AMENDED AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP FOR
EXHIBIT
4.2
AMENDED
AND RESTATED CERTIFICATE
AND
AGREEMENT OF LIMITED PARTNERSHIP
FOR
ATLAS
AMERICA PUBLIC #15-2005(A) L.P.
TABLE
OF CONTENTS
Page
#
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I.
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1.01
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1.02
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Certificate
of Limited partnership
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1
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1.03
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Name,
Principal Office and Residence
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1
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1.04
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Purpose
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1
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II.
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DEFINITION
OF TERMS
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2.01
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Definitions
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2
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III.
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SUBSCRIPTIONS
AND FURTHER CAPITAL CONTRIBUTIONS
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3.01
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Designation
of Managing General Partner and Participants
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10
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3.02
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Participants
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10
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3.03
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Subscriptions
to the Partnership
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11
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3.04
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Capital
Contributions of the Managing General Partner
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12
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3.05
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Payment
of Subscriptions
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13
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3.06
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Partnership
Funds
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13
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IV.
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CONDUCT
OF OPERATIONS
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4.01
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Acquisition
of Leases
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14
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4.02
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Conduct
of Operations
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16
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4.03
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General
Rights and Obligations of the Participants and Restricted and Prohibited
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Transactions
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20
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4.04
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Designation,
Compensation and Removal of Managing General Partner
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and
Removal of Operator
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30
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4.05
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Indemnification
and Exoneration
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32
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4.06
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Other
Activities
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34
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V.
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PARTICIPATION
IN COSTS AND REVENUES, CAPITAL ACCOUNTS,
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ELECTIONS
AND DISTRIBUTIONS
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5.01
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Participation
in Costs and Revenues
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35
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5.02
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Capital
Accounts and Allocations Thereto
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38
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5.03
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Allocation
of Income, Deductions and Credits
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40
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5.04
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Elections
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41
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5.05
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Distributions
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42
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Page
#
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VI.
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TRANSFER
OF INTERESTS
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6.01
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Transferability
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42
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6.02
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Special
Restrictions on Transfers
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43
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6.03
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Right
of Managing General Partner to Hypothecate and/or Withdraw its
interest
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44
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6.04
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Presentment
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45
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VII.
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DURATION,
DISSOLUTION, AND WINDING UP
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7.01
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Duration
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47
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7.02
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Dissolution
and Winding Up
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47
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VIII.
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MISCELLANEOUS
PROVISIONS
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8.01
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Notices
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48
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8.02
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Time
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49
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8.03
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Applicable
Law
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49
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8.04
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Agreement
in Counterparts
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49
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8.05
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Amendment
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49
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8.06
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Additional
Partners
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49
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8.07
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Legal
Effect
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49
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EXHIBITS
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EXHIBIT
(I-A) Form
of Managing General Partner Signature Page
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EXHIBIT
(I.B) Form
of Subscription Agreement
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EXHIBIT
(II) Form
of Drilling and Operating Agreement for Atlas America Public #14-2005
(A)
L.P.
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AMENDED
AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP FOR ATLAS AMERICA
PUBLIC #15-2005(A) L.P.
THIS
AMENDED AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP
(“AGREEMENT”), amending and restating the original Certificate of Limited
Partnership, is made and entered into as of the date set forth below, by and
among Atlas Resources, Inc., referred to as “Atlas” or the “Managing General
Partner,” and the remaining parties from time to time signing a Subscription
Agreement for Limited Partner Units, these parties sometimes referred to as
“Limited Partners,” or for Investor General Partner Units, these parties
sometimes referred to as “Investor General Partners.”
ARTICLE
I
FORMATION
1.01. Formation.
The
parties have formed a limited partnership under the Delaware Revised Uniform
Limited Partnership Act on the terms and conditions set forth in this
Agreement.
1.02. Certificate
of Limited Partnership.
This
document is not only an agreement among the parties, but also is the Amended
and
Restated Certificate and Agreement of Limited Partnership of the Partnership.
This document shall be filed or recorded in the public offices required under
applicable law or deemed advisable in the discretion of the Managing General
Partner. Amendments to the certificate of limited partnership shall be filed
or
recorded in the public offices required under applicable law or deemed advisable
in the discretion of the Managing General Partner.
1.03. Name,
Principal Office and Residence.
1.03(a).
Name.
The name
of the Partnership is Atlas America Public #15-2005(A) L.P.
1.03(b). Residence.
The
residence of the Managing General Partner is its principal place of business
at
000 Xxxxxx Xxxx, Xxxx Xxxxxxxx, Xxxxxxxxxxxx 00000, which shall also serve
as
the principal place of business of the Partnership.
The
residence of each Participant shall be as set forth on the Subscription
Agreement executed by the Participant.
All
addresses shall be subject to change on notice to the parties.
1.03(c).
Agent
for Service of Process.
The name
and address of the agent for service of process shall be Xxxxxx X. Xxxxx at
000
X. Xxxxxx Xxxxxx, Xxxxx 000, Xxxxxxxxxx, Xxxxxxxx 00000.
1.04.
Purpose.
The
Partnership shall engage in all phases of the natural gas and oil business.
This
includes, without limitation, exploration for, development and production of
natural gas and oil on the terms and conditions set forth below and any other
proper purpose under the Delaware Revised Uniform Limited Partnership Act.
The
Managing General Partner may not, without the affirmative vote of Participants
whose Units equal a majority of the total Units, do the following:
(i) |
change
the investment and business purpose of the Partnership; or
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(ii) |
cause
the Partnership to engage in activities outside the stated business
purposes of the Partnership through joint ventures with other
entities.
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1
ARTICLE
II
DEFINITION
OF TERMS
2.01.
Definitions.
As used
in this Agreement, the following terms shall have the meanings set forth
below:
1. |
“Administrative
Costs” means all customary and routine expenses incurred by the Sponsor
for the conduct of Partnership administration, including: in-house
legal,
finance, in-house accounting, secretarial, travel, office rent, telephone,
data processing and other items of a similar nature. Administrative
Costs
shall be limited as follows:
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(i) |
no
Administrative Costs charged shall be duplicated under any other
category
of expense or cost; and
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(ii) |
no
portion of the salaries, benefits, compensation or remuneration of
controlling persons of the Managing General Partner shall be reimbursed
by
the Partnership as Administrative Costs. Controlling persons include
directors, executive officers and those holding 5% or more equity
interest
in the Managing General Partner or a person having power to direct
or
cause the direction of the Managing General Partner, whether through
the
ownership of voting securities, by contract, or otherwise.
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2. |
“Administrator”
means the official or agency administering the securities laws of
a
state.
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3. |
“Affiliate”
means with respect to a specific
person:
|
(i) |
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;
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(ii) |
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;
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(iii) |
any
person directly or indirectly controlling, controlled by, or under
common
control with the specified person;
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(iv) |
any
officer, director, trustee or partner of the specified person; and
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(v) |
if
the specified person is an officer, director, trustee or partner,
any
person for which the person acts in any such
capacity.
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4. |
“Agreement”
means this Amended and Restated Certificate and Agreement of Limited
Partnership, including all exhibits to this
Agreement.
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5. |
“Anthem
Securities” means Anthem Securities, Inc., whose principal executive
offices are located at 000 Xxxxxx Xxxx, X.X. Xxx 000, Xxxx Xxxxxxxx,
Xxxxxxxxxxxx 00000-0000.
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6. |
“Assessments”
means additional amounts of capital which may be mandatorily required
of
or paid voluntarily by a Participant beyond his subscription
commitment.
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7. |
“Atlas”
means Atlas Resources, Inc., a Pennsylvania corporation, whose principal
executive offices are located at 000 Xxxxxx Xxxx, Xxxx Xxxxxxxx,
Xxxxxxxxxxxx 00000, and any successor entity to Atlas Resources,
Inc.,
whether by merger or other form of corporate reorganization, or the
acquisition of all, or substantially all, of Atlas Resources, Inc.’s
assets.
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2
8. |
“Atlas
America Public #15-2005 Program” means the offering of Units in a series
of up to four limited partnerships entitled Atlas America Public
#15-2005(A) L.P., Atlas America Public #15-2006(B) L.P., Atlas America
Public #15-2006(C) L.P. and Atlas America Public #15-2006(D)
L.P.
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9. |
“Capital
Account” or “account” means the account established for each party,
maintained as provided in §5.02 and its subsections.
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10. |
“Capital
Contribution” means the amount agreed to be contributed to the Partnership
by a Partner pursuant to §§3.04 and 3.05 and their
subsections.
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11. |
“Carried
Interest” means an equity interest in the Partnership issued to a Person
without consideration, in the form of cash or tangible property,
in an
amount proportionately equivalent to that received from the
Participants.
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12. |
“Code”
means the Internal Revenue Code of 1986, as
amended.
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13. |
“Cost,”
when used with respect to the sale or transfer of property to the
Partnership, means:
|
(i) |
the
sum of the prices paid by the seller or transferor to an unaffiliated
person for the property, including bonuses;
|
(ii) |
title
insurance or examination costs, brokers’ commissions, filing fees,
recording costs, transfer taxes, if any, and like charges in connection
with the acquisition of the property;
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(iii) |
a
pro rata portion of the seller’s or transferor’s actual necessary and
reasonable expenses for seismic and geophysical services; and
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(iv) |
rentals
and ad valorem taxes paid by the seller or transferor for the property
to
the date of its transfer to the buyer, interest and points actually
incurred on funds used to acquire or maintain the property, and the
portion of the seller’s or transferor’s reasonable, necessary and actual
expenses for geological, engineering, drafting, accounting, legal
and
other like services allocated to the property cost in conformity
with
generally accepted accounting principles and industry standards,
except
for expenses in connection with the past drilling of xxxxx which
are not
producers of sufficient quantities of oil or gas to make commercially
reasonable their continued operations, and provided that the expenses
enumerated in this subsection (iv) shall have been incurred not more
than
36 months before the sale or transfer to the Partnership.
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“Cost,”
when used with respect to services, means the reasonable, necessary and actual
expense incurred by the seller on behalf of the Partnership in providing the
services, determined in accordance with generally accepted accounting
principles.
As
used
elsewhere, “Cost” means the price paid by the seller in an arm’s-length
transaction.
14. |
“Dealer-Manager”
means Anthem Securities, Inc., an Affiliate of the Managing General
Partner, the broker/dealer which will manage the offering and sale
of the
Units.
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15. |
“Development
Well” means a well drilled within the proved area of a natural gas or oil
reservoir to the depth of a stratigraphic Horizon known to be
productive.
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3
16. |
“Direct
Costs” means all actual and necessary costs directly incurred for the
benefit of the Partnership and generally attributable to the goods
and
services provided to the Partnership by parties other than the Sponsor
or
its Affiliates. Direct Costs may not include any cost otherwise classified
as Organization and Offering Costs, Administrative Costs, Intangible
Drilling Costs, Tangible Costs, Operating Costs or costs related
to the
Leases, but may include the cost of services provided by the Sponsor
or
its Affiliates if the services are provided pursuant to written contracts
and in compliance with §4.03(d)(7) or pursuant to the Managing General
Partner’s role as Tax Matters
Partner.
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17. |
“Distribution
Interest” means an undivided interest in the Partnership’s assets after
payments to the Partnership’s creditors or the creation of a reasonable
reserve therefor, in the ratio the positive balance of a party’s Capital
Account bears to the aggregate positive balance of the Capital Accounts
of
all of the parties determined after taking into account all Capital
Account adjustments for the taxable year during which liquidation
occurs
(other than those made pursuant to liquidating distributions or
restoration of deficit Capital Account balances). Provided, however,
after
the Capital Accounts of all of the parties have been reduced to zero,
the
interest in the remaining Partnership assets shall equal a party’s
interest in the related Partnership revenues as set forth in §5.01 and its
subsections.
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18. |
“Drilling
and Operating Agreement” means the proposed Drilling and Operating
Agreement between the Managing General Partner or an Affiliate as
Operator, and the Partnership as Developer, a copy of the proposed
form of
which is attached to this Agreement as Exhibit (II).
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19. |
“Exploratory
Well” means a well drilled to:
|
1. |
find
commercially productive hydrocarbons in an unproved area;
|
2. |
find
a new commercially productive Horizon in a field previously found
to be
productive of hydrocarbons at another Horizon; or
|
3. |
significantly
extend a known prospect.
|
20. |
“Farmout”
means an agreement by the owner of the leasehold or Working Interest
to
assign his interest in certain acreage or well to the assignees,
retaining
some interest such as an Overriding Royalty Interest, an 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.
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21. |
“Final
Terminating Event” means any one of the following:
|
(i) |
the
expiration of the Partnership’s fixed term;
|
(ii) |
notice
to the Participants by the Managing General Partner of its election
to
terminate the Partnership’s affairs;
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(iii) |
notice
by the Participants to the Managing General Partner of their similar
election through the affirmative vote of Participants whose Units
equal a
majority of the total Units; or
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(iv) |
the
termination of the Partnership under §708(b)(1)(A) of the Code or the
Partnership ceases to be a going
concern.
|
4
22. |
“Horizon”
means a zone of a particular formation; that part of a formation
of
sufficient porosity and permeability to form a petroleum
reservoir.
|
23. |
“Independent
Expert” means a person with no material relationship to the Sponsor or its
Affiliates who is qualified and in the business of rendering opinions
regarding the value of natural gas and oil properties based on the
evaluation of all pertinent economic, financial, geologic and engineering
information available to the Sponsor or its
Affiliates.
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24. |
“Initial
Closing Date” means the date after the minimum amount of subscription
proceeds has been received when subscription proceeds are first withdrawn
from the escrow account.
|
25. |
“Intangible
Drilling Costs” or “Non-Capital Expenditures” means those expenditures
associated with property acquisition and the drilling and completion
of
natural gas and oil xxxxx that under present law are generally accepted
as
fully deductible currently for federal income tax purposes. This
includes:
|
(i) |
all
expenditures made for any well before production in commercial quantities
for wages, fuel, repairs, hauling, supplies and other costs and expenses
incident to and necessary for drilling the well and preparing the
well for
production of natural gas or oil, that are currently deductible pursuant
to Section 263(c) of the Code and Treasury Reg. Section 1.612-4,
and are
generally termed "intangible drilling and development costs,";
|
(ii) |
the
expense of plugging and abandoning any well before a completion attempt;
and
|
(iii) |
the
costs (other than Tangible Costs and Lease costs) to re-enter and
deepen
an existing well, complete the well to deeper reservoirs, or plug
and
abandon the well if it is nonproductive from the targeted deeper
reservoirs.
|
26. |
“Interim
Closing Date” means those date(s) after the Initial Closing Date, but
before the Offering Termination Date, that the Managing General Partner,
in its sole discretion, applies additional subscription proceeds
to
additional Partnership activities, including drilling
activities.
|
27. |
“Investor
General Partners” means:
|
(i) |
the
Persons signing the Subscription Agreement as Investor General Partners;
and
|
(ii) |
the
Managing General Partner to the extent of any optional subscription
as an
Investor General Partner under §3.03(b)(2).
|
All
Investor General Partners shall be of the same class and have the same
rights.
28. |
“Landowner’s
Royalty Interest” means an interest in production, or its proceeds, to be
received free and clear of all costs of development, operation, or
maintenance, reserved by a landowner on the creation of a
Lease.
|
29. |
“Leases”
means full or partial interests in natural gas and oil leases, oil
and
natural gas mineral rights, fee rights, licenses, concessions, or
other
rights under which the holder is entitled to explore for and produce
oil
and/or natural gas, and includes any contractual rights to acquire
any
such interest.
|
5
30. |
“Limited
Partners” means:
|
(i) |
the
Persons signing the Subscription Agreement as Limited Partners;
|
(ii) |
the
Managing General Partner to the extent of any optional subscription
as a
Limited Partner under §3.03(b)(2);
|
(iii) |
the
Investor General Partners on the conversion of their Investor General
Partner Units to Limited Partner Units pursuant to §6.01(b); and
|
(iv) |
any
other Persons who are admitted to the Partnership as additional or
substituted Limited Partners.
|
Except
as
provided in §3.05(b), with respect to the required additional Capital
Contributions of Investor General Partners, all Limited Partners shall be of
the
same class and have the same rights.
31. |
“Managing
General Partner” means:
|
(i) |
Atlas
Resources, Inc.; or
|
(ii) |
any
Person admitted to the Partnership as a general partner, other than
as an
Investor General Partner, who is designated to exclusively supervise
and
manage the operations of the
Partnership.
|
32. |
“Managing
General Partner Signature Page” means an execution and subscription
instrument in the form attached as Exhibit (I-A) to this Agreement,
which
is incorporated in this Agreement by
reference.
|
33. |
“Offering
Termination Date” means the date after the minimum amount of subscription
proceeds has been received on which the Managing General Partner
determines, in its sole discretion, that the Partnership’s subscription
period is closed and the acceptance of subscriptions ceases, which
may be
any date up to and including December 31, 2005.
|
Notwithstanding
the above, the Offering Termination Date may not extend beyond the time that
subscriptions for the maximum number of Units set forth in §3.03(c)(1) have been
received and accepted by the Managing General Partner.
34. |
“Operating
Costs” means expenditures made and costs incurred in producing and
marketing natural gas or oil from completed xxxxx. These costs include,
but are not limited to:
|
(i) |
labor,
fuel, repairs, hauling, materials, supplies, utility charges and
other
costs incident to or related to producing and marketing natural gas
and
oil;
|
(ii) |
ad
valorem and severance taxes;
|
(iii) |
insurance
and casualty loss expense; and
|
(iv) |
compensation
to well operators or others for services rendered in conducting these
operations.
|
6
Operating
Costs also include reworking, work over, subsequent equipping, and similar
expenses relating to any well, but do not include the costs to re-enter and
deepen an existing well, complete the well to deeper formations or reservoirs,
or plug and abandon the well if it is nonproductive from the targeted deeper
formations or reservoirs.
35. |
“Operator”
means the Managing General Partner, as operator of Partnership Xxxxx
in
Pennsylvania, and the Managing General Partner or an Affiliate as
Operator
of Partnership Xxxxx in other areas of the United
States.
|
36. |
“Organization
and Offering Costs” means all costs of organizing and selling the offering
including, but not limited to:
|
(i) |
total
underwriting and brokerage discounts and commissions (including fees
of
the underwriters’ attorneys);
|
(ii) |
expenses
for printing, engraving, mailing, salaries of employees while engaged
in
sales activities, charges of transfer agents, registrars, trustees,
escrow
holders, depositaries, engineers and other experts;
|
(iii) |
expenses
of qualification of the sale of the securities under federal and
state
law, including taxes and fees, accountants’ and attorneys’ fees; and
|
(iv) |
other
front-end fees.
|
37. |
“Organization
Costs” means all costs of organizing the offering including, but not
limited to:
|
(i) |
expenses
for printing, engraving, mailing, salaries of employees while engaged
in
sales activities, charges of transfer agents, registrars, trustees,
escrow
holders, depositaries, engineers and other experts;
|
(ii) |
expenses
of qualification of the sale of the securities under federal and
state
law, including taxes and fees, accountants’ and attorneys’ fees; and
|
(iii) |
other
front-end fees.
|
38. |
“Overriding
Royalty Interest” means an interest in the natural gas and oil produced
under a Lease, or the proceeds from the sale thereof, carved out
of the
Working Interest, to be received free and clear of all costs of
development, operation, or
maintenance.
|
39. |
“Participants”
means:
|
(i) |
the
Managing General Partner to the extent of its optional subscription
under
§3.03(b)(2);
|
(ii) |
the
Limited Partners; and
|
(iii) |
the
Investor General Partners.
|
7
40. |
“Partners”
means:
|
(i) |
the
Managing General Partner;
|
(ii) |
the
Investor General Partners; and
|
(iii) |
the
Limited Partners.
|
41. |
“Partnership”
means Atlas America Public #15-2005(A)
L.P.
|
42. |
“Partnership
Net Production Revenues” means gross revenues after deduction of the
related Operating Costs, Direct Costs, Administrative Costs and all
other
Partnership costs not specifically
allocated.
|
43. |
“Partnership
Well” means a well, some portion of the revenues from which is received
by
the Partnership.
|
44. |
“Person”
means a natural person, partnership, corporation, association, trust
or
other legal entity.
|
45. |
“Production
Purchase” or “Income” Program means any program whose investment objective
is to directly acquire, hold, operate, and/or dispose of producing
oil and
gas properties. Such a program may acquire any type of ownership
interest
in a producing property, including, but not limited to, working interests,
royalties, or production payments. A program which spends at least
90% of
capital contributions and funds borrowed (excluding offering and
organizational expenses) in the above described activities is presumed
to
be a production purchase or income
program.
|
46. |
“Program”
means one or more limited or general partnerships or other investment
vehicles formed, or to be formed, for the primary purpose
of:
|
(i) |
exploring
for natural gas, oil and other hydrocarbon substances; or
|
(ii) |
investing
in or holding any property interests which permit the exploration
for or
production of hydrocarbons or the receipt of such production or its
proceeds.
|
47. |
“Prospect”
means an area covering lands which are believed by the Managing General
Partner to contain subsurface structural or stratigraphic conditions
making it susceptible to the accumulations of hydrocarbons in commercially
productive quantities at one or more Horizons. The area, which may
be
different for different Horizons, shall
be:
|
(i) |
designated
by the Managing General Partner in writing before the conduct of
Partnership operations; and
|
(ii) |
enlarged
or contracted from time to time on the basis of subsequently acquired
information to define the anticipated limits of the associated hydrocarbon
reserves and to include all acreage encompassed therein.
|
8
If
the
well to be drilled by the Partnership is to a Horizon containing Proved
Reserves, then a “Prospect” for a particular Horizon may be limited to the
minimum area permitted by state law or local practice, whichever is applicable,
to protect against drainage from adjacent xxxxx. Subject to the foregoing
sentence, “Prospect” shall be deemed the drilling or spacing unit for the
Clinton/Xxxxxx geological formation and the Mississippian and/or Upper Devonian
Sandstone reservoirs in Ohio, Pennsylvania, and New York and the Mississippian
Carbonate or the Devonian Shale reservoirs in Anderson, Campbell, Xxxxxx, Xxxxx
and Xxxxx Counties, Tennessee.
48. |
“Prospectus”
means the Prospectus included in the Registration Statement on Form
S-1
relating to the offer and sale of the Units which has been filed
with the
Securities and Exchange Commission (the “Commission”) under the Securities
Act of 1933, as amended (the “Act”). As used in this Agreement, the terms
“Prospectus” and “Registration Statement” refer solely to the Prospectus
and Registration Statement, as amended, described above, except
that:
|
(i) |
from
and after the date on which any post-effective amendment to the
Registration Statement is declared effective by the Commission, the
term
“Registration Statement” shall refer to the Registration Statement as
amended by that post-effective amendment, and the term “Prospectus” shall
refer to the Prospectus then forming a part of the Registration Statement;
and
|
(ii) |
if
the Prospectus filed pursuant to Rule 424(b) or (c) promulgated by
the
Commission under the Act differs from the Prospectus on file with
the
Commission at the time the Registration Statement or any post-effective
amendment thereto shall have become effective, the term “Prospectus” shall
refer to the Prospectus filed pursuant thereto from and after the
date on
which it was filed.
|
49. |
“Proved
Developed Oil and Gas Reserves” means reserves that can be expected to be
recovered through existing xxxxx with existing equipment and operating
methods. Additional oil and gas expected to be obtained through the
application of fluid injection or other improved recovery techniques
for
supplementing the natural forces and mechanisms of primary recovery
should
be included as “proved developed reserves” only after testing by a pilot
project or after the operation of an installed program has confirmed
through production response that increased recovery will be
achieved.
|
50. |
“Proved
Reserves” means the estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate
with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions, i.e.,
prices and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future
conditions.
|
(i) |
Reservoirs
are considered proved if economic producibility is supported by either
actual production or conclusive formation test. The area of a reservoir
considered proved includes:
|
9
(a) |
that
portion delineated by drilling and defined by gas-oil and/or oil-water
contacts, if any; and
|
(b) |
the
immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data.
|
In
the
absence of information on fluid contacts, the lowest known structural occurrence
of hydrocarbons controls the lower proved limit of the reservoir.
(ii) |
Reserves
which can be produced economically through application of improved
recovery techniques (such as fluid injection) are included in the
“proved”
classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support
for
the engineering analysis on which the project or program was
based.
|
(iii) |
Estimates
of proved reserves do not include the following:
|
(a) |
oil
that may become available from known reservoirs but is classified
separately as “indicated additional reserves”;
|
(b) |
crude
oil, natural gas, and natural gas liquids, the recovery of which
is
subject to reasonable doubt because of uncertainty as to geology,
reservoir characteristics, or economic factors;
|
(c) |
crude
oil, natural gas, and natural gas liquids, that may occur in undrilled
prospects; and
|
(d) |
crude
oil, natural gas, and natural gas liquids, that may be recovered
from oil
shales, coal, gilsonite and other such
sources.
|
51. |
“Proved
Undeveloped Reserves” means reserves that are expected to be recovered
from either:
|
(i) |
new
xxxxx on undrilled acreage; or
|
(ii) |
from
existing xxxxx where a relatively major expenditure is required for
recompletion.
|
Reserves
on undrilled acreage shall be limited to those drilling units offsetting
productive units that are reasonably certain of production when drilled. Proved
reserves for other undrilled units can be claimed only where it can be
demonstrated with certainty that there is continuity of production from the
existing productive formation. Under no circumstances should estimates for
proved undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual tests
in the area and in the same reservoir.
10
52. |
“Reimbursement
for Permissible Non-Cash Compensation” means a .5% accountable
reimbursement for permissible non-cash compensation, which
includes:
|
(i) |
an
accountable reimbursement for training and education meetings for
associated persons of the Selling Agents;
|
(ii) |
gifts
that do not exceed $100 per year and are not preconditioned on achievement
of a sales target;
|
(iii) |
an
occasional meal, a ticket to a sporting event or the theater, or
comparable entertainment which is neither so frequent nor so extensive
as
to raise any question of propriety and is not preconditioned on
achievement of a sales target; and
|
(iv) |
contributions
to a non-cash compensation arrangement between a Selling Agent and
its
associated persons, provided that neither the Managing General Partner
nor
the Dealer-Manager directly or indirectly participates in the Selling
Agent’s organization of a permissible non-cash compensation
arrangement.
|
53. |
“Roll-Up”
means a transaction involving the acquisition, merger, conversion
or
consolidation, either directly or
indirectly, of the Partnership and the issuance of securities of
a Roll-Up
Entity. The term does not include:
|
(i) |
a
transaction involving securities of the Partnership that have been
listed
for at least 12 months on a national exchange or traded through the
National Association of Securities Dealers Automated Quotation National
Market System; or
|
(ii) |
a
transaction involving the conversion to corporate, trust or association
form of only the Partnership if, as a consequence of the transaction,
there will be no significant adverse change in any of the following:
|
(a) |
voting
rights;
|
(b) |
the
Partnership’s term of existence;
|
(c) |
the
Managing General Partner’s compensation; and
|
(d) |
the
Partnership’s investment
objectives.
|
54. |
“Roll-Up
Entity” means a partnership, trust, corporation or other entity that would
be created or survive after the successful completion of a proposed
roll-up transaction.
|
55. |
“Sales
Commissions” means all underwriting and brokerage discounts and
commissions incurred in the sale of Units payable to registered
broker/dealers, but excluding the
following:
|
(i) |
the
2.5% Dealer-Manager fee;
|
(ii) |
the
.5% accountable Reimbursement for Permissible Non-Cash Compensation;
and
|
(iii) |
the
up to .5% reimbursement for bona fide due diligence
expenses.
|
11
56. |
“Selling
Agents” means the broker/dealers which are selected by the Dealer-Manager
to participate in the offer and sale of the
Units.
|
57. |
“Sponsor”
means any person directly or indirectly instrumental in organizing,
wholly
or in part, a program or any person who will manage or is entitled
to
manage or participate in the management or control of a
program.
The definition includes:
|
(i) |
the
managing and controlling general partner(s) and any other person
who
actually controls or selects the person who controls 25% or more
of the
exploratory, development or producing activities of the program,
or any
segment thereof, even if that person has not entered into a contract
at
the time of formation of the program;
and
|
(ii) |
whenever
the context so requires, the term “sponsor” shall be deemed to include its
affiliates.
|
“Sponsor”
does not include wholly independent third-parties such as attorneys,
accountants, and underwriters whose only compensation is for professional
services rendered in connection with the offering of units.
58. |
“Subscription
Agreement” means an execution and subscription instrument in the form
attached as Exhibit (I-B) to this Agreement,
which is incorporated in this Agreement by
reference.
|
59. |
“Tangible
Costs” or “Capital Expenditures” means those costs associated with
property acquisition and drilling and completing natural gas and
oil xxxxx
which are generally accepted as capital expenditures under the Code.
This
includes all of the following:
|
(i) |
costs
of equipment, parts and items of hardware used in drilling and completing
a well;
|
(ii) |
the
costs (other than Intangible Drilling Costs and Lease costs) to re-enter
and deepen an existing well, complete the well to deeper reservoirs,
or
plug and abandon the well if it is nonproductive from the targeted
deeper
reservoirs; and
|
(iii) |
those
items necessary to deliver acceptable natural gas and oil production
to
purchasers to the extent installed downstream
from the wellhead of any well and which are required to be capitalized
under the Code and its regulations.
|
60. |
“Tax
Matters Partner” means
the Managing General Partner.
|
61. |
“Units”
or “Units of Participation” means up to 600 Limited Partner interests in
the Partnership and up to 19,400 Investor General Partner interests in the
Partnership, which will be converted to up to 19,400 Limited Partner
Units
as set forth in §6.01(b), purchased by Participants in the Partnership
under the provisions of §3.03 and its subsections,
including any rights to profits, losses, income, gain, credits,
deductions, cash distributions or returns of capital or other attributes
of the Units.
|
62. |
“Working
Interest” means an interest in a Lease which is subject to some portion of
the cost of development, operation,
or
maintenance of the Lease.
|
12
ARTICLE
III
SUBSCRIPTIONS
AND FURTHER CAPITAL CONTRIBUTIONS
3.01.
Designation
of Managing General Partner and Participants.
Atlas
shall serve as Managing General Partner of the Partnership. Atlas shall further
serve as a Participant to the extent of any subscription made by it pursuant
to
§3.03(b)(2).
Limited
Partners and Investor General Partners, including Affiliates of the Managing
General Partner to the extent, if any, they purchase Units, shall serve as
Participants.
3.02.
Participants.
3.02(a).
Limited
Partner at Formation.
Atlas
America, Inc., as Original Limited Partner, has acquired one Unit and has
made
a
Capital Contribution of $100.
On
the
admission of one or more Limited Partners,
the
Partnership shall return to the Original Limited Partner its Capital
Contribution and shall reacquire its Unit. The Original Limited Partner shall
then cease to be a Limited Partner in the Partnership with respect to the
Unit.
3.02(b).
Offering
of Interests.
The
Partnership is authorized to admit to the Partnership at the Initial Closing
Date, any Interim Closing Date(s), and the Offering Termination Date additional
Participants whose Subscription Agreements are accepted by the Managing General
Partner if, after the admission of the additional Participants, the total Units
sold do not exceed the maximum number of Units set forth in §3.03(c)(1).
3.02(c).
Admission
of Participants.
No
action or consent by the Participants shall be required for the admission of
additional Participants pursuant to this Agreement.
All
subscribers’ funds shall be held in an interest bearing account or accounts by
an independent escrow holder and shall not be released to the Partnership until
the receipt and acceptance of the minimum amount of subscription proceeds set
forth in §3.03(c)(2). Thereafter, subscriptions may be paid directly to the
Partnership account.
3.03.
Subscriptions
to the Partnership.
3.03(a).
Subscriptions
by Participants.
3.03(a)(1).
Subscription
Price and Minimum Subscription.
The
subscription price of a Unit in the Partnership shall be $10,000, except as
set
forth below, and shall be designated on each Participant’s Subscription
Agreement and payable as set forth in §3.05(b)(1). The minimum subscription per
Participant shall be one Unit ($10,000); however, the Managing General Partner,
in its discretion, may accept one-half Unit ($5,000) subscriptions. Larger
subscriptions shall be accepted in $1,000 increments, beginning with $6,000,
$7,000, etc. if the Participant purchased one-half of a Unit, or $11,000,
$12,000, etc if the Participant purchased a full Unit.
13
Notwithstanding
the foregoing, the subscription price for:
(i) |
the
Managing General Partner, its officers, directors, and Affiliates,
and
Participants who buy Units through the officers and directors of
the
Managing General Partner, shall be reduced by an amount equal to
the 2.5%
Dealer-Manager fee, the 7% Sales Commission, the .5% accountable
Reimbursement for Permissible Non-Cash Compensation, and the .5%
reimbursement of the Selling Agents’ bona fide due diligence expenses,
which shall not be paid with respect to these sales; and
|
(ii) |
Registered
Investment Advisors and their clients, and Selling Agents and their
registered representatives and principals, shall be reduced by an
amount
equal to the 7% Sales Commission, which shall not be paid with respect
to
these sales.
|
No
more
than 5% of the total Units in the Partnership shall be sold with the discounts
described above.
3.03(a)(2).
Effect
of Subscription.
Execution of a Subscription Agreement shall serve as an agreement by the
Participant to be bound by each and every term of this Agreement.
3.03(b)(1).
Managing
General Partner’s Optional Subscriptions for Units.
In
addition to the Managing General Partner’s required Capital Contributions under
§3.04(a), the Managing General Partner may subscribe for up to 5% of the total
Units in the Partnership under the provisions of §3.03(a) and its subsections,
and, subject to the limitations on voting rights set forth in §4.03(c)(3), to
that extent shall be deemed to be a Participant in the Partnership for all
purposes under this Agreement.
3.03(b)(2).
Effect
of and Evidencing Subscription.
The
Managing General Partner has executed a Managing General Partner Signature
Page
which:
(i) |
evidences
the Managing General Partner’s required Capital Contributions under
§3.04(a); and
|
(ii) |
may
be amended, from time-to-time, to reflect the amount of any optional
subscriptions for Units as a Participant under §3.03(b)(1).
|
Execution
of the Managing General Partner Signature Page serves as an agreement by the
Managing General Partner to be bound by each and every term of this
Agreement.
3.03(c).
Maximum
and Minimum Number of Units.
3.03(c)(1).
Maximum
Number of Units.
The
maximum number of Units may not exceed 20,000 Units, which is up to $200,000,000
of cash subscription proceeds, excluding the subscription discounts permitted
under §3.03(a)(1). Notwithstanding the foregoing, the maximum number of Units in
all of the partnerships in the Atlas America Public #15-2005 Program, in the
aggregate, shall not exceed 20,000 Units which is up to $200,000,000 of cash
subscription proceeds excluding the subscription discounts permitted under
§3.03(a)(1).
3.03(c)(2).
Minimum
Number of Units.
The
minimum number of Units shall equal at least 200 Units, but in any event not
less than that number of Units which provides the Partnership with cash
subscription proceeds of $2,000,000, excluding the subscription discounts
permitted under §3.03(a)(1).
14
If
subscriptions for the minimum number of Units have not been received and
accepted at the Offering Termination Date, then all monies deposited by
subscribers shall be promptly returned to them. They shall receive interest
earned on their subscription proceeds from the date the monies were deposited
in
escrow through the date of refund, without deduction for any fees.
The
partnership may break escrow and begin its drilling activities in the Managing
General Partner’s sole discretion on receipt and acceptance of the minimum
subscription proceeds.
3.03(d).
Acceptance
of Subscriptions.
3.03(d)(1).
Discretion by the Managing General Partner.
Acceptance of subscriptions is discretionary with the Managing General Partner.
The Managing General Partner may reject any subscription for any reason it
deems
appropriate.
3.03(d)(2).
Time Period in Which to Accept Subscriptions.
Subscriptions shall be accepted or rejected by the Partnership within 30 days
of
their receipt. If a subscription is rejected, then all of the subscriber’s funds
shall be returned to the subscriber promptly.
3.03(d)(3).
Admission to the Partnership.
The
Participants shall be admitted to the Partnership as follows:
(i) |
not
later than 15 days after the release from escrow of Participants’ funds to
the Partnership; and
|
(ii) |
after
the close of the escrow account not later than the last day of the
calendar month in which their Subscription Agreements were accepted
by the
Partnership.
|
3.04.
Capital
Contributions of the Managing General Partner.
3.04(a).
Managing
General Partner’s Required Capital Contributions.
The
Managing General Partner, as a general partner and not as a Participant, is
required to:
(i) |
pay
the costs or make the other required Capital Contributions charged
to it
under this Agreement, including contributing to the Partnership the
Leases
which will be drilled by the Partnership on the terms set forth in
§4.01(a)(4), in an amount equal to not less than 25%, in the aggregate,
of
all Capital Contributions to the Partnership, at the time the costs
are
required to be paid by the Partnership, but no later than December
31,
2006; and
|
(ii) |
maintain
a minimum Capital Account balance equal to not less than 1% of total
positive Capital Account balances for the
Partnership.
|
3.04(b).
On
Liquidation the Managing General Partner Must Contribute Deficit Balance in
Its
Capital Account.
The
Managing General Partner shall contribute to the Partnership any deficit balance
in its Capital Account on the occurrence of either of the following
events:
(i) |
the
liquidation of the Partnership; or
|
(ii) |
the
liquidation of the Managing General Partner’s interest in the
Partnership.
|
15
This
shall be determined after taking into account all adjustments for the
Partnership’s taxable year during which the liquidation occurs, other than
adjustments made pursuant to this requirement, by the end of the taxable year
in
which its interest in the Partnership is liquidated or, if later, within 90
days
after the date of the liquidation.
3.04(c).
Managing
General Partner’s Partnership Interest for Capital
Contributions.
The
interest of the Managing General Partner, as Managing General Partner and not
as
a Participant, in the capital and profits of the Partnership is fully vested
and
nonforfeitable as of the date of the formation of the Partnership and is in
consideration for, and is the only consideration for, its required Capital
Contributions to the Partnership.
3.04(d).
Managing
General Partner’s Right to Assign Its Partnership Interest.
Subject
to §5.01(b)(4)(a) regarding the Managing General Partner’s subordination
obligation, and subject to a required 1% minimum interest in the Partnership
as
Managing General Partner and not as a Participant, the Managing General Partner
has the right at any time, in its discretion, without the consent of the
Participants and without affecting the allocation of costs and revenues to
the
Participants under this Agreement, to sell, contribute, exchange or otherwise
transfer its interest as Managing General Partner in the capital and profits
(or
revenues) of the Partnership, or any interest therein, to its Affiliates. In
that event, except as otherwise may be permitted under this Agreement, the
Affiliated transferee of the Managing General Partner’s interest in the
Partnership shall not become a Partner in the Partnership under the Delaware
Revised Uniform Limited Partnership Act and shall have no voting rights in
the
Partnership. However, the Affiliated transferee, as a partner in the Partnership
for tax purposes only, shall have the right to receive the share of the
Partnership’s profits, losses, income, gains, deductions, credits and depletion
allowances, or items thereof, and cash distributions and returns of capital
to
which the Managing General Partner would otherwise be entitled under this
Agreement with respect to its transferred interest in the Partnership. Subject
to the foregoing, the transfer of the Managing General Partner’s interest in the
Partnership to any of its Affiliates may be made on any terms and conditions
as
the Managing General Partner determines, in its discretion, and the Partnership
and the Participants shall have no interest in any consideration received by
the
Managing General Partner from its Affiliate for the transfer of its interest
in
the Partnership. No transfer of its Partnership interest by the Managing General
Partner under this §3.04(d) shall require an accounting by the Managing General
Partner or the Partnership to the Participants.
3.05.
Payment
of Subscriptions.
3.05(a).
Managing
General Partner’s Subscriptions.
The
Managing General Partner shall pay any optional subscription under §3.03(b)(2)
as set forth in §3.05(b)(1).
3.05(b).
Participant
Subscriptions and Additional Capital Contributions of the Investor General
Partners.
3.05(b)(1).
Payment
of Subscription Agreements.
A
Participant shall pay the amount designated as the subscription price on the
Subscription Agreement executed by the Participant 100% in cash at the time
of
subscribing. A Participant shall receive interest on the amount he pays from
the
time his subscription proceeds are deposited in the escrow account, or the
Partnership account after the minimum number of Units have been received as
provided in §3.06(b), until the Offering Termination Date.
3.05(b)(2).
Additional
Required Capital Contributions of the Investor General
Partners.
Investor
General Partners must make Capital Contributions to the Partnership when called
by the Managing General Partner, in addition to their subscriptions, for their
pro rata share of any Partnership obligations and liabilities which are recourse
to the Investor General Partners and are represented by their ownership of
Units
before the conversion of Investor General Units to Limited Partner Units under
§6.01(b).
16
3.05(b)(3).
Default
Provisions.
The
failure of an Investor General Partner to timely make a required additional
Capital Contribution under this section results in his personal liability to
the
other Investor General Partners for the amount in default. The remaining
Investor General Partners, in proportion to their respective number of Units,
must pay the defaulting Investor General Partner’s share of Partnership
liabilities and obligations called for by the Managing General Partner. In
that
event, the remaining Investor General Partners:
(i) |
shall
have a first and preferred lien on the defaulting Investor General
Partner’s interest in the Partnership to secure payment of the amount in
default plus interest at the legal rate;
|
(ii) |
shall
be entitled to receive 100% of the defaulting Investor General Partner’s
cash distributions, in proportion to their respective number of Units,
until the amount in default is recovered in full plus interest at
the
legal rate; and
|
(iii) |
may
commence legal action to collect the amount due plus interest at
the legal
rate.
|
3.06.
Partnership
Funds.
3.06(a).
Fiduciary
Duty.
The
Managing General Partner has a fiduciary responsibility for the safekeeping
and
use of all funds and assets of the Partnership, whether or not in the Managing
General Partner’s possession or control. The Managing General Partner shall not
employ, or permit another to employ, the funds and assets in any manner except
for the exclusive benefit of the Partnership.
Neither
this Agreement nor any other agreement between the Managing General Partner
and
the Partnership shall contractually limit any fiduciary duty owed to the
Participants by the Managing General Partner under applicable law, except as
provided in §§4.01, 4.02, 4.03, 4.04, 4.05 and 4.06 of this
Agreement.
3.06(b).
Special
Account After the Receipt of the Minimum Partnership
Subscriptions.
Following the receipt of the minimum number of Units and breaking escrow, the
funds of the Partnership shall be held in a separate interest-bearing account
maintained for the Partnership and shall not be commingled with funds of any
other entity.
3.06(c).
Investment.
3.06(c)(1).
Investments
in Other Entities.
Partnership funds shall not be invested in the securities of another person
except in the following instances:
(i) |
investments
in Working Interests or undivided Lease interests made in the ordinary
course of the Partnership’s business;
|
(ii) |
temporary
investments made as set forth in §3.06(c)(2);
|
(iii) |
multi-tier
arrangements meeting the requirements of §4.03(d)(15);
|
(iv) |
investments
involving less than 5% of the Partnership’s subscription proceeds which
are a necessary and incidental part of a property acquisition transaction;
and
|
(v) |
investments
in entities established solely to limit the Partnership’s liabilities
associated with the ownership or operation of property or equipment,
provided that duplicative fees and expenses shall be
prohibited.
|
17
3.06(c)(2).
Permissible Investments Before Investment in Partnership
Activities.
After
the Initial Closing Date and until proceeds from the offering are invested
in
the Partnership’s operations, the proceeds may be temporarily invested in income
producing short-term, highly liquid investments, in which there is appropriate
safety of principal, such as U.S. Treasury Bills.
ARTICLE
IV
4.01.
Acquisition
of Leases.
4.01(a).
Assignment
to Partnership.
4.01(a)(1).
In General.
The
Managing General Partner shall select, acquire and assign or cause to have
assigned to the Partnership full or partial interests in Leases, by any method
customary in the natural gas and oil industry, subject to the terms and
conditions set forth below.
The
Partnership and the other partnerships in the Atlas America Public #15-2005
Program may acquire and develop interests in Leases covering one or more of
the
same Prospects, in the Managing General Partner’s discretion.
The
Partnership shall acquire only Leases reasonably expected to meet the stated
purposes of the Partnership. No Leases shall be acquired for the purpose of
a
subsequent sale, Farmout, or other disposition unless the acquisition is made
after a well has been drilled to a depth sufficient to indicate that the
acquisition would be in the Partnership’s best interest.
4.01(a)(2).
Federal
and State Leases.
The
Partnership is authorized to acquire Leases on federal and state lands.
4.01(a)(3).
Managing
General Partner’s Discretion as to Terms and Burdens of
Acquisition.
Subject
to the provisions of §4.03(d) and its subsections, the acquisitions of Leases or
other property may be made under any terms and obligations,
including:
(i) |
any
limitations as to the Horizons to be assigned to the Partnership;
and
|
(ii) |
subject
to any burdens as the Managing General Partner deems necessary in
its sole
discretion.
|
4.01(a)(4).
Cost
of Leases.
All
Leases shall be:
(i) |
contributed
to the Partnership by the Managing General Partner or its Affiliates;
and
|
(ii) |
credited
towards the Managing General Partner's required Capital Contribution
set
forth in §3.04(a)(i) at the Cost of the Lease, unless the Managing General
Partner has cause to believe that Cost is materially more than the
fair
market value of the property, in which case the credit for the
contribution must be made at a price not in excess of the fair market
value.
|
A
determination of fair market value must be:
(i) |
supported
by an appraisal from an Independent Expert;
and
|
(ii) |
maintained
in the Partnership’s records for six years along with associated
supporting information.
|
18
4.01(a)(5).
The
Managing General Partner, Operator or Their Affiliates’ Rights in the Remainder
Interests.
Subject
to the provisions of §4.03(d) and its subsections, to the extent the Partnership
does not acquire a full interest in a Lease from the Managing General Partner
or
its Affiliates, the remainder of the interest in the Lease may be held by the
Managing General Partner or its Affiliates. They may either:
(i) |
retain
and exploit the remaining interest for their own account; or
|
(ii) |
sell
or otherwise dispose of all or a part of the remaining interest.
|
Profits
from the
exploitation and/or disposition of their retained interests in the Leases shall
be for the benefit of the Managing General Partner
or its
Affiliates
to the
exclusion of the Partnership.
4.01(a)(6).
No
Breach of Duty.
Subject
to the provisions of §4.03 and its subsections, acquisition of Leases from the
Managing General Partner, the Operator or their Affiliates shall not be
considered a breach of any obligation owed by them to the Partnership or the
Participants.
4.01(b).
No
Overriding Royalty Interests.
Neither
the Managing General Partner, the Operator nor any Affiliate shall retain any
Overriding Royalty Interest on the Leases acquired by the
Partnership.
4.01(c).
Title
and Nominee Arrangements.
4.01(c)(1).
Legal
Title.
Legal
title to all Leases acquired by the Partnership shall be held on a permanent
basis in the name of the Partnership. However, Partnership properties may be
held temporarily in the name of:
(i) |
the
Managing General Partner;
|
(ii) |
the
Operator;
|
(iii) |
their
Affiliates; or
|
(iv) |
in
the name of any nominee designated by the Managing General Partner
to
facilitate the acquisition of the
properties.
|
4.01(c)(2).
Managing
General Partner’s Discretion.
The
Managing General Partner shall take the steps which are necessary in its best
judgment to render title to the Leases to be acquired by the Partnership
acceptable for the purposes of the Partnership. The Managing General Partner
shall be free, however, to use its own best judgment in waiving title
requirements.
The
Managing General Partner shall not be liable to the Partnership or to the other
parties for any mistakes of judgment; nor shall the Managing
General Partner be deemed to be making any warranties or representations,
express or implied, as to the validity or
merchantability of the title to the Leases assigned to the Partnership or the
extent of the interest covered thereby except as otherwise provided in the
Drilling and Operating Agreement.
4.01(c)(3).
Commencement
of Operations.
The
Partnership shall not begin operations on the Leases acquired by the Partnership
unless the Managing General Partner is satisfied that necessary title
requirements have been satisfied.
4.02.
Conduct
of Operations.
19
4.02(a).
In
General.
The
Managing General Partner shall establish a program of operations for the
Partnership. Subject to the limitations contained in Article III of this
Agreement concerning the maximum Capital Contribution which can be required
of a
Limited Partner, the Managing General Partner, the Limited Partners, and the
Investor General Partners agree to participate in the program so established
by
the Managing General Partner.
4.02(b).
Management.
Subject
to any restrictions contained in this Agreement, the Managing General Partner
shall exercise full control over all operations of the Partnership.
4.02(c).
General
Powers of the Managing General Partner.
4.02(c)(1).
In
General.
Subject
to the provisions of §4.03 and its subsections, and to any authority which may
be granted the Operator under §4.02(c)(3)(b), the Managing General Partner shall
have full authority to do all things deemed necessary or desirable by it in
the
conduct of the business of the Partnership. Without limiting the generality
of
the foregoing, the Managing General Partner is expressly authorized to engage
in:
(i) |
the
making of all determinations of which Leases, xxxxx and operations
will be
participated in by the Partnership, which
includes:
|
(a) |
which
Leases are developed;
|
(b) |
which
Leases are abandoned; or
|
(c) |
which
Leases are sold or assigned to other parties, including other investor
ventures organized by the Managing General Partner, the Operator,
or any
of their Affiliates;
|
(ii) |
the
negotiation and execution on any terms deemed desirable in its sole
discretion of any contracts, conveyances, or other instruments, considered
useful to the conduct of the operations or the implementation of
the
powers granted it under this Agreement, including, without
limitation:
|
(a) |
the
making of agreements for the conduct of operations, including agreements
and financial instruments relating to hedging the Partnership’s natural
gas and oil;
|
(b) |
the
exercise of any options, elections, or decisions under any such
agreements; and
|
(c) |
the
furnishing of equipment, facilities, supplies and material, services,
and
personnel;
|
(iii) |
the
exercise, on behalf of the Partnership or the parties, as the Managing
General Partner in its sole judgment deems best, of all rights, elections
and options granted or imposed by any agreement, statute, rule,
regulation, or order;
|
(iv) |
the
making of all decisions concerning the desirability of payment, and
the
payment or supervision of the payment, of all delay rentals and shut-in
and minimum or advance royalty
payments;
|
(v) |
the
selection of full or part-time employees and outside consultants
and
contractors and the determination of their compensation and other
terms of
employment or hiring;
|
(vi) |
the
maintenance of insurance for the benefit of the Partnership and the
parties as it deems necessary, but in no event less in amount or
type than
the following:
|
20
(a) |
worker’s
compensation insurance in full compliance with the laws of the
Commonwealth of Pennsylvania and any other applicable state laws;
|
(b) |
liability
insurance, including automobile, which has a $1,000,000 combined
single
limit for bodily injury and property damage in any one accident or
occurrence and in the aggregate; and
|
(c) |
liability
and excess liability insurance as to bodily injury and property damage
with combined limits of $50,000,000 during drilling operations and
thereafter, per occurrence or accident and in the aggregate, which
includes $1,000,000 of seepage, pollution and contamination insurance
which protects and defends the insured against property damage or
bodily
injury claims from third-parties, other than a co-owner of the Working
Interest, alleging seepage, pollution or contamination damage resulting
from a pollution incident. The excess liability insurance shall be
in
place and effective no later than the date drilling operations begin
and,
for purposes of satisfying this requirement, the Partnership shall
have
the benefit of the Managing General Partner’s $50,000,000 liability
insurance on the same basis as the Managing General Partner and its
Affiliates, including the Managing General Partner’s other
Programs;
|
(vii) |
the
use of the funds and revenues of the Partnership, and the borrowing
on
behalf of, and the loan of money to, the Partnership, on any terms
it sees
fit, for any purpose, including without
limitation:
|
(a) |
the
conduct or financing, in whole or in part, of the drilling and other
activities of the Partnership;
|
(b) |
the
conduct of additional operations; and
|
(c) |
the
repayment of any borrowings or loans used initially to finance these
operations or activities;
|
(viii) |
the
disposition, hypothecation, sale, exchange, release, surrender,
reassignment or abandonment of any or all assets of the Partnership,
including without limitation, the Leases, xxxxx, equipment and production
therefrom, provided that the sale of all or substantially all of
the
assets of the Partnership shall only be made as provided in
§4.03(d)(6);
|
(ix) |
the
formation of any further limited or general partnership, tax partnership,
joint venture, or other relationship which it deems desirable with
any
parties who it, in its sole and absolute discretion, selects, including
any of its Affiliates;
|
(x) |
the
control of any matters affecting the rights and obligations of the
Partnership, including:
|
(a) |
the
employment of attorneys to advise and otherwise represent the
Partnership;
|
(b) |
the
conduct of litigation and other incurring of legal expense; and
|
(c) |
the
settlement of claims and
litigation;
|
21
(xi) |
the
operation of producing xxxxx drilled on the Leases or on a Prospect
which
includes any part of the Leases;
|
(xii) |
the
exercise of the rights granted to it under the power of attorney
created
under this Agreement; and
|
(xiii) |
the
incurring of all costs and the making of all expenditures in any
way
related to any of the foregoing.
|
4.02(c)(2).
Scope
of Powers.
The
Managing General Partner’s powers shall extend to any operation participated in
by the Partnership or affecting its Leases, or other property or assets,
irrespective of whether or not the Managing General Partner is designated
operator of the operation by any outside persons participating
therein.
4.02(c)(3).
Delegation
of Authority.
4.02(c)(3)(a).
In
General.
The
Managing General Partner may subcontract and delegate all or any part of its
duties under this Agreement to any entity chosen by it, including an entity
related to it. The party shall have the same powers in the conduct of the duties
as would the Managing General Partner. The delegation, however, shall not
relieve the Managing General Partner of its responsibilities under this
Agreement.
4.02(c)(3)(b).
Delegation
to Operator.
The
Managing General Partner is specifically authorized to delegate any or all
of
its duties to the Operator by executing the Drilling and Operating Agreement.
This delegation shall not relieve the Managing General Partner of its
responsibilities under this Agreement.
In
no
event shall any consideration received for operator services be in excess of
competitive rates or duplicative of any consideration or reimbursements received
under this Agreement. The Managing General Partner may not benefit by
interpositioning itself between the Partnership and the actual provider of
operator services.
4.02(c)(4).
Related
Party Transactions.
Subject
to the provisions of §4.03 and its subsections, any transaction which the
Managing General Partner is authorized to enter into on behalf of the
Partnership under the authority granted in this section and its subsections,
may
be entered into by the Managing General Partner with itself or with any other
general partner, the Operator, or any of their Affiliates.
4.02(d).
Additional
Powers.
In
addition to the powers granted the Managing General Partner under §4.02(c) and
its subsections or elsewhere in this Agreement, the Managing General Partner,
when specified, shall have the following additional express powers.
4.02(d)(1).
Drilling
Contracts.
All
Partnership Xxxxx shall be drilled
under the Drilling and Operating Agreement at Cost plus an
unaccountable, fixed payment reimbursement to the Managing General Partner
of
$15,000 per well for the Participants’ share of the Managing General Partner’s
general and administrative overhead
plus
15%.
The
Managing General Partner or its Affiliates, as drilling contractor, may not
do
the following:
(i) |
receive
a rate that is not competitive with the rates charged by unaffiliated
contractors in the same geographic
region;
|
(ii) |
enter
into a turnkey drilling contract with the Partnership;
|
(iii) |
profit
by drilling in contravention of its fiduciary obligations to the
Partnership; or
|
22
(iv) |
benefit
by interpositioning itself between the Partnership and the actual
provider
of drilling contractor services.
|
4.02(d)(2).
Power
of Attorney.
4.02(d)(2)(a).
In
General.
Each
Participant appoints the Managing General Partner his true and lawful
attorney-in-fact for him and in his name, place, and xxxxx and for his use
and
benefit, from time to time:
(i) |
to
create, prepare, complete, execute, file, swear to, deliver, endorse,
and
record any and all documents, certificates, government reports, or
other
instruments as may be required by law, or are necessary to amend
this
Agreement as authorized under the terms of this Agreement, or to
qualify
the Partnership as a limited partnership or partnership in commendam
and
to conduct business under the laws of any jurisdiction in which the
Managing General Partner elects to qualify the Partnership or conduct
business; and
|
(ii) |
to
create, prepare, complete, execute, file, swear to, deliver, endorse
and
record any and all instruments, assignments, security agreements,
financing statements, certificates, and other documents as may be
necessary from time to time to implement the borrowing powers granted
under this Agreement.
|
4.02(d)(2)(b).
Further
Action.
Each
Participant authorizes the attorney-in-fact to take any further action which
the
attorney-in-fact considers necessary or advisable in connection with any of
the
foregoing powers and rights granted the Managing General Partner under this
section and its subsections. Each party acknowledges that the power of attorney
granted under subsection 4.02(d)(2)(a):
(i) |
is
a special power of attorney coupled with an interest and is irrevocable;
and
|
(ii) |
shall
survive the assignment by the Participant of the whole or a portion
of his
Units; except when the assignment is of all of the Participant’s Units and
the purchaser, transferee, or assignee of the Units is admitted as
a
successor Participant, the power of attorney shall survive the delivery
of
the assignment for the sole purpose of enabling the attorney-in-fact
to
execute, acknowledge, and file any agreement, certificate, instrument
or
document necessary to effect the
substitution.
|
4.02(d)(2)(c).
Power
of Attorney to Operator.
The
Managing General Partner is hereby authorized to grant a Power of Attorney
to
the Operator on behalf of the Partnership.
4.02(e)(1).
Power
to Borrow or Use Partnership Revenues.
4.02(e)(1)(a).
In
General.
If
additional funds over the Participants’ Capital Contributions are needed for
Partnership operations, then the Managing General Partner may:
(i) |
use
Partnership revenues for such purposes; or
|
(ii) |
the
Managing General Partner and its Affiliates may advance to the Partnership
the funds necessary under §4.03(d)(8)(b), although they are not obligated
to advance the funds to the
Partnership.
|
23
4.02(e)(1)(b).
Limitation
on Borrowing. The
borrowings, other than credit transactions on open account customary in the
industry to obtain goods and services, shall be subject to the following
limitations:
(i) |
the
borrowings must be without recourse to the Investor General Partners
and
the Limited Partners except as otherwise provided in this Agreement;
and
|
(ii) |
the
amount that may be borrowed at any one time may not exceed an amount
equal
to 5% of the Partnership’s subscription proceeds.
|
4.02(f).
Tax
Matters Partner.
4.02(f)(1).
Designation
of Tax Matters Partner.
The
Managing General Partner is hereby designated the Tax Matters Partner of the
Partnership under Section 6231(a)(7) of the Code. The Managing General Partner
is authorized to act in this capacity on behalf of the Partnership and the
Participants and to take any action, including settlement or litigation, which
it in its sole discretion deems to be in the best interest of the Partnership.
4.02(f)(2).
Costs
Incurred by Tax Matters Partner.
Costs
incurred by the Tax Matters Partner shall be considered a Direct Cost of the
Partnership.
4.02(f)(3).
Notice
to Participants of IRS Proceedings.
The Tax
Matters Partner shall notify all Participants of any partnership administrative
or other legal proceedings involving the IRS, and thereafter shall furnish
all
Participants periodic reports at least quarterly on the status of the
proceedings.
4.02(f)(4).
Participant
Restrictions.
Each
Participant agrees as follows:
(i) |
he
will not file the statement described in Section 6224(c)(3)(B) of
the Code
prohibiting the Managing General Partner as the Tax Matters Partner
for
the Partnership from entering into a settlement on his behalf with
respect
to partnership items, as that term is defined in Section 6231(a)(3)
of
Code, of the Partnership;
|
(ii) |
he
will not form or become and exercise any rights as a member of a
group of
Partners having a 5% or greater interest in the profits of the Partnership
under Section 6223(b)(2) of the Code; and
|
(iii) |
the
Managing General Partner is authorized to file a copy of this Agreement,
or pertinent portions of this Agreement, with the IRS under Section
6224(b) of the Code if necessary to perfect the waiver of rights
under
this subsection.
|
4.03.
General
Rights and Obligations of the Participants and Restricted and Prohibited
Transactions.
4.03(a)(1).
Limited
Liability of Limited Partners.
Limited
Partners shall not be bound by the obligations of the Partnership other than
as
provided under the Delaware Revised Uniform Limited Partnership Act. Limited
Partners shall not be personally liable for any debts of the Partnership or
any
of the obligations or losses of the Partnership beyond the amount of the
subscription price designated on the Subscription Agreement executed by each
respective Limited Partner unless:
(i) |
they
also subscribe to the Partnership as Investor General Partners;
or
|
(ii) |
in
the case of the Managing General Partner, it purchases Limited Partner
Units.
|
24
4.03(a)(2).
No
Management Authority of Participants.
Participants, other than the Managing General Partner if it buys Units, shall
have no power over the conduct of the affairs of the Partnership. No
Participant, other than the Managing General Partner if it buys Units, shall
take part in the management of the business of the Partnership, or have the
power to sign for or to bind the Partnership.
4.03(b).
Reports
and Disclosures.
4.03(b)(1).
Annual
Reports and Financial Statements.
Beginning with the calendar year in which the Partnership had its Offering
Termination Date, the Partnership shall provide each Participant an annual
report within 120 days after the close of that calendar year, and beginning
with
the following calendar year, a report within 75 days after the end of the first
six months of its calendar year, containing except as otherwise indicated,
at
least the information set forth below:
(i) |
Audited
financial statements of the Partnership, including a balance sheet
and
statements of income, cash flow, and Partners’ equity, which shall be
prepared on an accrual basis in accordance with generally accepted
accounting principles with a reconciliation with respect to information
furnished for income tax purposes and accompanied by an auditor’s report
containing an opinion of an independent public accountant selected
by the
Managing General Partner stating that his audit was made in accordance
with generally accepted auditing standards and that in his opinion
the
financial statements present fairly the financial position, results
of
operations, partners’ equity, and cash flows in accordance with generally
accepted accounting principles. Semiannual reports are not required
to be
audited.
|
(ii) |
A
summary itemization, by type and/or classification of the total fees
and
compensation, including any unaccountable, fixed payment reimbursements
for Administrative Costs and Operating Costs, paid by, or on behalf
of,
the Partnership to the Managing General Partner, the Operator, and
their
Affiliates. In addition, Participants shall be provided the percentage
that the annual unaccountable, fixed fee reimbursement for Administrative
Costs bears to annual Partnership revenues.
|
Also,
the
independent certified public accountant shall provide written attestation
annually, which will be included in the annual report, that the method used
to
make allocations of the Partnership’s Administrative Costs was consistent with
the method described in §4.04(a)(2)(c) of this Agreement and that the total
amount of Administrative Costs allocated did not materially exceed the amounts
actually incurred by the Managing General Partner in providing administrative
services to, or on behalf of, the Partnership, including administrative services
provided to the Partnership by the Managing General Partner’s Affiliates or
independent third-parties at the sole expense of the Managing General Partner.
If the Managing General Partner subsequently decides to allocate Administrative
Costs in a manner different from that described in §4.04(a)(2)(c) of this
Agreement, then the change must be reported to the Participants together with
an
explanation of the reason for the change and the basis used for determining
the
reasonableness of the new allocation method.
(iii) |
A
description of each Prospect in which the Partnership owns an interest,
including:
|
(a) |
the
cost, location, and number of acres under Lease; and
|
(b) |
the
Working Interest owned in the Prospect by the Partnership.
|
Succeeding
reports, however, must only contain material changes, if any, regarding the
Prospects.
25
(iv) |
A
list of the xxxxx drilled or abandoned by the Partnership during
the
period of the report, indicating:
|
(a) |
whether
each of the xxxxx has or has not been completed;
|
(b) |
a
statement of the cost of each well completed or abandoned; and
|
(c) |
justification
for xxxxx abandoned after production has
begun.
|
(v) |
A
description of all Farmouts, farmins, and joint ventures, made during
the
period of the report, including:
|
(a) |
the
Managing General Partner’s justification for the arrangement; and
|
(b) |
a
description of the material terms.
|
(vi) |
A
schedule reflecting:
|
(a) |
the
total Partnership costs;
|
(b) |
the
costs paid by the Managing General Partner and the costs paid by
the
Participants;
|
(c) |
the
total Partnership revenues;
|
(d) |
the
revenues received or credited to the Managing General Partner and
the
revenues received and credited to the Participants;
and
|
(e) |
a
reconciliation of the expenses and revenues in accordance with the
provisions of Article V.
|
Additionally,
on request the Managing General Partner will provide the information specified
by Form 10-Q (if such report is required to be filed with the SEC) within 45
days after the close of each quarterly fiscal period.
4.03(b)(2).
Tax
Information.
The
Partnership shall, by March 15 of each year, prepare, or supervise the
preparation of, and transmit to each Participant the information needed for
the
Participant to file the following:
(i) |
his
federal income tax return;
|
(ii) |
any
required state income tax return; and
|
(iii) |
any
other reporting or filing requirements imposed by any governmental
agency
or authority.
|
4.03(b)(3).
Reserve
Report.
Beginning with the second calendar year after the Offering Termination Date
and
every year thereafter, the Partnership shall provide to each Participant the
following:
(i) |
a
summary of the computation of the Partnership’s total natural gas and oil
Proved Reserves;
|
(ii) |
a
summary of the computation of the present worth of the reserves determined
using:
|
26
(a) |
a
discount rate of 10%;
|
(b) |
a
constant price for the oil; and
|
(c) |
basing
the price of natural gas on the existing natural gas
contracts;
|
(iii) |
a
statement of each Participant’s interest in the reserves;
and
|
(iv) |
an
estimate of the time required for the extraction of the reserves
with a
statement that because of the time period required to extract the
reserves
the present value of revenues to be obtained in the future is less
than if
immediately receivable.
|
The
reserve computations shall be based on engineering reports prepared by the
Managing General Partner and reviewed by an Independent Expert.
Also,
if
any event reduces the Partnership’s Proved Reserves by 10% or more, excluding:
(i) |
a
reduction of reserves as a result of normal production;
|
(ii) |
sales
of reserves; or
|
(iii) |
natural
gas or oil price changes;
|
then
a
computation and estimate of the amount of the reduction in reserves must be
sent
to each Participant within 90 days after the Managing General Partner determines
that such a reduction in reserves has occurred.
4.03(b)(4).
Cost
of Reports.
The cost
of all reports described in this §4.03(b) shall be paid by the Partnership as
Direct Costs.
4.03(b)(5).
Participant
Access to Records.
The
Participants and/or their representatives shall be permitted access to all
Partnership records, provided that access to the list of Participants shall
be
subject to §4.03(b)(7) below. The Participant may inspect and copy any of the
records after giving adequate notice to the Managing General Partner at any
reasonable time.
Notwithstanding
the foregoing, the Managing General Partner may keep logs, well reports, and
other drilling and operating data confidential for reasonable periods of time.
The Managing General Partner may release information concerning the operations
of the Partnership to the sources that are customary in the industry or required
by rule, regulation, or order of any regulatory body.
4.03(b)(6).
Required
Length of Time to Hold Records.
The
Managing General Partner must maintain and preserve during the term of the
Partnership and for six years thereafter all accounts, books and other relevant
documents which include:
(i) |
a
record that a Participant meets the suitability standards established
in
connection with an investment in the Partnership; and
|
(ii) |
any
appraisal of the fair market value of the Leases as set forth in
§4.01(a)(4) or fair market value of any producing property as set
forth in
§4.03(d)(3).
|
27
4.03(b)(7).
Participant
Lists.
The
following provisions apply regarding access to the list of Participants:
(i) |
an
alphabetical list of the names, addresses, and business telephone
numbers
of the Participants along with the number of Units held by each of
them
(the “Participant List”) must be maintained as a part of the Partnership’s
books and records and be available for inspection by any Participant
or
his designated agent at the home office of the Partnership on the
Participant’s request;
|
(ii) |
the
Participant List must be updated at least quarterly to reflect changes
in
the information contained in the Participant List;
|
(iii) |
a
copy of the Participant List must be mailed to any Participant requesting
the Participant List within 10 days of the written request, printed
in
alphabetical order on white paper, and in a readily readable type
size in
no event smaller than 10-point type and a reasonable charge for copy
work
will be charged by the Partnership;
|
(iv) |
the
purposes for which a Participant may request a copy of the Participant
List include, without limitation, matters relating to Participant’s voting
rights under this Agreement and the exercise of Participant’s rights under
the federal proxy laws; and
|
(v) |
if
the Managing General Partner neglects or refuses to exhibit, produce,
or
mail a copy of the Participant List as requested, the Managing General
Partner shall be liable to any Participant requesting the list for
the
costs, including attorneys fees, incurred by that Participant for
compelling the production of the Participant List, and for actual
damages
suffered by any Participant by reason of the refusal or neglect.
It shall
be a defense that the actual purpose and reason for the request for
inspection or for a copy of the Participant List is to secure the
list of
Participants or other information for the purpose of selling the
list or
information or copies of the list, or of using the same for a commercial
purpose other than in the interest of the applicant as a Participant
relative to the affairs of the Partnership. The Managing General
Partner
will require the Participant requesting the Participant List to represent
in writing that the list was not requested for a commercial purpose
unrelated to the Participant’s interest in the Partnership. The remedies
provided under this subsection to Participants requesting copies
of the
Participant List are in addition to, and shall not in any way limit,
other
remedies available to Participants under federal law or the laws
of any
state.
|
4.03(b)(8).
State
Filings.
Concurrently with their transmittal to Participants, and as required, the
Managing General Partner shall file a copy of each report provided for in this
§4.03(b) with:
(i) |
the
California Commissioner of Corporations;
|
(ii) |
the
Arizona Corporation Commission;
|
(iii) |
the
Alabama Securities Commission; and
|
(iv) |
the
securities commissions of other states which request the
report.
|
4.03(c).
Meetings
of Participants.
4.03(c)(1).
Procedure
for a Participant Meeting.
28
4.03(c)(1)(a).
Meetings
May Be Called by Managing General Partner or Participants.
Meetings
of the Participants may be called as follows:
(i) |
by
the Managing General Partner; or
|
(ii) |
by
Participants whose Units equal 10% or more of the total Units for
any
matters for which Participants may vote.
|
The
call
for a meeting by Participants shall be deemed to have been made on receipt
by
the Managing General Partner of a written request from holders of the requisite
percentage of Units stating the purpose(s) of the meeting.
4.03(c)(1)(b).
Notice
Requirement. The
Managing General Partner shall deposit in the United States mail within 15
days
after the receipt of the request, written notice to all Participants of the
meeting and the purpose of the meeting. The meeting shall be held on a date
not
less than 30 days nor more than 60 days after the date of the mailing of the
notice, at a reasonable time and place.
Notwithstanding
the foregoing, the date for notice of the meeting may be extended for a period
of up to 60 days if, in the opinion of the Managing General Partner, the
additional time is necessary to permit preparation of proxy or information
statements or other documents required to be delivered in connection with the
meeting by the SEC or other regulatory authorities.
4.03(c)(1)(c).
May
Vote by Proxy.
Participants shall have the right to vote at any Participant meeting
either:
(i) |
in
person; or
|
(ii) |
by
proxy.
|
4.03(c)(2).
Special
Voting Rights.
At the
request of Participants whose Units equal 10% or more of the total Units, the
Managing General Partner shall call for a vote by Participants. Each Unit is
entitled to one vote on all matters, and each fractional Unit is entitled to
that fraction of one vote equal to the fractional interest in the Unit.
Participants whose Units equal a majority of the total Units may, without the
concurrence of the Managing General Partner or its Affiliates, vote
to:
(i) |
dissolve
the Partnership;
|
(ii) |
remove
the Managing General Partner and elect a new Managing General
Partner;
|
(iii) |
elect
a new Managing General Partner if the Managing General Partner elects
to
withdraw from the Partnership;
|
(iv) |
remove
the Operator and elect a new
Operator;
|
(v) |
approve
or disapprove the sale of all or substantially all of the assets
of the
Partnership;
|
(vi) |
cancel
any contract for services with the Managing General Partner, the
Operator,
or their Affiliates without penalty on 60 days notice;
and
|
(vii) |
amend
this Agreement; provided however:
|
29
(a) |
any
amendment may not increase the duties or liabilities of any Participant
or
the Managing General Partner or increase or decrease the profit or
loss
sharing or required Capital Contribution of any Participant or the
Managing General Partner without the approval of the Participant
or the
Managing General Partner; and
|
(b) |
any
amendment may not affect the classification of Partnership income
and loss
for federal income tax purposes without the unanimous approval of
all
Participants.
|
4.03(c)(3).
Restrictions on Managing General Partner’s Voting Rights.
With
respect to Units owned by the Managing General Partner or its Affiliates, the
Managing General Partner and its Affiliates may vote or consent on all matters
other than the following:
(i) |
the
matters set forth in §4.03(c)(2)(ii) and (iv) above; or
|
(ii) |
any
transaction between the Partnership and the Managing General Partner
or
its Affiliates.
|
In
determining the requisite percentage in interest of Units necessary to approve
any Partnership matter on which the Managing General Partner and its Affiliates
may not vote or consent, any Units owned by the Managing General Partner and
its
Affiliates shall not be included.
4.03(c)(4).
Restrictions
on Limited Partner Voting Rights.
The
exercise by the Limited Partners of the rights granted Participants
under §4.03(c), except for the special voting rights granted Participants under
§4.03(c)(2), shall be subject to the
prior
legal determination that the grant or exercise of the powers will not adversely
affect the limited liability of Limited Partners. Notwithstanding the foregoing,
if in the opinion of counsel to the Partnership the legal determination is
not
necessary under Delaware law to maintain the limited liability of the Limited
Partners, then it shall not be required. A legal determination under this
paragraph may be made either pursuant to:
(i) |
an
opinion of counsel, the counsel being independent of the Partnership
and
selected on the vote of Limited Partners whose Units equal a majority
of
the total Units held by Limited Partners; or
|
(ii) |
a
declaratory judgment issued by a court of competent jurisdiction.
|
The
Investor General Partners may exercise the rights granted to the Participants
whether or not the Limited Partners can participate in the vote if the Investor
General Partners represent the requisite percentage of Units necessary to take
the action.
4.03(d).
Transactions
with the Managing General Partner.
4.03(d)(1).
Transfer
of Equal
Proportionate Interest.
When the
Managing General Partner or an Affiliate (excluding another Program in which
the
interest of the Managing General Partner or its Affiliates is substantially
similar to or less than their interest in the Partnership) sells, transfers
or
conveys any natural gas, oil or other mineral interests or property to the
Partnership, it must, at the same time, sell, transfer or convey to the
Partnership an equal proportionate interest in all its other property in the
same Prospect. Notwithstanding, a Prospect shall be deemed to consist of the
drilling or spacing unit on which the well will be drilled by the Partnership,
which is the minimum area permitted by state law or local practice on which
one
well may be drilled, if the following two conditions are met:
30
(i) |
the
geological feature to which the well will be drilled contains Proved
Reserves; and
|
(ii) |
the
drilling or spacing unit protects against drainage.
|
With
respect to a Prospect located in Ohio, Pennsylvania and New York on which a
well
will be drilled by the Partnership to test the Clinton/Xxxxxx geological
formation or the Mississippian and/or Upper Devonian Sandstone reservoirs,
and
with respect to a Prospect located in Anderson, Campbell, Xxxxxx, Xxxxx and
Xxxxx Counties, Tennessee on which a well will be drilled to test the
Mississippian carbonate or Devonian Shale reservoirs, a Prospect shall be deemed
to consist of the drilling and spacing unit if it meets the test in the
preceding sentence. Additionally, for a period of five years after the drilling
of the Partnership Well neither the Managing General Partner nor its Affiliates
may drill any well:
(i) |
in
the Clinton/Xxxxxx geological formation within 1,650 feet of an existing
Partnership Well in Pennsylvania or within 1,000 feet of an existing
Partnership Well in Ohio; or
|
(ii) |
in
the Mississippian and/or Upper Devonian Sandstone reservoirs in Fayette,
Xxxxxx and Xxxxxxxxxxxx Counties, Pennsylvania, within 1,000 feet
from a
producing Partnership Well, although the Partnership may drill a
new well
or re-enter an existing well which is closer than 1,000 feet to a
plugged
and abandoned well.
|
If
the
Partnership abandons its interest in a well, then this restriction will continue
for one year following the abandonment.
If
the
area constituting the Partnership’s Prospect is subsequently enlarged to
encompass any area in which the Managing General Partner or an Affiliate
(excluding another Program in which the interest of the Managing General Partner
or its Affiliates is substantially similar to or less than their interest in
the
Partnership) owns a separate property interest and the activities of the
Partnership were material in establishing the existence of Proved Undeveloped
Reserves that are attributable to the separate property interest, then the
separate property interest or a portion thereof must be sold, transferred,
or
conveyed to the Partnership as set forth in this section and §§4.01(a)(4) and
4.03(d)(2).
Notwithstanding
the foregoing, Prospects in the Clinton/Xxxxxx geological formation, the
Mississippian and/or Upper Devonian Sandstone reservoirs, the Mississippian
carbonate or Devonian Shale reservoirs, or any other formation or reservoir
shall not be enlarged or contracted if the Prospect was limited to the drilling
or spacing unit because the well was being drilled to Proved Reserves in the
geological formation and the drilling or spacing unit protected against
drainage.
4.03(d)(2).
Transfer
of Less than the Managing General Partner’s and its Affiliates’ Entire
Interest.
A sale,
transfer or a conveyance
to the Partnership of less than all of the ownership of the Managing General
Partner or an Affiliate (excluding another
Program
in which the interest of the Managing General Partner or its Affiliates is
substantially similar to or less than their interest in the Partnership) in
any
Prospect shall not be made unless:
(i) |
the
interest retained by the Managing General Partner or the Affiliate
is a
proportionate Working Interest;
|
(ii) |
the
respective obligations of the Managing General Partner or its Affiliates
and the Partnership are substantially the same after the sale of
the
interest by the Managing General Partner or its Affiliates;
and
|
31
(iii) |
the
Managing General Partner's interest in revenues does not exceed the
amount
proportionate to its retained Working Interest.
|
This
section does not prevent the Managing General Partner or its Affiliates from
subsequently dealing with their retained interest as they may choose with
unaffiliated parties or Affiliated partnerships.
4.03(d)(3).
Limitations
on Sale of Undeveloped and Developed Leases to the Managing General Partner.
Other
than another Program managed by the Managing General Partner and its Affiliates
as set forth in §§4.03(d)(5) and 4.03(d)(9), the Managing General Partner and
its Affiliates shall not receive a Farmout or purchase any undeveloped Leases
from the Partnership other than at the higher of Cost or fair market
value.
The
Managing General Partner and its Affiliates, other than an Affiliated Income
Program, shall not purchase any producing natural gas or oil property from
the
Partnership unless:
(i) |
the
sale is in connection with the liquidation of the Partnership;
or
|
(ii) |
the
Managing General Partner’s well supervision fees under the Drilling and
Operating Agreement for the well have exceeded the net revenues of
the
well, determined without regard to the Managing General Partner’s well
supervision fees for the well, for a period of at least three consecutive
months.
|
In
both
(i) and (ii), the sale must be at fair market value supported by an appraisal
of
an Independent Expert selected by the Managing General Partner.
4.03(d)(4).
Limitations
on Activities of the Managing General Partner and its Affiliates on Leases
Acquired by the Partnership.
During a
period of five years after the Offering Termination Date of the Partnership,
if
the Managing General Partner or any of its Affiliates (excluding another Program
in which the interest of the Managing General Partner or its Affiliates is
substantially similar to or less than their interest in the Partnership)
proposes to acquire an interest from an unaffiliated person in a Prospect in
which the Partnership possesses an interest or in a Prospect in which the
Partnership’s interest has been terminated without compensation within one year
preceding the proposed acquisition, then the following conditions shall
apply:
(i) |
if
the Managing General Partner or the Affiliate (excluding another
Program
in which the interest of the Managing General Partner or its Affiliates
is
substantially similar to or less than their interest in the Partnership)
does not currently own property in the Prospect separately from the
Partnership, then neither the Managing General Partner nor the Affiliate
shall be permitted to purchase an interest in the Prospect;
and
|
(ii) |
if
the Managing General Partner or the Affiliate (excluding another
Program
in which the interest of the Managing General Partner or its Affiliates
is
substantially similar to or less than their interest in the Partnership)
currently owns a proportionate interest in the Prospect separately
from
the Partnership, then the interest to be acquired shall be divided
between
the Partnership and the Managing General Partner or the Affiliate
in the
same proportion as is the other property in the Prospect. Provided,
however, if cash or financing is not available to the Partnership
to
enable it to complete a purchase of the additional interest to which
it is
entitled, then neither the Managing General Partner nor the Affiliate
shall be permitted to purchase any additional interest in the
Prospect.
|
32
4.03(d)(5).
Transfer
of Leases Between Affiliated Limited Partnerships. The
transfer of an undeveloped Lease from the Partnership to another drilling
Program sponsored or managed by the Managing General Partner or its Affiliates
must be made at fair market value if the undeveloped Lease has been held for
more than two years. Otherwise, if the Managing General Partner deems it to
be
in the best interest of the Partnership, the transfer may be made at
Cost.
An
Affiliated Income Program may purchase a producing natural gas and oil property
from the Partnership at any time at:
(i) |
fair
market value as supported by an appraisal from an Independent Expert
if
the property has been held by the Partnership for more than six months
or
significant expenditures have been made in connection with the property;
or
|
(ii) |
Cost
as adjusted for intervening operations if the Managing General Partner
deems it to be in the best interest of the
Partnership.
|
However,
these prohibitions shall not apply to joint ventures or Farmouts among
Affiliated partnerships, provided that:
(i) |
the
respective obligations and revenue sharing of all parties to the
transaction are substantially the same; and
|
(ii) |
the
compensation arrangement or any other interest or right of either
the
Managing General Partner or its Affiliates is the same in each Affiliated
partnership or if different, the aggregate compensation of the Managing
General Partner or the Affiliate is reduced to reflect the lower
compensation arrangement.
|
4.03(d)(6).
Sale
of All Assets. The
sale
of all or substantially all of the assets of the Partnership, including without
limitation, Leases, xxxxx, equipment and production therefrom, shall be made
only with the consent of Participants whose Units equal a majority of the total
Units.
4.03(d)(7).
Services.
4.03(d)(7)(a).
Competitive
Rates.
The
Managing General Partner and any Affiliate shall not render to the Partnership
any oil field, equipage, or other services nor sell or lease to the Partnership
any equipment or related supplies unless:
(i) |
the
person is engaged, independently of the Partnership and as an ordinary
and
ongoing business, in the business of rendering the services or selling
or
leasing the equipment and supplies to a substantial extent to other
persons in the natural gas and oil industry in addition to the
partnerships in which the Managing General Partner or an Affiliate
has an
interest; and
|
(ii) |
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.
|
33
If
the
person is not engaged in such a business, then the compensation, price or rental
shall be the Cost of the services, equipment or supplies to the person or the
competitive rate which could be obtained in the area, whichever is less.
4.03(d)(7)(b).
If
Not Disclosed in the Prospectus or This Agreement Then Services by the Managing
General Partner Must be Described in a Separate Contract and
Cancelable.
Any
services for which the Managing General Partner or an Affiliate is to receive
compensation other than those described in this Agreement or the Prospectus
shall be set forth in a written contract which precisely describes the services
to be rendered and all compensation to be paid. These contracts shall be
cancelable without penalty on 60 days written notice by Participants whose
Units
equal a majority of the total Units.
4.03(d)(8).
Loans.
4.03(d)(8)(a).
No
Loans from the Partnership.
No loans
or advances shall be made by the Partnership to the Managing General Partner
or
any Affiliate.
4.03(d)(8)(b).
Loans
to the Partnership.
Neither
the Managing General Partner nor any Affiliate shall loan money to the
Partnership if the interest to be charged exceeds either:
(i) |
the
Managing General Partner’s or the Affiliate’s interest cost; or
|
(ii) |
that
which would be charged to the Partnership, without reference to the
Managing General Partner’s or the Affiliate’s financial abilities or
guarantees, by unrelated lenders, on comparable loans for the same
purpose.
|
Neither
the Managing General Partner nor any Affiliate shall receive points or other
financing charges or fees, regardless of the amount, although the actual amount
of the charges incurred from third-party lenders may be reimbursed to the
Managing General Partner or the Affiliate.
4.03(d)(9).
Farmouts.
The
Managing General Partner shall not enter into a Farmout to avoid its paying
its
share of costs related to drilling an undeveloped Lease. The Partnership shall
not Farmout an undeveloped Lease or well activity to the Managing General
Partner or its Affiliates except as set forth in §4.03(d)(3). Notwithstanding,
this restriction shall not apply to Farmouts between the Partnership and another
partnership managed by the Managing General Partner or its Affiliates, either
separately or jointly, provided that the respective obligations and revenue
sharing of all parties to the transactions are substantially the same and the
compensation arrangement or any other interest or right of the Managing General
Partner or its Affiliates is the same in each partnership, or, if different,
the
aggregate compensation of the Managing General Partner and its Affiliates is
reduced to reflect the lower compensation agreement.
The
Partnership may Farmout an undeveloped lease or well activity only if the
Managing General Partner, exercising the standard of a prudent operator,
determines that:
(i) |
the
Partnership lacks the funds to complete the oil and gas operations
on the
Lease or well and cannot obtain suitable
financing;
|
(ii) |
drilling
on the Lease or the intended well activity would concentrate excessive
funds in one location, creating undue risks to the
Partnership;
|
(iii) |
the
Leases or well activity have been downgraded by events occurring
after
assignment to the Partnership so that development of the Leases or
well
activity would not be desirable; or
|
34
(iv) |
the
best interests of the Partnership would be
served.
|
If
the
Partnership Farmouts a Lease or well activity, the Managing General Partner
must
retain on behalf of the Partnership the economic interests and concessions
as a
reasonably prudent oil and gas operator would or could retain under the
circumstances prevailing at the time, consistent with industry practices.
4.03(d)(10).
No
Compensating Balances.
Neither
the Managing General Partner nor any Affiliate shall use the Partnership’s funds
as compensating balances for its own benefit.
4.03(d)(11).
Future
Production.
Neither
the Managing General Partner nor any Affiliate shall commit the future
production of a well developed by the Partnership exclusively for its own
benefit.
4.03(d)(12).
Marketing
Arrangements.
Subject
to §4.06(c), all benefits from marketing arrangements or other relationships
affecting the property of the Managing General Partner or its Affiliates and
the
Partnership shall be fairly and equitably apportioned according to the
respective interests of each in the property. The Managing General Partner
shall
treat all xxxxx in a geographic area equally concerning to whom and at what
price the Partnership’s natural gas and oil will be sold and to whom and at what
price the natural gas and oil of other natural gas and oil Programs which the
Managing General Partner has sponsored or will sponsor will be sold. For
example, each seller of natural gas and oil in a given area will be paid a
weighted average selling price for all natural gas and oil sold in that
geographic area. The Managing General Partner, in its sole discretion, shall
determine what constitutes a geographic area.
4.03(d)(13).
Advance
Payments.
Advance
payments by the Partnership to the Managing General Partner and its Affiliates
are prohibited except when advance payments are required to secure the tax
benefits of prepaid Intangible Drilling Costs and for a business purpose.
4.03(d)(14).
No
Rebates. No
rebates or give-ups may be received by the Managing General Partner or any
Affiliate nor may the Managing General Partner or any Affiliate participate
in
any reciprocal business arrangements which would circumvent these
guidelines.
4.03(d)(15).
Participation
in Other Partnerships.
If the
Partnership participates in other partnerships or joint ventures (multi-tier
arrangements), then the terms of any of these arrangements shall not result
in
the circumvention of any of the requirements or prohibitions contained in this
Agreement, including the following:
(i) |
there
shall be no duplication or increase in Organization and Offering
Costs,
the Managing General Partner’s compensation, Partnership expenses or other
fees and costs;
|
(ii) |
there
shall be no substantive alteration in the fiduciary and contractual
relationship between the Managing General Partner and the Participants;
and
|
(iii) |
there
shall be no diminishment in the voting rights of the
Participants.
|
4.03(d)(16).
Roll-Up
Limitations.
4.03(d)(16)(a). Requirement
for Appraisal and Its Assumptions.
In
connection with a proposed Roll-Up, an appraisal of all Partnership
assets shall be obtained from a competent Independent Expert. If the appraisal
will be included in a prospectus used
to offer
securities of a Roll-Up Entity, then the appraisal shall be filed with the
SEC
and the Administrator as an exhibit to the registration statement for the
offering. Thus, an issuer using the appraisal shall be subject to liability
for
violation of Section 11 of the Securities Act of 1933 and comparable provisions
under state law for any material misrepresentations or material omissions in
the
appraisal.
35
Partnership
assets shall be appraised on a consistent basis. The appraisal shall be based
on
all relevant information, including current reserve estimates prepared by an
independent petroleum consultant, and shall indicate the value of the
Partnership’s assets as of a date immediately before the announcement of the
proposed Roll-Up transaction. The appraisal shall assume an orderly liquidation
of the Partnership’s assets over a 12-month period.
The
terms
of the engagement of the Independent Expert shall clearly state that the
engagement is for the benefit of the Partnership and the Participants. A summary
of the independent appraisal, indicating all material assumptions underlying
the
appraisal, shall be included in a report to the Participants in connection
with
a proposed Roll-Up.
4.03(d)(16)(b).
Rights
of Participants Who Vote Against Proposal.
In
connection with a proposed Roll-Up, Participants who vote “no” on the proposal
shall be offered the choice of:
(i) |
accepting
the securities of the Roll-Up Entity offered in the proposed Roll-Up;
or
|
(ii) |
one
of the following:
|
(a) |
remaining
as Participants in the Partnership and preserving their Units in
the
Partnership on the same terms and conditions as existed previously;
or
|
(b) |
receiving
cash in an amount equal to the Participants’ pro rata share of the
appraised value of the net assets of the Partnership based on their
respective number of Units.
|
4.03(d)(16)(c).
No
Roll-Up If Diminishment of Voting Rights.
The
Partnership shall not participate in any proposed Roll-Up which, if approved,
would result in the diminishment of any Participant’s voting rights under the
Roll-Up Entity’s chartering agreement.
In no event shall the democracy rights of Participants in the Roll-Up Entity
be
less than those provided for under§§4.03(c)(1)
and 4.03(c)(2) of this Agreement. If the Roll-Up Entity is a corporation, then
the democracy rights of Participants shall correspond to the democracy rights
provided for in this Agreement to the greatest extent possible.
4.03(d)(16)(d).
No
Roll-Up If Accumulation of Shares Would be Impeded.
The
Partnership shall not participate in any proposed Roll-Up transaction which
includes provisions that would operate to materially impede or frustrate the
accumulation of shares by any purchaser of the securities of the Roll-Up Entity,
except to the minimum extent necessary to preserve the tax status of the Roll-Up
Entity. The Partnership shall not participate in any proposed Roll-Up
transaction which would limit the ability of a Participant to exercise the
voting rights of its securities of the Roll-Up Entity on the basis of the number
of Units held by that Participant.
4.03(d)(16)(e).
No
Roll-Up If Access to Records Would Be Limited. The
Partnership shall not participate in a Roll-Up in which Participants’ rights of
access to the records of the Roll-Up Entity will be less than those provided
for
under §§4.03(b)(5), 4.03(b)(6) and 4.03(b)(7) of this Agreement.
4.03(d)(16)(f).
Cost
of Roll-Up.
The
Partnership shall not participate in any proposed Roll-Up transaction in which
any of the costs of the transaction would be borne by the Partnership if
Participants whose Units equal 66% of the total Units do not vote to approve
the
proposed Roll-Up.
4.03(d)(16)(g).
Roll-Up
Approval.
The
Partnership shall not participate in a Roll-Up transaction unless the Roll-Up
transaction is approved by Participants whose Units equal 66% of the total
Units.
36
4.03(d)(17).
Disclosure
of Binding Agreements. Any
agreement or arrangement which binds the Partnership must be disclosed in the
Prospectus.
4.03(d)(18).
Transactions
Must Be Fair
and Reasonable.
Neither
the Managing General Partner nor any Affiliate shall sell, transfer, or convey
any property to or purchase any property from the Partnership, directly or
indirectly, except under transactions that are fair and reasonable, nor take
any
action with respect to the assets or property of the Partnership which does
not
primarily benefit the Partnership.
4.04(a).
Managing
General Partner.
4.04(a)(1).
Term
of Service.
Atlas
shall serve as the Managing General Partner of the Partnership until either
it:
(i) |
is
removed pursuant to §4.04(a)(3); or
|
(ii) |
withdraws
pursuant to §4.04(a)(3)(f).
|
4.04(a)(2).
Compensation
of Managing General Partner.
In
addition to the compensation set forth in §§4.01(a)(4) and 4.02(d)(1), the
Managing General Partner shall receive the compensation set forth in
§§4.04(a)(2)(b) through 4.04(a)(2)(g).
4.04(a)(2)(a).
Charges
Must Be Necessary and Reasonable.
Charges
by the Managing General Partner for goods and services must be fully supportable
as to:
(i) |
the
necessity of the goods and services; and
|
(ii) |
the
reasonableness of the amount charged.
|
All
actual and necessary expenses incurred by the Partnership may be paid out of
the
Partnership’s subscription proceeds and revenues.
4.04(a)(2)(b).
Direct
Costs.
The
Managing General Partner and its Affiliates shall be reimbursed for all Direct
Costs. Direct Costs, however, shall be billed directly to and paid by the
Partnership to the extent practicable.
4.04(a)(2)(c).
Administrative
Costs.
The
Managing General Partner shall receive an unaccountable, fixed payment
reimbursement for its Administrative Costs of $75 per well per month. The
unaccountable, fixed payment reimbursement of $75 per well per month shall
be
subject to the following:
(i) |
it
shall not be increased in amount during the term of the
Partnership;
|
(ii) |
it
shall be proportionately reduced to the extent the Partnership acquires
less than 100% of the Working Interest in the well;
|
(iii) |
it
shall be the entire payment to reimburse the Managing General Partner
for
the Partnership’s Administrative Costs;
and
|
(iv) |
it
shall not be received for plugged or abandoned
xxxxx.
|
37
4.04(a)(2)(d).
Gas
Gathering.
The
Managing General Partner shall be responsible for gathering and transporting
the
natural gas produced by the Partnership to interstate pipeline systems, local
distribution companies and/or end-users in the area and shall receive a
gathering fee at a competitive rate for gathering and transporting the
Partnership's gas. If the Partnership’s natural gas production is gathered and
transported through the gathering system owned by Atlas Pipeline Partners,
then
the Managing General Partner shall apply its gathering fee towards the agreement
between Atlas Pipeline Partners and Atlas America, Inc., Resource Energy, Inc.,
and Viking Resources Corporation. If the Partnership’s natural gas production is
gathered and transported through a gathering system owned by a third-party,
then
the Managing General Partner shall pay a portion or all of its gathering fee
to
the third-party gathering and transporting the natural gas. If the Partnership’s
natural gas production is gathered and transported through a gathering system
owned by the Managing General Partner or its Affiliates other than Atlas
Pipeline Partners, then the Managing General Partner or its Affiliates shall
receive, or retain in the case of the Managing General Partner, the gathering
fee paid to the Managing General Partner. Also, in the Mississippian and
Devonian Shale Reservoirs in Anderson, Campbell, Xxxxxx, Xxxxx and Xxxxx
Counties, Tennessee, if the Coalfield Pipeline does not have sufficient capacity
to compress and transfer the natural gas produced from the Partnership’s xxxxx
as determined by Atlas America, then Atlas America or an Affiliate other than
Atlas Pipeline Partners may construct an additional gathering system and/or
enhancements to the Coalfield Pipeline. On completion of the construction,
Atlas
America will transfer its ownership in the additional gathering system and/or
enhancements to the owners of the Coalfield Pipeline, which will then pay Atlas
America an amount equal to $.12 per mcf of natural gas transported through
the
newly constructed and/or enhanced gathering system. Coalfield Pipeline will
charge this $.12 per mcf to the Partnership in addition to the rate that it
is
charging at that time. As of the date of the Prospectus, Coalfield Pipeline
was
charging $.55 per mcf for transportation plus fees for compression.
4.04(a)(2)(e).
Dealer-Manager
Fee.
Subject
to §3.03(a)(1), the Dealer-Manager shall receive on each Unit sold to investors:
(i) |
a
2.5% Dealer-Manager fee;
|
(ii) |
a
7% Sales Commission;
|
(iii) |
a
.5% accountable Reimbursement for Permissible Non-Cash Compensation;
and
|
(iv) |
an
up to .5% reimbursement of the Selling Agents’ bona fide due diligence
expenses.
|
4.04(a)(2)(f).
Drilling
and Operating Agreement. The
Managing General Partner and its Affiliates shall receive compensation as set
forth in the Drilling and Operating Agreement.
4.04(a)(2)(g).
Other
Transactions.
The
Managing General Partner and its Affiliates may enter into transactions pursuant
to §4.03(d)(7) with the Partnership and shall be entitled to compensation under
that section.
4.04(a)(3).
Removal
of Managing General Partner.
4.04(a)(3)(a).
Majority
Vote Required to Remove the Managing General Partner.
The
Managing General Partner may be removed at any time on 60 days’ advance written
notice to the outgoing Managing General Partner by the affirmative vote of
Participants whose Units equal a majority of the total Units.
If
the
Participants vote to remove the Managing General Partner from the Partnership,
then Participants must elect by an affirmative vote of Participants whose Units
equal a majority of the total Units either to:
38
(i) |
terminate,
dissolve, and wind up the Partnership; or
|
(ii) |
continue
as a successor limited partnership under all the terms of this Partnership
Agreement as provided in §7.01(c).
|
If
the
Participants elect to continue as a successor limited partnership, then the
Managing General Partner shall not be removed until a substituted Managing
General Partner has been selected by an affirmative vote of Participants whose
Units equal a majority of the total Units and installed as such.
4.04(a)(3)(b).
Valuation
of Managing General Partner’s Interest in the Partnership.
If the
Managing General Partner is removed, then its interest in the Partnership shall
be determined by appraisal by a qualified Independent Expert. The Independent
Expert shall be selected by mutual agreement between the removed Managing
General Partner and the incoming Managing General Partner. The appraisal shall
take into account an appropriate discount, to reflect the risk of recovery
of
natural gas and oil reserves, but not less than that used to calculate the
presentment price in the most recent presentment offer under §6.03, if any.
The
cost
of the appraisal shall be borne equally by the removed Managing General Partner
and the Partnership.
4.04(a)(3)(c).
Incoming
Managing General Partner’s Option to Purchase. The
incoming Managing General Partner shall have the option to purchase 20% of
the
removed Managing General Partner’s interest in the Partnership as Managing
General Partner, and not as a Participant, for the value determined by the
Independent Expert.
4.04(a)(3)(d).
Method
of Payment.
The
method of payment for the removed Managing General Partner’s interest must be
fair and protect the solvency and liquidity of the Partnership. The method
of
payment shall be as follows:
(i) |
when
the termination is voluntary, the method of payment shall be a
non-interest bearing unsecured promissory note with principal payable,
if
at all, from distributions which the Managing General Partner otherwise
would have received under the Partnership Agreement had the Managing
General Partner not been terminated;
and
|
(ii) |
when
the termination is involuntary, the method of payment shall be an
interest
bearing promissory note coming due in no less than five years with
equal
installments each year. The interest rate shall be that charged on
comparable loans.
|
4.04(a)(3)(e).
Termination
of Contracts.
At the
time of its removal, the removed Managing General Partner shall cause, to the
extent it is legally possible, its successor to be transferred or assigned
all
its rights, obligations and interests as Managing General Partner of the
Partnership in contracts entered into by it on behalf of the Partnership. In
any
event, the removed Managing General Partner shall cause its rights, obligations
and interests as Managing General Partner of the Partnership in any such
contract to terminate at the time of its removal.
Notwithstanding
any other provision in this Agreement, the Partnership or the successor Managing
General Partner shall not:
(i) |
be
a party to any natural gas supply agreement that the Managing General
Partner or its Affiliates enters into with a third-party;
|
(ii) |
have
any rights pursuant to such natural gas supply agreement; or
|
39
(iii) |
receive
any interest in the Managing General Partner’s and its Affiliates’
pipeline or gathering system or compression facilities.
|
4.04(a)(3)(f).
The
Managing General Partner’s Right to Voluntarily Withdraw.
At any
time beginning 10 years after the Offering Termination Date and the
Partnership’s primary drilling activities, the Managing General Partner may
voluntarily withdraw as Managing General Partner on giving 120 days’ written
notice of withdrawal to the Participants. If the Managing General Partner
withdraws, then the following conditions shall apply:
(i) |
the
Managing General Partner’s interest in the Partnership shall be determined
as described in §4.04(a)(3)(b) above with respect to removal;
and
|
(ii) |
the
interest shall be distributed to the Managing General Partner as
described
in §4.04(a)(3)(d)(i) above.
|
Any
successor Managing General Partner shall have the option to purchase 20% of
the
withdrawing Managing General Partner’s interest in the Partnership at the value
determined as described above with respect to removal.
4.04(a)(3)(g).
Right
of Managing General Partner to Hypothecate Its Interests.
The
Managing General Partner shall have the authority without the consent of the
Participants and without affecting the allocation of costs and revenues received
or incurred under this Agreement, to hypothecate, pledge, or otherwise encumber,
on any terms it chooses for its own general purposes, either:
(i) |
its
Partnership interest; or
|
(ii) |
an
undivided interest in the assets of the Partnership equal to or less
than
its respective interest as Managing General Partner in the revenues
of the
Partnership.
|
All
repayments of these borrowings and costs, interest or other charges related
to
the borrowings shall be borne and paid separately by the Managing General
Partner. In no event shall the repayments, costs, interest, or other charges
related to the borrowing be charged to the account of the Participants.
4.04(a)(3)(h).
The
Managing General Partner’s Right to Withdraw Property
Interest.
Subject
to a required participation of not less than 1% in the Partnership as Managing
General Partner, the Managing General Partner has the right to withdraw a
property interest held by the Partnership in the form of a Working Interest
in
the Partnership’s Xxxxx equal to or less than its respective interest as
Managing General Partner in the revenues of the Partnership if:
(i) |
the
withdrawal is necessary to satisfy the bona fide request of its creditors;
or
|
(ii) |
the
withdrawal is approved by Participants whose Units equal a majority
of the
total Units.
|
If
the
Managing General Partner withdraws a property interest from the Partnership
as
described above, then the Managing General Partner shall:
(i) |
pay
the expenses of withdrawing; and
|
(ii) |
fully
indemnify the Partnership against any additional expenses which may
result
from a partial withdrawal of its interests, including insuring that
a
greater amount of Direct Costs or Administrative Costs is not allocated
to
the Participants.
|
40
4.04(a)(4).
Removal
of Operator.
The
Operator may be removed and a new Operator may be substituted at any time on
60
days advance written notice to the outgoing Operator by the Managing General
Partner acting on behalf of the Partnership on the affirmative vote of
Participants whose Units equal a majority of the total Units.
The
Operator shall not be removed until a substituted Operator has been selected
by
an affirmative vote of Participants whose Units equal a majority of the total
Units and installed as such.
4.05(a)(1).
Standards
for the Managing General Partner Not Incurring Liability to the Partnership
or
Participants.
The
Managing General Partner, the Operator, and their Affiliates shall not have
any
liability whatsoever to the Partnership, or to any Participant for any loss
suffered by the Partnership or Participants which arises out of any action
or
inaction of the Managing General Partner, the Operator, or their Affiliates
if:
(i) |
the
Managing General Partner, the Operator, and their Affiliates determined
in
good faith that the course of conduct was in the best interest of
the
Partnership;
|
(ii) |
the
Managing General Partner, the Operator, and their Affiliates were
acting
on behalf of, or performing services for, the Partnership; and
|
(iii) |
the
course of conduct did not constitute negligence or misconduct of
the
Managing General Partner, the Operator, or their
Affiliates.
|
4.05(a)(2).
Standards
for Managing General Partner Indemnification.
The
Managing General Partner, the Operator, and their Affiliates shall be
indemnified by the Partnership against any losses, judgments, liabilities,
expenses, and amounts paid in settlement of any claims sustained by them in
connection with the Partnership, provided that:
(i) |
the
Managing General Partner, the Operator, and their Affiliates determined
in
good faith that the course of conduct which caused the loss or liability
was in the best interest of the
Partnership;
|
(ii) |
the
Managing General Partner, the Operator, and their Affiliates were
acting
on behalf of, or performing services for, the Partnership; and
|
(iii) |
the
course of conduct was not the result of negligence or misconduct
of the
Managing General Partner, the Operator, or their
Affiliates.
|
Provided,
however, payments arising from such indemnification or agreement to hold
harmless are recoverable only out of the following:
(i) |
the
Partnership’s tangible net assets, which include its revenues;
and
|
(ii) |
any
insurance proceeds from the types of insurance for which the Managing
General Partner, the Operator and their Affiliates may be indemnified
under this Agreement.
|
4.05(a)(3).
Standards
for Securities Law Indemnification.
Notwithstanding anything to the contrary contained in the above, the Managing
General Partner, the Operator, and their 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 or state securities
laws
by such party unless:
41
(i) |
there
has been a successful adjudication on the merits of each count involving
alleged securities law violations as to the particular indemnitee;
|
(ii) |
the
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 a particular indemnitee and finds that indemnification of
the
settlement and the related costs should be made, and the court considering
the request for indemnification has been advised of the position
of the
SEC, the Massachusetts Securities Division, and any state securities
regulatory authority in which plaintiffs claim they were offered
or sold
Units with respect to the issue of indemnification for violation
of
securities laws.
|
4.05(a)(4).
Standards
for Advancement of Funds to the Managing General Partner and
Insurance.
The
advancement of Partnership funds to the Managing General Partner, the Operator,
or their 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 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 Participant,
or
the legal action is initiated by a Participant and a court of competent
jurisdiction specifically approves the advancement; and
|
(iii) |
the
Managing 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.
|
The
Partnership shall not bear the cost of that portion of insurance which insures
the Managing General Partner, the Operator, or their Affiliates for any
liability for which they could not be indemnified pursuant to §§4.05(a)(1) and
4.05(a)(2).
4.05(b).
Liability
of Partners.
Under
the Delaware Revised Uniform Limited Partnership Act, the Investor General
Partners are liable jointly and severally for all liabilities and obligations
of
the Partnership. Notwithstanding the foregoing, as among themselves, the
Investor General Partners agree that each shall be solely and individually
responsible only for his pro rata share of the liabilities and obligations
of
the Partnership based on his respective number of Units.
In
addition, the Managing General Partner agrees to use its corporate assets to
indemnify each of the Investor General Partners against all Partnership related
liabilities which exceed the Investor General Partner’s interest in the
undistributed net assets of the Partnership and insurance proceeds, if any.
Further, the Managing General Partner agrees to indemnify each Investor General
Partner against any personal liability as a result of the unauthorized acts
of
another Investor General Partner.
If
the
Managing General Partner provides indemnification, then each Investor General
Partner who has been indemnified shall transfer and
subrogate his rights for contribution from or against any other Investor General
Partner to the Managing General Partner.
42
4.05(c).
Order
of Payment of Claims. Claims
shall be paid as follows:
(i) |
first,
out of any insurance proceeds;
|
(ii) |
second,
out of Partnership assets and revenues; and
|
(iii) |
last,
by the Managing General Partner as provided in §§3.05(b)(2) and (3) and
4.05(b).
|
No
Limited Partner shall be required to reimburse the Managing General Partner,
the
Operator, their Affiliates, or the Investor General Partners for any liability
in excess of his agreed Capital Contribution, except:
(i) |
for
a liability resulting from the Limited Partner’s unauthorized
participation in Partnership management; or
|
(ii) |
from
some other breach by the Limited Partner of this
Agreement.
|
4.05(d).
Authorized
Transactions Are Not Deemed to Be a Breach.
No
transaction entered into or action taken by the Partnership, or the Managing
General Partner, the Operator, or their Affiliates, which is authorized by
this
Agreement shall be deemed a breach of any obligation owed by the Managing
General Partner, the Operator, or their Affiliates to the Partnership or the
Participants.
4.06.
Other
Activities.
4.06(a).
The
Managing General Partner May Pursue Other Natural Gas and Oil Activities for
Its
Own Account.
The
Managing General Partner, the Operator, and their Affiliates are now engaged,
and will engage in the future, for their own account and for the account of
others, including other investors, in all aspects of the natural gas and oil
business. This includes without limitation, the evaluation,
acquisition, and sale of producing and nonproducing Leases, and the exploration
for and production of natural gas, oil and
other
minerals.
The
Managing General Partner is required to devote only so much of its time as
is
necessary to manage the affairs of the Partnership. Except as expressly provided
to the contrary in this Agreement, and subject to fiduciary duties, the Managing
General Partner, the Operator, and their Affiliates may do the following:
(i) |
continue
their activities, or initiate further such activities, individually,
jointly with others, or as a part of any other limited or general
partnership, tax partnership, joint venture, or other entity or activity
to which they are or may become a party, in any locale and in the
same
fields, areas of operation or prospects in which the Partnership
may
likewise be active;
|
(ii) |
reserve
partial interests in Leases being assigned to the Partnership or
any other
interests not expressly prohibited by this Agreement;
|
(iii) |
deal
with the Partnership as independent parties or through any other
entity in
which they may be interested;
|
(iv) |
conduct
business with the Partnership as set forth in this Agreement;
and
|
(v) |
participate
in such other investor operations, as investors or
otherwise.
|
43
The
Managing General Partner and its Affiliates shall not be required to permit
the
Partnership or the Participants to participate in
any of
the operations in which the Managing General Partner and its Affiliates may
be
interested or share in any profits or other benefits from the operations.
However, except as
otherwise provided in this Agreement, the Managing General Partner and its
Affiliates may pursue business opportunities that are consistent with the
Partnership’s investment objectives for their own account only after they have
determined that the opportunity either:
(i) |
cannot
be pursued by the Partnership because of insufficient funds; or
|
(ii) |
it
is not appropriate for the Partnership under the existing
circumstances.
|
4.06(b).
Managing
General Partner May Manage Multiple Partnerships.
The
Managing General Partner or its Affiliates may manage multiple Programs
simultaneously.
4.06(c).
Partnership
Has No Interest in Natural Gas Contracts or Pipelines and Gathering
Systems.
Notwithstanding any other provision in this Agreement, the Partnership shall
not:
(i) |
be
a party to any natural gas supply agreement that the Managing General
Partner, the Operator, or their Affiliates enter into with a third-party
or have any rights pursuant to such natural gas supply agreement;
or
|
(ii) |
receive
any interest in the Managing General Partner’s, the Operator’s, and their
Affiliates’ pipeline or gathering system or compression
facilities.
|
ARTICLE
V
PARTICIPATION
IN COSTS AND REVENUES,
CAPITAL
ACCOUNTS, ELECTIONS AND DISTRIBUTIONS
5.01.
Participation
in Costs and Revenues.
Except
as otherwise provided in this Agreement, costs and revenues shall be charged
and
credited to the Managing General Partner and the Participants as set forth
in
this section and its subsections.
5.01(a).
Costs.
Costs
shall be charged as set forth below.
5.01(a)(1).
Organization
and Offering Costs.
Organization and Offering Costs shall be charged 100% to the Managing General
Partner. For purposes of sharing in revenues under §5.01(b)(4), the Managing
General Partner shall be credited with Organization and Offering Costs paid
by
it and for services provided by it as Organization Costs up to and including
15%
of the Partnership’s subscription proceeds. Any Organization and Offering Costs
paid and/or provided in services by the Managing General Partner in excess
of
this amount shall not be credited towards the Managing General Partner’s
required Capital Contribution or revenue share set forth in §5.01(b)(4). The
Managing General Partner’s credit for services provided to the Partnership as
Organization Costs shall be determined based on generally accepted accounting
principles.
5.01(a)(2).
Intangible
Drilling Costs.
Ninety
percent (90%) of the Partnership’s subscription proceeds received from the
Participants shall be used to pay 100% of the Intangible Drilling
Costs.
5.01(a)(3).
Tangible
Costs.
Ten
percent (10%) of the Partnership’s subscription proceeds received from the
Participants shall be used by the Partnership to pay Tangible Costs. All
remaining Tangible Costs in excess of an amount equal to 10% of the
Partnership’s subscription proceeds shall be charged 100% to the Managing
General Partner.
44
5.01(a)(4).
Operating
Costs, Direct Costs, Administrative Costs and All Other
Costs.
Operating Costs, Direct Costs, Administrative Costs, and all other Partnership
costs not specifically allocated shall be charged to the parties in the same
ratio as the related production revenues are being credited.
5.01(a)(5).
Allocation of Intangible Drilling Costs and Tangible Costs at Partnership
Closings.
Intangible Drilling Costs and the Participants’ share of Tangible Costs of a
well or xxxxx to be drilled and completed with the proceeds of a Partnership
closing shall be charged 100% to the Participants who are admitted to the
Partnership in that closing and shall not be reallocated to take into account
other Partnership closings.
Although
the proceeds of each Partnership closing will be used to pay the costs of
drilling different xxxxx, 90% of each Participant’s subscription proceeds shall
be applied to Intangible Drilling Costs and 10% of each Participant’s
subscription proceeds shall be applied to Tangible Costs regardless of when
he
subscribes.
5.01(a)(6).
Lease
Costs.
The
Leases shall be contributed to the Partnership by the Managing General Partner
as set forth in §4.01(a)(4).
5.01(b).
Revenues.
Revenues shall be credited as set forth below.
5.01(b)(1).
Allocation
of Revenues on Disposition of Property.
If the
parties’ Capital Accounts are adjusted to reflect the simulated depletion of a
natural gas or oil property of the Partnership, then the portion of the total
amount realized by the Partnership on the taxable disposition of the property
that represents recovery of its simulated tax basis in the property shall be
allocated to the parties in the same proportion as the aggregate adjusted tax
basis of the property was allocated to the parties or their predecessors in
interest. If the parties’ Capital Accounts are adjusted to reflect the actual
depletion of a natural gas or oil property of the Partnership, then the portion
of the total amount realized by the Partnership on the taxable disposition
of
the property that equals the parties’ aggregate remaining adjusted tax basis in
the property shall be allocated to the parties in proportion to their respective
remaining adjusted tax bases in the property. Thereafter, any excess shall
be
allocated to the Managing General Partner in an amount equal to the difference
between the fair market value of the Lease at the time it was contributed to
the
Partnership and its simulated or actual adjusted tax basis at that time.
Finally, any excess shall be credited as provided in §5.01(b)(4), below.
In
the
event of a sale of developed natural gas and oil properties with equipment
on
the properties, the Managing General Partner may make any reasonable allocation
of proceeds between the equipment and the Leases.
5.01(b)(2).
Interest.
Interest
earned on each Participant’s subscription proceeds before the Offering
Termination Date under §3.05(b)(1) shall be credited to the accounts of the
respective subscribers who paid the subscription proceeds to the Partnership.
The interest shall be paid to the Participant not later than the Partnership’s
first cash distribution from operations.
After
the
Offering Termination Date and until proceeds from the offering are invested
in
the Partnership’s natural gas and oil operations, any interest income from
temporary investments shall be allocated pro rata to the Participants providing
the subscription proceeds.
All
other
interest income, including interest earned on the deposit of production
revenues, shall be credited as provided in §5.01(b)(4), below.
45
5.01(b)(3).
Sale
or Disposition of Equipment.
Proceeds
from the sale or disposition of equipment shall be credited to the parties
charged with the costs of the equipment in the ratio in which the costs were
charged.
5.01(b)(4).
Other
Revenues.
Subject
to §5.01(b)(4)(a), the Managing General Partner and the Participants shall share
in all other Partnership revenues in the same percentage as their respective
Capital Contribution bears to the total Partnership Capital Contributions,
except that the Managing General Partner shall receive an additional 7% of
Partnership revenues. However, the Managing General Partner’s total revenue
share may not exceed 40% of Partnership revenues. For example, if the Managing
General Partner contributes 25% of the total Partnership Capital Contributions
and the Participants contribute 75% of the total Partnership Capital
Contributions, then the Managing General Partner shall receive 32% of the
Partnership revenues and the Participants shall receive 68% of the Partnership
revenues. On the other hand, if the Managing General Partner contributes 35%
of
the total Partnership Capital Contributions and the Participants contribute
65%
of the total Partnership Capital Contributions, then the Managing General
Partner shall receive 40% of the Partnership revenues, not 42%, because its
revenue share cannot exceed 40% of Partnership revenues, and the Participants
shall receive 60% of Partnership revenues.
5.01(b)(4)(a).
Subordination.
The
Managing General Partner shall subordinate up to 50% of its share of Partnership
Net Production Revenues to the receipt by Participants of cash distributions
from the Partnership equal to $1,000 per Unit (which is 10% per Unit) regardless
of their actual subscription price of the Units, in each of the first five
12-month periods. In this regard:
(i) |
the
60-month subordination period shall begin with the first cash distribution
from operations to the
Participants;
|
(ii) |
subsequent
subordination distributions, if any, shall be determined and made
at the
time of each subsequent distribution of revenues to the Participants;
and
|
(iii) |
the
Managing General Partner shall not subordinate more than 50% of its
share
of Partnership Net Production Revenues in any subordination period.
|
The
subordination shall be determined by:
(i) |
carrying
forward to subsequent 12-month periods the amount, if any, by which
cumulative cash distributions to Participants, including any subordination
payments, are less than:
|
(a) |
$1,000
per Unit (10% per Unit) in the first 12-month
period;
|
(b) |
$2,000
per Unit (20% per Unit) in the second 12-month
period;
|
(c) |
$3,000
per Unit (30% per Unit) in the third 12-month period; or
|
(d) |
$4,000
per Unit (40% per Unit) in the fourth 12-month period (no carry forward
is
required if such distributions are less than $5,000 per Unit (50%
per
Unit) in the fifth 12-month period because the Managing General Partner’s
subordination obligation terminates on the expiration of the fifth
12-month period); and
|
46
(ii) |
reimbursing
the Managing General Partner for any previous subordination payments
to
the extent cumulative cash distributions to Participants, including
any
subordination payments, would exceed:
|
(a) |
$1,000
per Unit (10% per Unit) in the first 12-month
period;
|
(b) |
$2,000
per Unit (20% per Unit) in the second 12-month
period;
|
(c) |
$3,000
per Unit (30% per Unit) in the third 12-month
period;
|
(d) |
$4,000
per Unit (40% per Unit) in the fourth 12-month period; or
|
(e) |
$5,000
per Unit (50% per Unit) in the fifth 12-month period.
|
The
Managing General Partner’s subordination obligation shall be further subject to
the following conditions:
(i) |
the
subordination obligation may be prorated in the Managing General
Partner’s
discretion (e.g. in the case of a monthly distribution, the Managing
General Partner will not have any subordination obligation if the
distributions to Participants equal $83.33 per Unit (8.333% of $1,000
per
Unit per year) or more assuming there is no subordination owed for
any
preceding period);
|
(ii) |
the
Managing General Partner shall not be required to return Partnership
distributions previously received by it, even though a subordination
obligation arises after the
distributions;
|
(iii) |
subject
to the foregoing provisions of this section, only Partnership revenues
in
the current distribution period shall be debited or credited to the
Managing General Partner as may be necessary to provide, to the extent
possible, subordination distributions to the Participants and
reimbursements to the Managing General Partner;
|
(iv) |
no
subordination payments to the Participants or reimbursements to the
Managing General Partner shall be made after the expiration of the
fifth
12-month subordination period; and
|
(v) |
subordination
payments to the Participants shall be subject to any lien or priority
required by the Managing General Partner’s lenders pursuant to agreements
previously entered into or subsequently entered into or renewed by
the
Managing General Partner.
|
5.01(b)(5).
Commingling
of Revenues From All Partnership Xxxxx.
The
revenues from all Partnership xxxxx will be commingled, so regardless of when
a
Participant subscribes he will share in the revenues from all xxxxx on the
same
basis as the other Participants.
5.01(c).
Allocations.
5.01(c)(1).
Allocations
among Participants.
Except
as provided otherwise in this Agreement, costs (other than Intangible Drilling
Costs and Tangible Costs) and revenues charged or credited to the Participants
as a group, which includes all revenue credited to the Participants under
§5.01(b)(4), shall be allocated among the Participants, including the Managing
General Partner to the extent of any optional subscription under §3.03(b)(2), in
the ratio of their respective Units based on $10,000 per Unit regardless of
the
actual subscription price for a Participant’s Units.
47
Intangible
Drilling Costs and Tangible Costs charged to the Participants as a group shall
be allocated among the Participants, including the Managing General Partner
to
the extent of any optional subscription under §3.03(b)(2), in the ratio of the
subscription price designated on their respective Subscription Agreements rather
than the number of their respective Units.
5.01(c)(2).
Costs
and Revenues Not Directly Allocable to a Partnership Well.
Costs
and revenues not directly allocable to a particular Partnership Well or
additional operation shall be allocated among the Partnership Xxxxx or
additional operations in any manner the Managing General Partner in its
reasonable discretion, shall select, and shall then be charged or credited
in
the same manner as costs or revenues directly applicable to the Partnership
Well
or additional operation are being charged or credited.
5.01(c)(3).
Managing
General Partner’s Discretion
in Making Allocations For Federal Income Tax Purposes.
In
determining the proper method of allocating charges or credits among the
parties, allocating any item of income, gain, loss, deduction or credit which
is
the result of new laws or new IRS or judicial interpretations of existing law,
or which is not otherwise specifically allocated in this Agreement or is clearly
inconsistent with a party’s economic interest in the Partnership, or making any
other allocations under this Agreement, the Managing General Partner may adopt
any method of allocation which it, in its reasonable discretion, selects in
its
sole discretion, after consultation with the Partnership’s legal counsel or
accountants. Any new allocation provisions shall be made in a manner that is
consistent with the parties’ economic interests in the Partnership and which
would result in the most favorable aggregate consequences to the Participants
as
nearly as possible consistent with the original allocations described in this
Agreement.
5.02(a).
Capital
Accounts for Each Party to this Agreement.
A
single, separate Capital Account shall be established for each party, regardless
of the number of interests owned by the party, the class of the interests and
the time or manner in which the interests were acquired.
5.02(b).
Charges
and Credits.
5.02(b)(1).
General
Standard.
Except
as otherwise provided in this Agreement, the Capital Account of each party
shall
be determined and maintained in accordance with Treas. Reg. §1.704-l(b)(2)(iv)
and shall be increased by:
(i) |
the
amount of money contributed by him to the Partnership;
|
(ii) |
the
fair market value of property contributed by him, without regard
to
§7701(g) of the Code, to the Partnership, net of liabilities secured
by
the contributed property that the Partnership is considered to assume
or
take subject to under §752 of the Code; and
|
(iii) |
allocations
to him of Partnership income and gain, or items thereof, including
income
and gain exempt from tax and income and gain described in Treas.
Reg.
§1.704-l(b)(2)(iv)(g), but excluding income and gain described in
Treas.
Reg. §1.704-l(b)(4)(i);
|
48
and
shall
be decreased by:
(iv) |
the
amount of money distributed to him by the Partnership;
|
(v) |
the
fair market value of property distributed to him, without regard
to
§7701(g) of the Code, by the Partnership, net of liabilities secured
by
the distributed property that he is considered to assume or take
subject
to under §752 of the Code;
|
(vi) |
allocations
to him of Partnership expenditures described in §705(a)(2)(B) of the Code;
and
|
(vii) |
allocations
to him of Partnership loss and deduction, or items thereof, including
loss
and deduction described in Treas. Reg. §1.704-l(b)(2)(iv)(g), but
excluding items described in (vi) above, and loss or deduction described
in Treas. Reg. §1.704-l(b)(4)(i) or (iii).
|
5.02(b)(2).
Exception.
If
Treas. Reg. §1.704-l(b)(2)(iv) fails to provide guidance, Capital Account
adjustments shall be made in
a manner
that:
(i) |
maintains
equality between the aggregate governing Capital Accounts of the
parties
and the amount of Partnership capital reflected on the Partnership’s
balance sheet, as computed for book purposes;
|
(ii) |
is
consistent with the underlying economic arrangement of the parties;
and
|
(iii) |
is
based, wherever practicable, on federal tax accounting
principles.
|
5.02(c).
Payments
to the Managing General Partner.
The
Capital Account of the Managing General Partner shall be reduced by payments
to
it pursuant to §4.04(a)(2) only to the extent of the Managing General Partner’s
distributive share of any Partnership deduction, loss, or other downward Capital
Account adjustment resulting from the payments. Also, in the event, and to
the
extent, that the Managing General Partner is treated under the Code as having
been transferred an interest in the Partnership in connection with the
performance of services for the Partnership (whether before or after the
formation of the Partnership):
(i) |
any
resulting compensation income shall be allocated 100% to the Managing
General Partner;
|
(ii) |
any
associated increase in Capital Accounts shall be credited 100% to
the
Managing General Partner; and
|
(iii) |
any
associated deduction to which the Partnership is entitled shall be
allocated 100% to the Managing General
Partner.
|
5.02(d).
Discretion
of Managing General Partner in the Method of Maintaining Capital
Accounts.
Notwithstanding any other provisions of this Agreement, the method of
maintaining Capital Accounts may be changed from time to time, in the discretion
of the Managing General Partner, to take into consideration §704 and other
provisions of the Code and the related rules, regulations and interpretations
as
may exist from time to time.
5.02(e).
Revaluations
of Property. In
the
discretion of the Managing General Partner the Capital Accounts of the parties
may be increased or decreased to reflect a revaluation of Partnership property,
including intangible assets such as goodwill, on a property-by-property basis
except as otherwise permitted under §704(c) of the Code and the regulations
thereunder, on the Partnership’s books, in accordance with Treas. Reg.
§1.704-l(b)(2)(iv)(f).
49
5.02(f).
Amount
of Book Items.
In cases
where §704(c) of the Code or §5.02(e) applies, Capital Accounts shall be
adjusted in accordance with Treas. Reg. §1.704-l(b)(2)(iv)(g) for allocations of
depreciation, depletion, amortization and gain and loss, as computed for book
purposes, with respect to the property.
5.03(a).
In
General.
5.03(a)(1).
Deductions Are Allocated to Party Charged with Expenditure.
To
the
extent permitted by law and except as otherwise provided in this Agreement,
all
deductions and credits, including, but not limited to, intangible drilling
and
development costs and depreciation, shall be allocated to the party who has
been
charged with the expenditure giving rise to the deductions and credits; and
to
the extent permitted by law, these parties shall be entitled to the deductions
and credits in computing taxable income or tax liabilities to the exclusion
of
any other party. Also, any Partnership deductions that would be nonrecourse
deductions if they were not attributable to a loan made or guaranteed by the
Managing General Partner or its Affiliates shall be allocated to the Managing
General Partner to the extent required by law.
5.03(a)(2).
Income
and Gain Allocated in Accordance With Revenues.
Except
as otherwise provided in this Agreement, all items of income and gain, including
gain on disposition of assets, shall be allocated in accordance with the related
revenue allocations set forth in §5.01(b) and its subsections.
5.03(b).
Tax
Basis of Each Property.
Subject
to §704(c) of the Code, the tax basis of each oil and gas property for
computation of cost depletion and gain or loss on disposition shall be allocated
and reallocated when necessary based on the capital interest in the Partnership
as to the property and the capital interest in the Partnership for this purpose
as to each property shall be considered to be owned by the parties in the ratio
in which the expenditure giving rise to the tax basis of the property has been
charged as of the end of the year.
5.03(c).
Gain
or Loss on Oil and Gas Properties.
Each
party shall separately compute its gain or loss on the disposition of each
natural gas and oil property in accordance with the provisions of §613A(c)(7)(D)
of the Code, and the calculation of the gain or loss shall consider the party’s
adjusted basis in his property interest computed as provided in §5.03(b) and the
party’s allocable share of the amount realized from the disposition of the
property.
5.03(d).
Gain
on Depreciable Property.
Gain
from each sale or other disposition of depreciable property shall be allocated
to each party whose share of the proceeds from the sale or other disposition
exceeds its contribution to the adjusted basis of the property in the ratio
that
the excess bears to the sum of the excesses of all parties having an
excess.
5.03(e).
Loss
on Depreciable Property.
Loss
from each sale, abandonment or other disposition of depreciable property shall
be allocated to each party whose contribution to the adjusted basis of the
property exceeds its share of the proceeds from the sale, abandonment or other
disposition in the proportion that the excess bears to the sum of the excesses
of all parties having an excess.
5.03(f).
Allocation
If Recapture
Treated As Ordinary Income.
Any
recapture treated as an increase in ordinary income by reason of §§1245, 1250,
or 1254 of the Code shall be allocated to the parties in the amounts in which
the recaptured items were previously allocated to them; provided that to the
extent recapture allocated to any party is in excess of the party’s gain from
the disposition of the property, the excess shall be allocated to the other
parties but only to the extent of the other parties’ gain from the disposition
of the property.
50
5.03(g).
Tax
Credits.
If a
Partnership expenditure, whether or not deductible, that gives rise to a tax
credit in a Partnership taxable year also gives rise to valid allocations of
Partnership loss or deduction, or other downward Capital Account adjustments,
for the year, then the parties’ interests in the Partnership with respect to the
credit, or the cost giving rise thereto, shall be in the same proportion as
the
parties’ respective distributive shares of the loss or deduction, and
adjustments. If Partnership receipts, whether or not taxable, that give rise
to
a tax credit, including a marginal well production credit under §45I of the
Code, in a Partnership taxable year also give rise to valid allocations of
Partnership income or gain, or other upward Capital Account adjustments, for
the
year, then the parties’ interests in the Partnership with respect to the credit,
or the Partnership’s receipts or production of natural gas and oil production
giving rise thereto, shall be in the same proportion as the parties’ respective
shares of the Partnership’s production revenues from the sales of its natural
gas and oil production as provided in §5.01(b)(4).
5.03(h).
Deficit
Capital Accounts and Qualified Income Offset.
Notwithstanding any provisions of this Agreement to the contrary, an allocation
of loss or deduction which would result in a party having a deficit Capital
Account balance as of the end of the taxable year to which the allocation
relates, if charged to the party, to the extent the Participant is not required
to restore the deficit to the Partnership, taking into account:
(i) |
adjustments
that, as of the end of the year, reasonably are expected to be made
to the
party’s Capital Account for depletion allowances with respect to the
Partnership’s natural gas and oil properties;
|
(ii) |
allocations
of loss and deduction that, as of the end of the year, reasonably
are
expected to be made to the party under §§704(e)(2) and 706(d) of the Code
and Treas. Reg. §1.751-1(b)(2)(ii); and
|
(iii) |
distributions
that, as of the end of the year, reasonably are expected to be made
to the
party to the extent they exceed offsetting increases to the party’s
Capital Account, assuming for this purpose that the fair market value
of
Partnership property equals its adjusted tax basis, that reasonably
are
expected to occur during or prior to the Partnership taxable years
in
which the distributions reasonably are expected to be made;
|
shall
be
charged to the Managing General Partner. Further, the Managing General Partner
shall be credited with an additional amount of Partnership income or gain equal
to the amount of the loss or deduction as quickly as possible to the extent
such
chargeback does not cause or increase deficit balances in the parties’ Capital
Accounts which are not required to be restored to the Partnership.
Notwithstanding
any provisions of this Agreement to the contrary, if a party unexpectedly
receives an adjustment, allocation, or distribution described in (i), (ii),
or
(iii) above, or any other distribution, which causes or increases a deficit
balance in the party’s Capital Account which is not required to be restored to
the Partnership, the party shall be allocated items of income and gain,
consisting of a pro rata portion of each item of Partnership income, including
gross income, and gain for the year, in an amount and manner sufficient to
eliminate the deficit balance as quickly as possible.
5.03(i).
Minimum
Gain Chargeback.
To the
extent there is a net decrease during a Partnership taxable year in the minimum
gain attributable to a Partner nonrecourse debt, then any Partner with a share
of the minimum gain attributable to the debt at the beginning of the year shall
be allocated items of Partnership income and gain in accordance with Treas.
Reg.
§1.704-2(i).
51
5.03(j).
Partners’
Allocable Shares.
Except
as otherwise provided in this Agreement, each party’s allocable share of
Partnership income, gain, loss, deductions and credits shall be determined
by
the use of any method prescribed or permitted by the Secretary of the Treasury
by regulations or other guidelines and selected by the Managing General Partner
which takes into account the varying interests of the parties in the Partnership
during the taxable year. In the absence of such regulations or guidelines,
except as otherwise provided in this Agreement, the allocable share shall be
based on actual income, gain, loss, deductions and credits economically accrued
each day during the taxable year in proportion to each party’s varying interest
in the Partnership on each day during the taxable year.
5.03(k).
Contingent
Income.
Subject
to §5.04(d), if it is determined that any taxable income results to any party by
reason of its entitlement to a share of capital of the Partnership, or a share
of profits or revenues of the Partnership before the profit or revenue has
been
realized by the Partnership, the resulting deduction as well as any resulting
gain, shall not enter into Partnership net income or loss, but shall be
separately allocated to that party.
5.04.
Elections.
5.04(a).
Election
to Deduct Intangible
Costs.
The
Partnership’s federal income tax return shall be made in accordance with an
election under the option granted by the Code to deduct intangible drilling
and
development costs.
5.04(b).
No
Election Out of Subchapter K.
No
election shall be made by the Partnership, any Partner, or the Operator for
the
Partnership to be excluded from the application of the partnership provisions
of
the Code, including Subchapter K of Chapter 1 of Subtitle A of the
Code.
5.04(c).
§754
Election.
In the
event of the transfer of an interest in the Partnership, or on the death of
an
individual party hereto, or in the event of the distribution of property to
any
party, the Managing General Partner may choose for the Partnership to file
an
election in accordance with the applicable Treasury Regulations to cause the
basis of the Partnership’s assets to be adjusted for federal income tax purposes
as provided by §§734 and 743 of the Code.
5.04(d).
§83
Election.
The
Partnership, the Managing General Partner and each Participant hereby agree
to
be legally bound by the provisions of this §5.04(d) and further agree that, in
the Managing General Partner’s sole discretion, the Partnership and all of its
Partners may elect a safe harbor under which the fair market value of a
Partnership interest that is transferred in connection with the performance
of
services is treated as being equal to the liquidation value of that interest
for
transfers on or after the date final regulations providing the safe harbor
are
published in the Federal Register. If the Managing General Partner determines
that the Partnership and all of its Partners will elect the safe harbor, which
determination may be made solely in the best interests of the Managing General
Partner, the Partnership, the Managing General Partner and each Participant
further agree that:
(i) |
the
Partnership shall be authorized and directed to elect the safe
harbor;
|
(ii) |
the
Partnership and each of its Partners (including any Person to whom
a
Partnership interest is transferred in connection with the performance
of
services) shall comply with all requirements of the safe harbor with
respect to all Partnership interests transferred in connection with
the
performance of services while the election remains effective;
and
|
52
(iii) |
the
Managing General Partner, in its sole discretion, may cause the
Partnership to terminate the safe harbor election, which determination
may
be made in the sole interests of the Managing General
Partner.
|
5.05.
Distributions.
5.05(a).
In
General.
5.05(a)(1).
Monthly
Review of Accounts. The
Managing General Partner shall review the accounts of the Partnership at least
monthly to determine whether cash distributions are appropriate and the amount
to be distributed, if any.
5.05(a)(2).
Distributions.
The
Partnership shall distribute funds to the Managing General Partner and the
Participants allocated to their accounts which the Managing General Partner
deems unnecessary to retain by the Partnership.
5.05(a)(3).
No
Borrowings.
In no
event, however, shall funds be advanced or borrowed for distributions if the
amount of the distributions would exceed the Partnership’s accrued and received
revenues for the previous four quarters, less paid and accrued Operating Costs
with respect to the revenues. The determination of revenues and costs shall
be
made in accordance with generally accepted accounting principles, consistently
applied.
5.05(a)(4).
Distributions
to the Managing General Partner.
Cash
distributions from the Partnership to the Managing General Partner shall only
be
made as follows:
(i) |
in
conjunction with distributions to Participants; and
|
(ii) |
out
of funds properly allocated to the Managing General Partner’s
account.
|
5.05(a)(5).
Reserve.
At any
time after one year from the date each Partnership Well is placed into
production, the Managing General Partner shall have the right to deduct each
month from the Partnership’s proceeds of the sale of the production from the
well up to $200 for the purpose of establishing a fund to cover the estimated
costs of plugging and abandoning the well. All of these funds shall be deposited
in a separate interest bearing account for the benefit of the Partnership,
and
the total amount so retained and deposited shall not exceed the Managing General
Partner’s reasonable estimate of the costs.
5.05(b).
Distribution
of Uncommitted Subscription Proceeds.
Any net
subscription proceeds not expended or committed for expenditure, as evidenced
by
a written agreement, by the Partnership within 12 months of the Offering
Termination Date, except necessary operating capital, shall be distributed
to
the Participants in the ratio that the subscription price designated on each
Participant’s Subscription Agreement bears to the total subscription prices
designated on all of the Participants’ Subscription Agreements, as a return of
capital. The Managing General Partner shall reimburse the Participants for
the
selling
or other offering expenses, if any, allocable to the return of capital.
For
purposes of this subsection, “committed for expenditure”
shall
mean contracted for, actually earmarked for or allocated by the Managing General
Partner to the Partnership’s drilling operations, and “necessary operating
capital” shall mean those funds which, in the opinion of the Managing General
Partner, should remain on hand to assure continuing operation of the
Partnership.
53
5.05(c).
Distributions
on Winding Up.
On the
winding up of the Partnership distributions shall be made as provided in
§7.02.
5.05(d).
Interest
and Return of Capital.
No
party shall under any circumstances be entitled to any interest on amounts
retained by the Partnership. Each Participant shall look only to his share
of
distributions, if any, from the Partnership for a return of his Capital
Contribution.
ARTICLE
VI
6.01.
Transferability
of Units.
A
Participant’s transfer of a portion or all his Units, or any interest in his
Units, is subject to all provisions of this Article VI. For purposes of this
Article VI, the term “transfer” shall include any sale, exchange, gift,
assignment, pledge, mortgage, hypothecation, redemption or other form of
transfer of a Unit, or any interest in a Unit, by a Participant (which may
include the Managing General Partner or its Affiliates, if they purchase Units)
or by operation of law, including any transfers of Units which a Participant
presents to the Managing General Partner for purchase under §6.03.
6.01(a).
Rights
of Assignee.
Unless a
transferee of a Participant’s Unit becomes a substitute Participant with respect
to that Unit in accordance with the provisions of §6.02(a)(3)(a), he shall not
be entitled to any of the rights granted to a Participant under this Agreement,
other than the right to receive all or part of the share of the profits, losses,
income, gains, deductions, credits and depletion allowances, or items thereof,
and cash distributions or returns of capital to which his transferor would
otherwise be entitled under this Agreement.
6.01(b).
Conversion
of Investor General Partner Units to Limited Partner Units.
6.01(b)(1).
Automatic
Conversion.
After
all of the Partnership Xxxxx have been drilled and completed, as determined
by
the Managing General Partner, the Managing General Partner shall file an amended
certificate of limited partnership with the Secretary of State of the State
of
Delaware for the purpose of converting the Investor General Partner Units to
Limited Partner Units.
6.01(b)(2).
Investor
General Partners Shall Have Contingent Liability.
On
conversion the Investor General Partners shall be Limited Partners entitled
to
limited liability; however, they shall remain liable to the Partnership for
any
additional Capital Contribution required for their proportionate share of any
Partnership obligation or liability arising before the conversion of their
Units
as provided in §3.05(b)(2).
6.01(b)(3).
Conversion
Shall Not Affect Allocations.
The
conversion shall not affect the allocation to any Participant of any item of
Partnership income, gain, loss, deduction or credit or other item of special
tax
significance other than Partnership liabilities, if any. Further, the conversion
shall not affect any Participant’s interest in the Partnership’s natural gas and
oil properties and unrealized receivables.
6.01(b)(4).
Right
to Convert if Reduction of Insurance.
Notwithstanding the foregoing, the Managing General Partner shall notify all
Participants at least 30 days before the effective date of any adverse material
change in the Partnership’s insurance coverage. If the insurance coverage is to
be materially reduced, then the Investor General Partners shall have the right
to convert their Units into Limited Partner Units before the reduction by giving
written notice to the Managing General Partner.
6.02.
Special
Restrictions on Transfers of Units by Participants.
6.02(a).
In
General.
Transfers of Units by Participants are subject to the following general
conditions:
54
(i) |
except
as provided by operation of law:
|
(a) |
only
whole Units may be transferred unless the Participant owns less than
a
whole Unit, in which case his entire fractional interest must be
transferred; and
|
(b) |
Units
may not be transferred to a person who is under the age of 18 or
incompetent (unless an attorney-in-fact, guardian, custodian or
conservator has been appointed to handle the affairs of that person)
without the Managing General Partner’s consent;
|
(ii) |
the
costs and expenses associated with the transfer must be paid by the
assignor Participant;
|
(iii) |
the
transfer documents must be in a form satisfactory to the Managing
General
Partner; and
|
(iv) |
the
terms of the transfer must not contravene those of this Agreement.
|
Transfers
of Units by Participants are subject to the following additional restrictions
set forth in §§6.02(a)(1) and 6.02(a)(2).
6.02(a)(1).
Tax
Law Restrictions.
Subject
to transfers permitted by §6.03 and transfers by operation of law, no transfer
of a Unit by a Participant shall be made which, in the opinion of counsel to
the
Partnership, would result in the Partnership being either:
(i) |
terminated
for tax purposes under §708 of the Code;
or
|
(ii) |
treated
as a “publicly-traded” partnership for purposes of §469(k) of the
Code.
|
6.02(a)(2).
Securities
Laws Restriction.
Subject
to transfers permitted by §6.03 and transfers by operation of law, no Unit shall
be transferred by a Participant unless there is either:
(i) |
an
effective registration of the Unit under the Securities Act of 1933,
as
amended, and qualification under applicable state securities laws;
or
|
(ii) |
an
opinion of counsel acceptable to the Managing General Partner that
the
registration and qualification of the Unit is not required.
|
Transfers
of Units by Participants are also subject to any conditions contained in the
Subscription Agreement and Exhibit (B) to the Prospectus.
6.02(a)(3).
Substitute
Participant.
6.02(a)(3)(a).
Procedure
to Become Substitute Participant.
Subject
to §§6.02(a)(1) and 6.02(a)(2), a transferee of a Participant’s Unit shall
become a substitute Participant entitled to all the rights of a Participant
if,
and only if:
(i) |
the
transferor gives the transferee the right;
|
(ii) |
the
transferee pays to the Partnership all costs and expenses incurred
in
connection with the substitution; and
|
(iii) |
the
transferee executes and delivers the instruments necessary to establish
that a legal transfer has taken place and to confirm the agreement
of the
transferee to be bound by all of the terms of this Agreement, in
a form
acceptable to the Managing General Partner.
|
55
6.02(a)(3)(b).
Rights
of Substitute Participant.
A
substitute Participant is entitled to all of the rights attributable to full
ownership of the assigned Units including the right to vote.
6.02(b).
Effect
of Transfer.
6.02(b)(1).
Amendment
of Records.
The
Partnership shall amend its records at least once each calendar quarter to
effect the substitution of substitute Participants.
Any
transfer of a Unit by a Participant which is permitted under this Article VI,
when the transferee does not become a substitute Participant, shall be effective
as follows:
(i) |
midnight
of the last day of the calendar month in which it is made;
or
|
(ii) |
at
the Managing General Partner’s election, 7:00 A.M. of the following day.
|
6.02(b)(2).
A
Transfer of Units Does Not Relieve the Transferor of Certain
Costs.
No
transfer of a Unit by a Participant, including a transfer of less than all
of a
Participant’s Units or the transfer of a Participant’s Units to more than one
party, shall relieve the transferor of its responsibility for its proportionate
part of any expenses, obligations and liabilities under this Agreement related
to the Units so transferred, whether arising before or after the transfer.
6.02(b)(3).
A
Transfer of Units Does Not Require A Partnership
Accounting.
No
transfer of a Unit by a Participant shall require an accounting by the Managing
General Partner. Also, no transfer of a Unit shall grant rights under this
Agreement, including the exercise of any elections, as between the transferring
Participant and the Partnership, the Managing General Partner and the remaining
Participants to more than one Person unanimously designated by the transferee(s)
of the Unit, and, if he has retained an interest in the transferred Unit, the
transferor of the Unit.
6.02(b)(4).
Required
Notice to Managing General Partner of Transfer of Units.
Until
the Managing General Partner receives from the transferring Participant a
written notice in a form acceptable to the Managing General Partner which
designates the transferee(s) of a Unit, the Managing General Partner shall
continue to account only to the Person to whom it was furnishing notices
pursuant to §8.01 and its subsections before the purported transfer of the Unit.
This party shall continue to exercise all rights applicable to the Units
previously owned by the transferor.
6.03.
Presentment.
6.03(a).
In
General.
Participants shall have the right to present their Units to the Managing General
Partner for purchase subject to the conditions and limitations set forth in
this
§6.03. A Participant, however, is not obligated to present his Units for
purchase.
The
Managing General Partner shall not be obligated to purchase more than 5% of
the
Units in any calendar year and this 5% limit may not be waived. The Managing
General Partner shall not purchase less than one Unit unless the lesser amount
represents the Participant’s entire interest in the Partnership, however, the
Managing General Partner may waive this limitation.
A
Participant may present his Units in writing to the Managing General Partner
every year beginning with the fifth calendar year after the Offering Termination
Date subject to the following conditions:
56
(i) |
the
presentment must be made within 120 days of the reserve report set
forth
in §4.03(b)(3);
|
(ii) |
in
accordance with Treas. Reg. §1.7704-1(f), the purchase may not be made
until at least 60 calendar days after the Participant notifies the
Partnership in writing of the Participant’s intention to exercise the
presentment right; and
|
(iii) |
the
purchase shall not be considered effective until the presentment
price has
been paid in cash to the
Participant.
|
6.03(b).
Requirement
for Independent
Petroleum Consultant.
The
amount of the presentment price attributable to Partnership reserves shall
be
determined based on the last reserve report of the Partnership prepared by
the
Managing General Partner and reviewed by an Independent Expert. The Managing
General Partner shall estimate the present worth of future net revenues
attributable to the Partnership’s interest in the Proved Reserves as described
in §4.03(b)(3)(ii). The calculation of the presentment price shall be as set
forth in §6.03(c).
6.03(c).
Calculation
of Presentment Price.
The
presentment price shall be based on the Participant’s share of the net assets
and liabilities of the Partnership and allocated pro rata to each Participant
in
the ratio that his number of Units bears to the total number of Units. The
presentment price shall include the sum of the following Partnership
items:
(i) |
an
amount based on 70% of the present worth of future net revenues from
the
Proved Reserves determined as described in
§6.03(b);
|
(ii) |
cash
on hand;
|
(iii) |
prepaid
expenses and accounts receivable less a reasonable amount for doubtful
accounts; and
|
(iv) |
the
estimated market value of all assets, not separately specified above,
determined in accordance with standard industry valuation
procedures.
|
There
shall be deducted from the foregoing sum the following items:
(i) |
an
amount equal to all debts, obligations, and other liabilities, including
accrued expenses; and
|
(ii) |
any
distributions made to the Participants between the date of the request
and
the actual payment. However, if any cash distributed was derived
from the
sale after the presentment request of natural gas, oil or other mineral
production, or of a producing property owned by the Partnership,
for
purposes of determining the reduction of the presentment price, the
distributions shall be discounted at the same rate used to take into
account the risk factors employed to determine the present worth
of the
Partnership’s Proved Reserves.
|
6.03(d).
Further
Adjustment May Be Allowed.
The
presentment price may be further adjusted by the Managing General Partner for
estimated changes therein from the date of the report to the date of payment
of
the presentment price to the Participants because of the following:
(i) |
the
production or sales of, or additions to, reserves and lease and well
equipment, sale or abandonment of Leases, and similar matters occurring
before the request for purchase; and
|
(ii) |
any
of the following occurring before payment of the presentment price
to the
selling Participants:
|
57
(a) |
changes
in well performance;
|
(b) |
increases
or decreases in the market price of natural gas, oil or other
minerals;
|
(c) |
revision
of regulations relating to the importing of
hydrocarbons;
|
(d) |
changes
in income, ad valorem, and other tax laws such as material variations
in
the provisions for depletion; and
|
(e) |
similar
matters.
|
6.03(e).
Selection
by Lot.
If less
than all Units presented at any time are to be purchased, then the Participants
whose Units are to be purchased will be selected by lot.
The
Managing General Partner’s obligation to purchase Units presented may be
discharged for its benefit by a third-party or an Affiliate. The Units of the
selling Participant will be transferred to the party who pays for it. A selling
Participant will be required to deliver an executed assignment of his Units,
in
a form satisfactory to the Managing General Partner, together with any other
documentation as the Managing General Partner may reasonably
request.
6.03(f).
No
Obligation of the Managing General Partner to Establish a
Reserve.
The
Managing General Partner shall have no obligation to establish any reserve
to
satisfy the presentment obligations under this section.
6.03(g).
Suspension
of Presentment Feature.
The
Managing General Partner may suspend this presentment feature by so notifying
Participants at any time if it:
(i) |
does
not have sufficient cash flow; or
|
(ii) |
is
unable to borrow funds for this purpose on terms it deems reasonable.
|
In
addition, the presentment feature may be conditioned, in the Managing General
Partner’s sole discretion, on the Managing General Partner’s receipt of an
opinion of counsel that the transfers will not cause the Partnership to be
treated as a “publicly traded partnership” under the Code.
The
Managing General Partner shall hold the purchased Units for its own account
and
not for resale.
ARTICLE
VII
7.01.
Duration.
7.01(a).
Fifty
Year Term. The
Partnership shall continue in existence for a term of 50 years from the
effective date of this Agreement unless sooner terminated as set forth
below.
7.01(b).
Termination.
The
Partnership shall terminate following the occurrence of:
(i) |
a
Final Terminating Event; or
|
(ii) |
any
event which under the Delaware Revised Uniform Limited Partnership
Act
causes the dissolution of a limited
partnership.
|
58
7.01(c).
Continuance
of Partnership Except on Final Terminating Event.
Other
than the occurrence of a Final Terminating
Event, the Partnership or any successor limited partnership shall not be wound
up, but shall be continued by the parties and their respective successors as
a
successor limited partnership under all the terms of this Agreement. The
successor
limited
partnership shall succeed to all of the assets of the Partnership. As used
throughout this Agreement, the term “Partnership” shall include the successor
limited partnership and the parties to the successor limited
partnership.
7.02.
Dissolution
and Winding Up.
7.02(a).
Final Terminating Event. On
the
occurrence of a Final Terminating Event the affairs of the Partnership shall
be
wound up and there shall be distributed to each of the parties its Distribution
Interest in the remaining Partnership assets.
7.02(b).
Time
of Liquidating Distribution.
To the
extent practicable and in accordance with sound business practices in the
judgment of the Managing General Partner, liquidating distributions shall be
made by:
(i) |
the
end of the taxable year in which liquidation occurs, determined without
regard to §706(c)(2)(A) of the Code;
or
|
(ii) |
if
later, within 90 days after the date of the liquidation.
|
Notwithstanding,
the following amounts are not required to be distributed within the foregoing
time periods so long as the withheld amounts are distributed as soon as
practical:
(i) |
amounts
withheld for reserves reasonably required for liabilities of the
Partnership; and
|
(ii) |
installment
obligations owed to the
Partnership.
|
7.02(c).
In-Kind
Distributions.
The
Managing General Partner shall not be obligated to offer in-kind property
distributions to the Participants, but may do so, in its discretion. Any in-kind
property distributions to the Participants shall be made to a liquidating trust
or similar entity for the benefit of the Participants, unless at the time of
the
distribution:
(i) |
the
Managing General Partner offers the individual Participants the election
of receiving in-kind property distributions and the Participants
accept
the offer after being advised of the risks associated with direct
ownership; or
|
(ii) |
there
are alternative arrangements in place which assure the Participants
that
they will not, at any time, be responsible for the operation or
disposition of Partnership
properties.
|
If
the
Managing General Partner has not received a Participant’s consent within 30 days
after the Managing General Partner mailed the request for consent, then it
shall
be presumed that the Participant has refused his consent.
7.02(d).
Sale
If No Consent.
Any
Partnership asset which would otherwise be distributed in-kind to a Participant,
except for the failure or refusal of the Participant to give his written consent
to the distribution, may instead be sold by the Managing General Partner at
the
best price reasonably obtainable from an independent third-party, who is not
an
Affiliate of the Managing General Partner or to itself or its Affiliates,
including an Affiliated Income Program, at fair market value as determined
by an
Independent Expert selected by the Managing General Partner.
59
ARTICLE
VIII
8.01.
Notices.
8.01(a).
Method.
Any
notice required under this Agreement shall be:
(i) |
in
writing; and
|
(ii) |
given
by mail or wire addressed to the party to receive the notice at the
address designated in §1.03.
|
If
there
is a transfer of Units under this Agreement, no notice to the transferee shall
be required, nor shall the transferee have any rights under this Agreement,
until notice of the transfer has been given to the Managing General
Partner.
Any
transfer of Units under this Agreement shall not increase the duty to give
notice. If there is a transfer of Units under this Agreement to more than one
party, then notice to any owner of any interest in the Units shall be notice
to
all owners of the Units.
8.01(b).
Change
in Address.
The
address of any party to this Agreement may be changed by written notice as
follows:
(i) |
to
the Participants if there is a change of address by the Managing
General
Partner; or
|
(ii) |
to
the Managing General Partner if there is a change of address by a
Participant.
|
8.01(c).
Time
Notice Deemed Given. If
the
notice is given by the Managing General Partner, then the notice shall be
considered given, and any applicable time shall run, from the date the notice
is
placed in the mail or delivered to the telegraph company.
If
the
notice is given by any Participant, then the notice shall be considered given
and any applicable time shall run from the date the notice is
received.
8.01(d).
Effectiveness
of Notice.
Any
notice to a party other than the Managing General Partner, including a notice
requiring concurrence or nonconcurrence, shall be effective, and any failure
to
respond binding, irrespective of the following:
(i) |
whether
or not the notice is
actually received; or
|
(ii) |
any
disability or death on the part of the noticee, even if the disability
or
death is known to the party giving the
notice.
|
8.01(e).
Failure
to Respond.
Except
pursuant to §7.02(c) or when this Agreement expressly requires affirmative
approval of a Participant, any Participant who fails to respond in writing
within the time specified to a request by the Managing General Partner as set
forth below, for approval of, or concurrence, in a proposed action shall be
conclusively deemed to have approved the action. The Managing General Partner
shall send the first request and the time period shall be not less than 15
business days from the date of mailing of the request. If the Participant does
not respond to the first request, then the Managing General Partner shall send
a
second request. If the Participant does not respond within seven calendar days
from the date of the mailing of the second request, then the Participant shall
be conclusively deemed to have approved the action.
60
8.02.
Time.
Time is
of the essence of each part of this Agreement.
8.03.
Applicable
Law.
The
terms and provisions of this Agreement shall be construed under the laws of
the
State of Delaware, provided, however, this section shall not be deemed to limit
causes of action for violations of federal or state securities law to the laws
of the State of Delaware. Neither this Agreement nor the Subscription Agreement
shall require mandatory venue or mandatory arbitration of any or all claims
by
Participants against the Sponsor.
8.04.
Agreement
in Counterparts.
This
Agreement may be executed in counterpart and shall be binding on all parties
executing this or similar agreements from and after the date of execution by
each party.
8.05.
Amendment.
8.05(a).
Procedure
for Amendment. No
changes in this Agreement shall be binding unless:
(i) |
proposed
in writing by the Managing General Partner, and adopted with the
consent
of Participants whose Units equal a majority of the total Units;
or
|
(ii) |
proposed
in writing by Participants whose Units equal 10% or more of the total
Units and approved by an affirmative vote of Participants whose Units
equal a majority of the total Units.
|
8.05(b).
Circumstances
Under Which the Managing General Partner Alone May Amend.
The
Managing General Partner is authorized to amend this Agreement and its exhibits
without the consent of Participants in any way deemed necessary or desirable
by
it to do any or all of the following:
(i) |
add,
or substitute in the case of an assigning party, additional Participants;
|
(ii) |
enhance
the tax benefits of the Partnership to the parties and amend the
allocation provisions of this Agreement as provided in §5.01(c)(3);
|
(iii) |
satisfy
any requirements, conditions, guidelines, options, or elections contained
in any opinion, directive, order, ruling, or regulation of the SEC,
the
IRS, or any other federal or state agency, or in any federal or state
statute, compliance with which it deems to be in the best interest
of the
Partnership; or
|
(iv) |
cure
any ambiguity, correct or supplement any provision that may be
inconsistent in this Agreement with any other provision in this Agreement,
or add any other provision to this Agreement with respect to matters,
events or issues arising under this Agreement that is not inconsistent
with the provisions of this
Agreement.
|
Notwithstanding
the foregoing, no amendment materially and adversely affecting the interests
or
rights of Participants shall be made without the consent of the Participants
whose interests will be so affected.
8.06.
Additional
Partners. Each
Participant hereby consents to the admission to the Partnership of additional
Participants as the Managing General Partner, in its discretion, chooses to
admit.
61
8.07.
Legal
Effect.
This
Agreement shall be binding on and inure to the benefit of the parties, their
heirs, devisees, personal representatives, successors and assigns, and shall
run
with the interests subject to this Agreement. The terms “Partnership,” “Limited
Partner,” “Investor General Partner,” “Participant,” “Partner,” “Managing
General Partner,” “Operator,” or “parties” shall equally apply to any successor
limited partnership, and any heir, devisee, personal representative, successor
or assign of a party.
ATLAS: ATLAS
RESOURCES, INC.
Managing
General Partner
By:
s/s
Xxxxx X. Xxxxxxx
62