PAINEWEBBER/GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
AGREEMENT OF LIMITED PARTNERSHIP
This Agreement of Limited Partnership (this "Agreement"), dated as of
February 28, 1992, is entered into by and between Geodyne Properties, Inc., a
Delaware corporation, as General Partner, and Geodyne Institutional Depositary
Company, a Delaware corporation, as the sole initial Limited Partner.
Whereas, the parties hereto desire to form a limited partnership under
the Oklahoma Revised Uniform Limited Partnership Act pursuant to this Agreement;
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 an Independent Petroleum Engineer
acceptable to the General Partner in connection with the proposed acquisition of
a Net Profits Interest or Royalty, 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 Independent Petroleum Engineer or,
if such data were collected by another Person, that such Independent Petroleum
Engineer 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
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contained therein; and (iv) indicating such Independent Petroleum Engineer'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 that
such Independent Petroleum Engineer expresses no opinion and makes no warranty
or representation with respect to the proposed acquisition of such Net Profits
Interest or Royalty and that such Independent Petroleum Engineer 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 Fee" shall mean the fee paid by the Partnership to the
General Partner pursuant to Section 4.7B of this Agreement in connection with
the Partnership's acquisition of Net Profits Interests and Royalties 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; (e) any Person 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 (f) any spouse or immediate
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 depositary 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 not engaged in a trade or business within the oil
and gas industry (other than by virtue of their participation in an Affiliated
Program) and of which the General Partner or its Affiliate serves as general
partner, venturer, sponsor, or manager, including, without limitation, any
Income Program and any I/P Program.
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"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 or Unit Holder, 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 contributions of a Partner or
Unit Holder 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.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time (or any corresponding provisions of succeeding law).
"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 Institutional Depositary Company, a
Delaware corporation and a wholly owned subsidiary of Geodyne Resources, 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 Institutional 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 initially 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.
"Direct Administrative Costs" shall mean the actual and necessary
direct costs attributable to goods and 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 costs of reviewing tax returns and reports, the cost of reserve
evaluations prepared by an Independent Petroleum Engineer pursuant to Section
10.4A(iv) and 10.4C of this Agreement and all other such costs directly
incurred by or for the benefit of the Partnership. Direct
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Administrative Costs shall not include any Property Acquisition Costs,
Organization and Offering Costs, or General and Administrative Costs.
"Engineering Review Letter" shall mean a document prepared by an
Independent Petroleum Engineer acceptable to the General Partner in connection
with the proposed acquisition of a Net Profits Interest or Royalty, which shall
include statements indicating that (i) such Independent Petroleum Engineer 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 Independent
Petroleum Engineer, 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 Independent Petroleum Engineer 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 agreement whereby the owner of a Lease or Working
Interest agrees to assign its 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 xxxxx 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
(including the Depositary) other than an Affiliated Program, computed on a cost
basis, determined by the 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 arid its Affiliates. General and
Administrative Costs shall not include any Property Acquisition Costs, Direct
Administrative Costs, or Organization and Offering Costs of the Partnership nor
shall it include any portion of the salaries, benefits, compensation, or
remuneration with respect to "Controlling Persons" as that term is defined in
Section 4.7C of this Agreement.
"General Partner" shall mean Geodyne Properties, Inc., 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.
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"Geodyne Properties" shall mean Geodyne Properties, Inc., a Delaware
corporation.
"Hydrocarbons" shall mean crude oil, natural gas, condensate, natural gas
liquids, and other liquid or gaseous hydrocarbons, and any minerals produced in
association therewith.
"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.
"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.
"Income Programs" shall mean any Affiliated Program sponsored by the
General Partner or any of its Affiliates for the primary purpose of acquiring
Working Interests in Producing Properties.
"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 opinions regarding the value of oil and gas properties based upon the
evaluation of all pertinent economic, financial, geological, and engineering
information available to the General Partner or its Affiliates.
"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 Net Profits Interests or Royalties has been (i) expended or
(ii) returned pursuant to Section 3.3 of this Agreement.
"I/P Partnership" shall mean a partnership formed as a part of an I/P
Program.
"I/P Programs" shall mean the Xxxxx Xxxxxx/Geodyne Institutional/Pension
Energy Income Partners and the PaineWebber/Geodyne Institutional/Pension Energy
Income Program II 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 (including any other partnerships in which units
are offered pursuant to the Prospectus).
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"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 in its capacity as a limited
partner of the Partnership and any Substituted Limited Partner.
"Net Profits Interest" shall mean an interest in one or more Producing
Properties which entitles the holder thereof to a proportionate 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
United States mail, postage prepaid, to such Person at the last address of such
Person reflected on the records of the Partnership, the date of the postmark
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.
"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 preparing and filing 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
Geodyne Securities, Inc., 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 and interest on Commissions) paid to Persons in connection with
the offering and issuance of Units, including due diligence expenses paid to the
Dealer Manager and others.
"Partner" shall mean the General Partner or any Limited Partner of the
Partnership.
"Partnership" shall mean the limited partnership formed hereby.
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"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 interests, properties, and rights
of any type owned by the Partnership.
"Partnership Well" shall mean any well in which the Partnership has a Net
Profits Interest, Royalty, or other nonoperating interest.
"Payout" shall mean that time at which cash distributions have been made
by a Partnership to each Unit Holder (and his predecessors in interest, if any)
in an aggregate amount equal to $100 for each Unit held by such Unit Holder.
"Person" shall mean any individual, partnership, corporation,
association, trust, or other entity.
"Prior Limited Partnership" shall mean any limited partnership activated
prior to the Activation of the Partnership (i) of which depositary units or
units of limited partnership interest were offered and sold pursuant to the
Prospectus or pursuant to an offering of units in an Income Program or I/P
Program or (ii) that is otherwise formed pursuant to an Affiliated Program.
"Producing Property" shall mean any property (or interest in such
property) with a well or xxxxx capable of producing Hydrocarbons in commercial
quantities or properties unitized with or adjacent to such properties which are
acquired as an incidental part of the acquisition of such properties. The term
also includes lease and 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 Net Profits Interests, Royalties, production payments, and other
nonworking and nonoperating interests.
"Property Acquisition Costs" shall mean, without duplication, the sum of
(i) the prices paid to unaffiliated Persons by the Partnership or the General
Partner or an Affiliate to acquire Net Profits Interests or Royalties ultimately
sold to the Partnership, including the price paid to acquire a purchase option
with respect to any such interest; (ii) title insurance or examination costs,
brokers' commissions and finders' fees, filing fees, recording costs, transfer
taxes, if any, and like charges in connection with the acquisition of Net
Profits Interests or Royalties; (iii) ad valorem taxes paid by the buyer with
respect to such interest to the date of its transfer to the Partnership; (iv)
interest and other financing fees and costs actually incurred by the General
Partner or its Affiliates to acquire or maintain such interests prior to their
transfer to the Partnership; and (v) all reasonable, necessary, and actual
expenses incurred by the General Partner or an Affiliate in connection with the
acquisition of Net Profits Interests or Royalties and paid to third parties who
are not Affiliates for geological, geophysical, seismic, land,
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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 review of proposed
acquisitions of interests in 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 (iii), (iv), and (v),
shall have been incurred not more than 36 months prior to transfer to the
Partnership.
"Property Investment Period" shall have the meaning set forth in Section
5.2.
"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 xxxxx with existing
equipment and operating methods. This classification shall include:
(1) "Proved Developed Producing Reserves," which are Proved
Developed Reserves that are expected to be produced from
existing completion intervals now open for production in
existing xxxxx; and
(2) "Proved Developed Non-Producing Reserves," which are
Proved Developed Reserves that exist behind the casing of
existing xxxxx, or at minor depths below the present bottom of
such xxxxx, which are expected to be produced through these
xxxxx 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.
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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 Proved Reserves
which are expected to be recovered from new xxxxx on undrilled acreage or
from existing xxxxx 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 virtually 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 shall be attributable to any
acreage for which an Improved Recovery technique is contemplated, unless
the technique to be employed has been proved effective by actual tests in
the same area and reservoir.
"Retirement Plan" shall mean any individual retirement account (as that
term is defined in Section 408(a) of the Code), Xxxxx Plan established pursuant
to Section 401(c) of the Code, or any plan, fund, or program subject to the
Employee Retirement Income Security Act of 1974, as amended, or any trust
created and administered pursuant to any of the foregoing.
"Revenues" shall mean the Partnership's gross revenues from all sources,
including interest income, its interest in 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 interests in
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 and
Investor Representation Form in the form attached to the Prospectus as Exhibit
B.
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"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.
"Treasury Regulations" shall mean the federal income tax regulations
promulgated by the U.S. Treasury Department, as amended from time to time.
"Unit" shall mean an increment of the attributes of an 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, held directly by a Substituted Limited Partner and, in either case,
which increment represents a subscription amount of $100 (less any applicable
amount for reduced fees and Commissions).
"Unit Holder" 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 of
Units initially subscribed for by Unit Holders, determined by multiplying the
number of Units issued to the Unit Holders by $100.
"Working Interest" shall mean an interest (whether held directly or
indirectly) in a Lease which is burdened with the obligation to pay some portion
of the expense of development, operation, or maintenance. A Working Interest
does not include a Net Profits Interest or Royalty.
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 Institutional/Pension
Energy Income Limited Partnership P-7. 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 do Geodyne Properties,
Inc., 000 Xxxxx Xxxxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxx, Xxxxxxxx 00000-0000. The
agent for service of process on the Partnership shall be Geodyne Properties,
Inc., 000 Xxxxx Xxxxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxx, Xxxxxxxx 00000-0000. The
General Partner may change the principal place of business and the location of
such office and may establish
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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, manage, trade, sell, and exchange Net Profits Interests,
Royalties, or other nonoperating interests in Hydrocarbon properties of all
kinds onshore and offshore in the continental United States, including, without
limitation, Net Profits Interests, Royalties, 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 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.
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
3.3 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.
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Section 3.2 Limited Partners 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 partnerships that are Affiliated Programs. The Depositary shall not
amend its Certificate of Incorporation or By-laws without the prior Consent of
the Unit Holders owning more than 50% of the outstanding Units, except for
amendments that do not adversely affect the Unit Holders.
Section 3.3 Certain Returns of Capital
A. Any portion of the Capital Contribution of the Unit Holders (except
for necessary operating capital and amounts reserved for identified activities)
that has not been expended or committed for use for the acquisition of interests
in Producing Properties, as evidenced by a written agreement, or in the
determination of the General Partner will not be committed for such use, by the
second anniversary of the Activation of the Partnership will promptly be
refunded prorate to the Unit Holders as a return of part of their Capital
Contributions at the earlier of such determination or the second anniversary of
the Activation of the Partnership. In addition, the General Partner shall return
cash to the Partnership in an amount equal to that portion of the total of (i)
the amount paid to the General Partner in respect of the Acquisitions 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 pro rata 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, without limitation, 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 or part of the Unit
Holders' Capital Contributions together with all interest earned thereon. If
such conditions are a term of offering of the Units and by such specified date
such conditions have not been met, then the General Partner will return all Unit
Holders' Capital Contributions together with all interest thereon and the
Partnership shall thereupon be
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dissolved and terminated in accordance with the terms hereof. To the extent any
Acquisitions 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 3.3A.
Section 3.4 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 3.3, 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.
Section 3.5 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 4.7B 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 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, 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.
Section 3.6 Liability of Partners and Unit Holders
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.
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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.
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 and manage Net Profits Interests and Royalties in
Hydrocarbon properties and hold all such interests in the name of the
Partnership; provided, however, that in connection therewith, the General
Partner shall, contemporaneously with the acquisition of an interest in 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
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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, interests in 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 such interests 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 will
not change the ownership status of such interests by the Partnership for
federal income tax purposes;
(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 entering into management and advisory contracts;
(iv) 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;
(v) 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;
(vi) 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;
(vii) borrow monies from time to time, for the purposes and subject
to the limitations stated in Section 4.3D, 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 interests in Producing Properties, production and
proceeds of production, 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
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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;
(viii) invest Capital Contributions and other Partnership funds
temporarily in the investments set forth in Section 10.3;
(ix) 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;
(x) 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;
(xi) 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;
(xii) guarantee the payment of money or the performance of any
contract or obligation by any person, firm, or corporation on behalf of
the Partnership;
(xiii) xxx 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;
(xiv) 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;
(xv) 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, subject to the limitations stated in Section 4.10, 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;
(xvi) 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;
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(xvii) subject to the restrictions contained elsewhere herein, enter
into agreements on behalf of the Partnership with Affiliates of the
General Partner;
(xviii) 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;
(xviv) 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;
(xx) 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 of limitations for all
Partners and Unit Holders 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 Partnerthat the General Partner may not act on its behalf;
(xxi) cause the Partnership to redeem or repurchase the Units held by
a Unit Holder at a purchase price determined by the General Partner if,
as a result of any misrepresentations made by the Unit Holder to the
Partnership relating to the Unit Holder's citizenship or other legal
status, the tax or other legal status of the Partnership is jeopardized
or a substantial risk of cancellation or forfeiture of any property of
the Partnership is created; and
(xxii) take such other action and perform such other acts as may be
deemed appropriate to carry out the business of the Partnership.
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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 Management of Net Profits Interests
-----------------------------------------------------------------------
and Royalties; Additional Financing
-----------------------------------
A. The provisions of Section 4.3C notwithstanding, if one or more
Affiliated Programs intends to acquire Working Interests, acquisitions of Net
Profits Interests by the Partnership may be made in connection with such
Affiliated Program's acquisitions of Working Interests. Net Profits Interests
acquired by the Partnership may either be (1) carved out of the Affiliated
Program's Working Interests, (2) reserved from the Affiliated Program's Working
Interests by the sellers of such Working Interests on such basis as the General
Partner determines, or (3) purchased from third parties. Except as provided in
the following sentence, any Net Profits Interest acquired by a Partnership from
an Affiliated Program may not exceed 75% of the net profits attributable to the
aggregate Working Interests in the Producing Properties acquired by the
Affiliated Program together with the Net Profits Interest of the Partnership.
With respect to the Producing Properties acquired from National Cooperative
Refinery Association pursuant to that certain Purchase and Sale Agreement dated
August 16, 1991 by and between National Cooperative Refinery Association and
Geodyne Production Company, et al., the Net Profits Interest acquired by a
Partnership may not exceed 90% of the net profits attributable to the aggregate
Working Interests in the Producing Properties acquired by an Affiliated Program
together with the Net Profits Interest of the Partnership. The primary factor in
determining the sharing of net profits between the Working Interests acquired by
the Affiliated Program and the Net Profits Interest acquired by the Partnership
will be the amount of money contributed to each acquisition by each purchaser.
In fixing such sharing percentage, 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 Affiliated Program as Working
Interest owners if such costs will be amortized against the proceeds of
Hydrocarbon production in arriving at the amount of net profits from which the
Partnership's (as Net Profits Interest holder) share of production is
determined, if the Partnership acquires a Royalty interest in a Producing
Property in which a Working Interest is acquired by the Affiliated Program, each
participant's portion of the purchase price will be determined on the basis of
an appraisal by the General Partner's petroleum reservoir 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 of a Royalty, 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 property acquisition is
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greater than their aggregate revenue interest in the 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.
B. Net Profits Interests and Royalties 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 with respect to not
less than 80% of the estimated Proved Reserves (as estimated by the General
Partner) attributable thereto has been received and evaluated by the General
Partner.
C. 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 (including any Net Profits Interests and
any Royalty interest therein) to the Partnership or purchase or acquire any oil
and gas properties or interests 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. Such
transactions shall be further subject to the following restrictions:
(i) Prior to the date on which the Partnership has fully expended
that portion of its Capital Contributions available for the acquisition
of Net Profits Interests and Royalties, neither the General Partner,
Geodyne Resources, Inc., nor any Person controlled by Geodyne Resources,
Inc. (other than an Affiliated Program or a Person acquiring for the
benefit of an Affiliated Program) shall acquire an interest in any
Producing Property after the Activation of the Partnership unless prior
thereto the General Partner determines that such interest cannot be
acquired by the Partnership because of insufficient funds for such
purchase or the General Partner determines that the acquisition of an
interest in such Producing Property would not be in the best interests of
the Partnership;
(ii) Any purchase from the General Partner or any Affiliate thereof,
other than an Affiliated Program in which the interest of the General
Partner or an Affiliate thereof is substantially similar to or less than
the General Partner's interest in the Partnership, of an interest in a
Producing Property that has been held for less than two years and for
which there have not been significant expenditures made, shall be made at
the Property Acquisition Cost for such interest, as adjusted for
intervening operations, unless the General Partner has cause to believe
that such adjusted cost is materially more than the fair market value of
such interest, in which case such purchase shall be made at a price equal
to the fair market value thereof as determined by an Independent
Petroleum Engineer;
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(iii) Any purchase from an Affiliated Program in which the interest
of the General Partner or an Affiliate thereof is substantially similar to
or less than the General Partner's interest in the Partnership, of an
interest in a Producing Property that has been held for less than six
months and for which there have not been significant expenditures made,
shall be made at the Property Acquisition Cost for such interest, as
adjusted for intervening operations, unless the General Partner has cause
to believe that such adjusted cost is materially more than the fair market
value of such interest, in which case the purchase shall be made at a
price equal to the fair market value thereof as determined by an
Independent Petroleum Engineer;
(iv) In all circumstances other than those described in (ii) and
(iii) above, any purchase of an interest in a Producing Property from the
General Partner or an Affiliate thereof, including an Affiliated Program,
shall be made at a price not greater than the fair market value thereof as
determined by an Independent Petroleum Engineer;
(v) Neither the General Partner nor any Affiliate thereof, other
than an Affiliated Program where the interest of the General Partner or an
Affiliate is substantially similar to or less than its interest in the
Partnership, shall purchase an interest in a Producing Property from the
Partnership except in connection with the liquidation of the Partnership,
in which case such purchase shall be made at a price equal to the fair
market value thereof as determined by an Independent Petroleum Engineer;
(vi) Any sale or transfer of an interest in any type of property to
an Affiliated Program shall be made at a price equal to its fair market
value as determined by an Independent Petroleum Engineer if the property
interest has been held by the Partnership for more than six months or if
there have been significant expenditures made in connection with such
property interest. Otherwise, if the General Partner deems it in the best
interest of the Partnership, the sale or transfer may be made at the
Property Acquisition Cost of such interest, as adjusted for intervening
operations. If sales or transfers from the Partnership within the first 24
months following its Activation to Affiliated Programs exceed on an
aggregate basis 5% of Unit Holders' Subscriptions, the proceeds received
from such transactions shall be treated as unexpended Capital
Contributions subject to the provisions of Section 3.3A;
(vii) Any sale or transfer to the General Partner or any Affiliate
thereof, other than an Affiliated Program, of an interest in an
undeveloped property shall be made at the higher of its Property
Acquisition Cost or fair market value as determined by an Independent
Petroleum Engineer;
(viii) If a Net Profits Interest or Royalty held by the Partnership
burdens undeveloped acreage in which an Affiliated Program owns an
interest, and if the owner of such undeveloped leasehold interest shall
have the right to farm out all or a portion of the Working Interest
constituting such undeveloped leasehold interest, and if the Working
Interest remaining or reverting to the owner of the undeveloped leasehold
interest is
-20-
reduced by such Farmout, the Net Profits Interest or Royalty shall be
proportionately reduced, but shall share proportionately in any benefits
derived from such Farmout. In the event a Net Profits Interest does not,
by its terms, provide the specific consequences of a Farmout of the
Working Interest constituting such undeveloped leasehold interest and if
such undeveloped leasehold interest is farmed out to an Affiliate, the
General Partner may subordinate the Partnership's Net Profits Interest to
such Farmout, provided that the Net Profits Interest shall burden any
Working Interest or other interest retained by, or which may revert to,
the owner of the undeveloped leasehold interest pursuant to any such
Farmout. The terms of the Farmout will be consistent with and no less
favorable to the Partnership than the terms of Farmouts prevalent in the
geographic area for similar arrangements;
(ix) Net Profits Interests or Royalties may be sold or otherwise
transferred from or to an Affiliated Program only pursuant to transactions
that comply with this Article, 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;
(x) If the General Partner or any Affiliate thereof acts as operator
of Producing Properties burdened with a Net Profits Interest or Royalty
owned by the Partnership, such services must be performed pursuant to an
operating agreement substantially similar to a model form operating
agreement issued by the American Association of Petroleum Landmen and an
accounting procedure for joint operations issued by the Council of
Petroleum Accountants Society of North America, all in a form which is
customary and usual for the geographic area in which the applicable
property is located, except in the case when the General Partner or
Affiliate accedes to an operating agreement as a result of the purchase of
an interest in Producing Properties, in which case such existing operating
agreement may differ from such model form operating agreement. In no event
shall any consideration received by the General Partner or its Affiliates
for operator services be in excess of the competitive rate or duplicative
of any consideration or reimbursements received pursuant to this
Agreement. The General Partner may not benefit by interpositioning itself
between the Partnership and the actual provider of operator services; and
(xi) To the extent the General Partner or any Affiliate thereof
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.
-21-
For purposes of Sections 4.3C(ii), 4.3C(iii), and 4.3C(vi) 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 xxxxx 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.
D. 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 and General and Administrative Costs (which are
payable solely out of Partnership Revenues)), 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 such Partnership costs; provided, however, that the aggregate
outstanding principal amount of such borrowings shall not at any one time exceed
an amount equal to 5% of the Unit Holders' Subscriptions. The Partnership may
borrow for the account of either the Unit Holders or the General Partner to pay
Partnership costs allocable to them independently of one another. Any such
borrowings shall be repaid as provided in Section 5.1. 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.
E. 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 the assigning to lenders all or part of
its rights to receive distributions of Partnership Revenues, and by granting or
causing the Partnership to grant 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
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Partner shall retain unencumbered at least a 1% interest in each item of
Partnership Property and each item of Partnership income, 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 (or the
exercise by an assignee or creditor of any pre-foreclosure remedies that confer
rights or benefits similar to those that could have been obtained upon
foreclosure) in full or partial 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 the granting of a security interest in or a sale or
foreclosure of the General Partner's interest.
F. The General Partner may cause the Partnership to acquire assets which
may otherwise not be considered suitable for investment by the Partnership if
they are acquired as part of a package consisting primarily of Net Profits
Interests and/or Royalties in 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 soon as practicable 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 TransactionsNotwithstanding 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;
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(iv) other than those received for the account of the Partnership, no
rebates or give-ups 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 exclusive
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.
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 (except as
provided in Section 4.3E) 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; and
(iii) neither the General Partner nor any Affiliate shall render to
the Partnership any services or sell or lease to the Partnership any
equipment or supplies unless:
-24-
(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 or any of its Affiliates have an interest; and
(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;
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.
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 4.3E;
(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
-25-
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 more than 50% of the
outstanding Units granted pursuant to 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 Section 8.1F or 11.1, amend any
provision of this Agreement.
Section 4.6 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 arid assets (whether or
not in the immediate possession or control of the General Partner) and
shall not employ, or permit another to employ, such funds or assets in
any manner except for the exclusive 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;
(vi) cause the Partnership to pay any taxes payable by the
Partnership;
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(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
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the General Partner as the "tax matters partner" of the Partnership,
including those set forth in Section 4.2A(xx) of this Agreement.
Section 4.7 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 Partnerships' acquisition of Net Profits
Interests and Royalties and the conduct of its business operations, the General
Partner shall be paid the Acquisitions 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 or the Acquisitions Fee in the event that Unit Holders' Subscriptions are
to be returned in accordance with Section 3.3B as a result of a failure to
satisfy conditions specified in the Prospectus.
C. Except as otherwise provided in this Section 4.7C, 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 and Unit Holders 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. General and Administrative
Costs shall be allocated to the Partnership in accordance with the method
described in the Prospectus or, after Notification to the Unit Holders, such
other method on the basis of assets, Revenues, time
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records, or other methods conforming with generally accepted accounting
principles. No portion of the salaries, benefits, compensation, or remuneration
of Controlling Persons shall be reimbursed to the General Partner as General and
Administrative Costs. For purposes of this Section 4.7C, "Controlling Persons"
shall include directors, executive officers, and those Persons holding 5% or
more interest in the General Partner or a Person having the power to direct or
cause the direction of the General Partner, whether through the ownership of
voting securities, by contract, or otherwise. 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 and increase the maximum amount of
reimbursable General and Administrative Costs for any other period.
Section 4.8 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 thereof 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. Subject to and upon
fulfilling the conditions of Section 12.3, the Partnership, upon the Consent of
Unit Holders owning more than 50% of the outstanding Units may (i) terminate any
contract relating to a transaction between the Partnership and the General
Partner or any Affiliate thereof without penalty on 60 days' prior written
notice, (ii) replace the General Partner as a party to the contract, and (iii)
select and agree upon a replacement Person therefor.
Section 4.9 Other Operations The General Partner shall devote such time
to the Partnership as is necessary to manage the affairs of the Partnership, 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
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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 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 any
losses, liabilities, or expenses arising from or out of an alleged violation of
federal and state securities laws by such party unless (i) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations as to the particular indemnitee; (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee; or (iii) 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 positions 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 against any liability as to which the General
Partner is herein prohibited from being indemnified under this Section 4.10;
provided, however, that the Partnership shall not be precluded from purchasing
and paying for such types of insurance, including extended coverage liability,
casualty, and workers' compensation insurance, as is customary in the oil and
gas industry.
E. The advancement of Partnership funds to the General Partner or its
Affiliates for legal expenses and other costs incurred as a result of any legal
action for which indemnification is being sought is permissible only if the
Partnership has adequate funds available
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therefor and the following conditions are satisfied: (i) the legal action
relates to acts or omissions with respect to the performance of duties or
services on behalf of the Partnership; (ii) the legal action is initiated by a
third party who is not a Unit Holder, or the legal action is initiated by a Unit
Holder and a court of competent jurisdiction specifically approves such
advancement; and (iii) the General Partner or its Affiliates undertake to repay
the advanced funds to the Partnership, together with the applicable legal rate
of interest thereon, in cases in which such party is found not to be entitled to
indemnification.
Section 4.11 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 4.7B and Commissions will be charged 99% to
the Unit Holders with whom and to the extent such Commissions and Section 4.7B
fees and payments are associated and 1% to the General Partner. Property
Acquisition Costs will be charged 99% to the Unitholders 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 4.7B). Except as otherwise
provided in this Article Five, 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. The cost of repayment of any Partnership borrowings shall
be charged to the Partners and Unit Holders in the manner in which costs paid by
the proceeds of such borrowings are allocated as provided above and such
borrowings shall be repaid from Revenues allocable to the Partners and Unit
Holders to whom such borrowings are allocable. Notwithstanding anything to the
contrary
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contained herein, if and to the extent the Partnership sells any interest in a
Producing Property and applies any portion of the proceeds thereof to the
purchase of any additional interests in Producing Properties, the Property
Acquisition Costs of the additional interests in 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 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 the
calendar quarter during which either 90% or 50%, as the General Partner shall
elect, of the Partnership's capital available for purchasing Net Profits
Interests and Royalties has been so expended. Where proceeds from the sale of
all or any part of the Partnership's Net Profits Interests and Royalties 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 Royalty or Net Profits Interest would result in the recognition of a
"simulated loss," as such term is defined in Treasury Regulations Section
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 Regulations Section 1.704-1(b), of such Royalty or Net Profits
Interest, 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(u).
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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. Except for those costs and
expenses referred to in Section 5.1 which are to be charged and allocated to
each Unit Holder in the same manner as such costs and expenses are paid by such
Unit Holder, all profits and losses and each item of income, 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.
B. Except as otherwise provided in the Code, in the case of a change in a
Unit Holder's interest in the Partnership during a taxable year of the
Partnership, all Partnership income, 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.
Section 5.4 Capital AccountsCapital 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:
(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
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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 and Treasury Regulations Sections
l.704-1(b)(2)(iv)(i)(2) and (3).
(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 thereafter 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 Unit Holder pursuant to Section 5.5. 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
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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 Revenues 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,
(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 (excluding increases
which are to occur by reason of a minimum gain chargeback, within
the meaning of Treasury Regulations Section 1.704-l(b)(4)(iv)(e) or
Treasury Regulations Section 1.704-1T(b)(4)(iv)(h)(4)) 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 (excluding, however,
any expense described in Section 705(a)(2)(B) of the Code) 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 income 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
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income and costs and the General Partner's and each Unit Holder's share of
post-change income and costs for that Fiscal Year.
(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 Section 5.4(x),
(a) there shall be allocated to the General Partner, any item
of loss, deduction, or allowance that, but for this Section 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 (after the increase of such Capital Account by the amount
of any losses or deductions (less chargebacks of income and gain)
previously allocated to such Unit Holder and attributable to
nonrecourse debt of the Partnership) 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 Section 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 receives
an adjustment, allocation, or distribution specified in Section
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;
(c) in the event any allocations of loss, deduction, or
allowance are made to the General Partner pursuant to clause (a) of
this Section 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, or allowance allocated
to the General Partner pursuant to clause (a) of this Section
5.4(ix); and
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(d) in the event a Unit Holder is allocated items of income or
gain solely by reason of the provisions of Section 5.4(ix)(b), then
the General Partner will thereafter be allocated items of income and
gain in an amount and manner sufficient to eliminate any cumulative
over-allocations of income and gain to such Unit Holder to the
extent such allocation to the General Partner does not create or
increase the deficit balance of such Unit Holder's Capital Account.
(x) In the event there is a net decrease in the "minimum gain" with
respect to non-recourse debt of the Partnership as such term is defined in
the 704 Regulations, or there is a net decrease in the "minimum gain of
the Partnership with respect to any partner non-recourse debt of the
Partnership," as such term is defined in the 704 Regulations, during a
Partnership taxable year, the General Partner and all Unit Holders 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 of the character required
by the 704 Regulations. The allocations required by this Section 5.4(x)
shall be made as required by and in accordance with Section
1.704-1(b)(4)(iv) of the 704 Regulations. It is intended that the
provision set forth in this Section 5.4(x) will constitute a "minimum gain
chargeback" as described in Section 1.704-l(b)(4)(iv) of the 704
Regulations. The 704 Regulations shall control in the case of any conflict
between the 704 Regulations and this Section 5.4(x).
Section 5.5 Allocations for Federal Income Tax Purposes With respect to
the various allocations of Partnership income, 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
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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 income shall be allocated for federal income tax
purposes in the same manner as it is 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, depletion, 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, depletion, 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
income, 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.
Section 5.7 Distributions All Investment Income will be distributed
solely to the Unit Holders or will be used to reduce the Unit Holders' share of
Partnership borrowings, if any, regardless of the allocation provisions of
Section 5.2A. The Partnership cash otherwise 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
any interest in Producing Properties may be used or committed to acquire
additional interests in 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 and Unit Holders. The General Partner
may, in its sole discretion, defer receipt of payment from the Partnership of
the amount of General and Administrative Costs or other fees or amounts which
may be payable by the Partnership to it in order to allow a greater distribution
to the Unit Holders for a particular quarter. Any such deferment will not (i) be
for a period greater than a calendar quarter unless the Partnership does not
have funds sufficient to pay such deferred amounts and (ii) constitute a waiver
or release by the General Partner of any amounts due to it by the Partnership.
The
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General Partner may determine not to distribute the full amount of Revenues
which might otherwise be available for distribution in an effort to equalize or
stabilize the amounts of quarterly distributions. Any available amounts not
distributed shall be invested and the interest or income thereon shall be for
the accounts of the Partners and Unit Holders to which amounts are
distributable. 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 accrued and paid 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
A. The General Partner (including by definition any successor General
Partner) shall have the right to retire or withdraw at any time. The General
Partner covenants (i) that it shall not withdraw except upon 120 days'
Notification to the Unit Holders; (ii) that it shall pay all costs and expenses
incurred by the Partnership by virtue of such retirement or withdrawal; and
(iii) that it shall not retire or withdraw (A) prior to the completion of the
Partnership's primary acquisition activities or (B) 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, after one year has elapsed since the
Activation of the Partnership and only if necessary to satisfy the bona fide
requests of its creditors or upon the Consent (subject to Section 12.3) by Unit
Holders owning more than 50% of the outstanding Units, cause the Partnership to
distribute, in partial liquidation of its interest in the Partnership, to the
General Partner fractional, undivided interests in the Net Profits Interests and
Royalties of the Partnership 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. Such distribution may include fractional, undivided
interests in the Net Profits Interests and Royalties of the Partnership (such
interest of the General Partner in a Net Profits Interest or Royalty distributed
is hereinafter referred to as the "Distributed Interest") up to an aggregate
interest equal in value to 80% of the value of the Net Profits Interests and
Royalties of the Partnership that the General Partner would have been entitled
to upon a hypothetical liquidation of the Partnership after application of the
provisions of Section 9.2 (the interest of the General Partner in a Net Profits
Interest or Royalty retained in the Partnership is hereinafter referred to as
the "Retained Interest"); provided, however, that no such distribution shall
occur unless the General
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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:
(i) 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 Net Profits Interest or Royalties of the Partnership
except to the extent of the Retained Interest of the General Partner; and
Direct Administrative Costs does not increase as a result of such
withdrawal; and
(ii) not voluntarily or otherwise dispose of its Distributed
Interest unless the undivided interest of the Partnership in such Net
Profits Interests or Royalties is also sold or disposed of for a
proportionately equivalent consideration;
(iii) 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
(iv) fully indemnify the Partnership and Unit Holders against any
additional expenses resulting from such withdrawal.
Section 6.2 Assignment of General Partner Interest Subject to Sections
12.3 and 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 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 112.
(ii) Notwithstanding Section 3.6B, any General Partner who shall so be
removed shall be released by any successor General Partner from 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 Engineer to
value the departing General Partner's interest in the Partnership. If no
agreement can be reached on the selection of an Independent Petroleum Engineer,
the departing General Partner and incoming General Partner shall each select an
Independent Petroleum Engineer, who together shall select a third Independent
Petroleum Engineer, and the three Independent Petroleum Engineers shall together
determine a value of the interests of the departing General Partner. 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
6.1B) 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 or
withdrawal, less the portion purchased by the successor General Partner or the
Partnership.
The method of payment for the interest purchased by the successor General
Partner or the Partnership must be fair to, and must protect the solvency of,
the Partnership. Where the General Partner voluntarily withdraws, the method of
payment shall provide for a non-interest bearing unsecured promissory note with
the principal payable from distributions which the departing General Partner
would have received pursuant to this Agreement. Where the General Partner is
involuntarily removed, the method of payment shall provide for an interest
bearing promissory note coming due in no less than five years with equal
installments each year.
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 (i) the Partnership shall have
received a certificate, duly executed by or on behalf of such proposed successor
General Partner, to the effect that: (a) 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, (b) it has a net
worth
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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
(c) such Person, if other than an individual, has the authority to become a
successor General Partner under the terms of this Agreement; and (ii) the
proposed successor General Partner shall have (a) become a party to, and adopted
all of the terms and conditions of, this Agreement and (b) 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.
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.
ARTICLE SEVEN
ASSIGNMENT OF LIMITED PARTNER
INTERESTS TO UNIT HOLDERS
Section 7.1 Assignments of the Interests of Depositary
A. Pursuant to Sections 0.xX 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 not later than 15 days after the
release from escrow of Unit Holders' Subscriptions to the Partnership.
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:
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(i) all rights to receive distributions of uninvested Capital
Contributions pursuant to Section 3.3 and the right to receive rebates of
Acquisitions Fee, Commissions, and Organization and Offering Costs
pursuant to Section 3.3;
(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 0.xX 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 7.1B.
D. The Depositary, by execution of this Agreement, irrevocably commits to
exercise its rights to vote and Consent as the Limited Partner in accordance
with directions it receives from the Unit Holders as provided herein.
E. The Depositary shall not have the right to retire or withdraw from the
Partnership and it may not be removed by the Unit Holders. The Depositary may
transfer its interest as the Depositary to another Person only with the Consent
of the General Partner and Unit Holders other than Substituted Limited Partners
owning more than 50% of the outstanding Units.
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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 7.1B, 7.1E, and 7.2, the Depositary
shall not transfer, assign, encumber, pledge, or hypothecate any of its
interest in the Partnership.
Section 7.2 Rights of Unit Holders
A. In accordance with the transfer and assignment described in Section
0.xX, it is the intention of the parties hereto that, except to the extent set
forth in Section 3.6, 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 12.3, 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 will not be unreasonably
withheld, 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 by delivering to the
Depositary an executed transfer application (which is 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, his agreement to be bound by the terms hereof, 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. Without limiting the generality of the foregoing, refusal
by the General Partner to consent to the
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foregoing shall not be deemed unreasonable if such conversion would require the
Partnership to amend any filing required to be made by it in any jurisdiction.
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. Each Person who effects a
conversion under this Section will thereafter be deemed to have an equal number
of units of interest as a Limited Partner as the number of Units converted and
the Substituted Limited Partner will not be able to re-exchange such units of
Limited Partner interests for Units. Upon such conversion, the General Partner
may issue to the Substituted Limited Partner a certificate in the form approved
by the General Partner that evidences ownership of Limited Partner interests. 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.
ARTICLE EIGHT
TRANSFERABILITY OF UNITS
Section 8.1 Assignments of Units
A. Subject to the provisions of Section 8.4, no Unit Holder (including,
without limiting the generality of the use of such term elsewhere, a Substituted
Limited Partner) may assign, sell, transfer, or exchange (collectively, for
purposes of this Section 8.1, a "transfer") any Units without the approval of
the General Partner. In exercising its obligations under this Section 8.1A, the
General Partner shall use its best efforts 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) if such transfer is to a Person who makes a market in the
Units;
(ii) if such transfer 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
(iii) except for transfers by gift or inheritance, intra-family
transfers, transfers resulting from family dissolutions or transfers to
Affiliates, any transfer of Units that would result in the transferor's
holding one or more but less than 10 Units.
The General Partner shall give Notification to all Unit Holders in the event
that transfers have generally been suspended.
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B. Any attempted transfer 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. In connection with any transfer, the General Partner may, in its
discretion, require an opinion of counsel satisfactory in form and substance to
the General Partner that such transfer would not violate any federal securities
laws or any state securities or "blue sky" laws, including investor suitability
standards thereunder. The Partnership need not recognize for any purpose any
purported transfer of all or part of the Units, if, in the opinion of counsel
such transfer would violate any state securities or "blue sky" laws (including
any applicable suitability standards) applicable to the Partnership or the Units
to be transferred, except in the case of transfers upon the death of the Unit
Holder (by bequest or inheritance) or by operation of law.
E. Unless otherwise provided by the General Partner, any transfer of
Units shall be recognized by the Partnership as of the first day of the calendar
quarter following the approval of such transfer and the required documentation
under Section 8.1C of this Agreement. The Partnership and the General Partner
shall be entitled to treat the transferor 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 notices
required to be given to Unit Holders hereunder which is made in good faith to
such transferor until such time as the written instrument of transfer 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 preserve the
tax status of the Partnership as a partnership or 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; provided that any such amendment
does not, in the opinion of counsel to the Partnership, cause any asset of the
Partnership to be an asset of a
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plan for purposes of Title I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the related prohibited transaction provisions of
Section 4975 of the Code, of any plan which owns Units. The Unit Holders shall
be given prompt Notification of any amendments permitted by this Section 8.1F.
G. No purported transfer by a transferor of Units shall be recognized
unless:
(a) A Unit Holder who intends to transfer Units provides written
notice (the "Transfer Notice") to the Partnership of such intention;
(b) The Transfer Notice is received by the Partnership at least 15
calendar days before either information regarding a Unit Holder's
intention to transfer Units is made available to a potential purchaser or
information regarding a potential purchaser's interest in acquiring Units
is made available to the Unit Holder proposing to transfer;
(c) The closing of any transfer of Units by a Unit Holder occurs
only within the period beginning 45 calendar days and ending 120 calendar
days after the Partnership receives the Transfer Notice;
(d) The Partnership receives written notice ("Close Notice") of the
closing of such transfer of Units (which Close Notice, in the case of a
transfer of Units, shall contain a representation from the transferring
Unit Holder and purchaser as to (b)); and
(e) The Partnership does not receive a Transfer Notice from a Unit
Holder until at least 60 calendar days have passed since the Partnership
has received a Close Notice or a written notice of the withdrawal of the
intention to sell with respect to all prior Transfer Notices received by
the Partnership from such Unit Holder.
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, including any applicable suitability standards.
I. Except as provided in Section 8.4, no transfer of Units will be
recorded or otherwise recognized by the Depositary or the Partnership for any
purpose whatsoever unless and until the transferee, unless the transfer is among
members of the immediate family of the transferor Unit Holder, has paid a
transfer fee to reimburse the Depositary or an Affiliate acting as the transfer
agent 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.
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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:
(a) 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;
(b) the transferor and his assignee shall have executed and
acknowledged such other instruments as the General Partner or Depositary
may deem necessary or desirable to effect such substitution, including
the written acceptance and adoption by the assignee of the provisions of
this Agreement, 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
(c) a transfer fee sufficient to cover all reasonable expenses
connected with such substitution (not to exceed $50) shall have been paid
to the Partnership.
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 and Section 7.3.
D. The General Partner shall amend the Partnership's records at least
once each quarter if necessary to effect the substitution of Substituted Limited
Partners.
E. Each Person admitted as a Substituted Limited Partner under this
Section will be deemed to have an equal number of units of interest as a Limited
Partner as the number of Units assigned pursuant to this Section. The General
Partner may issue to the Substituted Limited Partner a certificate in the form
approved by the General Partner that evidences ownership of Limited Partner
interests.
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Section 8.3 Eligible Investors; Redemption If at any time, as a result of
any misrepresentations made by a Unit Holder to the Partnership relating to such
Unit Holder's citizenship or other legal status, the tax or other legal status
of the Partnership is jeopardized or a substantial risk of cancellation or
forfeiture of any property of the Partnership is created, the General Partner
may notify the Unit Holder and purchase the Units of such Unit Holder for the
Partnership's 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 Substituted Limited Partner or Unit
Holder. 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.
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
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,
the return of Unit Holders' Capital Contributions pursuant to Section
3.3B) 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 to 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;
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(v) ninety days after the removal or withdrawal of the 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.
D. If the Partnership is dissolved as a result of an event set forth in
Section 9.1 A(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 or disposition, the General Partner shall attempt to obtain the
best prices for such property. Pending such sale or disposition, 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
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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 Article Five. 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 4.3C) to the extent necessary or desirable in the
good faith judgment of the Liquidating 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 provision of Section 9.1 which requires 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
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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 assets 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. Except as otherwise contemplated by Section 3.3B, 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. Except as otherwise contemplated by Section 3.3B, 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 alter 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.
D. Except as otherwise contemplated by Section 3.3B, 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 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
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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% 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 any appraisals or valuations given in connection with transactions
between the General Partner and its Affiliates and the Partnership, information
relating to the sale by the General Partner or any Affiliates of goods or
services to the Partnership, a record of the information obtained as evidence
that a Unit Holder meets the suitability standards established for an investment
in 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.
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
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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 Xxxxx'x Investors Service, Inc. or Standard &
Poor's Corporation, or other similar highly liquid investments.
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. Such report will contain at least the following information:
(i) Financial statements for the Partnership's accounts, including a
balance sheet, statement of operations, statement of changes in partners'
capital, and statement of cash flows prepared on an accrual basis in
accordance with generally accepted accounting principles and accompanied
by a report of the Accountants stating that their audit was made in
accordance with generally accepted auditing standards and that in their
opinion such financial statements present fairly the financial position,
results of operations, partner's capital and cash flows in accordance
with generally accepted accounting principles;
(ii) A summary itemization, by type and/or classification, of the
total fees and compensation, including General and Administrative Costs,
paid by the Partnership or indirectly on its behalf, to the General
Partner and any of its Affiliates. Compliance with the method of
allocating General and Administrative Costs described in the Prospectus
will be covered in the report issued by the Accountants, The Accountants
willalso state in their report that the total amount of General and
Administrative Costs allocated to the Partnership did not materially
exceed the amounts actually incurred by the General Partner or its
Affiliates;
(iii) A description of each of the Net Profits Interests and
Royalties, including the cost therefor and the interests owned therein,
except succeeding reports need contain only material changes, if any,
regarding interests in Producing Properties
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already reported upon. With respect to all material Farmouts, the
statement shall include a justification of the Farmout and a general
description of the terms; and
(iv) After the end of the Fiscal Year following the Fiscal Year in
which Activation of the Partnership occurs, and annually thereafter, a
computation as of the end of the immediately preceding Fiscal Year, based
upon engineering reports prepared by one or more Independent Petroleum
Engineers with respect to interests in 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 Developed Non-Producing Reserves,
and Proved Undeveloped Reserves attributable to the interests owned by
the Partnership, the estimated dollar value thereof stated in then
existing prices and escalated prices, if any (as provided by the General
Partner), and each Unit Holder's interest in such reserve value. 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.
B. Within 60 days alter the end of each fiscal quarter, each Unit Holder
will receive an "investor statement" which summarizes such Unit Holder's current
quarter and cumulative cash distributions from the Partnership.
C. In addition to the report described in Section 10.4A(iv) 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, sales of
reserves or product price changes, an additional computation and estimate
similar to that described in Section 10.4A(iv) shall be sent to each Unit Holder
as soon as possible, and in no event more than 90 days after the occurrence of
such event.
D. 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
such Unit Holder's respective federal, state, and other income tax returns.
E. By January 31 of each year, the General Partner will furnish a report
to each Retirement Plan owning Units as of December 31 of the preceding year
setting forth an evaluation of the fair market value of the Units as of such
December 31 of the preceding year.
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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, and D 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 providedfor in this Agreement, in the manner
that the General Partner believes will be most advantageous to the Unit Holders,
except that 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, if applicable, 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 (i) the text of such amendment and (ii) a
statement of the purpose of such amendment. The General Partner shall, within 15
days after receipt of any proposal under this Section 11.1A, give Notification
to the Depositary and all Unit Holders of such proposed
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amendment, of such statement of purpose, and of any required opinion of counsel,
together, in the case of an amendment proposed by Unit Holders, with the views,
if any, of the General Partner with respect to such proposed amendment.
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 such amendment will not adversely
affect the classification of the Partnership as a partnership for federal income
tax purposes (which shall be evidenced by an opinion of counsel to the
Partnership to that effect); (ii) in the case of amendments referred to in
Section 8.1F, the conditions specified in that 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
1l.1A of this Agreement); provided, however, that no such amendment may: (a)
increase the duties or liabilities 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 General 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 or Unit Holder which may be adversely
affected by such modification; (c) amend Section 4.9, 4.10, 6.1, 6.2, 6.3, or
6.4 without the Consent of the General Partner, or (d) amend Section 2.3,
4.2,4.4, 4.5, 4.6, 11.1, 11.2, or 12.3 unless the Consent of 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 General 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
the 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 respective
Affiliates, based upon exchange valuation principles consistent with this
Section 11.4; (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 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 Engineer 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 a qualified independent appraiser;
(f) the offer is made pursuant to all applicable registration
requirements under both federal and state laws;
(g) if the exchange offeror is a corporation, the offer is made in
compliance with applicable registration requirements 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 there-for;
(h) the offer does not allow for an accelerated subordinated
interest to the General Partner without regard to the existing Payout
provisions;
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(i) additional shares or Units to be issued pursuant to future
reevaluation of properties include reevaluation of similar properties
held by Unit Holders;
(j) there will be no overrides newly established to the General
Partner, exchange offeror, or Affiliates thereof 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: (a) 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 (b) 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.
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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 provide Notification to
all Unit Holders of record as of 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) 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; provided, however, that the date for
Notification of such meeting or vote may be extended for a period of up to 60
days, ~ in the opinion of the General Partner such additional time is necessary
to permit preparation of proxy or information statements or other documents
required to be delivered in connection with such meeting or vote by the
Securities and Exchange Commission or other regulatory authorities. All expenses
of the meetings, voting, and such Notification shall be borne by the
Partnership. The presence, in person or by proxy, of Unit Holders owning more
than 50% of the outstanding Units of the Partnership shall be necessary to
constitute a quorum for the transaction of business at such meeting. Units held
by the General Partner and its Affiliates may not be voted by them.
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, 4.8, 6.1B, 6.2, 6.3A, 6.6A, 7.2C, 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.
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Section 12.5 Acting Without Concurrence of General Partner Except as
limited by Sections 12.3 and ll.1B, Unit Holders owning morn than 50% of the
outstanding Units may, without the necessity for concurrence by the General
Partner, vote to:
(a) amend the Agreement;
(b) dissolve the Partnership;
(c) remove the General Partner and elect a new General Partner;
(d) elect a new General Partner if the General Partner elects
to withdraw;
(e) approve or disapprove the lease, sale, or disposal of all
or substantially all of the assets of the Partnership; or
(f) cancel any contract for services with the General Partner or
any Affiliate thereof, which shall be without penalty, provided 60 days'
written notice is given.
ARTICLE THIRTEEN
THE DEPOSITARY
Section 13.1 Depositary Receipts
A. Promptly after the Activation of the Partnership, the Depositary shall
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 approval of the General
Partner of a transfer, the Depositary shall within ten 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.
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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.
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) proof satisfactory to it as to the identity
and genuineness of any signature or endorsement or as to the due authorization
of the action, including, without limitation, the guarantee of such signature by
an appropriate entity; (iii) proof satisfactory to it that the Person in whose
name any Depositary Receipt will be issued (and any Persons for whom such Person
will hold such Depositary Receipt) is or is not a Retirement Plan; (iv) 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 as deemed necessary or appropriate by the Depositary; and (v)
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 and federal securities laws.
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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 (or cause
such Affiliate acting as transfer agent to):
(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;
(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.
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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 and its Affiliates.
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 nonaffiliated
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.
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.
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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: (a) the Certificate of Limited Partnership and other
certificates and instruments (including counterparts of this Agreement), and any
amendment thereof 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; (b) all amendments to the foregoing and to this Agreement necessary to
admit into the Partnership additional or substituted General Partners pursuant
to Section 11.2; (c) 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 (d) 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 TitlesArticle 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.
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GEODYNE PROPERTIES, INC.,
as General Partner
By: /s/ Xxxxxx X. Xxxxxx
----------------------------
Xxxxxx X. Xxxxxx
Vice President - Legal
GEODYNE INSTITUTIONAL DEPOSITARY
COMPANY, as the Limited Partner
By: /s/ Xxxxxx X. Xxxxxx
----------------------------
Xxxxxx X. Xxxxxx
Vice President - Legal
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SCHEDULE A
General Partner
Capital
Name and Address Contribution
Geodyne Properties, Inc............................ $100
000 Xxxxx Xxxxxx Xxxxxx
The Mezzanine
Tulsa, Oklahoma 74103-3708
Limited Partner
Capital
Name and Address Contribution
Geodyne Institutional Depositary Company........... $18,870,200
000 Xxxxx Xxxxxx Xxxxxx
Xxx Xxxxxxxxx
Xxxxx, Xxxxxxxx 00000-0000
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