,
however, that the drilling of ▇▇▇▇▇ other than Development Drilling and
Identified Development Drilling may be performed on behalf of the Partnership
pursuant to Farmouts or when such drilling may be deemed necessary or
appropriate to preserve or protect the Partnership's interest in or the
production from a Producing Property. Any Sale, Farmout or similar agreement
between the Partnership and the General Partner, Affiliate or Affiliated Program
will be permitted under the restrictions set forth in this Article Four and will
be subject to the following conditions:
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(i) the General Partner, exercising the standard of a prudent
operator, shall determine that the Sale, Farmout or similar agreement is
in the best interests of the Partnership; and
(ii) the terms of the Sale, Farmout or similar agreement are
consistent with and in any case no less favorable than those utilized in
the same geographic area for similar arrangements.
Except as required by Section 4.3B (iii) or (iv), a Partnership shall acquire
only those Leases that are reasonably required for the operations of the
Partnership, and no Leases shall be acquired for the purpose of subsequent Sale
or Farmout, unless such Leases are a part of an acquisition which is sold as a
package only, or unless the acquisition of undeveloped Leases by the Partnership
is made after a well has been drilled nearby by third parties to a depth
sufficient to indicate that such an acquisition is in the best interests of the
Partnership.
Section 4.9 Other Operations
----------------------------
The General Partner shall devote such time to the Partnership as is
reasonably required to carry on the Partnership business, and the General
Partner and its Affiliates shall at all times be free, subject to any
restrictions contained herein, to engage in all aspects of the Hydrocarbons and
natural resources business for their own accounts and for the accounts of
others. Without limiting the generality of the foregoing, the General Partner
and its Affiliates shall have the right to organize and operate other
partnerships, joint ventures or other oil and gas investment programs whether
similar or dissimilar to the Partnership.
Section 4.10 Prosecution, Defense and Settlement of Claims;
Indemnification
-----------------------------------------------------------
A. The General Partner shall arrange to prosecute, defend, settle or
compromise actions at law or in equity at the expense of the Partnership as may
be necessary to enforce or protect the interests of the Partnership. The General
Partner shall satisfy any judgment, decree, decision or settlement, first, out
of any insurance proceeds available therefor, next, out of the Partnership
assets and Revenues, and, finally, out of the assets of the General Partner.
B. Neither the General Partner nor any of its Affiliates shall have any
liability to any Unit Holder for any liability or loss suffered by the
Partnership which arises out of any action or inaction of the General Partner or
such Affiliate if the General Partner or such Affiliate, in good faith,
determines that such course of conduct was in the best interests of the
Partnership, the General Partner or such Affiliate was acting on behalf of or
performing services for the Partnership, and such liability or loss was not the
result of negligence or misconduct of the General Partner or such Affiliate. The
General Partner and each of its Affiliates shall be indemnified by the
Partnership against any losses, judgments, liabilities, expenses, and amounts
paid in settlement of any claims sustained by it or them in connection with the
Partnership, provided that the same were not the
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result of negligence or misconduct on the part of the General Partner or such
Affiliate. Any indemnification under this Section 4.10 shall be recoverable
solely out of the tangible net assets of the Partnership. All amounts payable
under this Section 4.10 shall be a liability of the Partnership only and the
Unit Holders and the Depositary will not have any liability therefor.
C. Notwithstanding the foregoing, the General Partner, its Affiliates and
any Person acting as a broker-dealer shall not be indemnified for losses,
liabilities, or expenses arising from or out of an alleged violation of federal
and state securities laws by any such party unless (1) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations as to the particular indemnitee; (2) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee; or (3) a court of competent jurisdiction approves
a settlement of the claims against the particular indemnitee and finds that
indemnification of the settlement and related costs should be made, and such
indemnitee has apprised the court of the published position of the Securities
and Exchange Commission and the position of any state securities regulatory
authorities of those states in which the plaintiffs claim they were offered or
sold Units regarding indemnification for violations of security laws prior to
obtaining court approval of such indemnification.
D. The Partnership shall not incur the costs of that portion of insurance
which insures the General Partner for any liability as to which the General
Partner is prohibited from being indemnified under Section 4.10.
Section 4.11 Duties and Obligations of the General Partner
----------------------------------------------------------
The General Partner shall:
(i) use its best efforts to take all actions that may be
necessary or appropriate for the continuation of the Partnership's valid
existence as a limited partnership or partnership in commendam under the
laws of the State and the laws of any other jurisdiction in which the
Partnership is doing business;
(ii) devote to the Partnership the time that it shall deem to be
necessary to conduct the Partnership's business and affairs in the best
interests of the Partnership;
(iii) be under a fiduciary duty and obligation to conduct the
affairs of the Partnership in the best interests of the Partnership,
including the safekeeping and use of all Partnership funds and assets
(whether or not in the immediate possession or control of the General
Partner) and the use thereof for the benefit of the Partnership;
(iv) at all times act with integrity and good faith and exercise
due diligence in all activities relating to the conduct of the business of
the Partnership and in resolving conflicts of interest;
(v) prepare or cause to be prepared and shall file on or before
the due date (or any extension thereof) any federal, state or local tax
returns required to be filed by the Partnership;
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(vi) cause the Partnership to pay any taxes payable by the
Partnership;
(vii) use its best efforts to cause the Partnership to be
formed, reformed, qualified to do business, or registered under any
applicable assumed or fictitious name statute or similar law in any state
in which the Partnership then owns property or transacts business, if such
formation, reformation, qualification or registration is necessary or
advisable in its counsel's opinion to protect the limited liability of the
Depositary and the Unit Holders or to permit the Partnership lawfully to
own property or transact business;
(viii) cause to be filed the Certificate of Limited Partnership
as required by the Act and any necessary amendments to the Certificate of
Limited Partnership and other similar documents that are required by law
to be filed and recorded for any reason, in the office or offices that are
required under the laws of the State or any other state in which the
Partnership is then formed or qualified;
(ix) do all other acts and things (including making publications
or periodic filings of this Agreement or amendments hereto or other
similar documents without the necessity of mailing or delivering copies of
them to each Unit Holder) that may now or hereafter be deemed by the
General Partner to be necessary,
(a) for the perfection and continued maintenance of
the Partnership as a limited partnership under the laws of the
State,
(b) to protect the limited liability of the Depositary
and the Unit Holders under the laws of the State and other
jurisdictions in which the Partnership is doing business, and
(c) to cause this Agreement, certificates or other
documents to reflect accurately the agreement of the Partners and
the Unit Holders, the identity of the Depositary as the sole initial
Limited Partner and the amount of the Capital Contribution made by
the Depositary on behalf of the Unit Holders;
(x) from time to time submit to any appropriate state securities
administrator all documents, papers, statistics and reports required to be
filed with or submitted to such state securities administrator; and
(xi) inform each Unit Holder of all administrative and judicial
proceedings for an adjustment at the Partnership level for partnership tax
items and forward to each Unit Holder within 30 days of receipt all
notices received from the Internal Revenue Service regarding the
commencement of a partnership level audit or a final partnership
administrative adjustment, and perform all other duties imposed by
Sections 6221 through 6232 of the Code on the General Partner as "tax
matters partner" of the Partnership, including those set forth in Section
4. 2A (xxvi) of this Agreement.
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Section 4.12 Compensation of the General Partner
------------------------------------------------
A. Except as provided in Articles Four and Five, the General Partner shall
not, either in its capacity as General Partner or in its individual capacity,
receive any salary, fees or profits from the Partnership.
B. In consideration of its payment of Organization and Offering Costs, the
General Partner shall be paid in cash by the Partnership an amount equal to: (i)
3.5% of individual Unit Holders' Subscriptions for 2,500 Units or less, (ii)
2.625% of individual Unit Holders' Subscriptions for more than 2,500 Units but
less than or equal to 5,000 Units, (iii) 1.75% of individual Unit Holders'
Subscriptions for more than 5,000 Units but less than or equal to 7,500 Units,
(iv) 1.0% of individual Unit Holders' Subscriptions for more than 7,500 Units
but less than or equal to 10,000 Units, (v) .25% of individual Unit Holders'
Subscriptions for more than 10,000 Units but less than 100,000 Units, and (vi)
no Organization and Offering Costs shall be paid for individual Unit Holders'
Subscriptions of 100,000 Units or more. In consideration of its services
rendered in connection with the Partnership's acquisition of Producing
Properties and the conduct of its business operations, the General Partner shall
be paid the Acquisitions and Operations Fee in an amount equal to 3.5% of the
Unit Holders' Subscriptions. Notwithstanding the foregoing, the General Partner
shall not be entitled to any payment in respect of Organization and Offering
Costs nor the Acquisitions and Operations Fees in the event that the Unit
Holders' Subscriptions are to be returned in accordance with Section 3. 4B as a
result of a failure to satisfy conditions specified in the Prospectus.
C. The General Partner shall be reimbursed by the Partnership for General
and Administrative Costs and Direct Administrative Costs incurred by it on
behalf of the Partnership, and such costs shall be allocated among the Partners
as set forth in Section 5.1 of this Agreement. The aggregate amount of General
and Administrative Costs allocable to the accounts of the Unit Holders for which
the General Partner will be reimbursed will not, (i) in the first 12 months
following Activation of the Partnership, exceed an amount equal to 2.5% of the
Unit Holders' Subscriptions, and (ii) in any succeeding 12-month period, exceed
an amount equal to 1% of the Unit Holders' Subscriptions; provided, however,
that notwithstanding the foregoing, the amount of such General and
Administrative Costs allocated to the Unit Holders during each of the third and
subsequent 12-month periods of Partnership operations shall not exceed an amount
equal to 15% of Revenues allocable to their accounts. All General and
Administrative Costs allocable to the accounts of the Unit Holders will be paid
solely out of Revenues allocable to the Unit Holders. To the extent that the
General Partner determines that Revenues are insufficient to permit
reimbursement in full of such General and Administrative Costs in the period in
which they are incurred or accrued (or the General Partner elects to receive
less than the full amount payable in order that funds may be available for
distribution to Unit Holders or any other reason) or the amounts actually
reimbursed by the Partnership do not exceed the foregoing limitations, such
unpaid or unused General or Administrative Costs may be carried forward or
backwards and increase the maximum amount of reimbursable General and
Administrative Costs for any other period.
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Section 4.13 Dealer Manager
---------------------------
The Dealer Manager shall have no duties, responsibilities or obligations
to the Partnership, the General Partner, the Depositary or any Unit Holder as a
consequence of its right to receive Commissions, except to the extent provided
under the Securities Act of 1933, as amended. The Dealer Manager has not
assumed, and will not assume, any responsibility with respect to the Partnership
nor will it be permitted by the General Partner to assume any duties,
responsibilities or obligations regarding the management, operations or any of
the business affairs of the Partnership subsequent to the date on which the
Partnership is Activated.
ARTICLE FIVE
ALLOCATIONS AND DISTRIBUTIONS
Section 5.1 Allocation of Costs and Expenses
--------------------------------------------
All fees and payments to the General Partner required by Section 4.12B,
Commissions and costs incurred in connection with Identified Development
Drilling (including any interest, commitment fees and other finance charges with
respect to borrowing incurred in connection therewith) and Property Acquisition
Costs will be charged 99% to the Unit Holders and 1% to the General Partner. All
Organization and Offering Costs will be charged entirely to the General Partner
(in consideration of which the General Partner will be paid the amount provided
in the first sentence of Section 4.12B). Except as otherwise provided in this
Article Five, Operating Costs, costs and expenses of Development Drilling,
General and Administrative Costs, Direct Administrative Costs and all other
Partnership costs and expenses will be charged to the accounts of the General
Partner and the Unit Holders in the same proportions that Revenues are being
allocated to them at the time such costs and expenses are incurred.
Notwithstanding anything to the contrary contained herein, if and to the extent
the Partnership sells any Producing Property and applies any portion of the
proceeds thereof to the purchase of any additional Producing Properties, the
Property Acquisition Costs of the additional Producing Properties shall, to the
extent of the amount of such proceeds, be allocated to and borne by the General
Partner and the Unit Holders in the same proportions that such sale proceeds
were allocated and credited to them.
Section 5.2 Allocation of Revenues
----------------------------------
A. Investment Income will be allocated 99% to the Unit Holders and 1% to
the General Partner. Except as otherwise provided in this Article Five and in
Section 4.3F, until Payout, all other Partnership Revenues will be allocated 95%
to the Unit Holders and 5% to the General Partner. After Payout, Revenues will
be allocated 85% to the Unit Holders and 15% to the General Partner; provided,
however, that if, at Payout, the total amount of cash distributed by the
Partnership to the Unit Holders from the commencement of the Property Investment
Period has averaged on a twelve-month basis an amount that is less than 12% of
the Unit Holders' Subscriptions, the
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percentage of Revenues allocated to the General Partner will increase to only
10% and the Unit Holders will be allocated 90% thereof until such time, if ever,
that the distributions to the Unit Holders from the commencement of the Property
Investment Period reaches a twelve-month average equal to at least 12% of the
Unit Holders' Subscriptions, at which time Revenues will thereafter be allocated
15% to the General Partner and 85% to the Unit Holders. As used herein the
"Property Investment Period" shall mean that period which begins with the first
day of the calendar quarter following either (i) the calendar quarter during
which 90% of the Partnership's capital available for purchasing Producing
Properties has been so expended, or (ii) the calendar quarter in which 50% of
the Partnership's capital available for purchasing Producing Properties has been
so expended, as the General Partner shall elect. Where proceeds from the Sale of
all or any part of the Partnership's Producing Properties are distributed to the
Partners and a portion of the distributable amount attributable to such Sale
proceeds is sufficient in amount to cause Payout to occur in accordance with the
allocation percentages in effect until Payout, Payout shall be deemed to occur
such that Revenues attributable to the distributed portion of such Sale proceeds
in excess of the portion of Sales proceeds sufficient in amount to cause Payout
to occur shall be allocated in accordance with the allocation percentages in
effect after Payout.
B. Notwithstanding the other provisions of this Section 5.2 and except as
provided in Section 4.3F, if the allocation of Revenues realized from the sale
of any Hydrocarbon property would result in the recognition of a "simulated
loss", as such term is defined in Treasury Regulation ss.1.704-1(b), by the
Partnership, then such Revenues shall, to the extent of the amount of the
"simulated adjusted tax basis", as such term is defined in Treasury Regulation
ss. 1.704-1(b), of such Hydrocarbon property, be allocated to the General
Partner and the Unit Holders in the same proportions that the aggregate adjusted
tax basis of such property was allocated to them (or their predecessors in
interest) pursuant to Section 5.5(ii).
Section 5.3 Allocations Among Unit Holders
------------------------------------------
A. Allocations of costs, expenses and Revenues to the Unit Holders other
than Substituted Limited Partners herein shall be actually allocated to the
Depositary for the account of the Unit Holders. All profits and losses and each
item of Revenues, gain, loss, cost, deduction or credit allocated to the Unit
Holders, as a class, shall be allocated to each Unit Holder in the ratio that
(i) the number of Units held of record by each Unit Holder as of the first day
of each month during the period ("Monthly Record Date") bears to (ii) the
aggregate number of Units outstanding on each such Monthly Record Date.
Distributions pursuant to Section 5.7 hereof will be made to Unit Holders of
record on the first day of the calendar quarter to which the distribution
relates in the ratio which (x) the number of Units owned of record by each Unit
Holder on such date bears to (y) the aggregate number of Units outstanding on
such date. Such payment shall constitute full payment and satisfaction of the
Partnership's liability in respect of such payment regardless of any claim of
any Person who may have an interest in such payment by reason of an assignment
or otherwise.
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B. Except as provided in subsections (i) through (iv) of this Section
5.3B, in the case of a change in a Unit Holder's interest in the Partnership
during a taxable year of the Partnership, all Partnership Revenues, gain, loss,
deduction or credit allocable to the Unit Holders shall be allocated pursuant to
Section 5.3A above to the Persons who were Unit Holders during the period to
which such item is attributable in accordance with the Unit Holders' interests
in the Partnership during such period regardless of when such item is paid or
received by the Partnership.
(i) With respect to certain "allocable cash basis items" (as
such term is defined in the Code) of Partnership Revenues, gain, loss,
deduction or credit, if, during any taxable year of the Partnership there
is change in any Unit Holder's interest in the Partnership, then, except
to the extent provided in regulations prescribed under Section 706 of the
Code, each Unit Holder's allocable share of any "allocable cash basis
item" shall be determined by (i) assigning the appropriate portion of each
such item to each day in the period to which it is attributable, and (ii)
allocating the portion assigned to any such day among the Unit Holders in
proportion to their interests in the Partnership at the close of such day.
(ii) If, by adhering to the method of allocation described in
the immediately preceding subsection of this Section 5.3B, a portion of
any "allocable cash basis item" is attributable to any period before the
beginning of the Partnership taxable year in which such item is received
or paid, such portion shall be (a) assigned to the first day of the
taxable year in which it is received or paid, and (b) allocated among the
persons who were Unit Holders in the Partnership during the period to
which such portion is attributable in accordance with their interests in
the Partnership during such period.
(iii) If any portion of any "allocable cash basis item" paid or
received by the Partnership in a taxable year is attributable to a period
after the close of that taxable year, such portion shall be (a) assigned
to the last day of the taxable year in which it is paid or received, and
(b) allocated among the persons who are Unit Holders in proportion to
their interests in the Partnership at the close of such day.
(iv) If any deduction is allocated to a person with respect to
an "allocable cash basis item" attributable to a period before the
beginning of the Partnership taxable year and such person is not a Unit
Holder of the Partnership on the first day of the Partnership taxable
year, such deduction shall be capitalized by the Partnership and treated
in the manner provided for in Section 755 of the Code.
Section 5.4 Capital Accounts
----------------------------
Capital Accounts shall be established and maintained for the General
Partner and each Unit Holder in accordance with tax accounting principles and
with valid regulations issued by the U.S. Treasury Department under subsection
704(b) of the Code (the "704 Regulations"). To the extent that tax accounting
principles and the 704 Regulations may conflict, the latter shall control. In
connection with the establishment and maintenance of such Capital Accounts, the
following provisions shall apply:
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(i) The General Partner's or Unit Holder's Capital Account shall
be (x) increased by the amount of cash contributed by or on behalf of the
General Partner or Unit Holder, the fair market value of property
contributed by it or on its behalf to the Partnership (net of liabilities
securing such contributed property that the Partnership is considered to
assume or take subject to under section 752 of the Code) and allocations
to it of income and gain (except to the extent such income or gain has
previously been reflected in its Capital Account by adjustments thereto)
and (y) decreased by the amount of cash distributed to the General Partner
or Unit Holder, the fair market value of property distributed to the
General Partner or Unit Holder by the Partnership (net of liabilities
securing such distributed property that the General Partner or Unit Holder
is considered to assume or take subject to under Section 752 of the Code)
and allocations to it of Partnership loss, deduction (except to the extent
such loss or deduction has previously been reflected in its Capital
Account by adjustments thereto) and expenditures described in Section
705(a)(2)(B) of the Code.
(ii) In the event Partnership Property is distributed to the
General Partner or Unit Holder, then, before the Capital Account of the
General Partner or Unit Holder is adjusted as required by clause (i) of
this Section 5.4, the Capital Accounts of the General Partner and Unit
Holders shall be adjusted to reflect the manner in which the unrealized
income, gain, loss and deduction inherent in such Partnership Property
(that has not been reflected in such Capital Accounts previously) would be
allocated among the General Partner and Unit Holders if there were a
taxable disposition of such Partnership Property for its fair market value
on the date of distribution.
(iii) If, pursuant to this Agreement, Partnership Property is
reflected on the books of the Partnership at a book value that differs
from the adjusted tax basis of such Partnership Property, then the General
Partner's and Unit Holders' Capital Accounts shall be adjusted in
accordance with the 704 Regulations for allocations to the General Partner
and Unit Holders of depreciation, depletion, amortization and gain or
loss, as computed for book purposes, with respect to such Partnership
Property.
(iv) The General Partner's and Unit Holders' Capital Accounts
shall be reduced by a simulated depletion allowance computed on each oil
or gas property using either the cost depletion method or the percentage
depletion method (without regard to the limitations under the Code which
could apply to fewer than all of the General Partner and Unit Holders);
provided, however, that the choice between the cost depletion method and
the percentage depletion method shall be made on a property-by-property
basis and such choices shall be binding for all Partnership taxable years
during which such oil or gas property is held by the Partnership. Such
reductions for depletion shall not exceed the aggregate adjusted basis
allocated to the General Partner and Unit Holders with respect to such oil
or gas property. Such reductions for depletion shall be allocated among
the General Partner's and Unit Holders' Capital Accounts in the same
proportions as the adjusted basis in the particular property is allocated
to the General Partner and each
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Unit Holder. Upon the taxable disposition of an oil or gas property by the
Partnership, the Partnership's simulated gain or loss shall be determined
by subtracting its simulated adjusted basis (aggregate adjusted tax basis
of the General Partner and the Unit Holders less simulated depletion
allowances) in such property from the amount realized on such disposition
and the General Partner's and Unit Holders' Capital Accounts shall be
increased or reduced, as the case may be, by the amount of the simulated
gain or loss on such disposition in proportion to the General Partner's
and Unit Holders' allocable shares of the total amount realized on such
disposition.
(v) For purposes of determining the Capital Account balance of
the General Partner and any Unit Holder as of the end of any Partnership
taxable year, the General Partner's and such Unit Holder's Capital Account
shall be reduced by:
(a) Adjustments that, as of the end of such year,
reasonably are expected to be made to the General Partner's and such
Unit Holder's Capital Account pursuant to paragraph (b)(2)(iv)(k) of
the 704 Regulations for depletion allowances with respect to oil and
gas properties of the Partnership, and
(b) Allocations of loss and deduction that, as of the end
of such year, reasonably are expected to be made to the General
Partner or such Unit Holder pursuant to Code Section 704(e)(2), Code
section 706(d), and paragraph (b)(2)(ii) of Section 1.751-1 of
regulations promulgated under the Code, and
(c) Distributions that, as of the end of such year,
reasonably are expected to be made to the General Partner or such
Unit Holder to the extent they exceed offsetting increases to the
General Partner's or such Unit Holder's Capital Account that
reasonably are expected to occur during (or prior to) the
Partnership taxable years in which such distributions reasonably are
expected to be made.
(vi) The Capital Accounts of the General Partner and Unit
Holders which are charged with an item of Partnership expense shall be
credited with any portion of that expense which is finally determined,
judicially or administratively, to be nondeductible for federal income tax
purposes, less any amortization or depreciation thereof incurred prior to
the date that the credit is made.
(vii) In allocating income and costs for any Fiscal Year in
which the ratio for sharing and costs changes pursuant to Section 5.2A,
the allocations of income and costs shall be made, and the books of the
Partnership shall be closed, as soon as practicable after the date Payout
occurs, to determine the General Partner's and each Unit Holder's share of
pre-change income and costs and the General Partner's and each Unit
Holder's share of post-change income and costs for that Fiscal Year.
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(viii) Notwithstanding any other provision of this Agreement to
the contrary, if, under any provision of this Agreement, the Capital
Account of the General Partner or any Unit Holder is adjusted to reflect
the difference between the basis to the Partnership of Partnership
Property and such Partnership Property's fair market value, then all items
of income, gain, loss and deduction with respect to such Partnership
Property shall be allocated among the General Partner and the Unit Holders
so as to take account of the variation between the basis of such
Partnership Property and its fair market value at the time of the
adjustment to the General Partner's or such Unit Holder's Capital Account
in accordance with the requirements of subsection 704(c) of the Code, or
in the same manner as provided under subsection 704(c) of the Code.
(ix) Subject only to the provisions of Subsection 5.4(x),
(a) There shall be allocated to the General Partner, any
item of loss, deduction, credit or allowance that, but for this
Subsection 5.4(ix) would have been allocated to any Unit Holder that
is not obligated to restore any deficit balance in such Unit
Holder's Capital Account and would have thereupon caused or
increased a deficit balance in such Unit Holder's Capital Account as
of the end of the Partnership's taxable year to which such
allocation related (after taking into consideration the provisions
of Subsection 5.4(v) hereof);
(b) Any Unit Holder that is not obligated to restore any
deficit balance in such Unit Holder's Capital Account who
unexpectedly receives an adjustment, allocation or distribution
specified in Subsection 5.4(v) hereof shall be allocated items of
income and gain in an amount and manner sufficient to eliminate such
deficit balance as quickly as possible; and
(c) In the event any allocations of loss, deduction,
credit or allowance are made to the General Partner pursuant to
clause (a) of this Subsection 5.4(ix), the General Partner shall be
subsequently allocated all items of income and gain until the
aggregate amount of such allocations of income and gain is equal to
the aggregate amount of any such allocations of loss, deduction,
credit or allowance allocated to the General Partner pursuant to
clause (a) of this Subsection 5.4(ix).
(x) In the event there is a net decrease in the "minimum gain,"
as such term is defined in the 704 Regulations, of the Partnership during
a Partnership taxable year, the General Partner and all Unit Holders with
deficit Capital Account balances at the end of such year shall be
allocated, before any other allocation is made under this Article Five,
income and gain of the Partnership for such taxable year (and, if
necessary, subsequent years) in the amount and in the proportion necessary
to eliminate such deficits as quickly as possible. The allocations
required by this Subsection 5.4(x) shall be made as required by and in
accordance with Section 1.704-1(b)(4)(iv)(e) of the 704 Regulations. It is
intended that the provision set forth in this Subsection 5.4(x) will
constitute a "minimum gain chargeback" as described in Section
1.704-1(b)(4)(iv)(e) of the 704 Regulations. The 704 Regulations shall
control in the case of any conflict between the 704 Regulations and this
Subsection 5.4(x).
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Section 5.5 Allocations for Federal Income Tax Purposes
-------------------------------------------------------
With respect to the various allocations of Partnership Revenues, gain,
loss, deduction and credit for federal income tax purposes, it is hereby agreed
as follows:
(i) To the extent permitted by law, all charges, deductions and
losses shall be allocated for federal income tax purposes in the same
manner as the costs in respect of which such charges, deductions and
losses are charged to the General Partner and Unit Holders, respectively.
The General Partner and Unit Holders bearing the costs shall be entitled
to the deductions (including, without limitation, cost recovery
allowances, depreciation and cost depletion) and credits that are
attributable to such costs.
(ii) The Partnership shall allocate to the General Partner and
each Unit Holder its portion of the adjusted basis in each depletable
Partnership Property as required by Section 613A(c)(7)(D) of the Code
based upon the interest of the General Partner or such Unit Holder in the
capital of the Partnership as of the time of the acquisition of such
Partnership Property. To the extent permitted by the Code, such allocation
shall be based upon the General Partner's or said Unit Holder's interest
(x) in the Partnership capital used to acquire the property, or (y) in the
adjusted basis of the property if it is contributed to the Partnership. If
such allocation of basis is not permitted under the Code, then basis will
be allocated in the permissible manner which the General Partner deems
will most closely achieve the result intended above.
(iii) Partnership Revenues shall be allocated for federal income
tax purposes in the same manner as they are allocated to the respective
accounts of the General Partner and Unit Holders pursuant to Sections 5.2,
5.3 and 5.4 above.
(iv) Depreciation or cost recovery allowance recapture and
recapture of intangible drilling and development costs, if any, due as a
result of sales or dispositions of assets shall be allocated in the same
proportion that the depreciation, cost recovery allowances or intangible
drilling and development costs being restored or recaptured were
allocated.
Section 5.6 Minimum Interest of General Partner
-----------------------------------------------
Notwithstanding anything to the contrary that may be expressed or implied
in this Agreement, the aggregate interest of the General Partner in each
material item of Partnership Revenues, gain, loss, deduction or credit shall be
equal to at least one percent of each such item at all times during the
existence of the Partnership. In determining the General Partner's interest in
such items, Units owned by the General Partner shall not be taken into account.
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Section 5.7 Distributions
-------------------------
The Partnership's cash available for distribution will be distributed to
the Unit Holders and the General Partner in the same proportions that
Partnership Revenues have been allocated to them after giving effect to previous
distributions and to portions of such Revenues theretofore used or retained to
pay costs incurred or expected to be incurred in conducting Partnership
operations or to repay borrowings theretofore or expected to be thereafter
obtained by the Partnership. Amounts which otherwise would constitute cash
available for distribution and which consist of proceeds from the sale of
Producing Properties may be used or committed to acquire additional Producing
Properties at any time within 36 months of the Activation of the Partnership.
Within 50 days after the end of each calendar quarter, the General Partner will
determine the amount of cash available for distribution and will distribute such
amount, if any, to the Unit Holders and the General Partner as promptly
thereafter as reasonably possible. The General Partner's determination of the
cash available for distribution will be conclusive and binding upon all
Partners. In no event, however, shall funds be advanced or borrowed for purposes
of distributions, if the amount of such distributions would exceed the
Partnership's accrued and received Revenues from the previous four quarters,
less paid and accrued Operating Costs with respect to such Revenues.
ARTICLE SIX
WITHDRAWAL OR REMOVAL OF GENERAL PARTNER
OR GENERAL PARTNER'S INTEREST IN PARTNERSHIP PROPERTIES
Section 6.1 Withdrawal of General Partner or General Partner's Interest
in Partnership Properties
-----------------------------------------------------------------------
A. The General Partner (including by definition any successor General
Partner) shall have the right to retire or withdraw upon 120 days' Notification
to the Unit Holders, subject to its obligation to pay all costs and expenses
incurred by the Partnership by virtue of such retirement or withdrawal;
provided, however, that no such retirement or withdrawal shall be permitted
before the fifth anniversary of the Activation of the Partnership without the
Consent of the Unit Holders owning 50% or more of the outstanding Units.
B. The General Partner may, from time to time and upon at least 90 days'
Notification to the Unit Holders and without withdrawing from or resigning its
position as General Partner, cause the Partnership to distribute, in partial
liquidation of its interest in the Partnership, to the General Partner
fractional, undivided interests in the Producing Properties of the Partnership
(such interest of the General Partner in a Producing Property distributed is
hereinafter referred to as the "Distributed Interest") up to an aggregate
interest equal in value to 80% of the value of the Producing Properties of the
Partnership that it would have been entitled to upon a hypothetical liquidation
of the Partnership after application of the provisions of Section 9.2 (the
interest in a Producing Property of the
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General Partner retained in the Partnership is hereinafter referred to as the
"Retained Interest"); provided, however, that no such distribution shall occur
unless the General Partner obtains an opinion of counsel to the Partnership to
the effect that such distribution will not result in any material adverse tax
consequence to the Unit Holders or the Partnership. Notwithstanding anything to
the contrary in this Agreement, in the event that any such distribution is made,
the General Partner shall:
(1) make appropriate adjustments in the Capital Account of the
General Partner and in the allocation of Partnership Revenues, expenses
and costs to assure that the General Partner will not share or participate
in any of the capital, costs, Revenues or distributions attributable to
the Producing Properties of the Partnership except to the extent of the
Retained Interest of the General Partner;
(2) not voluntarily or otherwise dispose of its Distributed Interest
unless the undivided interest of the Partnership in such Producing
Properties is also sold or disposed of for a proportionately equivalent
consideration;
(3) ensure that the Unit Holders' share of General and
Administrative Costs and Direct Administrative Costs does not increase as
a result of such withdrawal; and
(4) indemnify the Unit Holders against any expenses resulting from
such withdrawal.
Section 6.2 Assignment of General Partner Interest
--------------------------------------------------
Subject to Section 12.3 and Section 6.5B, upon obtaining the Consent of
Unit Holders owning more than 50% of the outstanding Units, the General Partner
may assign or transfer its General Partner interest to a Person which shall
become a successor General Partner; provided, however, that no such Consent
shall be required in connection with an assignment or transfer pursuant to the
merger, consolidation or transfer of all or substantially all of the assets of
the General Partner.
Section 6.3 Removal of General Partner
--------------------------------------
A. Subject to Section 12.3, the Unit Holders owning more than 50%
of the outstanding Units, shall have the authority to, and shall, remove the
General Partner.
B. (i) If the Unit Holders elect to remove the General Partner as
permitted under this Section, and further elect to continue the business of the
Partnership with one or more successor General Partners, the removed General
Partner shall not be removed until a successor General Partner has been selected
by the Unit Holders and admitted to the Partnership pursuant to Section 11.2.
(ii) Notwithstanding Section 3.6B, any General Partner who shall
withdraw or be removed shall be released and indemnified by any successor
General Partner from and against all liability for Partnership debts and
obligations incurred by the Partnership prior to the time of such removal.
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Section 6.4 Option to Purchase Interest from Former General Partner
-------------------------------------------------------------------
In the event the General Partner withdraws or is removed and a successor
General Partner is selected, the incoming General Partner and the departing
General Partner shall, by mutual agreement, select an independent petroleum
consultant to value the departing General Partner's interest in the Partnership.
The incoming General Partner, or the Partnership, shall have the option to
purchase at least 20% of the interest of the departing General Partner
(including any Distributed Interests distributed to the General Partner pursuant
to Section ▇.▇▇) for the value determined by the independent appraisal. The
departing General Partner's interest in the Partnership shall be transferred to
the successor General Partner, and the successor General Partner shall assign to
the departing General Partner a portion of Partnership Revenues, costs and
rights to receive Partnership distributions as and when such items are allocated
or distributed, as the case may be, by the Partnership equal to the percentage
interest of the departing General Partner in the Partnership prior to removal,
less the portion purchased by the successor General Partner or the Partnership.
Section 6.5 Power to Admit Successor General Partner
----------------------------------------------------
A. If the General Partner has withdrawn or been removed, Unit Holders
owning more than 50% of the outstanding Units shall have the right and authority
to appoint and admit a successor General Partner meeting the requirements of
Section 6.5B to take the place of the departing General Partner.
B. If there is admitted to the Partnership a successor General Partner,
such admission shall not become effective unless (a) the Partnership shall have
received a certificate, duly executed by or on behalf of such proposed successor
General Partner, to the effect that: (i) it is experienced in performing (or
employs sufficient personnel who are experienced in performing) functions of the
type then being performed by the departing General Partner, (ii) it has a net
worth sufficient to satisfy the net worth requirements of the Code, Treasury
Regulations, the Internal Revenue Service or the courts applicable to a general
partner in a limited partnership in order to ensure that the Partnership will
not fail to be classified for federal income tax purposes as a partnership and
(iii) such Person, if other than an individual, has the authority to become a
successor General Partner under the terms of this Agreement; and (b) the
proposed successor General Partner shall have (i) become a party to, and adopted
all of the terms and conditions of this Agreement and (ii) paid all reasonable
legal fees of the Partnership and filing and publication costs in connection
with such Person's becoming a successor General Partner. The Certificate of
Limited Partnership shall be amended to reflect the withdrawal of the former
General Partner and the admission of the successor General Partner.
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Section 6.6 Incapacity of the General Partner
---------------------------------------------
A. In the event of the Incapacity of the General Partner, the Partnership
shall be dissolved. However, within 90 days thereafter the Unit Holders owning
more than 50% of the outstanding Units may elect to reconstitute the Partnership
prior to application of the liquidation provisions of Section 9.2.
B. Upon the Incapacity of the General Partner, the Person who is its legal
representative shall have all the rights of a General Partner for the purpose of
settling or managing its estate and such power as the Incapacitated General
Partner possessed to assign all or any part of its interest and to join with
such assignee in satisfying conditions precedent to such assignee's becoming a
substituted General Partner.
Section 6.7 Termination of Contracts with General Partner
---------------------------------------------------------
Subject to and upon fulfilling the conditions of Section 12.3, the power
shall be vested in the Unit Holders owning more than 50% of the outstanding
Units to terminate any or all contracts between the General Partner or any
Affiliate and the Partnership, and select a replacement Person therefor.
ARTICLE SEVEN
ASSIGNMENT OF LIMITED PARTNER INTERESTS TO UNIT HOLDERS
Section 7.1 Assignments of the Interests of Depositary
------------------------------------------------------
A. Pursuant to Sections ▇.▇▇ and 13.1, the Depositary shall issue to each
Person purchasing one or more Units a Depositary Receipt evidencing such Units.
The Partnership shall recognize as a Unit Holder, for the number of Units for
which the Partnership has received proceeds, each Person to whom the Depositary
issues a Depositary Receipt as of the date provided in Section 13.1 or otherwise
as the General Partner shall determine in accordance with the provisions of this
Agreement.
B. The Depositary, by the execution of this Agreement, irrevocably assigns
to the Unit Holders all of the Depositary's beneficial (but not the record)
rights and interest in and to the Partnership, except as otherwise provided
herein, as of the date of Activation of the Partnership. The rights and interest
so transferred and assigned shall include, without limitation, the following:
(i) all rights to receive distributions of uninvested Capital
Contributions pursuant to Section 3.4 and the right to receive rebates of
Commissions and Organization and Offering Costs pursuant to Section 3.4;
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(ii) all rights to receive distributions of Partnership funds
or assets under the terms of this Agreement or under the Act;
(iii) all rights in respect of allocations of each item of
Revenues, gain, loss, deduction and credit pursuant to Article Five;
(iv) all rights in respect of allocations to Capital Accounts
pursuant to Section 5.4;
(v) all rights to receive any proceeds of liquidation of the
Partnership pursuant to Section 9.2;
(vi) all rights to inspect books and records and to receive
reports pursuant to Article Ten;
(vii) the right to bring derivative actions pursuant to the Act
(in the event any such action must be brought in the name of the
Depositary as a Limited Partner, the Depositary agrees to bring such
action, at the expense of the Unit Holder(s) requesting such action); and
(viii) all rights which the Depositary has, or may have in the
future, under this Agreement or the Act, except as otherwise provided
herein.
C. The General Partner, by the execution of this Agreement, and any
Substituted Limited Partner, by its adoption of this Agreement, pursuant to
Section 7.3, irrevocably consents to and acknowledges that (i) the foregoing
assignment pursuant to Section ▇.▇▇ by the Depositary to the Unit Holders of the
Depositary's beneficial rights and interest in the Partnership is effective and
(ii) the Unit Holders are intended to be third-party beneficiaries of all rights
and privileges of the Depositary hereunder. The General Partner and any
Substituted Limited Partner covenant and agree that, in accordance with the
foregoing transfer and assignment, all the Depositary's beneficial rights and
privileges hereunder may be exercised by the Unit Holders, including, without
limitation, those listed in Section ▇.▇▇.
D. The Depositary, by execution of this Agreement, irrevocably commits to
exercise its rights to vote and Consent as a Limited Partner in accordance with
directions it receives from the Unit Holders as provided herein.
E. The Depositary may transfer its interest as the Depositary to another
with the Consent of the General Partner and Unit Holders other than Limited
Partners owning more than 50% of the outstanding Units.
F. All Persons becoming Unit Holders will by their payment for and
acceptance of Depositary Receipts agree to comply with and be bound by the
terms, conditions and obligations of and will be entitled to all rights of Unit
Holders under this Agreement.
G. Other than pursuant to Sections ▇.▇▇, 7.lE and 7.2, the
Depositary shall not transfer, assign, encumber, pledge or hypothecate any of
its interest in the Partnership.
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Section 7.2 Rights of Unit Holders
----------------------------------
A. In accordance with the transfer and assignment described in Section
▇.▇▇, it is the intention of the parties hereto that, except to the extent set
forth in Section 3.6B, Unit Holders shall have the same rights and obligations
that Limited Partners have under this Agreement and under the Act. The fiduciary
duties and obligations of the General Partner to Limited Partners under the Act
and this Agreement shall extend to the Unit Holders.
B. Without limiting the generality of Section 7.2A, persons who become
Limited Partners pursuant to Section 7.3 below and other Unit Holders shall
share pari passu on the basis of one Limited Partner interest for one Unit, and
shall be considered a single class, with respect to all rights to receive
distributions and allocations pursuant to this Agreement.
C. Subject to Section 12.2, Unit Holders shall vote on all matters in
respect of which they are entitled to vote (either in person, by proxy, or by
written consent), as a single class, with each Unit entitled to one vote;
provided, however, that the Depositary shall vote on behalf of and only as
directed by the Unit Holders who are not Substituted Limited Partners.
Section 7.3 Conversion of Units into Limited Partner Interests
--------------------------------------------------------------
Subject to the consent of the General Partner, which consent may be
granted or withheld in its absolute discretion, any Unit Holder who desires to
convert his Units into an equal number of Limited Partner interests (which shall
be included in the meaning of "Units" as such term is used in this Agreement)
may do so following Activation of the Partnership by delivering to the
Depositary an executed subscription agreement and transfer application (which
are available upon request from the General Partner), accompanied by written
instructions which set forth an intention to become a Substituted Limited
Partner and request admission as such to the Partnership, together with such
other instruments or documents as the General Partner or the Depositary may deem
necessary or desirable, including the written acceptance and adoption by such
Unit Holder of the provisions of this Agreement and the execution,
acknowledgement and delivery to the General Partner of a special power of
attorney, the form and content of which are reasonably satisfactory to the
General Partner. Such executed documents shall be accompanied by a payment to
the Partnership by such Unit Holder of a fee (not to exceed $100) for legal and
administrative costs and recording fees. Unit Holders becoming Substituted
Limited Partners will be admitted to the Partnership quarterly, or as promptly
as possible after the commencement of the next calendar quarter. Persons who
effect such conversion will thereafter be deemed to have an equal number of
Units of interest as a Limited Partner and the Substituted Limited Partner will
not be able to re-exchange such units of Limited Partner interests for Units.
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ARTICLE EIGHT
TRANSFERABILITY OF UNITS
Section 8.1 Assignments of Units
--------------------------------
A. Subject to the provisions of Section 8.4, no Unit Holder may assign,
sell, transfer or exchange his Units without the approval of the General
Partner. In exercising its obligations under this Section ▇.▇▇, the General
Partner shall use its best effort to ensure that the terms of transfer are not
in contravention of any of the provisions of this Agreement and shall not
approve any transfer:
(i) to a Person who makes a market in the Units;
(ii) which is effected through a matching agent unless the
procedures of such matching agent with respect to the transfer of Units
have been approved by the General Partner as not being incident to a
public trading of such securities within the meaning of Code Section 7704,
469(k) or 512(c);
(iii) if such sale, assignment, transfer or exchange would be in
violation of any applicable federal or state securities laws (including
any applicable suitability standard and the restrictions on transfer set
forth in Rule 260.141. 11 of Title 10 of the California Administrative
Code) or would cause the Partnership to be taxed as an entity other than a
partnership under the Code;
(iv) if such sale, assignment, transfer or exchange, when
aggregated with all other transfers during the same taxable year of the
Partnership, would result in both (a) the transfer of more than 5% of the
Units (excluding Permitted Transfers) and (b) the transfer of more than 2%
of the Units (excluding Permitted Transfers and transfers made through a
Matching Service), unless the General Partner shall have received an
opinion of counsel that such sale, assignment, transfer or exchange may be
made without material adverse tax consequences to the Unit Holders. For
purposes of this subsection, the "Permitted Transfers" shall mean: (1)
transfers in which the basis of the Units in the hands of the transferee
is determined, in whole or in part, by reference to its basis in the hands
of the transferor or is determined under Section 732 of the Code; (2)
transfers at death; (3) transfers between members of a family (as defined
in Section 267(c)(4) of the Code); (4) the issuance of Units by or on
behalf of the Partnership in exchange for cash, property or services; (5)
distributions from a retirement plan qualified under Section 401(a) of the
Code; and (6) Block Transfers. The term "Block Transfer" means the
transfer by a Unit Holder in one or more transactions during any thirty
consecutive day period of Units representing in the aggregate more than 5%
of the total interests in Partnership capital or profits. The term
"Matching Service" has the meaning and the conditions to sale ascribed to
it in Internal Revenue Service Notice 88-75. For purposes of the above
limitations, the percentage of Units transferred during a taxable year
shall equal the sum of the monthly percentage of Units transferred. The
monthly percentage of Units transferred in any month shall be the
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percentage equal to a fraction the numerator of which is the number of
Units transferred during such month and the denominator of which is the
number of Units outstanding on the last day of such month, provided that
the denominator shall not include Units owned by the General Partner or
any Person related to the General Partner (within the meaning of Section
267(b) or 707(b)(1) of the Code);
(v) except for transfers by gift or inheritance, intra-family
transfers, transfers resulting from family dissolutions, transfers to
Affiliates or transfers of such transferor's entire remaining holding of
Units, any sale, assignment, transfer or exchange of Units that would
result in the transferors' holding less than ten (10) Units;
(vi) except as provided in Section 8.3 unless and until the
transferee has certified to the Partnership that he is an Eligible
Investor; or
(vii) to any entity exempt from federal income tax under Section
501 of the Code, to any Person defined in Section 168(h)(2) of the Code,
to any Individual Retirement Account as defined in Section 408(a) of the
Code, to any ▇▇▇▇▇ Plan, to any nonresident alien or to any foreign
Entity.
The General Partner shall give Notification to all Unit Holders in the event
that sales, exchanges, transfers or assignments have generally been suspended.
B. Any attempted sale, assignment, transfer or exchange in contravention
of the provisions of this Section 8.1 shall, unless otherwise determined by the
General Partner in its sole discretion, be void and deemed ineffectual and shall
not bind or be recognized by the Partnership.
C. The Partnership need not recognize for any purpose any assignment of
Units unless there shall have been filed with the Partnership and recorded on
the Partnership's books a duly executed and acknowledged instrument of
assignment, and such instrument evidences the written acceptance by the assignee
of all of the terms and provisions of this Agreement, represents that such
assignment was made in accordance with all applicable laws and regulations and
in all other respects is satisfactory in form and substance to the General
Partner.
D. The Partnership need not (but, at least in the case of (i) below, may,
in its sole discretion, do so) recognize for any purpose any purported sale,
assignment or transfer of all or part of the Units, if, in the opinion of
counsel:
(i) such sale, assignment or transfer would cause the
Partnership to be treated as an association taxable as a corporation for
federal income tax purposes, or, when added to the total of all other
sales or exchanges of interests within the preceding 12 months, would
result in the Partnership's being considered to have terminated within the
meaning of Section 708 of the Code; and the General Partner is expressly
authorized to enforce this provision by suspending transfers if and when
any such transfer would result in transfers of
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interests in the Partnership which represent in the aggregate 50% (or such
lower percentage as may be deemed prudent by the General Partner) or more
of all Partnership interests;
(ii) such sale, transfer or assignment would violate any state
securities or "blue sky" laws (including any applicable suitability
standards) applicable to the Partnership or the Units to be transferred or
assigned, except in the case of transfers upon the death of the Unit
Holder (by bequest or inheritance) or by operation of law; or
(iii) such sale, transfer or assignment might cause the
Partnership to be classified as a publicly traded partnership within the
meaning of Code Section 7702, 469(k) or 512(c).
E. Unless otherwise provided by the General Partner, any sale, assignment
or transfer of Units shall be recognized by the Partnership as of the first
business day of the calendar quarter following the approval of such assignment
or transfer by the General Partner, or as soon thereafter as practicable. The
General Partner shall not approve sales, assignments or transfers more
frequently than quarterly unless it receives a written opinion of counsel that
more frequent approvals shall not jeopardize the Partnership's federal income
tax status as a partnership. The Partnership and the General Partner shall be
entitled to treat the assignor of such Units as the absolute owner thereof in
all respects, and shall incur no liability for any allocation of Revenues, costs
or expenses, distribution or transmittal of reports or notice required to be
given to Unit Holders hereunder which is made in good faith to such assignor
until such time as the written instrument of assignment has been received by the
Partnership and recorded on its books.
F. The General Partner may reasonably interpret, and is hereby authorized
to take such action as it deems necessary or desirable to effect, the foregoing
provisions of this Section 8.1. The General Partner may, in its reasonable
discretion and without the approval of the Unit Holders, amend the provisions of
this Agreement in such manner as may be necessary or desirable to (i) preserve
the tax status of the Partnership as a partnership or (ii) avoid a
classification of the Partnership as a publicly traded partnership within the
meaning of Code Section 7704, 469(k) or 512(c). The General Partner may, in its
reasonable discretion and without the approval of the Unit Holders, also amend
the provisions of this Agreement to include provisions governing the
transferability of interests in the Partnership which may be approved in future
legislation, Treasury Regulations, administrative rulings and other
pronouncements or judicial decisions. The Unit Holders shall be given prompt
Notification of any amendments permitted by this Section 8.1F.
G. No purported sale, assignment or transfer by a transferor of Units
shall be recognized unless (i) the transferor shall have represented that such
transfer (x) was effected through a broker-dealer or matching agent whose
procedures with respect to the transfer of Units have been approved by the
General Partner as not being incident to a public trading market and not through
any other broker-dealer or matching agent or (y) otherwise was not effected
through a broker-dealer or matching agent which makes a market in Units or which
provides a readily available, regular and ongoing opportunity to holders of
Units to sell or exchange their Units through a public means of obtaining or
providing information of offers to buy, sell or exchange Units and (ii) the
General Partner determines that the circumstances described in
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Section 8.1A(iv) have not occurred and will not occur and that otherwise such
sale, assignment or transfer would not, by itself or together with any other
sales, transfers or assignments, be likely to result in the Partnership's being
classified as a publicly traded partnership.
H. Unit Holders who are residents of the State of California must
meet the restrictions on transfers set forth in Rule 260.141.11 of Title 10
of the California Administrative Code.
I. Except as provided in Section 8.4, no transfer of Units will be
recorded or otherwise recognized by the Depositary or Partnership for any
purpose whatsoever unless and until the transferee has certified to the
Depositary that he is an Eligible Investor and, unless the transfer is among
members of the immediate family of the transferor Unit Holder, has paid a
transfer fee to reimburse the Depositary for all actual, reasonable and
necessary expenses (not to exceed $50 per transaction) incurred in connection
with the transfer.
J. A transferee who has accepted an assignment of Units shall be
deemed to have agreed to comply with and be bound by all of the terms and
conditions of this Agreement.
Section 8.2 Substituted Limited Partners
----------------------------------------
A. The Consent of the General Partner shall be required before the
assignee of any Units shall be admitted as a Substituted Limited Partner, which
Consent may be withheld in the sole and absolute discretion of the General
Partner.
B. No person shall have the right to become a Substituted Limited
Partner in place of his assignor unless all of the following conditions are
first satisfied:
(1) a duly executed and acknowledged written instrument of
assignment complying with Section 8.1 shall have been filed with the
Partnership and recorded on its books, which instrument shall specify the
Units being assigned and set forth the intention of the assignor that the
assignee succeed to the assignor's interest as a Substituted Limited
Partner in his place;
(2) the transferor and his assignee shall have executed and
acknowledged such other instruments as the General Partner may deem
necessary or desirable to effect such substitution, including the written
acceptance and adoption by the assignee of the provisions of this
Agreement as the same may be amended, his agreement to be bound by the
terms hereof, and his execution, acknowledgment and delivery to the
General Partner of a special power of attorney, the form and content of
which are reasonably satisfactory to the General Partner; and
(3) a transfer fee sufficient to cover all reasonable expenses
connected with such substitution (not to exceed $50) shall have been paid
to the Partnership.
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C. By executing or adopting this Agreement, the Depositary, each
Substituted Limited Partner and, by the purchase of a Unit, each Unit Holder
hereby consents to the admission of Substituted Limited Partners by the General
Partner in accordance with the foregoing.
Section 8.3 Eligible Investors
------------------------------
A. If the General Partner determines that a Unit Holder is not an Eligible
Investor then the Unit Holder shall immediately be divested of its rights to
Consent on matters submitted to Unit Holders (and no such Units shall be deemed
outstanding for purposes of Consents of Unit Holders under this Agreement). At
any time after it can and does certify that it has become an Eligible Investor,
a Unit Holder may, upon application to the General Partner, retain all of the
rights and benefits attributable to his Units.
B. If at any time (i) the Partnership, the General Partner or the
Depositary receives an opinion of counsel to the effect that the citizenship or
other status of a Unit Holder may result in the forfeiture or cancellation of a
federal Lease or otherwise affects the eligibility of the Partnership to hold
federal Leases or (ii) the Partnership or the General Partner is named a party
in any judicial or administrative proceeding that seeks the cancellation or
forfeiture of any property in which the Partnership has an interest because of
the citizenship (or any other status that subjects the Partnership to the risk
of losing its eligibility to acquire or hold interests in federal Leases) of any
one or more Unit Holders, the General Partner may notify the Unit Holder and
purchase the Units of such Unit Holder for its own account, at such time and for
such amount as the General Partner may determine in its sole discretion. Nothing
in this Section 8.3 shall prevent a Unit Holder from transferring his Units
prior to the date set for such purchase by the General Partner.
Section 8.4 Death, Incompetency or Dissolution of a Unit Holder
---------------------------------------------------------------
If a Unit Holder who is an individual dies or a court of competent
jurisdiction adjudges him to be incompetent to manage his person or his
property, such Unit Holder's executor, administrator, guardian, conservator or
other legal representative may exercise all of such Unit Holder's rights for the
purpose of settling his estate or administering his property, including any
power under this Agreement of an assignee to become a Unit Holder or Substituted
Limited Partner. If a Unit Holder is a corporation, trust or other entity and is
dissolved or terminated, the powers of such Unit Holder may be exercised by its
legal representative or successor.
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ARTICLE NINE
DISSOLUTION, LIQUIDATION AND
TERMINATION OF THE PARTNERSHIP
Section 9.1 Events Causing Dissolution
--------------------------------------
A. The Partnership shall be dissolved upon the happening of any of
the following events:
(i) the expiration of its term, without any continuation
thereof as set forth in Section 2.3;
(ii) the Incapacity of the General Partner; provided, however,
within ninety (90) days thereafter the Unit Holders owning more than 50%
of the outstanding Units may elect to reconstitute the Partnership prior
to application of the liquidation provisions of Section 9.2;
(iii) the sale or other disposition (including, without
limitation, a disposition pursuant to Section 3.4B) at one time of all or
substantially all of the assets of the Partnership existing at the time of
such sale;
(iv) the election to dissolve the Partnership (a) by the General
Partner (which election shall be Consented by the Unit Holders owning more
than 50% of the outstanding Units), or (b) by the Consent of Unit Holders
owning more than 50% of the outstanding Units;
(v) ninety (90) days after the removal or withdrawal of the sole
General Partner (unless a successor is elected pursuant to Section 6.5);
or
(vi) the happening of any other event causing the dissolution of
the Partnership under the laws of the State, except that the Incapacity of
the Depositary or any Unit Holder shall not dissolve the Partnership and
the seizure of the interest of the Depositary shall not dissolve the
Partnership.
B. Dissolution of the Partnership shall be effective on the day on which
the event occurs giving rise to the dissolution, but the Partnership shall not
terminate until the General Partner has recorded a notice of dissolution of the
Partnership with the office of the Secretary of State of the State and shall
have complied with the laws of the other states in which it does business and
the assets of the Partnership have been distributed as provided in Section 9.2.
C. Nothing contained in this Agreement shall impair, restrict or limit the
rights and powers of the Unit Holders under the laws of the State or any other
jurisdiction in which the Partnership is doing business to reform and
reconstitute themselves as a limited partnership following dissolution of the
Partnership either under provisions identical to those set forth herein or under
any other provisions.
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D. If the Partnership is dissolved as a result of an event set forth in
Sections 9.1A(ii) or (v), Unit Holders owning more than 50% of the outstanding
Units may appoint an interim manager of the Partnership, who shall have and may
exercise only the rights, powers and duties of a general partner necessary to
preserve Partnership assets, until (i) a successor General Partner is elected
pursuant to Section 6.5, if the Partnership is reconstituted, or (ii) the
Partnership is liquidated pursuant to Section 9.2. The interim manager shall not
be liable as a general partner to the Depositary or Unit Holders and shall,
while acting in such capacity, be entitled to the same indemnification rights as
are set forth in Section 4.10.
Section 9.2 Liquidation
-----------------------
A. Subject to Section 9.1, upon dissolution of the Partnership, its
liabilities shall be paid in the order provided herein. The General Partner
shall sell or otherwise dispose of the Partnership's Property and other assets
and shall execute all amendments terminating the Partnership. In connection with
any such sale, the General Partner shall attempt to obtain the best prices for
such property. Pending such sales, the General Partner shall have the right to
continue to operate and otherwise to deal with Partnership property. In the
event the Partnership is dissolved on account of the Incapacity or removal of
the General Partner, the Partnership shall elect, in accordance with the
provisions of Article Twelve, a Person (the "Liquidating Agent") to perform the
function of the General Partner in liquidating the assets of the Partnership and
winding up its affairs, and shall pay to such Liquidating Agent its reasonable
fees and expenses incurred in connection therewith. Gain or loss realized on the
sale or other disposition of the Partnership's assets will be credited to (in
the case of gain) or charged against (in the case of loss) the General Partner's
and each Unit Holder's Capital Account to the extent allocable to the General
Partner and such Unit Holder under Sections 5.1 and 5.2. Any liquidation of the
Partnership shall take place out of court and without application being made
therefor to the Secretary of State of the State.
The Liquidating Agent shall agree not to resign at any time without 15
days' prior Notification and (if other than the General Partner) may be removed
at any time, with or without cause, by Notification of removal approved by Unit
Holders owning more than 50% of the outstanding Units. Upon dissolution, removal
or resignation of the Liquidating Agent, a successor and substitute Liquidating
Agent (who shall have and succeed to all rights, powers and duties of the
original Liquidating Agent) shall, within 30 days thereafter, be selected by
Unit Holders owning more than 50% of the outstanding Units. The right to appoint
a successor or substitute Liquidating Agent in the manner provided herein shall
be recurring and continuing for so long as the functions and services of the
Liquidating Agent are authorized to continue under the provisions hereof, and
every reference herein to the Liquidating Agent shall be deemed to refer also to
any such successor or substitute Liquidating Agent appointed in the manner
herein provided. The Liquidating Agent shall have and may exercise, without
further authorization or Consent of any of the parties hereto, all of the powers
conferred upon the General Partner under the terms of this Agreement (but
subject to all of the applicable limitations, contractual and otherwise, upon
the exercise of such powers, other than the limitation on sales set forth in
Section 4.5C) to the extent necessary or desirable in the good faith judgment of
the Liquidating
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Agent to carry out the duties and functions of the Liquidating Agent hereunder
for and during such period of time as shall be reasonably required in the good
faith judgment of the Liquidating Agent to complete the winding-up and
liquidation of the Limited Partnership as provided for herein.
Notwithstanding the provisions of Section 9.1 which require the
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth herein, if on dissolution of the Partnership, the General
Partner or Liquidating Agent determines that an immediate sale of part or all of
the Partnership's assets would be impracticable or would cause undue loss to the
Unit Holders, the General Partner or Liquidating Agent may, in its absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (other than those to
the General Partner and Unit Holders) or place those assets in a liquidating
trust to hold until such time as the assets are sold or depleted; provided,
however, that such assets will be transferred to a liquidating trust only if
before the transfer the General Partner or Liquidating Agent shall have received
the opinion of counsel to the Partnership that the operation of such liquidating
trust pursuant to its terms will not result in such liquidating trust being
treated as an association taxable as a corporation for federal income tax
purposes. Furthermore, if the dissolution of the Partnership is effected by
virtue of a merger or combination with another entity or by virtue of a
transfer, sale or exchange of all or substantially all of the Partnership's
asset for which at least a portion of the consideration consists of securities
of another entity, such securities may be distributed to the General Partner and
Unit Holders in kind and there shall be no obligation to sell or otherwise
dispose of such securities for cash or to place them in a liquidating trust;
provided, however, that no such securities shall be distributed to the Unit
Holders upon liquidation unless (i) the securities are readily marketable and
(ii) pro rata amounts of such securities (to the extent such securities may be
divided in equal pro rata amounts) are distributed to each Unit Holder.
B. In settling accounts after dissolution, the assets of the Partnership
shall be paid out in the following order: (i) to third-party creditors, in the
order or priority as provided by law; (ii) to the General Partner and any
Liquidating Agent for any expenses of the Partnership paid by or payable to them
to the extent they are entitled to reimbursement therefor pursuant to this
Agreement; (iii) to all of the Unit Holders in the amount equivalent to the
amount of their positive Capital Account balances (as adjusted pursuant to
Section 9.2A) on the date of distribution; (iv) to the General Partner in the
amount equivalent to the amount of its positive Capital Account balance (as
adjusted pursuant to Section 9.2A) on the date of distribution; and (v) the
balance, if any, shall be paid to the General Partner and Unit Holders in the
manner in which Revenues are then being allocated.
C. If the General Partner has a deficit balance in its Capital Account
following the distribution(s) provided for in Section 9.2B above, as determined
after taking into account all adjustments to its Capital Account for the taxable
year of the Partnership during which such distribution(s) occur, it shall
restore the amount of such deficit balance to the Partnership within 90 days and
such amount shall be distributed to the Unit Holders in accordance with their
positive Capital Account balances.
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D. Upon the liquidation or partial liquidation of the General Partner's
interest pursuant to Article Six hereof, any distribution to the General Partner
shall be made pro rata in accordance with and to the extent of its positive
Capital Account balance after the General Partner's and Unit Holders' Capital
Accounts are adjusted as if all of the Partnership's Property had been sold at
its fair market value immediately prior to such distribution and the gain or
loss realized on such Sale charged or credited to the General Partner's and Unit
Holders' Capital Accounts in accordance with and to the extent of its positive
Capital Account balance after the General Partner's and Unit Holders' Capital
Accounts are adjusted as if all of the Partnership's Property had been sold at
its fair market value immediately prior to such distribution and the gain or
loss realized on such Sale charged or credited to the General Partner's and Unit
Holders' Capital Accounts in accordance with the provisions of Article Five
hereof; provided, however, that if the General Partner has a deficit balance in
its Capital Account following such distribution (or adjustment of the General
Partner's Capital Account pursuant to this Section 9.2D), the General Partner
shall restore the amount of such deficit balance to the Partnership by the later
of the end of the Partnership taxable year in which the liquidation of the
General Partner's Interest occurs or 90 days after the date of such liquidation.
E. Notwithstanding anything to the contrary in this Agreement, upon the
dissolution and termination of the Partnership, the General Partner will
contribute to the Partnership the lesser of: (a) the deficit balance in its
Capital Account; or (b) the excess of 1.01 percent of the total Capital
Contributions of the Unit Holders over the capital previously contributed by the
General Partner.
ARTICLE TEN
BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS; ETC.
Section 10.1 Books and Records
-------------------------------
The books and records of the Partnership, including information relating
to the sale by the General Partner or any Affiliates of goods or services to the
Partnership, and a list of the names and addresses and Units of all Unit
Holders, shall be maintained by the General Partner at the principal office of
the Partnership for a period of six years following the close of the Fiscal Year
to which they relate and shall be available for examination there by any Unit
Holder or its duly authorized representatives at any and all reasonable times.
Any Unit Holder or its duly authorized representatives, upon paying the costs of
collection, duplication and mailing, shall be entitled for any proper purpose to
a copy of the list of names and addresses and Units of the Unit Holders. The
Partnership may maintain such other books and records and may provide such
financial or other statements as the General Partner in its discretion deems
advisable.
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Section 10.2 Accounting Basis for Tax and Reporting Purposes; Fiscal Year
--------------------------------------------------------------------------
The books and records of the Partnership for tax purposes, for purposes of
this Agreement and for the purpose of reports to the Partners, shall be kept on
the accrual basis. The Fiscal Year of the Partnership shall be the calendar year
to the extent permissible and the General Partner shall use its best efforts to
obtain any necessary approvals therefor.
Section 10.3 Bank Accounts
--------------------------
The General Partner shall maintain a bank account or accounts on behalf of
the Partnership with any bank in the United States having total assets in excess
of $100,000,000. The General Partner shall not deposit Partnership funds in an
account with any bank in an aggregate amount in excess of 5% of such bank's
total assets. Withdrawals shall be made only in the regular course of the
Partnership's business on such signature or signatures as the General Partner
may determine. All deposits and other funds not needed in the operation of the
business may be deposited in interest-bearing accounts, certificates of deposit,
money market funds (including those managed or marketed by the Dealer Manager or
its Affiliates) or invested in short term United States Government obligations
maturing within one year, commercial paper of corporations organized under the
laws of any state of the United States or the District of Columbia having the
highest credit rating granted by ▇▇▇▇▇'▇ Investors Service, Inc. or Standard &
Poor's Corporation, or other similar highly liquid investment.
Section 10.4 Reports
--------------------
A. The General Partner shall close the Partnership's books of account
promptly at the close of each Fiscal Year and an annual examination of the
Partnership's financial statements shall be performed at the expense of the
Partnership by the Accountants. The General Partner shall furnish to the Unit
Holders an annual report within 120 days after the close of each Fiscal Year of
the Partnership commencing with the Fiscal Year in which the Partnership was
Activated. If requested by a Unit Holder, the General Partner shall also furnish
such Unit Holder with a report within 75 days after the end of the first six
months of the Fiscal Year in which such request was made, or within 75 days
after the request is made, whichever is later. Such report will contain at least
the following information:
(i) Financial statements for the Partnership's accounts,
including a balance sheet, statement of income, statement of changes in
partners' capital and statement of cash flow prepared on an accrual basis
in accordance with generally accepted accounting principles and
accompanied by a report of the Accountants together with their opinion
thereon, except that the semi-annual financial statements need not be
audited;
A-54
(ii)A summary itemization, by type and/or classification, of the
total fees and compensation, including any General and Administrative Cost
reimbursement, paid by the Partnership or indirectly on their behalf, to
the General Partner and any Affiliate;
(iii) A description of each Producing Property acquisition,
including the costs therefor, in which the Partnership owns an interest,
except succeeding reports need contain only material changes (including
all material farmouts, development drilling, improved recovery operations
and abandonments), if any, regarding Producing Properties already reported
upon. In the case of ▇▇▇▇▇ that have been abandoned after production has
commenced, a statement justifying such abandonment shall be included if
the General Partner or an Affiliate is the operator. With respect to all
material Farmouts, the statement shall include a justification of the
Farmout, location, time, to whom made and a general description of terms;
and
(iv) A schedule reflecting a list of the ▇▇▇▇▇ drilled by the
Partnership and the costs thereof.
B. Within 60 days after the end of each fiscal quarter, each Unit Holder
will receive an "investor statement" which summarizes his current quarter and
cumulative cash distributions in the Partnership.
C. Within 120 days after the end of the Fiscal Year following the Fiscal
Year in which Activation of the Partnership occurs, and annually thereafter, the
General Partner shall furnish to the Unit Holders a computation as of the end of
the immediately preceding Fiscal Year, based upon engineering reports prepared
by one or more qualified independent petroleum engineering firms with respect to
Producing Properties containing Proved Reserves equal to at least 80% of the
Proved Reserves of the Partnership (with the computation as to any balance of
the Partnership's Proved Reserves being based upon petroleum engineering reports
prepared by the General Partner or an Affiliate), of the total estimated Proved
Developed Producing Reserves, Proved Development Non-Producing Reserves and
Proved Undeveloped Reserves owned by the Partnership, the estimated dollar value
thereof stated in then existing prices and escalated prices (as provided by the
General Partner). In addition, the computation shall include an estimate of the
time required for the extraction of such reserves and the present worth of such
reserves and the estimate shall contain a statement that because of the time
period required to extract such reserves the present value of revenues to be
obtained in the future is less than if immediately receivable.
D. In addition to the report described in Section 10.4C of this Agreement,
if an event occurs to the knowledge of the General Partner or its Affiliates
leading to a reduction or an increase of such Proved Reserves of more than 10%,
excluding reduction as a result of normal production, an additional computation
and estimate similar to that described in Section 10.4C shall be sent to each
Unit Holder as soon as possible.
E. By March 15 of each year, the General Partner will furnish a report to
each Unit Holder containing such information as is pertinent for completion of
his respective federal, state and other income tax returns.
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F. The General Partner shall file on a timely basis with the Securities
and Exchange Commission all filings required to be made by the Partnership
pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder. The General Partner shall make
available to any Unit Holder upon the Unit Holder's request, copies of any
report filed by or on behalf of the Partnership with the Securities and Exchange
Commission. The General Partner shall cause a copy of any reports sent to the
Unit Holders under paragraphs A, C, D and E hereof to be sent to the California
Commissioner of Corporations.
G. The General Partner agrees to make all relevant financial and
engineering reports available for review by a Unit Holder on request at the
offices of the Partnership.
Section 10.5 Elections
-----------------------
The General Partner shall cause the Partnership to make all elections
required or permitted to be made by the Partnership under the Code and not
otherwise expressly provided for in this Agreement, in the manner that the
General Partner believes will be most advantageous to the Unit Holders, except
that (i) the General Partner shall not be required to make an election under
Section 754 of the Code or corresponding provisions of applicable state income
tax laws, and (ii) the General Partner shall make the election under Section
263(c) of the Code to expense all intangible drilling and development costs in
the initial Partnership federal income tax return filed for the Fiscal Year in
which such costs are incurred.
ARTICLE ELEVEN
AMENDMENTS; MERGER
Section 11.1 Proposal and Adoption of Amendments Generally
-----------------------------------------------------------
A. Notwithstanding anything to the contrary herein, the General Partner
may, without prior notice or Consent of any Unit Holder, amend any provision of
this Agreement (including an amendment to admit an additional General Partner or
a successor General Partner in the event of the withdrawal or removal of the
General Partner) if, in its opinion, such amendment does not have a material
adverse effect upon the Unit Holders or otherwise is permitted by Section 8.1F.
Amendments to this Agreement to reflect the addition or substitution of a
Limited Partner or the admission of a successor General Partner shall be made at
the time and in the manner referred to in Section 11.2. Any other amendment to
this Agreement may be proposed by the General Partner or holders of at least 10%
of the outstanding Units. The Person or Persons proposing such amendment shall
submit a Notification containing (a) the text of such amendment, and (b) a
statement of the purpose of such amendment. The General Partner shall, within 15
days after receipt of any proposal under this Section ll.1A, give Notification
to the Depositary and all Unit Holders of such proposed amendment, of such
statement of purpose and of such opinion of counsel, together, in the case of an
amendment proposed by any Unit Holders, with the views, if any, of the General
Partner with respect to such proposed amendment.
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B. Amendments to this Agreement shall be adopted if: (i) in the case of
amendments referred to in Section 11.2 the conditions specified in Section 6.5B
shall have been satisfactorily completed and the Partnership shall not have been
furnished with an opinion of counsel to the Partnership to the effect that such
amendment will adversely affect the classification of the Partnership as a
partnership for federal income tax purposes; (ii) in the case of amendments
referred to in Section 8.1F, the conditions specified in said Section shall have
been satisfactorily completed; or (iii) in the case of all other amendments,
such amendment shall have been Consented to by Unit Holders owning more than 50%
of the outstanding Units (unless such Consent is not required pursuant to
Section ll.1A of this Agreement); provided, however, that no such amendment may:
(a) enlarge the obligations of the General Partner or any Unit Holder under this
Agreement or convert the interest of any Unit Holder into the interest of a
General Partner or modify the limited liability of any Unit Holder without the
Consent of such Partner or Unit Holder; (b) modify the method provided in
Article Five of determining and allocating or distributing, as the case may be,
each item of income, gain, loss, cost, deduction or credit without the Consent
of the General Partner if it would be adversely affected by such modification,
and any Unit Holder which may be adversely affected, by such modification; (c)
amend Sections 4.9, 4.10, 6.1, 6.2, 6.3 or 6.4 without the Consent of the
General Partner; or (d) amend Sections 2.3, 4.2, 4.4, 4.5, 4.11, this Article
Eleven or Section 12.3 unless the Consent of the Unit Holders owning at least
two-thirds of the outstanding Units is obtained.
C. Upon the adoption of any amendment to this Agreement, the amendment
shall be executed by the General Partner (both on its own behalf and as
attorney-in-fact for any Substituted Limited Partners) and the Depositary and,
if necessary or appropriate, shall be recorded in the proper records of the
State and any other state in which the Partnership is then doing business.
Section 11.2 Amendments on Admission or Removal of Partner
------------------------------------------------------------
If this Agreement or the Certificate of Limited Partnership shall be
amended to reflect the withdrawal or removal of the General Partner and the
continuation of the business of the Partnership, such amendment shall be signed
by the remaining or successor General Partner and by the removed General
Partner.
Section 11.3 Merger
---------------------
The Partnership may merge or consolidate with or into one or more limited
partnerships, general partnerships, corporations, business trusts or
associations, or unincorporated businesses if (i) Consented to by the General
Partner and by Unit Holders owning more than 50% of the Outstanding Units and
(ii) such merger or consolidation is permitted under the Act or any other
applicable law.
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Section 11.4 Exchange Offers
------------------------------
Neither the General Partner nor its Affiliates will make or cause to be
made any offer to a Unit Holder to exchange such Unit Holder's Units for a
security unless:
(a) such offer is made after the expiration of two years after such
Partnership commenced operations;
(b) such offer is made to all Unit Holders;
(c) such offer is on a basis no more advantageous to the General
Partner, exchange offeror or underwriter of the offer and their
respective affiliates, than to Unit Holders, provided, however,
that the foregoing clause shall not prohibit, if permitted under
applicable state and self-regulatory organization guidelines: (i)
compensation (including the issuance of securities) to such
persons in exchange for such persons' other balance sheet assets
(non-Partnership interests) for inclusion of the General Partner
in the exchange offer or tender of other balance sheet assets of
the General Partner, underwriter or their affiliates, based upon
exchange valuation principles consistent with these guidelines;
(ii) compensation to an underwriter for services in connection
with the offer provided, however, that no compensation shall be
payable to an underwriter for the tender of interests by the
exchange offeror, its affiliates or the underwriter; and (iii)
compensation that may be permitted under subparagraph (g) below;
(d) payments for services rendered by any Person in connection with
the exchange are fully supportable, actual and necessary;
(e) in computing the exchange ratio, the value of reserves used is
supported by an appraisal prepared by an independent petroleum
consultant as of the most current feasible date, and the value of
all other material balance sheet assets, including undeveloped
acreage, is at fair market value as determined by an independent
qualified appraiser;
(f) the offer is made pursuant to all registration requirements under
both federal and state laws;
(g) if the exchange offeror is a corporation, the offer is made in
compliance with applicable NASAA Guidelines for corporate securities
and may not allow a security with different rights and privileges to
be issued to the General Partner or its Affiliates unless there is
justification therefor;
(h) the offer does not allow for an accelerated reversionary interest
to the General Partner without regard to the existing payout
provisions;
(i) additional shares or units to be issued pursuant to future
reevaluation of properties include reevaluation of similar
properties held by Unit Holders;
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(j) there will be no overrides newly established to the General Partner,
exchange offeror, or affiliates on leases to be part of the exchange
and any overrides to be established to non-affiliates on such leases
and the basis therefor are disclosed in detail;
(k) all properties to be exchanged are to be evaluated on the same
basis or standard of evaluation; and
(1) material properties of the General Partner or its Affiliates to
be exchanged have complete cost disclosure;
provided, however, that the General Partner may avoid any of such conditions and
restrictions for which waivers or consents are obtained from appropriate state
securities administrators or agencies. Notwithstanding the foregoing, neither
the General Partner nor its Affiliates shall have any obligation to make any
exchange offer to Unit Holders.
ARTICLE TWELVE
CONSENTS, VOTING AND MEETINGS
Section 12.1 Methods of Giving Consent
----------------------------------------
Any Consent of a Unit Holder required by this Agreement may be given by a
Unit Holder as follows: (i) at a meeting, in person, by a written proxy or
signed writing directing the manner in which it desires that its vote be cast,
which writing must be received by the General Partner prior to such meeting, or
(ii) without a meeting, by a signed writing directing the manner in which it
desires that its vote be cast, which writing must be received by the General
Partner prior to the date upon which the votes of Unit Holders are to be
counted. Any Unit Holder may waive notice of or attendance at any meeting of the
Unit Holders and may execute a signed written consent. Only the votes of Unit
Holders of record on the date set by the General Partner (which date shall be
not less than 10 days and not more than 60 days prior to the date set for the
meeting or consent), whether at a meeting or otherwise, shall be counted. Units
held by the General Partner and its Affiliates which, as a result thereof,
cannot be voted, will not be deemed outstanding for purposes of calculating
whether a sufficient number of Units have consented. The laws of the State
pertaining to the validity and use of corporate proxies shall govern the
validity and use of proxies given by the Unit Holders.
Section 12.2 Meetings of Unit Holders
---------------------------------------
The General Partner may at any time call a meeting of the Unit Holders or
for a vote, without a meeting, of the Unit Holders on matters upon which the
Unit Holders are entitled to provide their Consent, and shall call for such a
meeting or vote upon receipt by the General Partner of a request therefor made
by Unit Holders owning at least 10% of the outstanding Units as of the date of
receipt of such request. Within 15 days of the receipt of the request, the
General Partner shall notify all Unit Holders of record as of the date set by
the General Partner (which date shall be not less than 10
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days and not more than 60 days prior to the date set for the meeting or consent)
as to the time and place of the meeting, if called, and the general nature of
the business to be transacted thereat, or if no such meeting has been called, of
the matter or matters to be voted upon and the date upon which the votes will be
counted. The date of any meeting of Unit Holders or the date upon which such
votes, without a meeting, will be counted (regardless of whether the General
Partner has called for such meeting or vote upon the request of Unit Holders or
has initiated such event without such request) shall be not less than 30 or more
than 60 days following mailing of the Notification thereof by the General
Partner. Units held by the General Partner and its Affiliates may not be voted
by them. All expenses of the meetings, voting and such Notification shall be
borne by the Partnership.
Section 12.3 Limitations on Requirements for Consents
-------------------------------------------------------
Notwithstanding anything to the contrary contained in this Agreement, the
powers of the Unit Holders set forth in Sections 4.5D, 6.3A, 6.6A, 6.7, 11.1A
and 12.5 shall not be deemed to be granted to the Unit Holders or exercisable by
them if counsel for the Partnership or counsel designated by Unit Holders owning
at least 10% of the outstanding Units renders an opinion to the effect that the
grant or the exercise of those powers or the result thereof is prohibited by the
Act, will impair the limited liability of the Depositary or the Unit Holders or
will affect the classification of the Partnership as a partnership for federal
income tax purposes.
Section 12.4 Submissions to Unit Holders
------------------------------------------
The General Partner shall give all the Unit Holders Notification of any
proposal or other matter required by any provisions of this Agreement or by law
to be submitted for the consideration and approval of the Unit Holders. Such
Notification shall include any information required by the relevant provision of
the Agreement or by law.
Section 12.5 Acting without Concurrence of General Partner
------------------------------------------------------------
Except as limited by Sections 12.3 and ▇▇.▇▇, Unit Holders owning more
than 50% of the outstanding Units, without the necessity for concurrence by the
General Partner may vote to:
(a) amend the Agreement;
(b) dissolve the Partnership;
(c) remove the General Partner and elect a new General Partner;
(d) approve or disapprove the sale of all or substantially all
of the assets of the Partnership; or
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(e) cancel or amend the terms of any contract for services with the
General Partner or any Affiliate which shall be without penalty, provided
30 days' written notice is given.
ARTICLE THIRTEEN
THE DEPOSITARY
Section 13.1 Depositary Receipts
----------------------------------
A. Within 45 days of the Activation of the Partnership, the Depositary
will execute and forward to each Unit Holder Depositary Receipts evidencing the
ownership by the Unit Holder as of the date of Activation the Units for which
such Unit Holder subscribed.
B. Pursuant to the terms of Section 8.1, upon receipt of a properly
executed application for transfer, the Depositary shall within three business
days execute and forward Depositary Receipts to the respective transferees.
C. Depositary Receipts may be endorsed with, have incorporated in the text
thereof or be accompanied by such legends or recitals, attachments or changes,
not inconsistent with the provisions of this Agreement, as may be required to
comply with any applicable law or regulation or to conform with any usage with
respect thereto, or to indicate any special limitation or restriction to which
any particular Unit may be subject, or as may for any other reason be required.
Each Depositary Receipt shall be duly executed on behalf of the Depositary by
the manual or facsimile signature of a duly authorized officer of the
Depositary. No Depositary Receipt shall be entitled to any benefit under this
Agreement or be valid for any purpose unless it bears such signature.
D. All Depositary Receipts executed by the Depositary shall be numbered
consecutively. The Unit Holder of each numbered Depositary Receipt shall be
registered on the books of the Depositary maintained pursuant to Section 13.3A.
E. Upon surrender by the Unit Holder in person or by duly authorized
attorney of one or more Depositary Receipts at the Depositary's principal
office, or at any other office it may designate for the purpose, for split-up or
combination, the Depositary shall, subject to the terms and conditions of this
Agreement and the Depositary Receipt, execute and deliver one or more new
Depositary Receipts in authorized denominations as requested, evidencing the
same aggregate number of Units as evidenced by the Depositary Receipt(s)
surrendered.
F. If any Depositary Receipt is mutilated, destroyed, lost or stolen, the
Depositary shall execute and deliver a Depositary Receipt in like form and tenor
in exchange and substitution for the mutilated, destroyed, lost or stolen
Depositary Receipt; provided, that the Depositary may require the Unit Holder to
(i) surrender any mutilated Depositary Receipt, (ii) file with the Depositary,
in a form and manner satisfactory to it, proof of the destruction, loss or
theft, and of such Unit Holder's ownership, of the Depositary Receipt and (iii)
furnish to the Depositary reasonable indemnification (including posting of an
indemnity bond) satisfactory to the Depositary.
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G. As a condition precedent to the execution and delivery, transfer,
split-up, combination, surrender, conversion or exchange of any Depositary
Receipt, the Depositary may require (i) payment of any fee required hereby and
payment of a sum sufficient for reimbursement of any tax or other governmental
charge with respect thereto, (ii) production of proof satisfactory to it as to
the identity and genuineness of any signature or endorsement or as to the due
authorization of the action, (iii) filing of such information and execution of
such documents by the transferor and/or the transferee as may be required by
this Agreement or the Depositary Receipt or otherwise is deemed necessary or
appropriate by the Depositary and (iv) compliance with such other conditions as
may be imposed under applicable laws and regulations. The Depositary shall be
entitled to rely upon, and shall not have any liability to the Partnership, the
General Partner, any Unit Holder or any other Person with respect to the content
of any proof submitted to it pursuant to this Section 13.1G, and shall have no
obligation to inquire as to the truth and accuracy thereof (except for acts or
omissions resulting from the Depositary's gross negligence).
H. All Depositary Receipts surrendered to the Depositary shall be
canceled. The Depositary shall retain all canceled Depositary Receipts and other
instruments, documents and records in accordance with the policies and
regulations of the Depositary, federal securities laws and the rules and
regulations of any securities exchange or market upon which the Depositary
Receipts may be listed or quoted.
Section 13.2 Depositary or Affiliate as Transfer Agent and Registrar
---------------------------------------------------------------------
The Depositary or an Affiliate shall also be the transfer agent and
registrar for the Depositary Receipts unless prohibited by law, regulation or
any applicable rule of a securities exchange or market. In its capacity as such,
subject to the terms and conditions of this Agreement, the Depositary or such
Affiliate shall transfer record ownership of the Units by bookkeeping entry on
the books and records maintained pursuant to Section 13.3A.
Section 13.3 Duties of Depositary
-----------------------------------
A. In performing its duties hereunder the Depositary shall:
(i) maintain at its principal office a current list of the full
name and last known home or business address of each Unit Holder, set
forth in alphabetical order which list shall be available during ordinary
business hours for examination and copying at the reasonable request, and
at the expense, of any Unit Holder or his duly authorized representative,
or copies of such list may be requested in writing for any proper purpose
by any Unit Holder or his duly authorized representative; provided that
the reasonable costs of fulfilling such request, including copying
expenses, shall be paid by the Unit Holder making such request. In
addition, the Depositary shall, as required, furnish to the Securities and
Exchange Commission, any report, financial statement or communication
received from the Partnership or the General Partner that is made
generally available to Unit Holders;
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(ii) keep all records required to be kept, for the periods
specified, and shall file with the Securities and Exchange Commission all
materials required to be so filed, under the Securities Exchange Act of
1934, by virtue of its status as Depositary. A copy of any material filed
by the Depositary with the Securities and Exchange Commission shall also
be provided to the Partnership within two business days after its filing.
To the extent that any such filing requires information from the
Partnership or the General Partner, such information shall be furnished to
the Depositary by the General Partner in sufficient quantity and a
sufficient time in advance of the date the filing is required to be made
to enable the Depositary to comply with such requirements; and
(iii) keep books at its corporate office for the transfer of
Depositary Receipts. The books shall be open during normal business hours
for inspection by the Unit Holders. The Depositary may, however, close the
transfer books, at any time or from time to time, when deemed expedient by
it in connection with the performance of its duties hereunder.
B. Upon the request of the Partnership, the Depositary shall as promptly
as practicable furnish to the Partnership a list, as of the date specified in
such request, of the names, addresses and social security or taxpayer
identification numbers of all Unit Holders.
Section 13.4 Depositary Not a Trustee, Issuer, etc.
-----------------------------------------------------
The Depositary is not a trustee and it is intended that the Depositary, in
its capacity as depositary, shall not be deemed to be an "issuer" or
"underwriter" of securities under the federal securities laws or applicable
state securities laws; it being expressly understood and agreed that the
Depositary, in its capacity as a Limited Partner of the Partnership, is acting
only in a ministerial capacity.
Section 13.5 Indemnification of the Depositary
------------------------------------------------
The Depositary shall be indemnified by the Partnership to the same extent
and subject to the same conditions and restrictions as provided in Section 4.10
of this Agreement with respect to the indemnification of the General Partner.
Section 13.6 Limitation of Expense Reimbursements
---------------------------------------------------
The expenses of the Depositary otherwise reimbursable to it under the
terms of this Agreement and the fees payable to it hereunder shall not exceed
the lesser of (i) an amount equal to 90% of the competitive price which would be
charged by non-affiliated persons rendering similar services in the same or
comparable geographic location or (ii) the costs and expenses of the Depositary
incurred in rendering such services.
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ARTICLE FOURTEEN
MISCELLANEOUS PROVISIONS
Section 14.1 Notification to the Partnership or the General Partner
--------------------------------------------------------------------
Any Notification to the Partnership or the General Partner shall be sent
to the principal office of the Partnership, as set forth in this Agreement.
Except as provided herein, any Notification to a Unit Holder shall be sent to
its last known address.
Section 14.2 Binding Provisions
---------------------------------
The covenants and agreements contained herein shall be binding upon and
inure to the benefits of the heirs, executors, administrators, successors and
assigns of the respective parties hereto.
Section 14.3 Applicable Law
-----------------------------
This Agreement shall be construed and enforced in accordance with the laws
of the State.
Section 14.4 Separability of Provisions
-----------------------------------------
If for any reason any provision or provisions hereof which are not
material to the purposes or business of the Partnership are determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation of or affect those portions of this Agreement that are
valid.
Section 14.5 Appointment of the General Partner as Attorney-in-Fact
--------------------------------------------------------------------
The Depositary, by the execution of this Agreement, irrevocably
constitutes and appoints the General Partner as its true and lawful agent and
attorney-in-fact with full power and authority in its name, place and stead to
execute, acknowledge, deliver, swear to, file and record at the appropriate
public offices such documents, instruments and conveyances that may be necessary
or appropriate to carry out the provisions or purposes of this Agreement,
including without limitation: (i) the Certificate of Limited Partnership and
other certificates and instruments (including counterparts of this Agreement),
and any amendment thereof, including any amendment substituting a Limited
Partner pursuant to Section 8.2, that the General Partner deems appropriate to
form, reform, qualify or continue the Partnership (or a new partnership with
substantially the same provisions as the Partnership) as a limited partnership
(or a partnership in which the Partners will have limited liability comparable
to that provided by the Act) in the jurisdiction in which the Partnership may
conduct business; (ii) all amendments to the foregoing and to this Agreement
necessary to admit into the Partnership additional or substituted General
Partners pursuant to Section
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11.2 (iii) all instruments that the General Partner deems appropriate to reflect
a change or modification of the Partnership in accordance with the terms of this
Agreement (including those necessary to reflect additional Capital
Contributions); and (iv) all conveyances and other instruments that the General
Partner deems appropriate to reflect the dissolution and termination of the
Partnership.
Section 14.6 Entire Agreement
----------------------------------
This Agreement constitutes the entire agreement among the parties. This
Agreement supersedes any prior agreement or understanding among the parties and
may not be modified or amended in any manner other than as set forth herein.
Section 14.7 Paragraph Titles
----------------------------------
Article and section titles are for descriptive purposes only and shall not
control or alter the meaning of this Agreement as set forth in the text.
Section 14.8 Counterparts
------------------------------
This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the same counterpart except
that no counterpart shall be binding unless signed by the General Partner.
GEODYNE PRODUCTION COMPANY,
as General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Executive Vice President
GEODYNE DEPOSITARY COMPANY, as
the Limited Partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-----------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Executive Vice President
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SCHEDULE A
General Partner
Name and Address Capital Contribution
---------------- --------------------
Geodyne Production Company $100
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Limited Partner
Name and Address Capital Contribution
---------------- --------------------
Geodyne Depositary Company $12,192,500
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
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