Initial Public Offering (IPO): Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1 Registration Statement (General Form) HTML 1.14M
2: EX-1.1 Form of Soliciting Dealer Agreement 17 88K
3: EX-1.2 Form of Dealer Manager Agreement 17 88K
4: EX-3.1 Certificate of Limited Parnership 2± 9K
5: EX-4.1 Form of Agreement of Partnership 58 242K
6: EX-4.2 Form of Subscription Agreement 6 27K
7: EX-4.3 Form of Special Subscription Instructions 6 21K
8: EX-4.4 Form of Certificate of Limited Partner Interest 2 11K
9: EX-4.5 Form of Certificate of General Partner Interest 2 11K
10: EX-5.1 Opinion/Consent of Vinson & Elkins LLP 3 16K
11: EX-8.1 Opinion of Vinson & Elkins LLP 3 18K
12: EX-10.1 Form of Drilling Program Agreement 15 72K
13: EX-10.2 Form of Escrow Agreement 5 26K
14: EX-10.3 Tax Partnership Provisions 5 30K
15: EX-10.4 Form of Operating Agreement 62 238K
16: EX-23.1 Consent of Pricewaterhousecoopers LLP 1 7K
17: EX-23.3 Consent of Forrest A. Garb & Associates 1 8K
EXHIBIT 4.1
EXHIBIT A
AGREEMENT OF PARTNERSHIP
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MEWBOURNE ENERGY PARTNERS ___-A, L.P.
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AGREEMENT OF PARTNERSHIP
MEWBOURNE ENERGY PARTNERS ___-A, L.P.
TABLE OF CONTENTS
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ARTICLE I
FORMATION OF PARTNERSHIP
Section 1.1 Formation.................................................................. 1
Section 1.2 Name....................................................................... 1
Section 1.3 Business................................................................... 1
Section 1.4 Principal Office........................................................... 1
Section 1.5 Names and Addresses of Partners............................................ 2
Section 1.6 Term....................................................................... 2
Section 1.7 Filings.................................................................... 2
Section 1.8 Title to Partnership Property.............................................. 2
Section 1.9 Conversion of General Partner Interests into Limited Partner Interests..... 2
ARTICLE II
DEFINITIONS AND REFERENCES
Section 2.1 Defined Terms.............................................................. 3
Section 2.2 References and Titles...................................................... 11
ARTICLE III
CAPITALIZATION
Section 3.1 Capital Contributions of Investor Partners................................. 11
Section 3.2 Contributions of Managing Partner.......................................... 11
Section 3.3 Return of Contributions.................................................... 11
Section 3.4 Additional Contributions................................................... 11
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
Section 4.1 Allocation Among Partners.................................................. 12
Section 4.2 Allocations................................................................ 12
Section 4.3 Distributions.............................................................. 13
Section 4.4 Allocations on Transfers................................................... 14
ARTICLE V
MANAGEMENT
Section 5.1 Power and Authority of Managing Partner.................................... 15
Section 5.2 Certain Restrictions on Managing Partner's Power and Authority............. 17
Section 5.3 Services of Managing Partner............................................... 19
Section 5.4 Liability of Managing Partner and Its Affiliates........................... 20
Section 5.5 Indemnification of Managing Partner and Its Affiliates..................... 20
Section 5.6 Reporting and Legal Expenses............................................... 22
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Section 5.7 Administrative Costs....................................................... 22
Section 5.8 Management Fee............................................................. 23
Section 5.9 Gas Marketing Fee.......................................................... 23
Section 5.10 Restrictions on Certain Transactions....................................... 23
Section 5.11 Restriction on Voting Interests Held by Managing Partner................... 28
Section 5.12 Tax Elections.............................................................. 29
Section 5.13 Tax Matters Partner........................................................ 29
ARTICLE VI
RIGHTS AND OBLIGATIONS OF INVESTOR PARTNERS
Section 6.1 Rights of Investor Partners................................................ 29
Section 6.2 Access of Investor Partners to Geophysical Data............................ 30
Section 6.3 Return of Capital Contribution............................................. 30
Section 6.4 Meetings................................................................... 30
Section 6.5 Voting Rights of Investor Partners......................................... 30
Section 6.6 Conduct of Meeting......................................................... 31
Section 6.7 General Partners Not Agents................................................ 31
Section 6.8 Liabilities of Partners.................................................... 31
ARTICLE VII
BOOKS, RECORDS, CAPITAL ACCOUNTS, REPORTS, AND BANK ACCOUNTS
Section 7.1 Books, Records, and Capital Accounts....................................... 32
Section 7.2 Reports.................................................................... 34
Section 7.3 Bank Accounts.............................................................. 36
ARTICLE VIII
ASSIGNMENT AND PURCHASE OF INTERESTS; SUBSTITUTION
Section 8.1 Assignments by Investor Partners........................................... 36
Section 8.2 Assignment by Managing Partner............................................. 38
Section 8.3 Right of Presentment....................................................... 39
Section 8.4 Notices of and Limitations on Right of Presentment......................... 40
Section 8.5 Cessation of Right of Presentment.......................................... 42
Section 8.6 Removal of Managing Partner................................................ 42
ARTICLE IX
DISSOLUTION, RECONSTITUTION, LIQUIDATION, AND TERMINATION
Section 9.1 Dissolution................................................................ 43
Section 9.2 Covenant Not to Withdraw................................................... 44
Section 9.3 Reconstitution............................................................. 44
Section 9.4 Liquidation and Termination................................................ 47
ARTICLE X
REPRESENTATIONS AND WARRANTIES OF THE MANAGING PARTNER AND POWER OF ATTORNEY
Section 10.1 Representations and Warranties of the Managing Partner..................... 49
Section 10.2 Power of Attorney.......................................................... 50
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ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices.................................................................... 51
Section 11.2 Amendment.................................................................. 51
Section 11.3 Partition.................................................................. 52
Section 11.4 Entire Agreement........................................................... 52
Section 11.5 Severability............................................................... 52
Section 11.6 No Waiver.................................................................. 52
Section 11.7 Evidence of Interest....................................................... 52
Section 11.8 Applicable Law............................................................. 52
Section 11.9 Successors and Assigns..................................................... 53
Section 11.10 Counterparts............................................................... 53
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AGREEMENT OF PARTNERSHIP
MEWBOURNE ENERGY PARTNERS ___-A, L.P.
THIS AGREEMENT OF PARTNERSHIP (herein called this "Agreement") dated
[_____________] ___, 20__, is made by and among Mewbourne Development
Corporation, a Delaware corporation ("MD" and also herein called the "Managing
Partner" when acting in its capacity as Managing Partner of the Partnership),
Curtis W. Mewbourne, a resident of Tyler, Texas (the "Organizational Partner"),
and those persons who execute or adopt this Agreement or counterparts hereof as
Investor Partners and become such (herein called the "Investor Partners"). In
consideration of the mutual covenants and agreements contained herein, the
parties hereto do hereby agree as follows:
ARTICLE I
FORMATION OF PARTNERSHIP
Section 1.1 Formation. Subject to the provisions of this Agreement, the
parties hereto do hereby form a limited partnership (herein called the
"Partnership") pursuant to the provisions of the Delaware Act.
Section 1.2 Name. The name of the Partnership shall be Mewbourne Energy
Partners ___-A, L.P. Subject to all applicable laws, the business of the
Partnership may be conducted under such other name or names (including the name
of the Managing Partner) as the Managing Partner shall determine to be necessary
or desirable. The Managing Partner shall cause to be filed on behalf of the
Partnership such partnership or assumed or fictitious name certificate or
certificates or similar instruments as may from time to time be required by law.
Section 1.3 Business. The business of the Partnership shall be the
following: (a)to become a party to the Program Agreement; (b)to acquire Leases
from MOC and its Affiliates and from third parties in accordance with the terms
of the Program Agreement; (c)to explore, drill, develop, operate, and dispose of
such Leases; (d)to produce, collect, store, treat, deliver, market, sell, or
otherwise dispose of oil, gas, and related minerals from such Leases; and (e)to
take all such actions which may be incidental thereto as the Managing Partner
may determine. The Partnership may also purchase or acquire equipment,
processing facilities, and other property associated with such Leases and
acquire interests in and invest in joint ventures and other partnerships
(including affiliated joint ventures or affiliated partnerships) or other
entities (including corporations) that hold or are formed to acquire Leases in
Prospects if, in the judgment of the Managing Partner, such acquisitions or
investments are necessary or desirable to the acquisition by the Partnership of
Leases in Prospects or the drilling and completion of wells thereon. In
addition, the Partnership may participate in any other type of transaction
relating to Leases or Prospects or the drilling and completion of wells thereon
if the economic effect of such transactions is the same as the ownership of such
Leases or Prospects by the Partnership.
Section 1.4 Principal Office. The location of the principal place of
business of the Partnership shall be 3901 South Broadway, Tyler, Texas 75701.
The Managing Partner, at any time and from time to time, may change the location
of the Partnership's principal place of business and may establish such
additional place or places of business of the Partnership as the
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Managing Partner shall determine to be necessary or desirable, provided notice
thereof is given to the Investor Partners within 30 days of such change or
establishment. The registered office of the Partnership in the State of Delaware
shall be at Corporation Trust Center, 1209 Orange Street, Wilmington, County of
Newcastle, Delaware 19801, and its registered agent for service of process on
the Partnership at such registered office shall be Corporation Trust
Corporation.
Section 1.5 Names and Addresses of Partners. MD is the sole Managing
Partner of the Partnership and its address is 3901 South Broadway, Tyler, Texas
75701. The Organizational Partner's name is Curtis W. Mewbourne and his address
is 3901 South Broadway, Tyler, Texas 75701. The name and business, residence, or
mailing address of each Investor Partner will be maintained in the Partnership
records. The date upon which each such person became an Investor Partner shall
be the date set forth in Partnership records. The address of each Investor
Partner for the purpose of receiving notices and all other communications
hereunder shall be the address shown in the Subscription Agreement executed by
such Investor Partner or such other address as may be supplied by such Investor
Partner to the Managing Partner in the manner specified in Section 11.1.
Section 1.6 Term. The Partnership shall commence upon the completion of
filing for record of an initial Certificate of Limited Partnership for the
Partnership in accordance with the Delaware Act and shall continue until
terminated in accordance with Article IX.
Section 1.7 Filings. Upon the request of the Managing Partner, the
parties hereto shall immediately execute and deliver all such certificates and
other instruments conforming hereto as shall be necessary for the Managing
Partner to accomplish all filing, recording, publishing, and other acts
appropriate to comply with all requirements for the formation and operation of a
limited partnership under the laws of the State of Delaware and for the
formation, qualification, and operation of a limited partnership (or a
partnership in which the Investor Partners have limited liability) in all other
jurisdictions where the Partnership shall propose to conduct business.
Section 1.8 Title to Partnership Property. All property owned by the
Partnership, whether real or personal, tangible or intangible, shall be deemed
to be owned by the Partnership as an entity, and no Partner, individually, shall
have any ownership of such property. The Partnership shall hold its assets in
its own name, except that its interests in Leases may be held in the name of the
Program Manager as contemplated by the Program Agreement.
Section 1.9 Conversion of General Partner Interests into Limited
Partner Interests. As soon as practicable after the completion of the
Partnership's drilling activities, the Interests held by the General Partners
will be converted to Limited Partner Interests. In order to accomplish such
conversion, the Managing Partner will (a) file an amended certificate of limited
partnership with the Secretary of State of the State of Delaware removing the
General Partners as general partners of the Partnership and (b)take such other
actions as are necessary or appropriate to accomplish conversion of the General
Partner Interests held by the General Partners to Limited Partner Interests.
Notwithstanding the foregoing, the Managing Partner shall not be obligated to
cause the conversion of the General Partner Interests held by the General
Partners to Limited
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Partner Interests, or may delay such conversion, if the Managing Partner
determines that such conversion at that time would not be in the best interests
of the Investor Partners or the Partnership; provided that if the Managing
Partner determines that such conversion would not be in the best interests of
the Investor Partners or the Partnership, the insurance coverage limits,
including umbrella policy limits, will not be reduced unless such coverage
becomes unobtainable or is only available at premiums which are prohibitively
more expensive than the premiums now being paid for such policies. If conversion
is so delayed, the Managing Partner will continue to have the power and
authority to cause such conversion at any time during the term of the
Partnership if the Managing Partner determines that conversion is in the best
interests of the General Partners and the Partnership. Upon filing the amended
certificate of limited partnership reflecting the conversion of the General
Partner Interests held by General Partners to Limited Partner Interests, the
conversion will be effective and thereafter each General Partner will have the
rights and obligations of a Limited Partner and will be entitled to limited
liability to the extent provided by the Delaware Act; provided that those
General Partners will remain liable to the Partnership for their proportionate
shares of Partnership obligations and liabilities arising prior to the
conversion of their General Partner Interests to Limited Partner Interests.
ARTICLE II
DEFINITIONS AND REFERENCES
Section 2.1 Defined Terms. When used in this Agreement and unless the
context otherwise requires, the following terms shall have the respective
meanings set forth below:
"Administrative Costs" shall mean all customary and routine expenses
incurred by the Managing Partner or its Affiliates for the conduct of the
administration of the Partnership or the Drilling Program, including: legal,
finance, accounting, secretarial, travel, office rent, telephone, data
processing, and other items of a similar nature.
"Adjusted Capital Account" shall mean the capital account maintained
for each Partner as provided in Section 7.1(c) as of the end of each fiscal
year, (a) increased by (i) an amount equal to such Partner's allocable share of
the Partnership's Minimum Gain, as computed on the last day of such fiscal year
in accordance with Treasury Regulation 1.704-2(g), and (ii) the amount of
Partnership indebtedness allocable to such Partner under Section 752 of the Code
with respect to which such Partner is personally liable, and (b) reduced by (i)
depletion deductions reasonably expected to be allocated to such Partner in
subsequent years and charged to such Partner's capital account as provided in
Section 7.1(c), (ii) the amount of all losses and deductions reasonably expected
to be allocated to such Partner in subsequent years under Section 704(e)(2) or
706(d) of the Code and Treasury regulation 1.751-1(b)(2)(ii), and (iii) the
amount of all distributions reasonably expected to be made to such Partner to
the extent that they exceed offsetting increases in such Partner's capital
account that are reasonably expected to occur during (or prior to) the year in
which such distributions are reasonably expected to be made.
"Affiliate" shall mean with respect to another person, (a) any person
directly or indirectly owning, controlling, or holding with power to vote 10% or
more of the outstanding voting securities of or equity interests in such other
person; (b) any person 10% or more of whose outstanding voting securities or
equity interests are directly or indirectly owned, controlled, or held with
power to vote by such other person; (c) any person directly or indirectly
controlling,
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controlled by, or under common control with such other person; (d) any employee,
officer, director, or partner of such other person; and (e) any company for
which any such officer, director, or partner acts in any such capacity. For
purposes of this Agreement an Affiliate of MD shall include Affiliated Programs.
"Affiliated Program" shall mean a drilling, producing property, income,
royalty, or other program (whether in the form of a partnership, joint venture,
or otherwise) for or of which the Managing Partner or an Affiliate thereof
serves as manager or managing partner or acts in a similar capacity.
"Agreement" shall mean this Agreement of Partnership, as amended from
time to time.
"Base Rate" shall mean an effective rate per annum equal to the lesser
of the following rates of interest (a)the highest rate of interest publicly
announced from time to time by Bank of America of Texas, N.A., Tyler, Texas, as
its prime rate for its largest and most credit worthy domestic corporate
customers for 90 day unsecured loans, plus 1%, or (b)the "Maximum Legal Rate."
The term "Maximum Legal Rate" means the maximum rate of interest from time to
time permitted to be contracted for, charged, or collected by the specified
recipient under any laws from time to time applicable to the indebtedness of the
payor to the recipient with respect to the amounts subject to such Base Rate.
"Capital Contribution" shall mean for any particular Partner the total
dollar amount of the contribution to the capital of the Partnership made by such
Partner.
"Capital Contributions" shall mean the aggregate amount of the Capital
Contribution paid by all Partners to the Partnership.
"Capital Expenditures" shall mean those costs associated with property
acquisition and the drilling and completion of oil and gas wells which are
generally accepted as capital expenditures pursuant to the provisions of the
Code.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Delaware Act" shall mean the Delaware Revised Uniform Limited
Partnership Act, as amended from time to time, and any successor to such act.
"Direct Costs" shall mean all actual and necessary costs directly
incurred for the benefit of the Drilling Program and generally attributable to
the goods and services provided to the Drilling Program by parties other than
the Managing Partner or its Affiliates. Direct costs shall not include any cost
otherwise classified as Organization and Offering Expenses. Direct Costs include
Reporting and Legal Expenses and may include the cost of services provided by
the Managing Partner or its Affiliates if such services are provided pursuant to
written contracts and in compliance with the terms set forth under Section 5.7
hereof.
"Drilling Program" shall mean the drilling program to be conducted by
the Partnership, MOC, and MD pursuant to the Program Agreement and the rights,
interests, and properties of MD and the Partnership under or subject to the
Program Agreement.
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A "farmout" shall mean an agreement whereby the owner of the Lease
agrees to assign his interest in certain specific acreage 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 wells or other performance as a condition of the
assignment.
"General Partner" shall mean each person who executes or adopts this
Agreement or a counterpart hereof as a General Partner and is accepted by the
Managing Partner as such and any person who becomes a substituted General
Partner in accordance with the terms hereof. General Partner shall not include
the Managing Partner except to the extent that the Managing Partner owns General
Partner Interests.
"General Partner Interest" shall mean a General Partner's unit of
interest in the Partnership representing a $1,000 Capital Contribution.
"Horizon" shall mean a zone of a particular formation; that part of a
formation of sufficient porosity and permeability to form a petroleum reservoir.
"Independent Expert" shall mean a person with no material relationship
to the Managing Partner or its Affiliates who is qualified and who is in the
business of rendering opinions regarding the value of oil and gas properties
based upon the evaluation of all pertinent economic, financial, geologic, and
engineering information available to the Managing Partner.
"Interest" shall mean an Investor Partner's unit of interest in the
Partnership representing a $1,000 Capital Contribution.
"Investor Partners" shall mean the General Partners and the Limited
Partners and shall not include the Managing Partner, except to the extent that
the Managing Partner owns Interests.
"Lease" shall mean an oil and gas lease or an oil, gas, and mineral
lease; a Working Interest; an interest (including certain non-consent interest)
arising under a pooling order or operating agreement; an interest acquired under
a farmout; operating rights under governmental tracts; a mineral interest,
royalty, or other interest in and to oil, gas, and related hydrocarbons (or a
contractual right to acquire or earn such an interest) or an undivided interest
therein or portion thereof (including those covering only certain Horizons or
depths), together with all easements, permits, licenses, servitudes, and
rights-of-way situated upon or used or held for future use in connection with
the exploration, development, or operation of such interest.
"Lease Acquisition Costs" shall mean, when used to describe the costs
of any Lease, the sum of (a) all monetary consideration paid or given for such
Lease to a non-Affiliate of the Managing Partner, including but not limited to
lease bonuses and advance rentals paid to a non-Affiliate of the Managing
Partner, (b) all costs of lease acquisition and title examination, including but
not limited to curing or defending title, title insurance or examination costs,
brokerage commissions, the fees and wages of landmen and lease brokers and their
expenses, filing fees, recording costs, transfer taxes, and like charges paid in
connection with the acquisition of such Lease, (c) all delay rentals and other
similar payments and ad valorem taxes paid with respect to such Lease, (d) such
portion as may be allocated to such Lease in accordance with generally accepted
accounting principles and industry standards of all reasonable,
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necessary, and actual costs and expenses of MD or its Affiliates for geological,
geophysical, seismic, land, engineering, drafting, accounting, legal, and other
like services together with related administrative and general overhead costs
involved in lease acquisition and Prospect evaluation including such costs and
expenses which could otherwise be classified hereunder as Administrative Costs,
(e) such portion as may be allocated to such Lease in accordance with generally
accepted accounting principles and industry standards of all costs and expenses
incurred in the acquisition of farmouts, subleases, pooling orders, or other oil
and gas interests, (f) interest and points actually incurred on funds borrowed
to pay any of the costs and expenses described in clauses (a) through (e) above
calculated from the date of their incurrence until the date of their
reimbursement by the Drilling Program at the time a Lease is acquired by the
Drilling Program, and (g)with respect to Leases held on the date hereof by or
acquired thereafter by MD or an Affiliate thereof, in which an interest is
transferred to the Participants pursuant to the Program Agreement, the costs of
such transfer; provided that the expenses described in clauses (c), (d), (e),
and (f) shall have been incurred by MOC or its Affiliates not more than 36
months prior to the acquisition by the Drilling Program of such Lease; and
provided further, that such time limitation shall not be applicable to Leases
having a primary term of five or more years. Lease Acquisition Costs of a Lease
shall not include any costs or expenses otherwise allocable herein to such Lease
and which represent costs or expenses incurred in connection with the past
drilling of wells which are not producers of sufficient quantities of oil or
natural gas to make commercially reasonable their continued operation.
"Limited Partner" shall mean each person who executes or adopts this
Agreement or a counterpart hereof as a Limited Partner and is accepted by the
Managing Partner as such and any person who becomes a substituted Limited
Partner in accordance with the terms hereof. Limited Partner shall not including
the Managing Partner, except to the extent that the Managing Partner owns
Limited Partner Interests.
"Limited Partner Interest" shall mean a Limited Partner's unit of
interest in the Partnership representing a $1,000 Capital Contribution.
"Majority in Interest" shall mean, with respect to any agreement or
vote of the Investor Partners, Investor Partners whose combined Interests, at
the time of determination thereof, exceed 50% of the total Interests held of
record by Investor Partners who are eligible to participate in such agreement or
vote.
"Management Fee" shall have the meaning assigned to such term in
Section 5.8.
"Managing Partner" shall mean MD which will serve as the initial
managing partner of the Partnership, and any person who becomes a substituted
Managing Partner in accordance with the terms hereof.
"Minimum Gain" shall mean the amount of gain that would be realized by
the Partnership if it disposed of (in a taxable transaction) all Partnership
properties which are subject to non-recourse liabilities of the Partnership in
full satisfaction of such liabilities, computed in accordance with the
provisions of Treasury regulation 1.704-2(b)(2).
"MOC" shall mean Mewbourne Oil Company, a Delaware corporation.
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"Operating Agreement" shall mean a Model Form Operating Agreement based
upon the American Association of Petroleum Landmen Form 610-1989 and among the
other attached exhibits thereto, an accounting procedure for joint operations
issued by the Council of Petroleum Accountants Societies of North America, each
of which containing modifications that are customary and usual for the
geographic area in which the Partnership intends to conduct operations.
"Operating Costs" shall mean all expenditures made and costs incurred
in producing and marketing oil and gas from completed wells, including, in
addition to labor, fuel, repairs, hauling, materials, supplies, utility charges,
and other costs incident to or therefrom, ad valorem and severance taxes,
insurance and casualty loss expense, and compensation to well operators or
others for services rendered in conducting such operations.
"Organization and Offering Expenses" means all costs and expenses
incurred by the managing partner and its affiliates in connection with the
organization of a partnership and a drilling program, the registration of the
interests for offer and sale under applicable federal and state securities laws,
and the offer and sale of the interests. Organization and Offering Expenses
include, without limitation, fees paid to persons performing due diligence
examinations or otherwise acting in relation to a partnership or the managing
partner with respect to the offering and sale of the interests and all expenses
reasonable for the managing partner and its affiliates incurred in assisting
with the distribution of the interests or such due diligence. Organization and
Offering Expenses shall not include any costs and expenses that might be
categorized as any of the foregoing but that are included as sales commissions
or due diligence fees.
"Organizational Partner" shall mean Curtis W. Mewbourne, a resident of
Tyler, Texas, who has agreed to serve as an initial limited partner.
"Overriding Royalty Interest" shall mean an interest in the oil and gas
produced pursuant to a specified Lease or Leases, 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.
"Partners" shall mean the Managing Partner and the Investor Partners.
"Partnership" shall have the meaning assigned to such term in Section
1.1.
"Partnership Year" shall mean a period of one year with the first
Partnership Year commencing as of the date the Investor Partners are first
admitted to the Partnership and ending immediately prior to the anniversary of
such date and with each succeeding Partnership Year commencing as of the
anniversary of such date and ending immediately prior to the next succeeding
anniversary date.
"person" shall refer to any natural person, partnership, corporation,
association, trust, or other legal entity.
"Production Purchase or Income Program" shall mean 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
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spends at least 90% of Capital Contributions and funds borrowed (excluding
Organization and Offering Expenses) in the above described activities is
presumed to be a Production Purchase or Income Program.
"Program Agreement" shall mean the Program Agreement by and among the
Partnership, MD, and MOC.
"Program Manager" shall mean MOC and any person who becomes the
successor Program Manager in accordance with the Program Agreement.
"Program Well" shall mean any oil and gas well in which the
Participants have an interest pursuant to the Program Agreement.
"Prospect" shall mean an area covering lands which, in the opinion of
the Program Manager, contains subsurface structural or stratigraphic conditions
making it susceptible to the accumulation of oil or gas in commercially
productive quantities at one or more Horizons. The area, which may be different
for different Horizons, shall be designated by the Program Manager in writing
prior to the conduct of Partnership operations and shall be enlarged or
contracted from time to time on the basis of subsequently acquired information
to define the anticipated limits of the associated oil and gas reserves and to
include all acreage encompassed therein. A "Prospect" with respect to 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 wells if the well to be drilled by the Partnership is to a Horizon
containing Proved Reserves.
"Proved Reserves" shall mean those quantities of crude oil, natural
gas, and natural gas liquids which, upon analysis of geological and engineering
data, appear with reasonable certainty to be recoverable in future years from
known oil and gas reservoirs under existing economic and operating conditions.
Proved Reserves are limited to those quantities of oil and gas which can be
expected, with little doubt, to be recoverable commercially at current prices
and costs, under existing regulatory practices and with existing conventional
equipment and operating methods. Depending upon their status or development,
Proved Reserves will be subdivided into the following classifications and have
the following definitions.
(a) "Proved Developed Reserves" shall mean Proved
Reserves which can be expected to be recovered through existing wells with
existing equipment and operating methods. This classification shall include:
(i) "Proved Developed Producing Reserves," which are
Proved Developed Reserves which are expected to be produced from existing
completion intervals now open for production in existing wells; and
(ii) "Proved Developed Non-Producing Reserves," which are
Proved Developed Reserves which exist behind the casing of existing wells, or at
minor depths below the present bottom of such wells, which are expected to be
produced through these wells in the predictable future, where the cost of making
oil and gas available for production is relatively small compared to the cost of
a new well.
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Additional oil and gas expected to be obtained through the application
of improved recovery techniques are included as Proved Developed Reserves only
after testing by a pilot project or after the operation of an installed program
has confirmed through production that increased recovery will be achieved.
(b) "Proved Undeveloped Reserves" shall mean all reserves which
are expected to be recovered from additional wells on undrilled acreage or from
existing wells where a relatively major expenditure is required for
recompletion. Such reserves on undrilled acreage are limited to those drilling
units offsetting productive units which are reasonably certain of production
when drilled. Proved Reserves for other undrilled units are claimed only where
it can be demonstrated with reasonable certainty, based on accepted geological,
geophysical, and engineering studies and data, that there is continuity of
reservoir from an existing productive formation. No estimates for Proved
Undeveloped Reserves are attributable to any improved recovery technique
contemplated for any acreage, unless the techniques to be employed have been
proved effective by actual tests in the same areas and reservoir.
"Reconstituted Partnership" shall mean the Partnership, as
reconstituted by a Majority in Interest of the Investor Partners pursuant to
Section 9.3.
"Reporting and Legal Expenses" shall mean all third party accounting
fees, costs, and expenses associated with obtaining audits of books and records,
third party engineering fees, costs, and expenses associated with annual reserve
reports and third party attorney's fees and other legal fees, costs, and
expenses associated with matters that are attributable to the Drilling Program's
or the Partnership's business.
"Right of Presentment" shall mean the right of Investor Partners to
request the Managing Partner to purchase for cash all of that Investor Partner's
Interests, subject to certain conditions.
"Roll-Up" shall mean 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. Such term does not include a
transaction involving securities of any 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
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:
(i) voting rights;
(ii) the term of existence of the Partnership;
(iii) Sponsor compensation; or
(iv) the Partnership's investment objectives.
"Roll-Up Entity" shall mean a partnership, trust, corporation, or other
entity that would be created or survive after the successful completion of a
proposed Roll-Up transaction.
"Securities Act" shall mean the Securities Act of 1933, as amended.
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"Sharing Ratio" shall mean for any Partner the proportion obtained by
dividing (i) the amount of such Partner's Capital Contribution to the
Partnership by (ii) the sum of all Capital Contributions paid by the Partners to
the Partnership; provided that in the event of an assignment (voluntarily, by
operation of law or this Agreement, or otherwise) by an Investor Partner of
Interests in the Partnership (other than an assignment solely of an interest in
distributions of Partnership revenues), the Sharing Ratio of such Investor
Partner shall be proportionately reduced, based upon the number of Interests
assigned compared to the total number of Interests owned by such Investor
Partner prior to such assignment, and the assignee of such Interests shall
succeed to a proportionate share of the Sharing Ratio of his assignor that is
attributable to the Interests transferred to such assignee.
"Simulated Basis" shall have the meaning assigned to such term in
Section 7.1(c).
"Simulated Depletion" shall have the meaning assigned to such term in
Section 7.1(c).
"Simulated Gain" shall have the meaning assigned to such term in
Section 7.1(c).
"Simulated Loss" shall have the meaning assigned to such term in
Section 7.1(c).
"Sponsor" shall mean any person directly or indirectly instrumental in
organizing, wholly or in part, the Partnership, or any person who will manage or
is entitled to manage or participate in the management or control of the
Partnership. "Sponsor" includes the Managing Partner and any other person who
actually controls or selects any person who controls 25% or more of the
exploratory, developmental, or producing activities of the Partnership, or any
segment thereof, even if that person had not entered into a contract at the time
of formation of the Partnership. "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 the Interests. Whenever the context of this Agreement so requires,
the term "Sponsor" shall be deemed to include Affiliates of the person deemed to
be a Sponsor.
"Subscription Agreement" shall mean, with respect to an Investor
Partner, the subscription agreement executed and delivered by such Investor
Partner in connection with his subscription to purchase Interests and containing
certain representations, warranties, covenants, and agreements of such Investor
Partner.
"Super Majority in Interest" shall mean, with respect to any agreement
or vote of Investor Partners, Investor Partners whose combined Interests, at the
time of the determination thereof, exceed 66% of the total Interests held by
Investor Partners who are eligible to participate in such agreement or vote.
"Valuation Date" shall mean for purposes of the exercise of the Right
of Presentment granted to Investor Partners pursuant to Section 8.3, December 31
of the year immediately preceding the year in which the Right of Presentment is
being exercised.
"Working Interest" shall mean an interest in an oil and gas leasehold
which is subject to some portion of the costs of development, operation, or
maintenance.
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Section 2.2 References and Titles. All references in this Agreement to
articles, sections, subsections, and other subdivisions refer to corresponding
articles, sections, subsections, and other subdivisions of this Agreement unless
expressly provided otherwise. Titles appearing at the beginning of any of such
subdivisions are for convenience only and shall not constitute part of such
subdivisions and shall be disregarded in construing the language contained in
such subdivisions. The words "this Agreement," "this instrument," "herein,"
"hereof," "hereby," "hereunder," and words of similar import refer to this
Agreement as a whole and not to any particular subdivision unless expressly so
limited. Pronouns in masculine, feminine, and neuter genders shall be construed
to include any other gender, and words in the singular form shall be construed
to include the plural and vice versa, unless the context otherwise requires.
ARTICLE III
CAPITALIZATION
Section 3.1 Capital Contributions of Investor Partners. Each subscriber
shall be accepted as an Investor Partner only after (a) such subscriber has
deposited or has had deposited on its behalf in a segregated escrow account at
Regions Bank - Tyler, or another federally insured institution designated by MD,
the full amount of the Capital Contribution of such subscriber in cash and (b)
the Managing Partner has approved and accepted the Subscription Agreement
executed by such subscriber. By executing and delivering the Subscription
Agreement, upon its acceptance, each Investor Partner shall be irrevocably
committed to contribute to the capital of the Partnership the amount stated in
such Investor Partner's Subscription Agreement as the Capital Contribution of
such Investor Partner. If the sum of Subscription Agreements committed and
accepted at or prior to the end of the subscription period is at least
$1,000,000, the Managing Partner may cause all subscribers who have been
approved by the Managing Partner to be admitted to the Partnership as Limited
Partners or General Partners, and the Capital Contributions shall be paid to the
Partnership. If less than $1,000,000 of Subscription Agreements shall have been
committed by the Investor Partners and accepted at the end of the subscription
period, the amount of the subscriptions paid by each subscriber shall be
returned with any interest earned thereon.
Section 3.2 Contributions of Managing Partner. The Managing Partner
shall not be required to make any contribution to the capital of the
Partnership. Although the Managing Partner is personally liable under applicable
laws for the debts and obligations of the Partnership, all such debts and
obligations shall be paid or discharged first with Partnership assets (including
insurance proceeds) before the Managing Partner shall be obligated to pay or
discharge any such debt or obligation with its personal assets.
Section 3.3 Return of Contributions. Except as otherwise provided in
this Agreement, no interest shall accrue on any Capital Contributions to the
Partnership. No Partner shall have the right to withdraw or to be repaid any
capital contributed by such Partner except as otherwise specifically provided in
this Agreement or required by law.
Section 3.4 Additional Contributions. No Investor Partner shall be
required or obligated (a) to contribute any capital to the Partnership other
than as provided in Section 3.1 hereof or (b) to lend any funds to the
Partnership. The Interests are nonassessable; however, General
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Partners are liable, in addition to their Capital Contributions, for Partnership
obligations and liabilities represented by their ownership of interests as
general partners, in accordance with the Delaware Act.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
Section 4.1 Allocation Among Partners. Except as provided in Section
4.2 below, each Partner shall share Partnership items of costs, expenditures,
deductions (other than depletion), credits, income, revenues, gain, loss, and
distributions allocated, charged, or credited to the Partners hereunder in
accordance with the proportion that the Sharing Ratio of such Investor Partner
bears to the aggregate Sharing Ratios of all Partners.
Section 4.2 Allocations.
(a) Except as provided in subsections (b) through (f)
below, all costs and revenues (including without limitation, revenues derived by
the Partnership from, and distributed to the Partnership by, the Drilling
Program) of the Partnership and all items of income, gain, amount realized,
loss, deduction, recapture, and credit for purposes of any applicable federal,
state, or local income tax law, rule, or regulation shall be allocated to the
Partners in accordance with their respective Sharing Ratio.
(b) All costs incurred by the Partnership in connection
with the performance of any special services requested by a Partner and any tax
deductions relating thereto shall be allocated 100% to the Partner requesting
such services.
(c) All interest income directly or indirectly resulting
from the investment of the Investor Partners' Capital Contributions following
the payment thereof to the Partnership shall be allocated 100% to the Investor
Partners, and shall be allocated among such Investor Partners proportionately
based on each Investor Partner's respective cash contributions actually paid to
the Partnership.
(d) Cost and percentage depletion deductions and the gain
or loss on the sale or other disposition of property the production from which
is or would be (in the case of nonproducing properties) subject to depletion
(herein sometimes called "depletable property") shall be computed separately by
the Partners rather than the Partnership. For purposes of making such
computations the Partnership's adjusted basis in each depletable property shall
be allocated under Section 613A(c)(7)(D) of the Code to the Partners in
accordance with their respective Sharing Ratio. The amount realized on the sale
or other disposition of each such property shall be allocated to the Partners in
proportion to each Partner's respective share of the revenues from the sale or
other disposition of such property provided for in Section 4.2(a). For purposes
of allocating amounts realized upon any such sale or disposition which are
deemed to be received for federal income tax purposes and which are attributable
to Partnership indebtedness or indebtedness to which the depletable property is
subject at the time of such sale or disposition, such amounts shall be allocated
in the same manner as Partnership revenues used for the repayment of such
indebtedness would have been allocated under Section 4.2(f).
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(e) Notwithstanding any other provision of this Section
4.2 to the contrary, if during any taxable year of the Partnership the
allocation of any loss or deduction (net of any income or gain) to any Partner
(the "Deficit Partner") would cause or increase a deficit balance in the Deficit
Partner's Adjusted Capital Account as of the end of such taxable year, only the
amount of such loss or deduction that reduces the balance to zero shall be
allocated to the Deficit Partner and the remaining loss or deduction shall be
allocated to the Partners whose Adjusted Capital Accounts have positive balances
remaining at such time in proportion to such positive balances. After any such
allocation, any Partnership income or gain (or amount realized in excess of
Simulated Basis) that would otherwise be allocated to the Deficit Partner for
any fiscal year under this Section 4.2 which is in excess of the cash
distributions to the Deficit Partner for such fiscal year shall be allocated
instead to the Partners to whom the Deficit Partner's share of losses and
deductions were allocated under the preceding sentence until the amount of such
income or gain (or amount realized) so allocated equals the amount of loss or
deduction previously so allocated to such other Partner.
(f) Notwithstanding the foregoing provisions of this
Section 4.2, prior to making any other allocation under this Section 4.2, the
Partnership shall allocate the following items of income to the Partners:
(i) Pursuant to section 1.704-2(f) of the
Treasury Regulations (relating to minimum gain chargebacks), if there is a net
decrease in Minimum Gain for such year (or if there was a net decrease in
Minimum Gain for a prior fiscal year and the Partnership did not have sufficient
amounts of profit during prior years to allocate among the Partners under this
Section 4.2(f)(1), then items of Partnership income or revenue shall be
allocated, before any other allocation is made pursuant to the preceding
provisions of this Section 4.2 for such year, to each Partner in an amount equal
to such Partner's share of the net decrease in such minimum gain (as determined
under section 1.704-2(g)(2) of the Treasury Regulations).
(ii) Pursuant to section 1.704-1(b)(2)(ii)(d) of
the Treasury Regulations (relating to "qualified income offsets"), items of
Partnership income or revenue shall be allocated, before any other allocation is
made pursuant to the preceding provisions of this Section 4.2 for such year,
among the Partners with deficit balances in their Adjusted Capital Accounts (as
determined, after giving effect to all adjustments attributable to the
allocations provided for in Section 4.2(f)(1) hereof and as increased by any
amounts which such Partner is deemed obligated to restore under sections 1.704-1
and 1.704-2 of the Treasury Regulations but before giving effect to any
adjustment attributable to other allocations provided for in succeeding
provisions of this Section 4.2) in amounts and the manner sufficient to
eliminate such deficit balances as quickly as possible.
Section 4.3 Distributions.
(a) All interest earned by the Partnership as the result
of the investment of the Partners' Capital Contributions following the payment
thereof to the Partnership shall be distributed periodically to the Partners at
such time or times as the Managing Partner shall in its discretion determine.
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(b) At least quarterly, all cash funds of the Partnership
(other than interest as described in Section 4.3(a) above, borrowed funds, if
any, and Capital Contributions) which the Managing Partner reasonably determines
are not needed for the payment of existing or anticipated Partnership
obligations and expenditures shall be distributed to the Partners. All cash
funds of the Partnership to be distributed to the Partners shall be distributed
to the Partners in the same respective percentages as the revenues from which
such cash funds are derived are allocated to such Partners pursuant to Section
4.2 (after deducting therefrom the costs charged to such Partners pursuant to
Section 4.2). In addition to restrictions set forth in Section 5.2(a), in no
event, shall funds be advanced or borrowed for purposes of distributions, if the
amount of such distributions would exceed the Partnership's accrued and received
revenues for the previous four quarters, less paid and accrued operating costs
with respect to such revenues. The determinations of such revenues and costs
shall be made in accordance with generally accepted accounting principles
consistently applied. Cash distributions from the Partnership to the Managing
Partner shall only be made in conjunction with distributions to Investor
Partners and only out of funds properly allocated to the Managing Partner's
account.
(c) Any distribution in liquidation of a Partner's
interest in the Partnership other than pursuant to Section 8.3, Section 8.6,
Section 9.3, or Section 9.4 shall be in an amount of cash or fair market value
of property equal to the positive capital account balance of such Partner at the
time his interest is liquidated, after such capital account balance has been
adjusted in accordance with Section 7.1(c) and the applicable Treasury
Regulations under Section 704(b) of the Internal Revenue Code and shall be made
by the later of (i) the end of the Partnership taxable year in which such
liquidation occurs or (ii) 90 days after the date of such liquidation. No
Partner with a deficit balance in his or its capital account after a
distribution in liquidation of such Partner's interest in the Partnership shall
be liable to the Partnership for such deficit balance.
(d) In the event an amount of Partnership funds equal to
the total Capital Contributions of the Partners has not been expended or
committed for expenditure within 12 months after the admission of the Investor
Partners to the Partnership, the Managing Partner shall distribute, as a return
of capital, to the Partners, proportionately in accordance with their respective
Sharing Ratios as of the date of the Investor Partners' admission to the
Partnership, the amount of such unexpended and uncommitted Partnership funds
(together with a proportionate amount of the Management Fees), after deducting
therefrom an amount that the Managing Partner reasonably determines will be
equal to the operating capital to be required by the Partnership that will not
be provided by anticipated revenues from Partnership operations.
Section 4.4 Allocations on Transfers. In the event of an assignment of
a Partner's interest in the Partnership pursuant to Article VIII, deductions,
credits, and income of the Partnership for federal, state, and local income tax
purposes shall, unless otherwise required by applicable Treasury Regulations, be
allocated between the assignor and assignee based on the number of days of the
year during which each party owned such interest.
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ARTICLE V
MANAGEMENT
Section 5.1 Power and Authority of Managing Partner. The Partners
hereby designate MD as the Managing Partner of the Partnership and, except as
provided by Section 5.2 and elsewhere in this Agreement and except as otherwise
provided by applicable law, hereby delegate to the Managing Partner full and
exclusive power and authority on behalf of the Partnership to manage, control,
administer, and operate the properties, business, and affairs of the Partnership
and to do or cause to be done any and all acts deemed by the Managing Partner to
be necessary or appropriate thereto. The scope of such power and authority shall
encompass all matters in any way connected with such business or incident
thereto, including without limitation, the power and authority:
(a) To enter into the Program Agreement and to purchase
or otherwise acquire on behalf of the Partnership Leases as provided in the
Program Agreement;
(b) To purchase or otherwise acquire other real or
personal property of every nature considered necessary or appropriate to carry
on and conduct the business of the Partnership;
(c) To borrow monies for the business of the Partnership
and from time to time to draw, make, execute, and issue promissory notes and
other negotiable or nonnegotiable instruments and evidences of indebtedness; to
secure the payment of the sums so borrowed and to mortgage, pledge, or assign in
trust all or any part of the property of the Partnership; to assign any monies
owing or to be owing to the Partnership; and to engage in any other means of
financing customary in the oil and gas industry; provided that any such
financing shall provide that the lender has recourse only against Partnership
assets and not against any Investor Partner individually;
(d) To enter into any agreement for the sharing of
profits, joint venture, or partnership with any person, firm, corporation, or
government or agency thereof engaged in any business or transaction in which the
Partnership is authorized to engage, or any business or transaction capable of
being conducted, so as to directly or indirectly benefit the Partnership, and to
cause the obligations of the Partnership thereunder to be performed;
(e) To explore and prospect by geological, geophysical,
or other methods for the location of anomalies or other indications favorable to
the accumulation of oil and gas, including specifically the power to contract
with third parties for such purposes;
(f) To maintain, explore, develop, operate, manage, and
defend Partnership property and to drill, test, plug and abandon or complete and
equip, rework, and recomplete any number of wells on Partnership Leases for the
production of oil and gas located thereunder, and to contract with third parties
for such purposes, to carry out a program or programs of secondary recovery on
Partnership property, and to do any and all other things necessary or
appropriate to carry out the terms and provisions of this Agreement which would
or might be done by a normal and prudent operator in the exploration,
development, operation, and management of its own
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property, including without limitation, making consent or non-consent elections
under any applicable joint operating agreement;
(g) To enter into and execute leases, drilling contracts,
farmout agreements, farmin contracts, dry and bottom hole and acreage
contribution letters, participation agreements, and any other agreements
customarily employed in the oil and gas industry in connection with the
acquisition, sale, exploration, development, or operation of oil and gas
properties, agreements as to rights-of-way and any and all other instruments or
documents considered by the Managing Partner to be necessary or appropriate to
carry on and conduct the business of the Partnership, for such consideration and
on such terms as the Managing Partner in its sole discretion may determine, and
to cause the obligations of the Partnership thereunder to be performed;
(h) To sell the production accruing to the Leases
acquired by the Partnership and to execute gas sales contracts, casinghead gas
contracts, transfer orders, division orders, or any other instruments in
connection with the sale of production from the Partnership's interest in any
property;
(i) To farmout, sell, assign, convey, or otherwise
dispose of, for such consideration and upon such terms and conditions as the
Managing Partner in its sole discretion may determine, all or any part of the
Partnership property, any interest therein, or any interest payable therefrom,
and in connection therewith to execute and deliver such deeds, assignments, and
conveyances containing such warranties as the Managing Partner may determine;
(j) To employ on behalf of the Partnership agents,
employees, managers, consultants, accountants, lawyers, geologists,
geophysicists, engineers, landmen, clerical help, and such other assistance and
services as the Managing Partner may deem proper and to pay therefor such
remuneration and compensation as the Managing Partner may deem reasonable and
appropriate;
(k) To purchase, lease, rent, or otherwise acquire or
obtain the use of machinery, equipment, tools, materials, and all other kinds
and types of real or personal property that may in any way be deemed necessary,
convenient, or advisable in connection with carrying on the business of the
Partnership, and to incur expenses for travel, telephone, telegraph, insurance,
and for such other things, whether similar or dissimilar, as may be deemed
necessary or appropriate for carrying on and performing the business of the
Partnership;
(l) To pay delay rentals, shut-in royalty payments,
property taxes, and any other amounts necessary or appropriate to the
maintenance or operation of any Partnership property;
(m) To make and enter into such agreements and contracts
with such parties and to give such receipts, releases, and discharges with
respect to any and all of the foregoing and any matters incident thereto as the
Managing Partner may deem advisable or appropriate;
(n) To procure and maintain in force such insurance as
the Managing Partner shall deem prudent to serve as protection against liability
for loss and damage which may be occasioned by the activities to be engaged in
by the Partnership and the Managing Partner on behalf of the Partnership;
provided, however, that the Managing Partner shall notify the Investor
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Partners of any adverse material reduction in the insurance coverage of the
Partnership as soon as possible after learning of such change and if possible at
least 30 days in advance of the change in insurance coverage, and in the event
that the insurance procured and maintained on behalf of the Investor Partners is
materially reduced, the Partnership will halt all drilling activity until such
time as comparable replacement insurance coverage is obtained;
(o) To pay, extend, renew, modify, adjust, submit to
arbitration, prosecute, defend, or compromise on behalf of the Partnership, upon
such terms as the Managing Partner may determine and upon such evidence as they
may deem sufficient, any obligation, suit, liability, cause of action, or claim,
including a suit or claim for taxes, in favor of or against the Partnership;
(p) To quitclaim, assign, convey, surrender, release, or
abandon any Partnership property with or without consideration therefor;
(q) To make such classifications, determinations, and
allocations as the Managing Partner may deem advisable, having due regard for
any relevant generally accepted accounting principles;
(r) To enter into soliciting dealer agreements and to
perform all of the Partnership's obligations thereunder, to issue and sell
Interests pursuant to the terms and conditions of this Agreement and the
Subscription Agreements, to accept and execute on behalf of the Partnership
Subscription Agreements, and to admit original and substituted Investor
Partners;
(s) To take such action as may be necessary for the
safekeeping of all funds and assets of the Partnership, whether or not within
the Managing Partner's control and to employ, or permit another person to
employ, such funds or assets in any manner except for the exclusive benefit of
the Partnership; and
(t) To take such other actions, execute and deliver such
other documents, and perform such other acts as may be deemed by the Managing
Partner to be appropriate to carry out the business and affairs of the
Partnership.
In accomplishing all of the foregoing and except as otherwise provided
in this Agreement, the Managing Partner may, in its sole discretion, use its own
personnel, properties, and equipment or those of any of its Affiliates (subject
to Section 5.10); or the Managing Partner may hire or rent those of third
parties and may employ on a temporary or continuing basis outside accountants,
attorneys, consultants, and others on such terms as the Managing Partner deems
advisable. No person, firm, or corporation dealing with the Partnership shall be
required to inquire into the authority of the Managing Partner to take any
action or make any decision.
Section 5.2 Certain Restrictions on Managing Partner's Power and
Authority. Notwithstanding any other provisions of this Agreement to the
contrary, the Managing Partner shall not have the power or authority to, and
shall not do, perform, or authorize any of the following:
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(a) Borrow any money in the name or on behalf of the
Partnership or otherwise do any of the acts or things provided in Section 5.1(c)
if the total amount of the borrowings or financings then outstanding made by the
Managing Partner on behalf of the Partnership (including the amount outstanding
under the Partnership's reimbursement obligation under Section 5.6) would exceed
an amount equal to 20% of the Capital Contributions of the Investor Partners;
provided, however, that the terms of any such financing shall provide that the
lender has recourse only against Partnership assets and not against any Investor
Partner individually; provided further, that the Managing Partner may borrow
monies in the name and on behalf of the Partnership even if the Capital
Contributions of the Partners have not yet been fully expended or committed for
expenditure;
(b) Without having first received the prior consent of a
Super Majority in Interest of the Investor Partners, cause the Partnership to
participate in a proposed Roll-Up transaction; provided, however, the
participation of the Partnership in a proposed Roll-Up transaction shall be
subject to the restrictions set forth in Section 5.10(j);
(c) Except for a sale of all or substantially all of the
assets of the Partnership by the Managing Partner acting in its capacity as
liquidator made in connection with the liquidation and termination of the
Partnership as such is contemplated in Section 9.4, without having first
received the prior consent of a Majority in Interest of the Investor Partners,
sell all or substantially all of the assets of the Partnership other than in the
ordinary course of business;
(d) Without having first received the prior consent of a
Majority in Interest of the Investor Partners, assign the rights or obligations
of the Partnership, or, except as otherwise provided in the Program Agreement,
consent to the assignment by the Managing Partner or any Affiliate thereof of
its rights or obligations under the Program Agreement, prior to the substantial
completion of the drilling activities of the Partnership;
(e) Without having first received the prior consent of a
Majority in Interest of the Investor Partners, agree to the termination or
amendment of the Program Agreement or waive any rights of the Partnership
thereunder, except for amendments to the Program Agreement which the Managing
Partner believes are necessary or advisable to ensure that the Program Agreement
conforms with any changes in or modifications to the Code or do not adversely
affect the Investor Partners in any material respect;
(f) Guarantee in the name or on behalf of the Partnership
the payment of money or the performance of any contract or other obligation of
any other person;
(g) Bind or obligate the Partnership with respect to any
matter outside the scope of the Partnership business;
(h) Use the Partnership name, credit, or property for
other than Partnership purposes;
(i) Take any action, or permit any other person to take
any action, with respect to the assets or property of the Partnership which does
not primarily benefit the Partnership, including without limitation, the
commitment of future production or the utilization of funds of the Partnership
as compensating balances for its own benefit;
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(j) Benefit from any arrangement for the marketing of oil
and gas production or other relationships affecting the property of the Managing
Partner and the Partnership, unless such benefits are fairly and equitably
apportioned among the Managing Partner and Affiliates thereof and the
Partnership;
(k) Invest Partnership funds 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 in compliance
with Section 7.3;
(iii) investments involving less than 5% of
program capital which are a necessary and incidental part of a property
acquisition transaction; and
(iv) investments in entities established solely
to limit the Partnership's liabilities associated with the ownership or
operation of property or equipment, provided, in such instances duplicative fees
and expenses shall be prohibited; or
(l) Take any action that will:
(i) cause the Partnership to participate in any
other partnership or joint venture that will result in a duplication or
unreasonable increase in the amount of costs and expenses of the Partnership;
(ii) Substantively alter the fiduciary and
contractual relationship between the Managing Partner and the Investor Partners
as such exists pursuant to this Agreement; or
(iii) diminish the voting rights hereunder of the
Investor Partners.
Section 5.3 Services of Managing Partner. During the existence of the
Partnership, the Managing Partner shall devote such time and effort to the
Partnership business as may be necessary to promote adequately the interests of
the Partnership and the mutual interests of the Partners; however, it is
specifically understood and agreed that the Managing Partner shall not be
required to devote full time to Partnership business, and the Managing Partner
and its Affiliates may at any time and from time to time engage in and possess
interests in other business ventures of any and every type and description,
independently or with others, including without limitation, the acquisition,
ownership, exploration, development, operation, and management of oil and gas
properties for themselves and other persons and the organization and management
of other partnerships and joint ventures similar to the Partnership, and neither
the Partnership nor any Investor Partner shall by virtue of this Agreement or
the law of partnership opportunity have any right, title, or interest in or to
such independent ventures. It is specifically recognized that the Managing
Partner and its Affiliates are currently engaged in the exploration for and
production of oil and gas both for their account and for others, and nothing
herein contained shall be deemed to prevent any of them from continuing such
activities, individually, jointly with others, or as a part of any other
partnership or joint venture to which any of them is or may become a party, in
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any locale, and in fields or areas of operation in which the Partnership may
likewise be active, or from dealing with the Partnership as an independent
party, nor as requiring any of them to permit the Partnership to participate in
any such operations in which any of them may be interested and each Investor
Partner hereby waives, relinquishes, and renounces any such right or claim of
participation. However, except as otherwise provided herein, the Managing
Partner and any of 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 such opportunity either cannot be pursued
by the Partnership because of insufficient funds or because it is not
appropriate for the Partnership under the existing circumstances.
Section 5.4 Liability of Managing Partner and Its Affiliates. Neither
the Managing Partner nor any of its Affiliates shall have any liability to the
Partnership or to any Partner for any loss suffered by the Partnership which
arises out of any action or inaction performed or omitted by the Managing
Partner or such Affiliate, if the Managing Partner in good faith has determined,
as of the time of the conduct or omission, that the course of conduct or
omission was in the best interests of the Partnership, the Managing Partner or
such Affiliate was acting on behalf of or performing services for the
Partnership, and that such conduct or omission did not constitute negligence or
misconduct.
Section 5.5 Indemnification of Managing Partner and Its Affiliates.
(a) The Partnership shall indemnify the Managing Partner
and its Affiliates against any losses, judgments, liabilities, expenses, and
settlements sustained or incurred by the Managing Partner or such Affiliate as a
result of any threatened, pending, or completed claim, action, suit, or
proceeding, whether civil, criminal, administrative, arbitrative, or
investigative, any appeal in such a claim, action, suit, or proceeding, and any
inquiry or investigation that could lead to such a claim, action, suit, or
proceeding and which in any such case relates or which otherwise arises from or
is attributable to any acts, omissions, or operations performed or omitted by
the Managing Partner or its Affiliates acting on behalf of or performing
services for the Partnership that are within the scope of its authority as set
forth in this Agreement or the Program Agreement or which otherwise relates to
the activities and business affairs of the Partnership; provided that the
Managing Partner has determined in good faith, as of the time of the conduct or
omission, that the conduct or omission was in the best interests of the
Partnership and that the conduct or omission did not constitute negligence or
misconduct.
(b) Notwithstanding anything to the contrary contained in
Sections 5.4 and 5.5(a), neither the Managing Partner, its Affiliates, nor any
person acting as a broker-dealer shall be indemnified by the Partnership for any
losses, liabilities, or expenses arising from or out of an alleged violation of
federal or state securities laws unless (i) there has been a successful
adjudication on the merits of each count involving alleged securities laws
violations as to the particular indemnitee and the court approves
indemnification of the litigation costs, (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to the
particular indemnitee and the court approves indemnification of the litigation
costs, 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 related costs should be made, and the court considering the
request for indemnification has been advised of the position of the Securities
and Exchange Commission, and all state securities regulatory authorities in
which
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Interests in the Partnership were offered or sold as to indemnification for
violations of securities laws.
(c) The Partnership may purchase and maintain insurance
on behalf of the Managing Partner and its Affiliates against any liabilities
asserted against or expenses incurred by the Managing Partner and its Affiliates
in connection with Partnership or Drilling Program activities, provided that the
Partnership shall not incur the cost of that portion of any insurance, which
insures the Managing Partner or its Affiliates against any liability with
respect to which the Managing Partner and its Affiliates are denied
indemnification under the provisions of Sections 5.4 and 5.5; provided, however,
that nothing contained herein shall preclude the Partnership from purchasing and
paying for such types of insurance including extended coverage liability and
casualty and workers' compensation, as would be customary for any person owning
comparable assets and engaged in a similar business, or from naming the Managing
Partner and its Affiliates as additional insured parties thereunder, provided,
that the naming of such additional insured parties does not add to premiums
payable by the Partnership.
(d) The termination of any claim, action, suit, or
proceeding by judgment, order, settlement, conviction, or a plea of nolo
contendere or its equivalent does not alone establish that a person seeking
indemnification under this Section 5.5 is disqualified. Any person who is
determined to be not entitled to indemnification under this Section 5.5 may
petition a court of competent jurisdiction for a determination that in view of
all facts and circumstances that such person is fairly and equitably entitled to
indemnity and the Partnership shall provide such indemnity as may be determined
proper by such court; provided, however, that the court has determined that such
person has met the standard set forth in Section 5.5(a) above.
(e) Legal fees and expenses and other costs incurred as a
result of a claim described in this Section 5.5(a) shall be paid by the
Partnership from time to time in advance of the final disposition of such claim
if: (i) the claim relates to the performance or non-performance of duties or
services by the Managing Partner or its Affiliates on behalf of the Partnership;
(ii)the claim is initiated by a third party who is not an Investor Partner, or
the claim is initiated by an Investor Partner and a court of competent
jurisdiction specifically approves such advancement; and (iii)the Managing
Partner or such Affiliate undertakes to repay the advanced funds to the
Partnership, together with the applicable legal rate of interest thereon, in the
event it is later determined that the Managing Partner or such Affiliate is not
entitled to indemnification under the provisions of this Section 5.5(a).
(f) To the extent that the Managing Partner or its
Affiliates are successful on the merits or in defense of any claim, issue, or
matter therein, the Partnership shall indemnify the Managing Partner or its
Affiliates, against the expenses, including attorneys' fees, actually incurred
by the Managing Partner or such Affiliate in connection therewith.
(g) The indemnification provided by this Section 5.5
shall continue as to the Managing Partner and its Affiliates in the event it
ceases to be a managing partner of the Partnership with respect to claims
relating to the period in which the Managing Partner was a managing partner of
the Partnership and such indemnification shall inure to the benefit of the
successors and assigns of the Managing Partner and such Affiliates.
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(h) The indemnification provided by this Section 5.5
shall be made, and shall be recoverable by the Managing Partner or its
Affiliates, only out of the tangible net assets of the Partnership and not from
the Investor Partners.
Section 5.6 Reporting and Legal Expenses. The Partnership shall
reimburse the Program Manager and the Managing Partner and its Affiliates for
its share of the Reporting and Legal Expenses incurred by the Program Manager,
the Managing Partner, or any Affiliate thereof in managing and conducting the
business and affairs of the Drilling Program or of the Partnership, as
applicable. The Reporting and Legal Expenses reimbursed by the Partnership shall
be determined by the party seeking reimbursement in good faith and as being
reasonable for such party. Such reimbursements shall be made periodically
throughout the term of the Partnership.
Section 5.7 Administrative Costs. The Partnership shall reimburse the
Program Manager and the Managing Partner and its Affiliates for all
Administrative Costs and other costs and expenses incurred by the Program
Manager, the Managing Partner, or any Affiliate thereof in managing and
conducting the business and affairs relating to the Partnership's interest in
the Drilling Program or of the Partnership, as applicable, including expenses
incurred in providing or obtaining such professional, technical, administrative,
and other services and advice as the Program Manager, the Managing Partner, or
such Affiliates may deem necessary or desirable. The general, administrative,
and other costs reimbursed by the Partnership shall be determined by the party
seeking reimbursement in good faith and as being reasonable for such party. The
amount of Administrative Costs that are to be reimbursed by the Partnership
shall be determined and allocated to the Partnership and its Drilling Program on
a basis conforming with generally accepted accounting principles and must be
supported in writing as to the application thereof and as to the amount charged.
Such reimbursements shall be made periodically throughout the term of the
Partnership. Such reimbursement obligation shall also apply to all
Administrative Costs incurred by the Program Manager, the Managing Partner or
any of its Affiliates on behalf of the Partnership or the Drilling Program from
the beginning of the calendar year in which the Partnership is formed to the
date of the admission of the Investor Partners. Regardless of the actual amount
of Administrative Costs incurred by the Managing Partner or Program Manager in
connection with the affairs of a Partnership, during any particular calendar
year the total amount of Administrative Costs allocable to the Partnership shall
not exceed the greater of (a) 3.5% of the Partnership's gross revenues from the
sale of oil and natural gas production during such year (calculated without any
deduction for Operating Costs or other costs and expenses) or (b) the sum of
$50,000 plus .25% of the Capital Contributions of the Investor Partners to the
Partnership. The above limitation on Administrative Costs shall not be
applicable to Administrative Costs otherwise allocable to the Partnership which
are extraordinary and non-recurring or to the fixed overhead fee chargeable by
an operator of Program Wells including the fixed overhead fee chargeable under
the Operating Agreement by MOC with respect to the Program Wells operated by the
Program Manager. No portion of the salaries of the directors or of the executive
officers of MOC or MD may be reimbursed as Administrative Costs.
An independent certified public accountant shall provide annually to
the Investor Partners, a written attestation to be included as part of the
annual report required pursuant to Section 7.2 wherein such accountant shall
verify that the method used to make the allocations was consistent with the
method described in this Agreement and that the total amount of costs
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allocated to the Investor Partners does not materially exceed amounts actually
incurred by the Managing Partner.
Section 5.8 Management Fee. In consideration for services to be
rendered by the Managing Partner in managing the business of the Partnership
during each of the initial three Partnership Years, the Partnership shall pay to
the Managing Partner a management fee in an amount equal to 1% of all Capital
Contributions initially made by the Investor Partners in exchange for their
respective Interests as set forth in the Subscription Agreements (the
"Management Fee"). The Management Fee payable during a particular Partnership
Year shall not be deducted from the Capital Contributions of the Investor
Partners, but shall be paid by the Partnership in monthly or other periodic
installments from funds which would otherwise be available for distribution to
the Partners, and in such amounts as may be determined in the discretion of the
Managing Partner. To the extent that the Partnership has insufficient
distributable funds during a particular Partnership Year, to fully pay the
amount of the Management Fee payable during such Partnership Year, then the
amount of such unpaid Management Fee shall be carried forward and payable in the
next succeeding Partnership Year.
Section 5.9 Gas Marketing Fee. In consideration for gas marketing
services to be rendered by the Program Manager in connection with the marketing
of the Drilling Program's natural gas, the Partnership shall pay its share of a
gas marketing fee equal to three cents per MCF.
Section 5.10 Restrictions on Certain Transactions.
(a) The Partnership may enter into contracts and
agreements with the Managing Partner and its Affiliates for the rendering of
services and the sale, rental, or lease of supplies and equipment, provided that
(i) such entity is engaged, independently of the Drilling Program and as an
ordinary and ongoing business, in the business of rendering such services or
selling or leasing such equipment and supplies to a substantial extent to other
persons in the industry in addition to programs in which the Managing Partner or
its Affiliates have an interest and (ii) the amount of the compensation, price,
or rental that can be charged to the Partnership therefor must be no less
favorable to the Partnership than that generally available (at the time the
relevant contract or agreement was entered into) from unrelated third parties in
the area engaged in the business of rendering comparable services or selling,
renting, or leasing comparable equipment and supplies which could reasonably be
made available to the Partnership. If the Managing Partner or its Affiliate is
not engaged in the business as required by clause (i) of this Section 5.10(a)
above, then such compensation, price, or rental shall be the cost of such
services, equipment, or supplies to such entity, or the competitive rate which
could be obtained in the area, whichever is less. In addition, any drilling
services rendered by the Managing Partner or its Affiliates to the Partnership
shall be billed on a per foot, per day, or per hour rate, or some combination
thereof. All services for which the Managing Partner or its Affiliates are to
receive compensation shall be embodied in written contracts which precisely
describe the services to be rendered and all compensation to be paid. Advance
payments to the Managing Partner are prohibited, except where necessary to
secure tax benefits of prepaid drilling costs. All contracts between the
Partnership and the Managing Partner or its Affiliates shall be terminable by
the Partnership (by a vote or written consent of a Majority in Interest of the
Investor Partners) without penalty upon 60 days' written notice.
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(b) The Partnership may borrow money on a non-recourse
basis from the Managing Partner or any of its Affiliates, provided that on any
loans made available by the Managing Partner or any of its Affiliates to the
Partnership, the Managing Partner or such Affiliate shall not receive interest
in excess of the lesser of (i) the maximum rate permitted by applicable law or
(ii) the effective interest rate then being paid by the Managing Partner or such
Affiliate for similar type borrowings. In no event shall any such loan bear
interest in excess of the amount which would be charged to the Partnership
(without reference to the Managing Partner's financial abilities or guaranties)
by independent third parties for the same purpose. In connection with any loans
to the Partnership by the Managing Partner or its Affiliates, the Managing
Partner or its Affiliates shall not receive points or other financing charges or
fees, regardless of the amount.
(c) The Partnership shall acquire in certain instances
interests in Prospects from the Managing Partner or its Affiliates on the terms
and conditions set forth in the Program Agreement.
(d) No Partnership Leases shall be farmed out by the
Partnership unless the Managing Partner, exercising the standard of care of a
normal and prudent operator in the management of its own property, shall
determine that either (i) the Partnership lacks sufficient funds for the
drilling of a well on such Lease and cannot obtain suitable alternative
financing for such drilling, (ii) the Lease has been downgraded by events
occurring after the acquisition thereof by the Partnership pursuant to the
Program Agreement so that the drilling of a well on such Lease would no longer
be desirable for the Partnership, (iii) drilling on such Lease would result in
an excessive concentration of Partnership funds, creating in the opinion of the
Managing Partner undue risk to the Partnership and the Investor Partners, or
(iv) the best interests of the Partnership would be served by such farmout or
other disposition. The Partnership may enter into a farmout agreement (in the
capacity as either farmor or farmee) with the Managing Partner, any of its
Affiliates, provided that the Managing Partner, exercising the standards of a
normal and prudent operator in the management of its own property, shall
determine that the farmout is in the best interests of the Partnership and that
the terms of any such farmout are consistent with and in any case no less
favorable to the Partnership than those utilized in the same geographic area for
similar arrangements. The Partnership's ability to enter into a farmout
agreement with the Managing Partner or an Affiliate thereof is subject to the
same restrictions as its ability to purchase property from or sell property to
the Managing Partner or an Affiliate thereof as provided in Section 5.10(c) and
Section 5.10(f), respectively.
(e) The Partnership shall make no loans to the Managing
Partner or its Affiliates.
(f) The Partnership may sell or transfer its Leases to
the Managing Partner or its Affiliates, including Affiliated Programs, only
pursuant to a transaction which is fair and reasonable to the Partnership and
then subject to the following restrictions:
(i) A sale, transfer, or conveyance, including a
farmout, of an undeveloped Lease (i.e., a Lease not having any Proved Developed
Reserves attributable to it) from the Partnership to the Managing Partner or any
Affiliate thereof, other than an Affiliated Program, must be made at the higher
of the Lease Acquisition Costs or fair market value.
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(ii) A sale, transfer, or conveyance of a
developed Lease (i.e., a property having Proved Developed Reserves attributable
to it) from the Partnership to the Managing Partner or any Affiliate thereof,
other than an Affiliated Program in which the interest of the Managing General
Partner or its Affiliate is substantially similar to or less than its interest
in the Partnership, is not permitted except in connection with the liquidation
of the Partnership and then only at fair market value.
(iii) Except in connection with farmouts or joint
ventures made in compliance with the restrictions described in Section 5.10(d),
a transfer of an undeveloped Lease from the Partnership to an Affiliated Program
must be made at fair market value if the Lease has been held for more than two
years; otherwise, if the Managing Partner deems it to be in the best interests
of the Partnership, the transfer may be made at the Lease Acquisition Costs.
(iv) Except in connection with farmouts or joint
ventures made in compliance with the restrictions described in Section 5.10(d)
above, a transfer of any Lease from the Partnership to an Affiliated Production
Purchase or Income Program must be made at fair market value if the Lease has
been held for more than six months or there have been significant expenditures
made in connection with the Lease; otherwise, if the Managing Partner deems it
to be in the best interests of the Partnership, the transfer may be made at the
Lease Acquisition Costs as adjusted for intervening operations.
A determination of fair market value as required by this paragraph (f) must be
supported by an appraisal from an Independent Expert. Such opinion and any
associated supporting information will be maintained in the Partnership's
records for at least six years.
(g) No rebates or give-ups may be received by the
Managing Partner or any Affiliate, nor may the Managing Partner or any Affiliate
participate in any reciprocal business arrangements which do not primarily
benefit the Partnership.
The Partnership will acquire only Leases that are reasonably required
for the stated purpose of the Partnership, and no Leases will be acquired for
the purpose of subsequent sale or farmout, unless the acquisition of such
property by the Partnership is made after a well has been drilled to a depth
sufficient to indicate that such an acquisition is believed to be in the best
interests of the Partnership.
(h) Neither the Managing Partner, nor any Affiliate
thereof, including an Affiliated Program, shall be permitted to sell, transfer,
or convey any Lease to the Partnership, directly or indirectly, except pursuant
to a transaction which is fair and reasonable to the Partnership and in
accordance with the following restrictions:
(i) The Managing Partner and its Affiliates may
only sell a Lease to the Partnership at a price equal to its Lease Acquisition
Costs unless the transferor has cause to believe that the Lease Acquisition
Costs are materially more than the fair market value of such Lease, in which
case such sale must be made at a price not in excess of its fair market value;
provided, however, that if the sale is from an Affiliated Program that has held
the Lease for more than two years and in which Affiliated Program the interest
of the Managing Partner or its
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Affiliate is substantially similar to, or less than, its interest in the
Partnership, the sale may be made at fair market value.
(ii) If the Managing Partner, or an Affiliate
thereof, sells any Lease within a Prospect to the Partnership, it must, at the
same time, sell to the Partnership an equal proportionate interest in all other
Leases that it owns in the same Prospect.
(iii) If at any time within a period of five years
from the creation of the Partnership, the Managing Partner or an Affiliate
thereof proposes to acquire an interest from a non-Affiliated 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 such proposed acquisition, the following conditions will
apply: (A) if the Managing Partner or any Affiliate thereof does not currently
own property in the Prospect separately from the Partnership, then neither the
Managing Partner nor any Affiliate thereof will be permitted to purchase an
interest in the Prospect and (B) if the Managing Partner or any Affiliate
thereof currently owns a proportionate interest in the Prospect separately from
the Partnership, then the interest to be acquired will be divided between the
Partnership and the Managing Partner, or an Affiliate thereof 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 consummate a
purchase of the additional interest to which it is entitled, then neither the
Managing Partner, nor any Affiliate thereof may purchase any additional interest
in the Prospect during such five year period.
(iv) If the area constituting a Partnership's
Prospect is subsequently enlarged to encompass any area wherein the Managing
Partner or any Affiliate thereof owns a separate Lease, such separate Lease or a
portion thereof must be sold, transferred, or conveyed to the Partnership, in
accordance with the provisions described in this Section 5.10(h), if the
activities of the Partnership were material in establishing the existence of
Proved Undeveloped Reserves which are attributable to such Lease.
(v) Except for the carried interests created by
the Program Agreement, a sale, transfer, or conveyance to the Partnership of
less than all of the ownership of the Managing Partner or any Affiliate thereof
in any Lease is prohibited unless the interest retained by the Managing Partner
or such Affiliate is a proportionate Working Interest, the respective
obligations of the Managing Partner, or such Affiliate and the Partnership are
substantially the same after the sale of the interest by the Managing Partner or
such Affiliate and its interest in revenues does not exceed the amount
proportionate to its retained Working Interest. Except for the carried interests
created by the Program Agreement, neither the Managing Partner nor any Affiliate
thereof may retain any Overriding Royalty Interest or other burden on an
interest conveyed to the Partnership.
(vi) For the purposes of the preceding four
paragraphs, the term "Affiliate" does not include an Affiliated Program in which
the interest of the Managing Partner or an Affiliate thereof is substantially
similar to or less than its interest in the Partnership.
(vii) If the Partnership acquires a Lease pursuant
to a farmout or joint venture from an Affiliated Program, the Managing
Partner's, and any Affiliate's thereof
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aggregate compensation associated with the property and any direct or indirect
ownership interest in the property may not exceed the lower of the compensation
and ownership interest the Managing Partner, and such Affiliates could receive
if the property were separately owned or retained by either the Partnership or
such other Affiliated Program.
A determination of fair market value as required by this paragraph (h) must be
supported by an appraisal from an Independent Expert. Such opinion and any
associated supporting information will be maintained in the Partnership's
records for at least six years.
(i) If the Partnership participates in other partnerships
or joint ventures (multi-tier arrangements), the terms of any such arrangements
shall not result in the circumvention of any of the requirements or prohibitions
contained in this Partnership Agreement, including the following:
(i) there will be no duplication or increase in
the Managing Partner's compensation, Partnership expenses, or other fees and
costs;
(ii) there will be no substantive alteration in
the fiduciary and contractual relationship between the Managing Partner and the
Investor Partners; and
(iii) there will be no diminishment in the voting
rights of the Investor Partners.
(j) In connection with a proposed Roll-Up, the following
shall apply:
(i) 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 the securities of a Roll-Up Entity, the
appraisal shall be filed with the Securities and Exchange Commission as an
exhibit to the registration statement for the offering. 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 assuming an orderly liquidation as of a date immediately
prior to the announcement of the proposed Roll-Up transaction. The appraisal
shall assume an orderly liquidation of Partnership 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 Investor
Partners. A summary of the independent appraisal, indicating all material
assumptions underlying the appraisal, shall be included in a report to the
Investor Partners in connection with a proposed Roll-Up.
(ii) In connection with a proposed Roll-up,
Investor Partners who vote "no" on the proposal shall be offered the choice of:
(a) accepting the securities of the
Roll-Up Entity;
(b) either (A) remaining as Limited
Partner or General Partner in the Partnership and preserving his or her
interest in the Partnership on the same terms and conditions as existed
previously, or (B) receiving cash in an amount equal to his or her
pro-rata share of the appraised value of the net assets of the
Partnership.
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(iii) The Partnership shall not participate in any
proposed Roll-Up which, if approved, would result in the diminishment of any
Investor Partner's voting rights under the Roll-Up Entity's chartering
agreement. In no event shall the democracy rights of Investor Partners in the
Roll-Up Entity be less than those provided for under Sections 6.4 and 6.5 of
this Agreement. If the Roll-Up Entity is a corporation, the democracy rights of
Investor Partners shall correspond to the democracy rights provided for in this
Agreement to the greatest extent possible.
(iv) The Partnership shall not participate in any
proposed Roll-Up transaction which includes provisions which 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); nor shall the Partnership
participate in any proposed Roll-Up transaction which would limit the ability of
an Investor Partner to exercise the voting rights of its securities of the
Roll-Up Entity on the basis of the number of Partnership Interests held by that
Investor Partner.
(v) The Partnership shall not participate in a
Roll-Up in which Investor Partners' rights of access to the records of the
Roll-Up Entity will be less than those provided for under Section 7.1(a) and (b)
of this Agreement.
(vi) 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 less than a Super Majority in Interest of the
Investor Partners vote to approve the proposed Roll-Up.
(vii) The Partnership shall not participate in a
Roll-Up transaction unless the Roll-Up transaction is approved by a Super
Majority in Interest.
(k) Turnkey drilling contracts or other contracts with
the Managing Partner or its Affiliates that establish a fixed price for drilling
services shall not be permitted.
To the extent the restrictions set forth above apply to the Managing Partner or
its Affiliates and except as otherwise provided herein, the term "Affiliate"
includes, but is not limited to, MOC in its capacity as Program Manager. Except
as otherwise set forth in this Section 5.10 of the Partnership Agreement, the
Managing 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 such opportunity either cannot be pursued
by the Partnership because of insufficient funds or because it is not
appropriate for the Partnership under the existing circumstances.
Section 5.11 Restriction on Voting Interests Held by Managing Partner.
Interests owned by the Managing Partner or its Affiliates shall have full voting
rights under this Agreement, provided that during the time period that MD or an
Affiliate thereof is serving as the Managing Partner of the Partnership any
Interests owned by MD or its Affiliates which in the aggregate represent more
than 20% of the total Interests held by Investor Partners shall not have any
voting rights under this Agreement and shall not be counted for voting purposes
or for purposes of determining a quorum. In addition, none of the Interests
owned by the Managing Partner or its Affiliates shall be counted for voting
purposes or for purposes of determining a quorum or have
A-28
any voting rights under this Agreement concerning the removal of the Managing
Partner or any transaction between the Partnership and the Managing Partner or
its Affiliates.
Section 5.12 Tax Elections. The Managing Partner shall make the
following elections on behalf of the Partnership:
(a) to elect, in accordance with Section 263(c) of the
Code and applicable regulations and comparable state law provisions, to deduct
as an expense all intangible drilling and development costs with respect to
productive and nonproductive wells and the preparation of wells for the
production of oil or gas;
(b) to elect the calendar year as the Partnership's
fiscal year;
(c) to elect the accrual method of accounting;
(d) to elect, in accordance with Section 709(b) of the
Code and applicable regulations and comparable state law provisions, to amortize
and deduct organization expenses (as such term is defined in Section 709 of the
Code) over a period of 60 months beginning with the month in which the
Partnership begins business; and
(e) to elect with respect to such other federal, state,
and local tax matters as the Managing Partner deems advantageous to the
Partnership; provided that no election shall be made by the Partnership in
accordance with Section 754 of the Code and applicable regulations and
comparable state law provisions without the consent of the Managing Partner, the
granting or denying of which consent shall be in its sole and absolute
discretion.
Section 5.13 Tax Matters Partner. The Managing Partner shall be
designated the tax matters partner (in this Section 5.13 called the "TMP") as
defined in Section 6231(a)(7) of the Code with respect to operations conducted
by the Partners pursuant to this Agreement. The TMP is authorized to take such
actions and to execute and file all statements and forms on behalf of the
Partnership which may be permitted or required by the applicable provisions of
the Code or Treasury Regulations issued thereunder, and the Investor Partners
will take all other action that may be necessary or appropriate to effect the
designation of the Managing Partner as the TMP. In the event of an audit of the
Partnership's income tax returns by the Internal Revenue Service, the TMP may,
at the expense of the Partnership, retain accountants and other professionals to
participate in the audit. All expenses incurred by the TMP in its capacity as
such shall be expenses of the Partnership and shall be paid by or reimbursed to
the TMP from Partnership funds.
ARTICLE VI
RIGHTS AND OBLIGATIONS OF INVESTOR PARTNERS
Section 6.1 Rights of Investor Partners. In addition to any other
rights specifically set forth herein, all Investor Partners shall have the right
to: (a) have the Partnership books kept at the principal place of business of
the Partnership and upon adequate written notice at all reasonable times inspect
and, at such Investor Partner's expense, copy any of them personally or through
a representative; (b) have on demand true and full information of all things
affecting the Partnership
A-29
and a formal account of Partnership affairs, whenever permitted by law; and (c)
have dissolution and winding up by decree of court as provided for in the Act.
Section 6.2 Access of Investor Partners to Geophysical Data. During the
term of the Partnership, the Partnership may acquire or have access to
geophysical, geological, and other similar data and information. Each Investor
Partner shall during the term of the Partnership have the right, after adequate
notice, during normal business hours at the offices of the Partnership to
inspect and review all such data and information and studies, maps, evaluations,
or reports derived therefrom and material related thereto in the actual custody
of the Managing Partner; provided, however, that the Managing Partner may refuse
for a reasonable period of time to grant a Investor Partner access to such data
and information and studies, maps, evaluations, and reports which the Managing
Partner (a) has agreed to keep confidential or (b) determines in good faith
should be kept confidential considering the interests of the Partnership and
each of its Partners.
Section 6.3 Return of Capital Contribution. No Investor Partner shall
be entitled to (a) withdraw from the Partnership except upon assignment by an
Investor Partner of his Interests and the substitution of such Investor
Partner's assignee as a substituted Investor Partner of the Partnership in
accordance with Section 8.1 or as required by law, or (b) the return of his
Capital Contribution except (i) as otherwise provided in this Agreement or as
required by law, (ii) to the extent, if any, that distributions made pursuant to
the express terms of this Agreement may be considered as such by law or by
unanimous agreement of the Partners, or (iii) upon dissolution of the
Partnership, and then only to the extent expressly provided for in this
Agreement and as permitted by law.
Section 6.4 Meetings. Meetings of the Partners may be called by the
Managing Partner at any time and from time to time or may be called by Investor
Partners whose combined Sharing Ratios equal at least 10%. The Managing Partner
shall, within 15 days after its receipt of a written request for any such call
by Investor Partners for a Partners' meeting, give all Investor Partners written
notice of the time, place, and purpose of such meeting. The meeting shall be
held at a reasonable time and place on a date not less than 30 nor more than 60
days after the date of the mailing of such notice; provided that the date for
notice of such a meeting may be extended for a period of up to 60 days, if in
the opinion of the Managing Partner such additional time is necessary to permit
preparation of proxy or information statements or other documents required to be
delivered in connection with such meeting by the Securities and Exchange
Commission, state securities administrators or other regulatory authorities. The
Partners may conduct any Partnership business at such meeting which is permitted
under this Agreement and is specified in such notice. Investor Partners may vote
in person or by proxy at any such meeting, and the presence in person or by
proxy of a Majority in Interest of the Investor Partners shall be necessary to
constitute a quorum for the transaction of business at such meeting.
Section 6.5 Voting Rights of Investor Partners. Except as otherwise
provided in Section 5.2(b) and 5.10(j), any vote, consent, approval, election,
or other action by the Investor Partners on or with respect to any Partnership
matter (including, without limitation, those matters set forth in Sections
5.2(c), 5.2(e), 8.6(a), 8.6(b), 9.1(b), 9.3(a) and 11.2) shall be duly and
validly made only if made by a Majority in Interest of the Investor Partners
(without the necessity for the concurrence by the Managing Partner), and in the
event of any such vote, consent, approval, or election, each Investor Partner
that does not vote for, consent to, approve
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of, or elect with respect to such matter hereby agrees to be bound by the
decision of a Majority in Interest of the Investor Partners and hereby approves
such matter to the extent such approval is required for such matter to be
effective under the Delaware Act or any other applicable law, rule, or
regulation.
Section 6.6 Conduct of Meeting. The Managing Partner shall have full
power and authority concerning the manner of conducting any meeting of the
Investor Partners or solicitation of consents in writing, including without
limitation, the determination of persons entitled to vote, the existence of a
quorum, the satisfaction of the requirements of Section 6.4, the conduct of
voting, the validity and effect of any proxies, votes, or consents, and the
determination of any controversies, votes, or challenges arising in connection
with or during the meeting or voting. The Managing Partner shall designate a
person to serve as chairman of any meeting and shall further designate a person
to take the minutes of any meeting, in either case, including without
limitation, a partner or a director or an officer of the Managing Partner. All
minutes shall be kept with the records of the Partnership maintained by the
Managing Partner. The Managing Partner may make such other regulations
consistent with applicable law and this Agreement as it may deem advisable
concerning the conduct of any meeting of the Investor Partners or solicitation
of consents in writing, including regulations in regard to the appointment of
proxies, the appointment and duties of inspectors of votes and consents, the
submission and examination of proxies and other evidence of the right to vote,
and the revocation of consents in writing.
Section 6.7 General Partners Not Agents. Pursuant to Section 5.1 the
General Partners have elected to delegate to the Managing Partner authority to
manage, control, and administer and operate the property, business, and affairs
of the Partnership. Each General Partner agrees that no General Partner or group
of General Partners constituting less than a Majority in Interest may cause the
Managing Partner on behalf of the Partnership to act as agent for the
Partnership, execute documents on behalf of the Partnership, convey Partnership
property, or take any other action binding on the Partnership. Each General
Partner further agrees that in no circumstance will a Partner other than the
Managing Partner have the right to act as agent for the Partnership, execute
documents on behalf of the Partnership, convey Partnership property, or take any
other action binding on the Partnership. Any General Partner who takes action
contravening this Section 6.7 agrees to indemnify the Partnership and all other
Partners from any loss, liability, or expense caused by such action.
Section 6.8 Liabilities of Partners.
(a) Pursuant to the Delaware Act, the General Partners
are liable jointly and severally for all liabilities and obligations of the
Partnership. Notwithstanding the foregoing, as among themselves, the General
Partners hereby agree that each shall be solely and individually responsible
only for his pro rata share (based on Capital Contributions made) of the
liabilities and obligations of the Partnership, and any General Partner who
incurs liability in excess of his pro rata share shall be entitled to
contribution from the other General Partners. Pursuant hereto, the Managing
Partner further agrees to indemnify each General Partner for any and all
Partnership-related obligations and liabilities otherwise allocable to or paid
by such General Partner which are in excess of such General Partner's share of
the Partnership's undistributed assets. Under no circumstances shall any Partner
be required to indemnify the Managing
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Partner, except to the extent of such Partner's (i) Capital Contribution and
(ii) share of Partnership assets.
(b) The Partnership may purchase and maintain insurance
on behalf of all Partners against any liabilities asserted against or expenses
incurred by the Partners in connection with Partnership activities, provided
that the Partnership shall not incur the costs of that portion of such
insurance, if any, which insures the Managing Partner for any liability with
respect to which the Managing Partner is denied indemnification under the
provisions of this Agreement. Such insurance may be in such amounts as the
Managing Partner shall determine is sufficient to protect the Partners from the
maximum amount of such liabilities and expenses.
ARTICLE VII
BOOKS, RECORDS, CAPITAL ACCOUNTS, REPORTS, AND BANK ACCOUNTS
Section 7.1 Books, Records, and Capital Accounts.
(a) The Managing Partner shall keep just and true records
and books of account with respect to the operations of the Partnership and shall
maintain and preserve during the term of the Partnership and for four years
thereafter all such records, books of account, and other relevant Partnership
documents. The Managing Partner shall maintain for at least six years all
records necessary to substantiate the fact that Interests were sold only to
purchasers for whom such Interests were suitable. Such books shall be maintained
at the principal place of business of the Partnership and shall be kept on the
accrual method of accounting.
(b) Any records maintained by the Partnership in the
regular course of its business, including the names and addresses of Investor
Partners, books of account and records of Partnership proceedings, may be kept
on or be in the form of magnetic tape, photographs, micrographics, or any other
information storage device, provided that the records so kept are convertible
into clearly legible written form within a reasonable period of time. An
alphabetical list of the names, addresses, and business telephone numbers of the
Investor Partners of the Partnership along with the number of Interests held by
each of them (the "participant list") shall be maintained as a part of the books
and records of the Partnership and shall be available for the inspection by any
Investor Partner or his designated agent at the principal office of the
Partnership upon the request of the Investor Partner. The participant list shall
be updated at least quarterly to reflect changes in the information contained
therein. A copy of the participant list shall be mailed to any Investor Partner
requesting the participant list within ten days of the request. The copy of the
participant list shall be printed in alphabetical order, on white paper, in a
readily readable type size (in no event smaller than 10-point type). A
reasonable charge for copy work may be charged by the Partnership. The purposes
for which an Investor Partner may request a copy of the participant list
include, without limitation, matters relating to voting rights under the
Partnership Agreement and the exercise of Investor Partners' rights under
federal proxy laws. If the Managing Partner of the Partnership neglects or
refuses to exhibit, produce, or mail a copy of the participant list as
requested, the Managing Partner shall be liable to any Investor Partner
requesting the list for the costs, including attorneys' fees, incurred by that
Investor Partner for compelling the production of the participant list, and for
actual damages suffered by any Investor Partner by reason of such refusal or
neglect. It shall be a defense that the actual purpose and reason for the
requests for inspection or for a copy of the participant list is to secure
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the list of Investor Partners or other information for the purpose of selling
such list or information or copies thereof, or of using the same for a
commercial purpose other than in the interest of the applicant as an Investor
Partner relative to the affairs of the Partnership. The Managing Partner may
require the Investor Partner requesting the participant list to represent that
the list is not requested for a commercial purpose unrelated to the Investor
Partner's interest in the Partnership. The remedies provided hereunder to
Investor Partners requesting copies of the participant list are in addition to,
and shall not in any way limit, other remedies available to Investor Partners
under federal law or the laws of any state.
(c) An individual capital account shall be maintained by
the Partnership for each Partner as provided below:
(i) The capital account of each Partner shall,
except as otherwise provided herein, be (A) credited by such Partner's Capital
Contributions when made, (B) credited by the fair market value of any property
contributed to the Partnership by such Partner (net of liabilities secured by
such contributed property that the Partnership is considered to assume or take
subject to under Section 752 of the Code), (C) credited with the amount of any
item of taxable income or gain and the amount of any item of income or gain
exempt from tax allocated to such Partner, (D) credited with the Partner's share
of Simulated Gain as provided in Section 7.1(c)(ii), (E) debited by the amount
of any item of tax deduction or loss allocated to such Partner, (F) debited by
the Partner's share of Simulated Depletion and Simulated Loss as provided in
Section 7.1(c)(ii), (G) debited by such Partner's allocable share of
expenditures of the Partnership not deductible in computing the Partnership's
taxable income and not properly chargeable as Capital Expenditures, including
any non-deductible book amortizations of capitalized costs, and (H) debited by
the amount of cash or the fair market value of any property distributed to such
Partner (net of liabilities secured by such distributed property that such
Partner is considered to assume or take subject to under Section 752 of the
Code). Immediately prior to any distribution of property by the Partnership that
is not pursuant to a liquidation of the Partnership, the Partners' capital
accounts shall be adjusted by (A) assuming that the distributed assets were sold
by the Partnership for cash at their respective fair market values as of the
date of distribution by the Partnership and (B) crediting or debiting each
Partner's capital account with its respective share of the hypothetical gains or
losses resulting from such assumed sales determined in the same manner as gains
or losses provided for under Sections 4.2 and 7.1(c)(ii) for actual sales of
such properties.
(ii) The allocation of basis prescribed by
Section 613A(c)(7)(D) of the Code and provided for in Section 4.2(g) and each
Partner's separately computed depletion deductions shall not reduce such
Partner's capital account, but such Partner's capital account shall be decreased
by an amount equal to the product of the depletion deductions that would
otherwise be allocable to the Partnership in the absence of Section
613A(c)(7)(D) of the Code (computed without regard to any limitations which
theoretically could apply to any Partner) times such Partner's percentage share
of the adjusted basis of the property with respect to which such depletion is
claimed (herein called "Simulated Depletion"). The Partnership's basis in any
oil or gas property as adjusted from time to time for the Simulated Depletion
allocable to all Partners (and where the context requires, each Partner's
allocable share thereof) is herein called "Simulated Basis." No Partner's
capital account shall be decreased, however, by Simulated Depletion deductions
attributable to any depletable property to the extent such deductions exceed
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such Partner's remaining Simulated Basis in such property. Upon the sale or
other disposition of an interest in a depletable property, each Partner's
capital account shall be credited with the gain ("Simulated Gain") or debited
with the loss ("Simulated Loss") determined by subtracting from his allocable
share of the amount realized on such sale or disposition his Simulated Basis, as
adjusted by Simulated Depletion.
(iii) Adjustments of basis of Partnership property
provided for under Sections 734 and 743 of the Code and comparable provisions of
state law (resulting from an election under Section 754 of the Code or
comparable provisions of state law) and elections by individual Partners under
Section 59(e)(4) of the Code to capitalize and amortize such Partner's share of
intangible drilling and development costs shall not affect the capital accounts
of the Partners, and the Partners' capital accounts shall be debited or credited
pursuant to the terms of this Section 7.1 as if no such election had been made,
unless otherwise required by applicable Treasury Regulations.
(iv) Capital accounts shall be adjusted, in a
manner consistent with this Section 7.1, to reflect any adjustments in items of
Partnership income, gain, loss, or deduction that result from amended returns
filed by the Partnership or pursuant to an agreement by the Partnership with the
Internal Revenue Service or a final court decision.
(v) In the case of property contributed to the
Partnership by a Partner, the Partners' capital accounts shall be debited or
credited for items of depreciation, cost recovery, Simulated Depletion,
amortization, and gain or loss with respect to such property computed in the
same manner as such items would be computed if the adjusted tax basis of such
property were equal to its fair market value on the date of its contribution to
the Partnership, in lieu of the capital account adjustments provided above for
such items, all in accordance with Treasury Regulation 1.704-1(b)(2)(iv)(g).
(vi) It is the intention of the Partners that the
capital account of each Partner be kept in the manner required under Treasury
Regulation 1.704-1(b)(2)(iv). To the extent any additional adjustment to the
capital accounts is required by such regulation, the Managing Partner is hereby
authorized to make such adjustment after notice to the General Partners.
Section 7.2 Reports. The Managing Partner shall deliver to each
Investor Partner the following financial statements and reports at the times
indicated below:
(a) Semiannually within 75 days after the end of the
first six months of each fiscal year and annually within 120 days after the end
of each fiscal year, financial statements, including a balance sheet and
statements of income, Partners' equity, and cash flow, all of which shall be
prepared in accordance with generally accepted accounting principles. The annual
financial statements shall be accompanied by a report of an independent
certified public accountant designated by the Managing Partner, stating that an
audit of such financial statements has been made in accordance with generally
accepted auditing standards and that in its opinion such financial statements
present fairly the financial condition, results of operations, and cash flows of
the Partnership in accordance with generally accepted accounting principles
consistently applied.
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(b) Annually by March 15 of each year or as soon
thereafter as is reasonably possible, a report containing such information as
may be needed to enable each Investor Partner to prepare and file his federal
income tax return and any required state income tax return.
(c) Annually within 120 days after the end of each fiscal
year beginning with the fiscal year ended December 31 of the year following the
year in which the Partnership commences operation, (i) a summary of the
computations of the total estimated oil and gas Proved Reserves of the
Partnership as of the end of such fiscal year and the dollar value thereof at
then existing prices and a computation of each Investor Partner's interest in
such value, such reserve computations to be based upon engineering reports
prepared by qualified independent petroleum engineers, (ii) an estimate of the
time required for the extraction of such Proved Reserves and the present worth
thereof (discounted at a rate generally accepted in the oil and gas industry and
undiscounted), and (iii) a statement that because of the time period required to
extract such reserves the present value of revenues to be obtained in the future
is less than if such revenues were immediately receivable. Each such report
shall be prepared in accordance with customary and generally accepted standards
and practices for petroleum engineers and shall be prepared by a recognized
independent petroleum engineer selected from time to time by the Managing
Partner. No later than 90 days following the occurrence of an event resulting in
a reduction in an amount of 10% or more of the estimated value of the oil and
gas Proved Reserves as last reported to the Investor Partners, other than a
reduction resulting from normal production, sales of reserves or product price
changes, a new summary conforming to the requirements set forth above in this
Section 7.2(c) shall be delivered to the Investor Partners.
(d) Semiannually within 75 days after the end of the
first six months of each fiscal year and annually within 120 days after the end
of each fiscal year, (i) a summary itemization, by type or classification, of
any transaction of the Partnership since the date of the last such report with
the Managing Partner or any Affiliate thereof and the total fees, compensation,
and reimbursement paid by the Partnership (or indirectly on behalf of the
Partnership) to the Managing Partner and its Affiliates, including without
limitation, the average price paid by any Affiliate of the Managing Partner
during the two most recent calendar quarters for oil and gas produced by Program
Wells purchased by such Affiliate and the highest average price paid by any
other substantial purchaser of comparable oil or gas produced in the field where
such Program Wells are located, and (ii) a schedule reflecting (A) the total
costs of the Partnership (and, where applicable, the costs pertaining to each
Prospect) and the costs paid by the Managing Partner and by the Investor
Partners and (B) the total revenues of the Partnership and the revenues received
by or credited to the accounts of the Managing Partner and the Investor
Partners. Each semi-annual report delivered by the Managing Partner may contain
summary estimates of the information described in subdivision (i) of this
Section 7.2(d).
(e) Monthly within 30 days after the end of each calendar
month while the Partnership is participating in the drilling and completion of
wells in which it has an interest until the end of such activity, and thereafter
for a period of three years semiannually within 75 days after the end of the
first six months of each fiscal year and annually within 120 days after the end
of each fiscal year, (i) a description of each Prospect or field in which the
Partnership owns Leases (provided that after the initial description of each
such Prospect or field has been provided to the Investor Partners only material
changes, if any, with respect to such Prospect or field need be described), (ii)
a description of all farmouts entered into by the Partnership since
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the date of the last such report, including the reason therefor, the location
and timing thereof, the parties to the farmout and the terms thereof, and (iii)
a summary of the wells drilled by the Partnership and the status thereof,
indicating whether each of such wells is being drilled or has been completed or
plugged and abandoned, a statement of the cost of each well completed or
abandoned, and the reason for abandoning any well after commencement of
production. Each report delivered by the Managing Partner may contain summary
estimates of the information described in clause (iii) of this Section 7.2(e).
(f) Such other reports and financial statements as the
Managing Partner shall determine from time to time.
The cost of such reporting shall be paid by the Partnership as a
Partnership expense.
Section 7.3 Bank Accounts. The Managing Partner shall cause one or more
accounts to be maintained in a state or federally chartered bank or savings and
loan association, which accounts shall be used for the payment of the
expenditures incurred by the Managing Partner in connection with the business of
the Partnership, and in which shall be deposited any and all receipts of the
Partnership. All such amounts shall be and remain the property of the
Partnership and shall be received, held, and disbursed by the Managing Partner
for the purposes specified in this Agreement. There shall not be deposited in
any of said accounts any funds other than funds belonging to the Partnership,
and no other funds shall in any way be commingled with such funds. The Managing
Partner may invest Partnership funds which they deem untimely or inappropriate
to use or commit for Partnership purposes or to distribute to the Partners in
such United States Treasury Bills, other short-term governmental obligations or
bank certificates of deposit or other certificates, securities or evidences of
indebtedness on such terms and for such security, if any, as they may deem
necessary or desirable. The Managing Partner shall have a fiduciary
responsibility for the safekeeping and use of all funds and assets of the
Partnership, whether or not in the Managing Partner's possession or control, and
shall not employ or permit another to employ such funds or assets in any manner
except for the benefit of the Partnership.
ARTICLE VIII
ASSIGNMENT AND PURCHASE OF INTERESTS; SUBSTITUTION
Section 8.1 Assignments by Investor Partners.
(a) The interest of any Investor Partner in the
Partnership shall be assignable, in whole or in part, subject to the following:
(i) No such assignment shall be made if, in the
opinion of counsel to the Partnership, such assignment would cause the
termination of the Partnership for federal income tax purposes under Section 708
of the Code or might result in a change in the status of the Partnership to a
"publicly traded partnership" within the meaning of Section 7704 of the Code,
unless the Managing Partner consents to such assignment, or if in the opinion of
counsel to the Partnership such assignment may not be effected without
registration under the Securities Act of 1933, as amended, or would result in
the violation of any applicable state securities laws;
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(ii) The Partnership shall not be required to
recognize any such assignment until the instrument conveying such interest has
been delivered to the Managing Partner for recordation on the books of the
Partnership;
(iii) Unless an assignee becomes a substituted
Investor Partner in accordance with the provisions set forth below, such
assignee shall not be entitled to any of the rights granted to an Investor
Partner hereunder, other than the right to receive all or part of the share of
the profits, losses, cash distributions, or returns of capital to which his
assignor would otherwise be entitled;
(iv) Except by will, intestate succession, or
gift or, in unusual circumstances when consented to by the Managing Partner, the
assigning Investor Partner (A)may not assign fewer than a whole Interest (five
Interests for Investor Partners who are residents of either the States of
California, Iowa, or Minnesota) to any person other than the Partnership, the
Managing Partner, an Affiliate thereof, or a third person designated by the
Managing Partner in its sole discretion, unless such Investor Partner owns less
than a whole Interest (less than five Interests for Investor Partners who are
residents of either the States of California, Iowa, or Minnesota) and transfers
all his Interest to one person, and (B)must retain at least a whole Interest
(five Interests for Investor Partners who are residents of either the States of
California, Iowa, or Minnesota), in the event fewer than all such Investor
Partner's Interests are assigned to any person other than the Partnership,
Managing Partner, an Affiliate thereof, or a third person designated by the
Managing Partner in its sole discretion; and
(v) The assignor shall notify the Managing
Partner of such assignment and provide the Managing Partner with such
information regarding the transferee and the transfer (including without
limitation, the name, address, and taxpayer identification number of the
transferor and transferee and the date of the transfer) as is required under
Section 6050K of the Code (if the transfer is a sale or exchange described in
Section 751(a) of the Code) and Section 6112 of the Code (relating to tax
shelter investor lists) and Treasury Regulations promulgated thereunder by the
Internal Revenue Service in the manner and at the time prescribed by law.
An assignment by an Investor Partner in violation of clause (i) or clause (ii)
of this Section 8.1(a) shall be void and ineffectual and shall not bind the
Partnership or any other Partner. The assignee of an Investor Partner's interest
in the Partnership shall pay all costs and expenses incurred by the Partnership
in connection with such assignment, which costs and expenses shall not be less
than $50. In the discretion of the Managing Partner, such costs and expenses may
be collected out of revenues otherwise allocable to such assignee under this
Agreement.
(b) An assignee of the interest of an Investor Partner,
or any portion thereof if permitted hereunder, shall become a substituted
Investor Partner entitled to all the rights of an Investor Partner if, and only
if:
(i) The assignor gives the assignee such right;
(ii) The Managing Partner consents to such
substitution, which consent may only be withheld to the extent legally necessary
(as set forth in an opinion of counsel) to
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preserve the tax status of the Partnership or the classification of Partnership
income for tax purposes;
(iii) The assignee pays to the Partnership all
costs and expenses incurred in connection with such substitution; including
without limitation, costs incurred in amending filings referred to in Section
1.7, which costs and expenses, in the discretion of the Managing Partner, may be
collected out of revenues otherwise allocable to such substituted Investor
Partner under this Agreement;
(iv) The assignee executes and delivers such
instruments, in form and substance satisfactory to the Managing Partner, as the
Managing Partner may deem necessary or desirable to effect such substitution and
to confirm the agreement of the assignee to be bound by all of the terms and
provisions of this Agreement; and
(v) The assignee delivers to the Managing
Partner a written representation as to each of the matters set forth in the
Subscription Agreement.
The consent of the Investor Partners shall not be required for admission to the
Partnership of a substituted Investor Partner who meets the above requirements.
The Partnership and the Managing Partner shall be entitled to treat the record
owner of any Partnership interest as the absolute owner thereof in all respects,
and shall incur no liability for distributions of cash or other property made in
good faith to such record owner until such time as a written assignment of such
interest has been received and accepted by the Managing Partner and recorded on
the books of the Partnership. In no event shall any Partnership interest, or any
portion thereof, be sold, transferred, or assigned to a minor or incompetent or
any other person not qualified to become an Investor Partner hereunder, and any
such attempted sale, transfer, or assignment shall be void and ineffectual and
shall not bind the Partnership or the Managing Partner. Unless an assignee
becomes a substituted Investor Partner, any assignment by the assigning Investor
Partner of the right to receive Partnership distributions shall not release such
Investor Partner of any obligations connected with the interest in the
Partnership being assigned. In no event shall any purported transfer, by
operation of law or otherwise, require the accounting by the Managing Partner to
more than one person with respect to the Partnership interest transferred unless
the transfer is consented to by the Managing Partner in accordance with the
foregoing and the Partnership interest transferred represents a whole number of
Interests owned by the Investor Partner. The effective date of any assignment
shall be the date on which all of the prerequisites to the assignment specified
in this Section 8.1 have been met. The Partnership will amend its records at
least once each calendar quarter to effect the substitution of substituted
partners. In the case of assignments where the assignee does not become a
substituted Investor Partner, the Partnership shall recognize the assignment not
later than the last day of the calendar month following receipt of the notice of
assignment and the required documentation.
Section 8.2 Assignment by Managing Partner.
(a) The interest of the Managing Partner in the
Partnership shall not be assignable, in whole or in part, except in the event of
the following assignments:
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(i) A disposition by the Managing Partner of all
or any portion of its Partnership interest to one or more Affiliates of the
Managing Partner that agree to assume all or a proportionate part of the
obligations of the Managing Partner with respect to such interest in the
Partnership;
(ii) A disposition by the Managing Partner of all
or any part of its Partnership interest to one or more persons that have as the
result of a merger, consolidation, corporate reorganization, or other
transaction acquired all or substantially all of the assets of the Managing
Partner and have assumed the obligations of the Managing Partner hereunder; or
(iii) An assignment or transfer by the Managing
Partner of all or any portion of its Partnership interest by way of mortgage,
pledge, or charge as security for an advance of monies to it, provided that the
mortgagee or pledgee shall hold such interest subject to all of the terms of
this Agreement.
(b) In the event of a disposition, assignment, or
transfer referred to in clause (i) or clause (ii) of Section 8.2(a), such
successor, assignee, or transferee shall be and become a substituted Managing
Partner and shall continue the business of the Partnership without the
occurrence of any dissolution and the assigning Managing Partner shall be
released from all of its obligations thereafter arising hereunder; and each
Investor Partner (and any person who hereafter becomes a substituted Investor
Partner by his execution, adoption, or acceptance of this Agreement) does hereby
consent to the admission of such successor, assignee, or transferee as a
substituted Managing Partner to the extent required by the Delaware Act and to
the continuance of the business of the Partnership by such substituted Managing
Partner, and authorizes the Managing Partner or substituted Managing Partner to
ratify on his behalf pursuant to the power of attorney granted in Section 10.2
such Investor Partner's consent to the admission of the new Managing Partner as
a Managing Partner of the Partnership.
(c) The Partnership shall take such actions as the
Managing Partner in its sole discretion deems necessary or appropriate to effect
or facilitate a disposition, assignment, or transfer referred to in Section
8.2(a), including without limitation, providing notice thereof to the Investor
Partners and entering into appropriate escrow arrangements; provided, however,
that no such disposition, assignment, or transfer (in the absence of the
bankruptcy, withdrawal, removal, or dissolution of a Managing Partner) shall
result in dissolution of the Partnership.
(d) Except as otherwise provided in Section 8.2(b),
Section 8.6 or Section 9.3, no assignee or transferee of a Managing Partner
shall become a substituted Managing Partner without the written consent of all
of the Investor Partners.
Section 8.3 Right of Presentment. During the first calendar quarter of
each of the years ______ through _______, an Investor Partner (other than the
Managing Partner or an Affiliate thereof) may request in writing that the
Managing Partner repurchase all, but not less than all, of his Interests (the
"Right of Presentment"). The repurchase price to be paid upon any repurchase of
an Investor Partner's Interests will be the pro rata share represented by his
Interests of:
(a) 100% of the sum of
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(i) 65% of the unescalated (i.e., not increased
by any interest rate or any other factor) value as of such Valuation Date of the
future net revenues attributable to the Partnership's Proved Developed Producing
Reserves, as estimated by the Independent Expert retained by the Managing
Partner to prepare the most recent engineering report furnished to the Investor
Partners pursuant to Section 7.2(c);
(ii) 50% of the unescalated (i.e., not increased
by any interest rate or any other factor) value as of such Valuation Date of the
future net revenues attributable to the Partnership's Proved Developed
Non-Producing Reserves, as estimated by the Independent Expert retained by the
Managing Partner to prepare the most recent engineering report furnished to the
Investor Partners pursuant to Section 7.2(c);
provided that prior to the calculation of the value of such future net revenues,
that value (A) shall be adjusted by the Independent Expert to reflect the risks
of production and development of such reserves and any other economic
contingencies that would normally be considered by a purchaser of Proved
Reserves and (B) shall be discounted to present value at a rate equal to 10%;
MINUS
(b) the amount of all liabilities, indebtedness,
expenses, and obligations of the Partnership as of the Valuation Date as shown
on the Partnership's most recent audited financial statements furnished to the
Investor Partners pursuant to Section 7.2(a) that were allocable as of the end
of such fiscal year to the Investor Partners; and
(c) any distributions made to Investor Partners between
the Valuation Date and the date of payment of the repurchase attributable to the
Interests being repurchased shall be deducted from the repurchase price. The
effective date of any such sale for purposes of determining such deduction will
be deemed to be the day on which payment of the repurchase price is transmitted.
Section 8.4 Notices of and Limitations on Right of Presentment.
(a) Prior to May 31 of each year in which the Right of
Presentment exists, the Managing Partner shall notify each Investor Partner
requesting repurchase under Section 8.3 of the amount that will be paid to
repurchase each Interest and the method by which that repurchase price was
calculated. Upon their receipt of such notification, the requesting Investor
Partners who wish to present their Interests for repurchase shall do so by
properly completing and executing the form of assignment that will accompany the
Managing Partner's notification and returning it to the Managing Partner within
20 calendar days after the date of the notification. Such presentment by an
Investor Partner shall constitute his acceptance of the repurchase offer of the
Managing Partner, subject to the terms of this Article 8. Payment for Interests
presented for repurchase during a year will be made in cash not less than 60 nor
more than 75 calendar days after receipt by the Managing Partner of the
assignments of the Interests so repurchased.
(b) The maximum number of Interests that the Managing
Partner (or an Affiliate thereof) shall be required to purchase during any
calendar year in which the right to present Interests exists shall not exceed 5%
of the total number of Interests outstanding at the beginning of such calendar
year.
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(c) In addition to the limitation imposed by subsection
(b) above, the obligation of the Managing Partner or Affiliates thereof, to
purchase Interests and to purchase interests in Affiliated Programs previously
or subsequently organized by the Managing Partner or Affiliates thereof shall
not exceed $500,000 in any calendar year, and such persons may elect not to
purchase the excess. If a greater number of Interests and interests in such
previously or subsequently organized Affiliated Programs are presented for
repurchase than are required to be accepted under this subsection (c), those
Interests and interests will be accepted for repurchase in the following manner:
(i) all required repurchases will be allocated among the other affected
partnerships (adjusted to reflect repurchases within the previous twelve months)
pro rata based on their initial subscribed capital, (ii) to the extent that the
amount allocated to any partnership described in clause (i) exceeds the
repurchase price of interests in that partnership presented for repurchase, such
amount shall be allocated among the other of those partnerships in the manner
described in clause (i) until the entire $500,000 limitation (as adjusted) has
been allocated, and (iii) interests in each partnership described in clause (i)
shall be accepted for repurchase in amounts equal to the portion of the $500,000
limitation allocated to each such partnership.
(d) In determining if the required number of the
outstanding Interests pursuant to subsection (c) above have been repurchased
during any calendar year, all purchases by the Managing Partner or Affiliates
thereof of Interests and interests in Affiliated Programs previously or
subsequently organized by the Managing Partner or Affiliates thereof, which
purchases have been made at any time during the twelve-month period ending on
the date on which such persons are to purchase Interests hereunder shall be
included in the calculation of the Interests and other interests repurchased. If
a greater number of Interests are presented for repurchase than those persons
are required to repurchase, the Interests to be repurchased will be selected by
lot or by such other method as the Managing Partner deems reasonable.
Participation by Investor Partners in any such lottery shall be determined by
calculating the proportion that the number of Interests presented for repurchase
by each Investor Partner bears to the total number of Interests presented for
repurchase at that time. If any Interests presented for repurchase are not
purchased, they will be returned to the record owners thereof and will be
eligible for repurchase during succeeding years only if new repurchase requests
are made and the Interests are again presented for repurchase. Interests not
repurchased in the year presented for repurchase will have no priority with
respect to repurchase in subsequent years.
(e) If, prior to May 31 of the year in which the Right of
Presentment exists, the price for either oil or gas received by the Partnership
from its Program Wells decreases by 20% or more as compared to the price being
received as of the Valuation Date, the Managing Partner may, in its sole and
absolute discretion, refuse to repurchase any Interests presented for
repurchase. Further, if the Managing Partner or Affiliates thereof have
purchased the required number of Interests at any time during the twelve-month
period ending on the date on which the Managing Partner is to purchase Interests
from the Investor Partners pursuant to the Right of Presentment, the Managing
Partner's obligation to purchase Interests is discharged. In such event, the
Managing Partner shall notify the presenting Investor Partners of the Managing
Partner's election not to repurchase any of the Interests presented for
repurchase and the basis for such refusal and shall provide to any presenting
Investor Partner who so requests access to such books and records of the
Partnership as shall be reasonably necessary for such Investor Partner to verify
the basis for such refusal.
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(f) For purposes of this Agreement, Interests repurchased
and held by the Managing Partner or an Affiliate thereof shall continue to be
outstanding.
Section 8.5 Cessation of Right of Presentment. In the event the
obligation of the Managing Partner or any Affiliate thereof to repurchase
Interests from Investor Partners pursuant to their Right of Presentment is
determined by counsel to the Partnership to be in violation of any existing or
future laws or to expose the Partnership or the Investor Partners to material
adverse federal income tax consequences, such obligation shall become null and
void and of no further force or effect, but only to the extent necessary in the
opinion of counsel to the Partnership to comply with such laws or to avoid such
consequences.
Section 8.6 Removal of Managing Partner.
(a) A Majority in Interest of the Investor Partners shall
have the right to remove the Managing Partner and to elect and substitute a new
Managing Partner. In such event, the removed Managing Partner shall be required
to offer to sell a minimum of 20% of, and shall have the right to offer to sell
up to the remaining 80% of, its interest in the Partnership to the new Managing
Partner at a price, Method of Payment (as determined pursuant to this section),
and on such other terms and conditions as are mutually agreeable to the new
Managing Partner. If after the new Managing Partner and the removed Managing
Partner have agreed on the amount of the removed Managing Partner's Partnership
interest that is to be sold to and purchased by the new Managing Partner (which
agreement must be reached within 10 days of the removal of the Managing
Partner), such parties are unable to agree within 10 days on the purchase price
of such interest, the new Managing Partner and the removed Managing Partner
shall select a mutually agreeable Independent Expert to determine such purchase
price. Such Independent Expert, in determining such price, shall take into
account appropriate discount factors in light of the risk of recovery of the oil
and gas reserves attributable to the Partnership. The closing of the purchase of
such Partnership interest shall take place at the office of the removed Managing
Partner within 15 days following the agreement upon or determination of the
purchase price for the interest to be acquired by the new Managing Partner, or
at such other time or place as the removed Managing Partner and the new Managing
Partner may agree upon in writing. In the event the new Managing Partner agrees
to purchase less than all of the offered interest of the removed Managing
Partner in the Partnership, the removed Managing Partner shall have the right to
have distributed to it in kind such Partnership assets and properties
attributable to the Partnership interest not purchased by the new Managing
Partner as it would have been entitled to receive if the Partnership were
dissolved and terminated pursuant to Section 9.4 at such time. The removed
Managing Partner shall cause, to the extent legally possible, all of its
contractual rights, obligations, and duties as Managing Partner of the
Partnership to be assigned to the new Managing Partner, and the new Managing
Partner shall continue the business of the Partnership without the occurrence of
any dissolution and shall accept all responsibilities of the removed Managing
Partner and make arrangements satisfactory to the removed Managing Partner to
release it from and indemnify it against personal liability for any Partnership
indebtedness and liabilities. This Agreement shall thereafter be duly amended to
delete the removed Managing Partner and to name the new Managing Partner. Each
Investor Partner (and any person who hereafter becomes a substituted Investor
Partner by his execution, adoption, or acceptance of this Agreement) hereby
consents to the admission of the new Managing Partner as the substituted
Managing Partner and to the continuance of the business of the Partnership by
such substituted
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Managing Partner, and authorizes such Managing Partner to certify on his behalf
pursuant to the power of attorney granted in Section 10.2 such Investor
Partner's consent to the admission of such new Managing Partner as the Managing
Partner of the Partnership and to execute any amendments to this Agreement
required for such purpose. If, under the laws of any jurisdiction to which the
Partnership or this Agreement is subject, the removal or withdrawal of the
Managing Partner pursuant to this Section 8.6(a) results in the Partnership
being dissolved, then the Partnership shall be deemed dissolved and
reconstituted. Each Investor Partner (and any person who hereafter becomes a
substituted Investor Partner by his execution, adoption, or acceptance of this
Agreement) hereby consents to the continuation or reconstitution of the
Partnership pursuant to this Section 8.6(a) and authorizes the substituted
Managing Partner to certify on his behalf pursuant to the power of attorney
granted in Section 10.2, such Investor Partner's consent to the continuation or
reconstitution of the Partnership and to execute any amendments to this
Agreement required for such purpose.
The "Method of Payment" by the new Managing Partner for the removed
Managing Partner's interest must be fair and must protect the solvency and
liquidity of the Partnership. Where the termination is voluntary, the method of
payment will be deemed presumptively fair where it provides for a non-interest
bearing unsecured promissory note with principal payable, if at all, from
distributions which the terminated Managing Partner otherwise would have
received under the Partnership Agreement had the Managing Partner not been
terminated. Where the termination is involuntary, the method of payment will be
deemed presumptively fair where it provides for an interest bearing promissory
note coming due in no less than five years with equal installments each year.
(b) The Partnership, acting in accordance with a vote or
consent of a Majority in Interest of the Investor Partners, shall have the right
pursuant to Section 7 of the Program Agreement to remove MOC as Program Manager
and substitute a successor to act in such capacity.
ARTICLE IX
DISSOLUTION, RECONSTITUTION, LIQUIDATION, AND TERMINATION
Section 9.1 Dissolution. The Partnership shall be dissolved upon the
occurrence of any of the following:
(a) December 31, 20___;
(b) the vote at a duly held meeting or consent in writing
of a Majority in Interest of the Investor Partners at any time;
(c) the sale, disposition, or termination of all or
substantially all of the Leases then owned by the Partnership;
(d) the bankruptcy, insolvency, or dissolution (except
dissolution as a consequence of merger, consolidation, recapitalization, or
other reorganization effected in accordance with Section 8.2) of the Managing
Partner or the occurrence of any other event which would permit a trustee or
receiver to acquire control of the property or affairs of the Managing Partner;
provided that neither the Managing Partner's filing of a voluntary petition or
answer
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seeking reorganization or similar relief under bankruptcy law, nor the Managing
Partner's reorganization or obtaining similar relief under such law shall cause
the dissolution of the Partnership;
(e) the adjudication of insolvency or bankruptcy of the
Partnership, or an assignment by the Partnership for the benefit of creditors;
(f) the withdrawal or retirement of the Managing Partner;
or
(g) except as otherwise provided in this Section 9.1, the
occurrence of any other event which, under the laws of the State of Delaware,
causes the dissolution of a limited partnership.
The death, retirement, insanity, legal disability, insolvency, dissolution, or
withdrawal of any Investor Partner will not result in the dissolution or
termination of the Partnership, and, upon the occurrence of any such event, the
estate, personal representative, guardian, or other successor in interest of any
such Investor Partner or the Investor Partner, as the case may be, (i) will
continue to be liable for all of the debts and obligations of such Investor
Partner pursuant to this Agreement, (ii) may become a substituted Investor
Partner only pursuant to the provisions of Section 8.1, (iii) may transfer the
Partnership interest of such Investor Partner only pursuant to the provisions of
Article VIII hereof, and (iv)will not have any right to withdraw the Capital
Contribution of such Investor Partner except as expressly set forth in Section
9.3 of this Agreement.
Section 9.2 Covenant Not to Withdraw. Except as permitted by Section
9.3(c), each Partner covenants and agrees that it shall not cause the
dissolution of the Partnership by its voluntary withdrawal therefrom, either
directly, by dissolution or by any other voluntary act, provided that the
Managing Partner may withdraw upon the later to occur of (i) the completion of a
Partnership's primary drilling activities under the Drilling Program and (ii)
the fifth anniversary of the date that Investor Partners were admitted to the
Partnership. In order to exercise its right of withdrawal, the Managing Partner
must give the Investor Partners at least 120 days' advance written notice. In
the event the Managing Partner assigns its interest in the Partnership to a
person who becomes a substituted Managing Partner of the Partnership pursuant to
Section 8.2, the subsequent dissolution of the old Managing Partner shall not
terminate the Partnership and shall not be deemed to constitute a breach or
violation of the covenant contained in this Section 9.2.
Section 9.3 Reconstitution.
(a) In addition to the other rights and remedies the
Investor Partners may have hereunder or otherwise, in the event the Managing
Partner withdraws or retires from the Partnership (directly or as a result of
the events causing dissolution under Section 9.1(e)) and such withdrawal or
retirement causes dissolution of the Partnership, a Majority in Interest of the
Investor Partners, acting at a meeting of the Investor Partners to be held
within 90 days following receipt of written notice of such event from the
Managing Partner, shall be entitled to reconstitute the Partnership (the
Partnership, as reconstituted, is referred to herein as the "Reconstituted
Partnership") and elect and substitute a new Managing Partner (which may be the
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retiring Managing Partner). Such new Managing Partner shall be entitled to
acquire the Partnership interest of the retiring Managing Partner on the same
basis and in the same manner as is set forth in Section 8.6. In connection with
such acquisition the actions described in Section 8.6 shall be taken by the new
Managing Partner and the retiring Managing Partner, and each Investor Partner
(and any person who hereafter becomes a substituted Investor Partner by his
execution, adoption, or acceptance of this Agreement) hereby consents to the
admission of such new Managing Partner as a substituted Managing Partner of the
Partnership in the same manner, and with the same effect, as consent is provided
by the Investor Partners in Section 8.6. The retiring Managing Partner will pay
all expenses concerning the valuation of its Partnership Interest and expenses
associated with transferring management control incurred as a result of its
withdrawal or retirement from the Partnership.
(b) In the event a Majority in Interest but less than all
of the Investor Partners elect to reconstitute the Partnership pursuant to this
Section 9.3, the Partners' capital accounts shall be adjusted by (i) assuming
the sale of all assets of the Partnership for cash at their respective fair
market values (as determined by an appraiser selected by the new Managing
Partner) and the payment of all Partnership debts and liabilities as of the date
of the reconstitution of the Partnership and (ii) debiting or crediting each
such capital account (other than the new Managing Partner's capital account, but
including the retiring Managing Partner's capital account (to the extent that
the retiring Managing Partner's Partnership interest was not purchased by the
new Managing Partner pursuant to subsection (a) above)) with its respective
share of the hypothetical gains or losses resulting from such assumed sales and
the hypothetical deductions or losses, if any, resulting from the assumed
payment of such debts and liabilities in the same manner as such capital account
would be debited or credited on the actual sales of such assets and the actual
payment of such debts and liabilities.
The new Managing Partner shall then sell for cash an amount of
Partnership oil and gas properties having a fair market value (as determined by
such appraiser) equal to the fair market value (so determined) of all
Partnership oil and gas properties times the ratio of the aggregate of the
positive capital account balances, as so adjusted, of the Investor Partners that
have not elected to reconstitute the Partnership and the retiring Managing
Partner (to the extent that the retiring Managing Partner's Partnership interest
was not purchased by the new Managing Partner pursuant to subsection (a) above)
to the positive capital account balances, as so adjusted, of all Partners. The
new Managing Partner shall then distribute such cash to the Investor Partners
that have elected not to reconstitute the Partnership and to the Managing
Partner (to the extent provided above) in proportion to the positive balances of
their respective capital accounts, as so adjusted. Such distribution shall take
place by the later of (i) the end of the Partnership taxable year in which the
reconstitution occurs or (ii) 90 days after the date of such reconstitution.
Neither the retiring Managing Partner nor any Investor Partner that has elected
not to reconstitute the Partnership shall be liable to the Partnership or any
other Partner for the amount of any deficit balance in his or its capital
account after a distribution in liquidation of his or its interest in the
Partnership.
Notwithstanding the foregoing, the retiring Managing Partner shall have
the right to elect to receive a distribution in kind of oil and gas properties
having a fair market value (as determined by such appraiser) equal to the fair
market value (so determined) of all Partnership oil and gas properties times the
ratio of the positive balance in its capital account, adjusted as
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provided above, to the positive capital account balances, as so adjusted, of all
Partners, subject to an obligation to become a party to the Program Agreement
and any operating agreements to which such properties are subject. Any interest
in Partnership properties distributed to the retiring Managing Partner shall be
subject to such liens, encumbrances, and restrictions as affect the properties
on the date of such distribution and will be subject to and operated in
accordance with the operating agreements then in effect.
All gain, loss, and amounts realized on the sale of Partnership oil and
gas properties by the new Managing Partner to provide cash for distribution to
such Investor Partners and to the retiring Managing Partner shall be allocated
to such Investor Partners and the retiring Managing Partner in the same
proportions as the proceeds of such sale are distributed; provided that if the
retiring Managing Partner or any Investor Partner elects to receive a
distribution of Partnership properties in kind, all gain, loss, and amounts
realized on such sales shall be allocated solely to the Partners receiving cash
in the same proportions as the proceeds of such sale are distributed.
The new Managing Partner, on behalf of the Investor Partners that have
elected to form the Reconstituted Partnership, shall retain for the benefit of
the Reconstituted Partnership all oil and gas properties of the Partnership
remaining after the distribution provided for above, and all other Partnership
assets, and the Reconstituted Partnership shall assume all debts and liabilities
of the Partnership. The Partnership oil and gas properties retained by the
Reconstituted Partnership shall be subject to such liens, encumbrances, and
restrictions as affect such properties on the date of the reconstitution of the
Partnership and will be subject to and operated in accordance with the operating
agreements then in effect. If the amount of property as of the date of the
reconstitution of the Partnership is not sufficient to satisfy the positive
balances in all of the Partners' capital accounts, as so adjusted, Partnership
property shall be sold (or distributed) and retained by the new Managing Partner
in the manner described above in proportion to the positive balances of the
Partners' respective capital accounts.
(c) In the event an Investor Partner withdraws from the
Partnership, the remaining Investor Partners hereby agree that the Partnership
is to be reconstituted immediately. The remaining Investor Partners hereby
authorize the Managing Partner to take such action as the Managing Partner deems
necessary or appropriate to effect such reconstitution and to continue the
business of the Partnership without interruption, including use by the Managing
Partner of the power of attorney granted by each remaining Investor Partner
pursuant to Section 10.2 to execute on behalf of each such remaining Investor
Partner any amendments to this Agreement required for such purpose. The
withdrawing Investor Partner will pay all expenses incurred as a result of his
withdrawal from the Partnership. The withdrawing General Partner shall remain
subject as a General Partner with respect to any liabilities or obligations of
the Partnership arising prior to such withdrawal. Upon withdrawal from the
Partnership, a General Partner is entitled to continue to receive any
distributions to which he is otherwise entitled under this Agreement for the
period prior to his withdrawal; however, such General Partner shall not be
entitled to receive the fair value of his interest in the Partnership as of the
date of such withdrawal based upon his right to share in distributions from the
Partnership, and neither the Partnership nor the Managing Partner has any
obligation to repurchase any interest in the Partnership from the withdrawing
General Partner. The withdrawing General Partner will no longer be entitled to
receive any distributions nor shall such General Partner have any rights as
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an Investor Partner under this Agreement. The Sharing Ratios will be
recalculated among the Investor Partners without regard to the withdrawing
General Partner's Capital Contribution.
(d) In the event the Partnership is reconstituted
pursuant to subsection (c), the Partners' capital accounts shall be adjusted by
(i) assuming the sale of all assets of the Partnership for cash at their
respective fair market values (as determined by the Managing Partner or an
appraiser selected by the Managing Partner) and the payment of all Partnership
debts and liabilities as of the date of the reconstitution of the Partnership
and (ii) debiting or crediting each such capital account with its respective
share of the hypothetical gains or losses resulting from such assumed sales and
the hypothetical deductions or losses, if any, resulting from the assumed
payment of such debts and liabilities in the same manner as such capital account
would be debited or credited on the actual sales of such assets and the actual
payment of such debts and liabilities.
(e) The distribution of cash or property to the Investor
Partners that have elected not to reconstitute the Partnership in accordance
with the provisions of this Section 9.3 shall constitute a complete return to
each such Investor Partner of his Capital Contributions, to which each Investor
Partner (and any person who hereafter becomes a substituted Investor Partner by
his execution, adoption or acceptance of this Agreement) hereby consents, and a
complete distribution to such Investor Partner of his interest in the
Partnership and all Partnership property, and no such Investor Partner shall
have any recourse against the new or the retiring Managing Partner, the
Reconstituted Partnership or any other Investor Partner if the cash or property
so distributed or received shall be insufficient to return in full his Capital
Contributions.
(f) In the event of the bankruptcy of a General Partner
which pursuant to the Delaware Act results in the dissolution of the
Partnership, each of the remaining Partners hereby agrees that the Partnership
shall be reconstituted immediately, and authorizes the Managing Partner to take
the actions described in subsection (c) above. The trustee, receiver, or other
successor in interest of the bankrupt General Partner (i) will continue to be
liable for all of the debts and obligations of such General Partner pursuant to
this Agreement, (ii) may become a substituted General Partner only pursuant to
the provisions of Section 8.1, (iii) may transfer the Partnership interest of
such General Partner only pursuant to the provisions of Article VIII hereof, and
(iv) will not have any right to withdraw the Capital Contribution of such
General Partner except as expressly set forth in Section 9.4 of this Agreement.
Section 9.4 Liquidation and Termination. Upon dissolution of the
Partnership (unless it is reconstituted in accordance with Section 9.3), no
further business shall be conducted except for the taking of such action as
shall be necessary for the winding up of the affairs of the Partnership and the
distribution of its assets to the Partners. The Managing Partner shall act as
liquidator or may appoint in writing one or more liquidators who shall have full
authority to wind up the affairs of the Partnership and make final distribution
as provided herein; provided, however, that, if the Managing Partner is not able
to serve as liquidator and does not appoint a liquidator within a reasonable
time after dissolution, the liquidator shall be a person selected in writing by
a Majority in Interest of the Investor Partners. The liquidator shall proceed
diligently to wind up the affairs of the Partnership and make final distribution
as provided herein. Until final distribution, the liquidator shall continue to
operate the Partnership properties with all of the
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power and authority of the Managing Partner. The liquidator is hereby authorized
to take the following action without the further consent or joinder of any
Partner:
(a) As promptly as possible after dissolution and again
after completion of the liquidation and termination of the Partnership, the
liquidator shall cause a proper accounting to be made of the Partnership's
assets, liabilities, and operations through the last day of the month in which
the dissolution or termination occurs.
(b) The liquidator shall pay all of the debts and
liabilities of the Partnership (including all expenses incurred in liquidation)
or otherwise make adequate provision therefor (including but not limited to the
establishment of a cash escrow fund for contingent liabilities in such amount
and for such term as the liquidator may determine). To the extent cash required
for this purpose is not otherwise available, the liquidator may sell assets of
the Partnership for cash.
(c) After making payment or provision for all debts and
liabilities of the Partnership, the liquidator shall sell all properties and
assets of the Partnership for cash as promptly as is consistent with obtaining
the best price therefor. All gain, loss and amount realized on such sales shall
be allocated to the Partners as provided in this Agreement, and the capital
accounts of the Partners shall be adjusted accordingly. The liquidator shall
then distribute the proceeds of such sales to the Partners to satisfy any
positive balances in their capital accounts, as so adjusted.
(d) Notwithstanding Section 9.4(c), in the event of a
dissolution and liquidation of the Partnership pursuant to an exchange or tender
offer, the liquidator may, after making provision for all debts and liabilities
of the Partnership, first adjust the capital account of each Partner by (i)
assuming the sale of all remaining assets of the Partnership for cash at their
respective fair market values (as determined by the liquidator in a manner
consistent with the terms of such exchange or tender offer) as of the date of
the dissolution of the Partnership and (ii) debiting or crediting each such
capital account with such Partner's respective share of the hypothetical gains
or losses resulting from such assumed sales in the same manner as such capital
account would be debited or credited on the actual sales of such assets. If such
exchange or tender offer is conducted pursuant to a disposition of all or
substantially all of the assets of the Partnership or is otherwise binding on
the Partners, the liquidator shall distribute all securities or other assets
received from the disposition of the Partnership assets to the Partners
proportionately based on the Partners' positive capital account balances, as so
adjusted.
In the event of an exchange or tender offer that is not binding upon
all Partners, the liquidator shall then exchange for securities offered in the
exchange or tender offer oil and gas properties having a fair market value (as
determined by the liquidator as provided above) equal to the sum of the positive
balances in the capital accounts, as so adjusted, of the Partners who elect to
accept the exchange or tender offer. The liquidator shall then distribute such
securities to such accepting Partners on a basis reflecting the Partners'
respective positive balances, as so adjusted. The Managing Partner shall have,
with respect to its Interests, the right to elect to receive a distribution in
kind of Partnership oil and gas properties having a fair market value (as
determined by the liquidator as provided above) equal to the positive balance in
its capital account, adjusted as provided above. The liquidator shall then sell
the remaining property and distribute to the Investor Partners who elect not to
accept the exchange or tender offer all
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remaining cash in amounts proportionate to any positive balances in such
Partners' capital accounts, as so adjusted. All gain, loss and amount realized
on the sale of Partnership oil and gas properties by the liquidator to provide
cash for distribution to such Investor Partners shall be allocated to such
Investor Partners in the same proportions as the proceeds of such sale are
distributed.
(e) Any distributions to the Partners in liquidation of
the Partnership shall be made by the later of (i) the end of the taxable year in
which the liquidation (as such term is defined in Treasury Regulation
1.704-1(b)(2)(ii)(g)) occurs, or (ii) 90 days after the date of such
liquidation. No Partner with a deficit balance in his or its capital account
after such distribution shall be liable to the Partnership or any other Partner
for the amount of such deficit balance.
(f) Notwithstanding the foregoing, if upon dissolution of
the Partnership any Partner shall be indebted to the Partnership as a result of
the failure to make a Capital Contribution required under this Agreement or
otherwise, the liquidator shall retain such Partner's share of cash or property
that would otherwise be distributed and apply such cash or property and the
income therefrom to the liquidation of such indebtedness and the cost of the
operation of such assets during the period of such liquidation; provided, if the
amount of such indebtedness has not been liquidated pursuant to the above
procedure or otherwise paid by such Partner within six months of the dissolution
of the Partnership, the liquidator may sell all or any portion of such property
at a public or private sale for what is in the sole judgment of the liquidator
the best price obtainable. The proceeds of such sale shall be applied to the
liquidation of the indebtedness then owing by such Partner, and the balance of
such proceeds, if any, shall be distributed to such Partner.
(g) The liquidator shall comply with any requirements of
the Delaware Act and all other applicable laws pertaining to the winding up of
the affairs of the Partnership and the final distribution of its assets. The
distribution of cash or property to the Partners in accordance with the
provisions of this Section 9.4 shall constitute a complete return to the
Partners of their Capital Contributions and a complete distribution to the
Partners of their interests in the Partnership and all Partnership property, and
no Partner shall have any recourse against the Managing Partner or any other
Partner if the cash so distributed shall be insufficient to return in full his
Capital Contributions.
ARTICLE X
REPRESENTATIONS AND WARRANTIES OF THE MANAGING PARTNER AND POWER OF ATTORNEY
Section 10.1 Representations and Warranties of the Managing Partner.
The Managing Partner hereby represents, warrants, and agrees as follows:
(a) The organization and operation of the Partnership are
and will continue to be in accordance with all applicable state statutes related
to limited partnerships.
(b) No election will be made by the Partnership to be
excluded from the provisions of Subchapter K of Chapter 1 of Subtitle A of the
Code.
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(c) The Managing Partner now has and will continue to
have substantial assets (in addition to its interest in the Partnership) which
can be reached by creditors of the Partnership and is acting and will continue
to act as Managing Partner on its own behalf and in no way merely as the agent
of the Investor Partners.
Section 10.2 Power of Attorney. Each Investor Partner by his execution
or adoption of this Agreement or a counterpart hereof irrevocably constitutes
and appoints the Managing Partner or its authorized agents and successors, each
with full power of substitution, the agent and attorney-in-fact of each Investor
Partner in the name, place, and stead of such Investor Partner to do any act
necessary or, in the opinion of the Managing Partner, appropriate to qualify the
Partnership to do business under the laws of any jurisdiction in which it is
necessary to file any instrument in writing in connection with such
qualification, and to make, execute, swear to, verify, acknowledge, amend, file,
record, deliver, and publish any instrument or document which may be necessary
or appropriate to carry out the provisions of this Agreement, including without
limitation, (a) a counterpart of this Agreement and a certificate of limited
partnership, (b) upon conversion of the General Partner Interests in accordance
with Section 1.9 any amended certificate of limited partnership or amendments to
any certificate of limited partnership required or permitted to be filed or
recorded under the statutes relating to limited partnerships under the laws of
any jurisdiction in which the Partnership shall engage or seek to engage in
business, (c) a counterpart of any amendment to this Agreement for the purpose
of (i) converting the General Partner Interests to Limited Partner Interests as
contemplated by Section 1.9, or (ii) admitting any substituted Managing Partner
or original or substituted Investor Partner or effecting any amendment of this
Agreement permitted to be made solely by the Managing Partner pursuant to
Section 9.3 and 11.2, (d) a counterpart of this Agreement or any amendment
hereto for the purpose of filing or recording such counterpart in any
jurisdiction in which the Partnership may own property or transact business, (e)
all certificates and other instruments necessary to qualify or continue the
Partnership as a limited partnership or a partnership wherein the Limited
Partners have limited liability, in the jurisdictions where the Partnership may
own property or be doing business, (f) any fictitious or assumed name
certificate required or permitted to be filed by or on behalf of the
Partnership, (g) any other instrument which is now or which may hereafter be
required by law to be filed for or on behalf of the Partnership which does not
increase the obligations of the Investor Partners, (h) any offers to lease,
Leases, assignments, and requests for approval of assignments, statements of
citizenship, interest and holdings, and any other instruments or communications
now or hereafter required or permitted to be filed on behalf of the Partnership
or the several Partners of the Partnership in their capacities as such under any
law relating to the leasing of government land for oil and gas exploration or
production, (i) an authorized certificate or other instrument evidencing the
dissolution or termination of the Partnership when such shall be appropriate, in
each jurisdiction in which the Partnership shall own property or do business,
(j) all ballots, consents, approvals, or certificates and other instruments
appropriate or necessary, in the judgment of the Managing Partner, to make,
evidence, give, confirm, or certify any vote, consent, approval, election,
agreement, or other action which is made or given hereunder or which is deemed
to be made or given hereunder or is consistent with the terms of this Agreement
or appropriate or necessary, in the judgment of the Managing Partner, to
effectuate the terms or intent of this Agreement, and all amendments to this
Agreement giving effect to, implementing, adopting or reflecting any such vote,
consent, approval, election, agreement, or other action; provided, however, that
when any such vote, consent, approval, election, agreement, or other action may
be made or given only by a Majority
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in Interest of the Investor Partners, the Managing Partner may exercise the
power of attorney granted in this clause (j) only after a Majority in Interest
of the Investor Partners has so acted, and (k)any other instruments necessary to
conduct the operations of the Partnership which do not increase the obligations
of the Investor Partners, and to perform any other duty or function necessary to
conduct the business and operations of the Partnership pursuant hereto. The
existence of such power of attorney shall not preclude execution of any such
instrument by an Investor Partner individually on any such matter. The power of
attorney granted herein is irrevocable and shall survive the assignment or
transfer by an Investor Partner of all or any part of his interest in the
Partnership and, being coupled with an interest, shall survive the death,
incompetency, incapacity, dissolution or termination of any Investor Partner.
Any person dealing with the Partnership may conclusively presume and rely upon
the fact that any instrument executed by such agent and attorney-in-fact is
authorized, valid and binding without further inquiry. This Agreement shall be
controlling in the event of any conflict between the terms and provisions of
this Agreement and any document executed, filed or recorded by the Managing
Partner pursuant to the power of attorney granted herein.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Notices. All notices, elections, demands, or other
communications required or permitted to be made or given pursuant to this
Agreement shall be in writing and shall be considered as properly given or made
if given by (i) personal delivery, (ii) expedited delivery service with proof of
delivery, (iii) registered or certified United States mail, postage prepaid, or
(iv) prepaid telegram, telex, or telecopier facsimile (provided that such
telegram, telex, or telecopier facsimile is confirmed by expedited delivery
service or by mail in the manner previously described), sent to the respective
addresses specified in Section 1.5, and shall be deemed to have been given
either at the time of personal delivery or, in the case of delivery service or
mail, as of the date of delivery at the address and in the manner provided
herein. Any Investor Partner may change his address by giving notice in writing
to the Managing Partner of his new address, and the Managing Partner may change
its address by giving notice in writing of its new address to the Investor
Partners.
Section 11.2 Amendment. In addition to the right of the Managing
Partner to amend this Agreement as provided below, any change, modification, or
amendment to this Agreement shall be effective if made by an instrument in
writing duly executed by a Majority in Interest of the Investor Partners.
Notwithstanding the foregoing, with respect to any change, modification, or
amendment to this Agreement which would (a) increase the liability or duties of
any of the Partners, (b) change the contributions required of any of the
Partners, (c) provide for any reallocation of profits, losses, or deductions to
the detriment of a Partner, (d) establish any new priority in one or more
Partners as to the return of Capital Contributions or as to profits, losses,
deductions, or distributions to the detriment of a Partner, or (e) cause the
Partnership to be taxed as a corporation, such change, modification or amendment
shall not be binding on such Partner unless contained in a written instrument
duly executed by such Partner. With respect to any change, modification, or
amendment to this Agreement which would change the name of the Partnership or
the location of the principal place of business of the Partnership or of the
Managing Partner, admit new or substituted Investor Partners, modify the
Managing Partner's interest in the Partnership as the result of a transfer of a
portion thereof pursuant to Section 8.2, Section 8.6 or Section 9.3, or cure
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any ambiguity, formal defect, or omission or correct or supplement any provision
contained herein that may be inconsistent with any other provision contained
herein, any change, modification or amendment which the Managing Partner
determines does not adversely affect the Investor Partners in any material
respect, and any change, modification, or amendment which the Managing Partner
believes is necessary or advisable to ensure that the Partnership is not and
will not be treated as an association taxable as a corporation for federal
income tax purposes or to conform with changes in applicable tax law (provided
such changes do not have a material adverse effect on the Investor Partners),
and any other changes, modifications, or amendments similar to any one or more
of the foregoing, such change, modification, or amendment may be contained in a
written instrument executed solely by the Managing Partner, provided that the
Managing Partner notifies the Investor Partners of such change, modification, or
amendment.
Section 11.3 Partition. Each of the Partners hereby irrevocably waives
for the term of the Partnership any right that such Partner may have to maintain
any action for partition with respect to Partnership property.
Section 11.4 Entire Agreement. This Agreement, the Program Agreement,
and the Subscription Documents executed by the Investor Partners constitute the
full and complete agreement of the parties hereto with respect to the subject
matter hereof, and supersedes all previous oral and written and all
contemporaneous oral negotiations, commitments, writings, and understandings.
Section 11.5 Severability. Every provision in this Agreement is
intended to be severable. If any term or provision hereof is determined to be
invalid, illegal, or unenforceable for any reason whatsoever, such invalidity,
illegality, or unenforceability shall not affect the validity, legality, and
enforceability of the remainder of this Agreement.
Section 11.6 No Waiver. The failure of any Partner to insist upon
strict performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall not
be a waiver of such Partner's right to demand strict compliance in the future.
No consent or waiver, express or implied, to or of any breach or default in the
performance of any obligation hereunder shall constitute a consent or waiver to
or of any other breach or default in the performance of the same or any other
obligation hereunder.
Section 11.7 Evidence of Interest. At the sole option of the Managing
Partner, an Interest may be evidenced by a certificate in a form approved by the
Managing Partner. The Managing Partner shall not be required to issue any such
certificates, and, if such certificates are issued to any Investor Partner, the
Managing Partner shall not be required to issue similar certificates to all
Investor Partners.
Section 11.8 Applicable Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted,
construed, and enforced in accordance with the laws of the State of Delaware,
except that (a) any laws of the State of Delaware regarding choice or conflicts
of law shall not be applied if the result would be the application of a
procedural or substantive law of another state or other jurisdiction and (b)
certain rights of the Investor Partners may be governed by the laws of their
state of residence.
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Section 11.9 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors, and assigns; provided, however, that no
Partner may sell, assign, transfer, or otherwise dispose of all or any part of
his rights or interest in the Partnership or under this Agreement except as
provided in Article VIII.
Section 11.10 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be an original and all of which shall
constitute but one and the same document. The signature of any Investor Partner
on the Subscription Documents shall constitute the execution of this Agreement
by such Investor Partner.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MANAGING PARTNER
MEWBOURNE DEVELOPMENT CORPORATION
By:______________________________________
Its:Chief Financial Officer and Treasurer
ORGANIZATIONAL PARTNER
_________________________________________
Curtis W. Mewbourne
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