PAINEWEBBER/GEODYNE ENERGY
INCOME PRODUCTION PARTNERSHIP I-F
AMENDED AND RESTATED AGREEMENT
OF PARTNERSHIP
Amended and Restated Agreement of Partnership, dated as of December 17,
1986, among Geodyne Production Company, a Delaware corporation, and PW
Production Inc., a Delaware corporation, as Managing Partners, and
PaineWebber/Geodyne Energy Income Limited Partnership I-F, an Oklahoma limited
partnership, as General Partner.
Whereas, PaineWebber/Geodyne Energy Income Production Partnership I-F
has heretofore been formed as a general partnership under the Uniform
Partnership Act of the State of Oklahoma pursuant to an Agreement of Partnership
dated as of September 10, 1986; and
Whereas, the parties hereto desire to amend the Agreement of Partnership
of the Production Partnership and to restate said Agreement in its entirety;
Now, Therefore, in consideration of the mutual promises and agreements
made herein, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE ONE
Defined Terms
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The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Article One. The
singular shall include the plural and the masculine gender shall include the
feminine, the neuter and vice versa, as the context requires. Any terms used in
this Agreement which are defined in the Limited Partnership Agreement and are
not otherwise defined herein shall have the respective meanings set forth in the
Limited Partnership Agreement.
"Accountants" shall mean Arthur Young & Company or such other nationally
recognized firm of independent certified public accountants as shall be engaged
from time to time by the Managing Partners for the Production Partnership.
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"Acquisition Reserve Report" shall mean a Hydrocarbon reserve report
made available to the Production Partnership prepared by a qualified petroleum
engineering firm acceptable to the Managing Partners in connection with the
proposed acquisition of a Producing Property, which shall include statements (i)
identifying reserves of Hydrocarbons referred to in such report as Proved
Developed Producing Reserves, Proved Developed Non-Producing Reserves or Proved
Undeveloped Reserves, as the case may be, and identifying all computations and
determinations made for purposes of such report, including, without limitation,
the present and future prices for Hydrocarbons and the present and future costs
to produce and develop such Hydrocarbons used in such computations and
determinations, (ii) with respect to the determination of the nature and extent
of the reserves of Hydrocarbons reflected in such report, that the collection,
analysis and evaluation of the basic physical data upon which such determination
is based were performed by such qualified petroleum engineering firm or if such
data were collected by another Person, that such qualified petroleum engineering
firm has made reasonable inquiry with respect to the methods employed in such
collection and is satisfied that the data so collected may be reasonably relied
upon for the purpose of making the determination reflected in such report, (iii)
specifying the respective amounts of Proved Developed Producing Reserves, Proved
Developed Nonproducing Reserves, or Proved Undeveloped Reserves contained
therein, and (iv) indicating such qualified petroleum engineering firm's opinion
as to the respective estimated present values of future net revenues of each
category of reserves contained therein determined in accordance with criteria
satisfactory to the Managing Partners and otherwise in accordance with sound
engineering and industry practices, including such standards and practices as
may be promulgated by the Society of Petroleum Engineers of the American
Institute of Mining and Metallurgical Engineers. Any such report may state that
such qualified petroleum engineering firm expresses no opinion and makes no
warranty or representation with respect to the proposed acquisition of such
Producing Property and that such qualified petroleum engineering firm is relying
on information furnished by the Managing Partners as to the historical volumes
of any Hydrocarbons actually produced and as to the proposed ownership interest
of the Production Partnership in such Producing Property.
"Act" shall mean the Oklahoma Uniform Partnership Act, as amended from
time to time.
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"Activation" or "Activated" shall mean the date on which (i) with
respect to the Limited Partnership, the subscribers for Units shall have been
admitted to the Limited Partnership as Limited Partners, and (ii) with respect
to the Production Partnership, the Limited Partnership shall have made its
Capital Contribution to the Production Partnership.
"Affiliate" shall mean, when used with reference to a specified Person:
(a) any Person directly or indirectly owning, controlling, or holding with power
to vote 10% or more of the outstanding voting securities of the specified
Person; (b) any Person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held with power to vote by the
specified Person; (c) any Person directly or indirectly controlling, controlled
by, or under common control with, the specified Person; (d) any Person who is an
officer, director, partner or trustee of, or serves in a similar capacity with
respect to, the specified Person or of which the specified Person is an officer,
director, partner or trustee, or with respect to which the specified Person
serves in a similar capacity; and (e) any relative or spouse of the specified
Person. A reference to an Affiliate of the Managing Partners shall include an
Affiliate of either or both of the Managing Partners. Notwithstanding the
foregoing, no Person shall be deemed to be an Affiliate solely by reason of its
ownership of limited partnership interests in a limited partnership.
"Affiliated Program" shall mean a drilling or income program (whether in
the form of a limited partnership, general partnership, joint venture or
otherwise) interests in which were offered to persons or entities not engaged in
a trade or business within the oil and gas industry (other than by virtue of its
participation in an Affiliated Program) and of which a Managing Partner or
Affiliate thereof serves as general partner or venturer.
"Agreement" shall mean this Amended and Restated Agreement of
Partnership as amended from time to time.
"Capital Account" shall mean, as to any Partner, an account maintained
on the books of the Production Partnership in accordance with the provisions of
Section 5.3D below.
"Capital Contribution" shall mean the total amount of money contributed
to the Production Partnership by all Partners or any class of Partners or any
one Partner (or the predecessor
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holders of the Interests of such Partner or Partners), as the context requires,
net of any refunds pursuant to Section 3.4 of this Agreement.
"Code" shall mean the Internal Revenue Code of 1954, as amended (or any
corresponding provisions of succeeding law).
"Commercial Well" shall mean any Production Partnership Well which is
capable of producing Hydrocarbons in commercial quantities, including those
wells which are shut-in or which have not been abandoned within 60 days
following the commencement of production. For purposes of this definition,
production shall refer to the commencement of the commercial marketing of
Hydrocarbons, and shall not include any spot sales of Hydrocarbon production as
a result of testing procedures.
"Consent" shall mean the consent of a Person, given as provided in
Section 11.1, to do the act or thing for which the consent is solicited, or the
act of granting such consent, as the context may require.
"Development Drilling" shall mean all drilling and completing, or
plugging and abandoning (after a determination that a well is not a Commercial
Well), of a Production Partnership Well to a reservoir on a Lease or an offset
Lease, from which reservoir production is being obtained or, as determined by an
independent petroleum engineering firm, is anticipated to be obtainable in
commercial quantities, or the recompletion of an existing Production Partnership
Well; provided, however, that Development Drilling shall not include any
Identified Development Drilling.
"Direct Administrative Costs" shall mean the actual and necessary direct
costs attributable to services provided to the Production Partnership by parties
other than the Managing Partners or their Affiliates, whether incurred by the
Production Partnership directly or incurred by any of the Managing Partners or
their Affiliates, including the annual audit fees, legal fees and expenses, the
costs of reviewing tax returns and reports, the cost of reserve reports (other
than the cost of Acquisition Reserve Reports, Engineering Audit Letters and
evaluations thereof conducted on behalf of a Production Partnership) prepared by
independent petroleum engineering firms, and all other such costs directly
incurred by or for the benefit of the Production Partnership.
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"Distributable Cash" shall mean, with respect to the Production
Partnership's operations at any time, the amount of cash assets on hand at such
time less amounts required to be retained out of such cash assets, in the sole
judgment of the Managing Partners, to pay costs, expenses or other obligations
whether then accrued or anticipated to accrue in the future.
"Engineering Audit Letter" shall mean a document prepared by a qualified
petroleum engineering firm acceptable to the Managing Partners in connection
with the proposed acquisition of a Producing Property, which shall include
statements indicating that (i) such qualified petroleum engineering firm has
reviewed an oil and gas reserve report prepared by the engineering staff of
Geodyne Resources, Inc. or an Affiliate, (ii) in the opinion of such qualified
petroleum engineering firm, the reserve report was prepared in accordance with
sound engineering and industry practices, including such standards and practices
as may be promulgated by the Society of Petroleum Engineers of the American
Institute of Mining and Metallurgical Engineers, and (iii) with respect to the
determination of the nature and extent of the reserves of Hydrocarbons reflected
in such report, such qualified petroleum engineering firm has made reasonable
inquiry with respect to the methods employed in the collection, analysis and
evaluation of the basic physical data upon which such determination is based and
is satisfied that the data so collected may be reasonably relied upon for the
purpose of making the determination reflected in such report.
"Farmout" shall mean an arrangement whereby the owner of a Lease or
Working Interest agrees to assign his interest in certain specific acreage to
the assignee, retaining some interest such as an overriding royalty interest,
oil and gas payment, offset acreage or other type of interest, subject to the
drilling of one or more specific wells or other performance as a condition of
the assignment.
"Fiscal Year" shall mean the calendar year.
"General and Administrative Costs" shall mean all customary and routine
legal, accounting, data processing, depreciation, geological, engineering,
travel, office rent, telephone, secretarial, expense reimbursements of members
of the Management Committee when acting on Production Partnership business,
employee compensation and benefits, and other items of a general and
administrative nature, whether like or unlike the foregoing, and any other
incidental reasonable expenses
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reasonably necessary to the conduct of the Production Partnership's business,
computed on a cost basis, determined by the Managing Partners in accordance with
generally accepted accounting principles and reviewed by an independent public
accountant or certified public accountant. General and Administrative Costs
shall not include any costs includable under the foregoing but which are
included as Property Acquisition Costs, Direct Administrative Costs, cost
incurred in connection with Development Drilling, Identified Development
Drilling and Improved Recovery projects, or Operating Costs.
"General Partner" shall mean PaineWebber/Geodyne Energy Income Limited
Partnership I-F, an Oklahoma limited partnership, acting in such capacity, any
successor in that capacity, and any other General Partner admitted to the
Production Partnership pursuant to the provisions of this Agreement subsequent
to the Activation of the Production Partnership.
"Geodyne Production" shall mean Geodyne Production Company, a Delaware
corporation.
"Hydrocarbons" shall mean crude oil, natural gas, condensate, natural
gas liquids and other liquid or gaseous hydrocarbons.
"Identified Development Drilling" shall mean all drilling and
completing, or plugging and abandoning (after a determination that a well is not
a Commercial Well), of a Production Partnership Well drilled by or on behalf of
the Production Partnership to a reservoir on a Lease or an offset Lease
constituting all or a portion of a Producing Property or the recompletion of an
existing Production Partnership Well, where (i) the drilling or recompletion of
such Production Partnership Well commences after the acquisition of such
Producing Property by the Production Partnership and is conducted in order to
commence production of Hydrocarbons from Proved Undeveloped Reserves identified
in the Acquisition Reserve Report or Engineering Audit Letter prepared in
connection with such Producing Property, (ii) the costs of development of the
Proved Undeveloped Reserves were taken into account in such Acquisition Reserve
Report or Engineering Audit Letter in valuing such Proved Undeveloped Reserves
attributable to such Producing Property, and (iii) a portion of the cost paid by
the Production Partnership for such Producing Property is attributed by such
Acquisition Reserve Report or Engineering Audit Letter to such Proved
Undeveloped Reserves. The term, Identified Development Drilling, shall also
refer to any
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Production Partnership Wells drilled or recompleted on a Producing Property
subsequent to the initial Identified Development Drilling conducted on such
Producing Property in order to commence production of Hydrocarbons from Proved
Undeveloped Reserves (in addition to those identified in the related Acquisition
Reserve Report or Engineering Audit Letter) which have been categorized by the
Managing Partners as Proved Undeveloped Reserves by virtue of production
obtained from prior Identified Development Drilling conducted on such Producing
Property. Any reference to costs incurred in connection with Identified
Development Drilling shall include the interest, commitment fees and other
financing charges and expenses of Production Partnership borrowings incurred to
finance Identified Development Drilling.
"Improved Recovery" shall mean all methods of supplementing natural
forces and mechanisms of primary recovery or otherwise increasing the ultimate
recovery from a Production Partnership Well, including, but not limited to,
water flooding, pressure maintenance, gas cycling, fluid injection, polymer
flooding, chemical flooding, and the use of miscible displacement fluids.
"Incapacity" or "Incapacitated" shall mean the adjudication of
bankruptcy (except that, in the case of a Managing Partner, the term
"bankruptcy" shall mean only being subject to Chapter 7 of the Federal
Bankruptcy Reform Act of 1978), of interdiction, of incompetence, or of
insanity, or the death, dissolution or termination (other than by merger or
consolidation under which the surviving entity agrees to assume all of the
obligations and responsibilities of the merged or consolidated Person set forth
in this Agreement), as the case may be, of any Person.
"Income" shall mean the gross income of the Production Partnership
(other than Investment Income) as determined for Federal income tax purposes,
including all capital or Code Section 1231 gains (but not losses) of the
Production Partnership.
"Interest" shall mean the entire ownership interest (which may, either
for a Partner's Capital Account or a Partner's Profits interest, be expressed as
a percentage) of a Partner in the Production Partnership at any particular time,
including the rights and obligations of such Partner under this Agreement and
the Act.
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"Investment Income" shall mean all interest and dividend income earned
on temporary investments of the Production Partnership at any time prior to the
time at which an amount equal to the Capital Contributions to the Production
Partnership available for the acquisition of Producing Properties have been (i)
expended or (ii) returned pursuant to Section 3.4 of this Agreement.
"Lease" shall mean a lease, mineral interest, royalty or overriding
royalty covering Hydrocarbons (or a contractual right to acquire such an
interest), or an undivided interest therein or portion thereof, together with
all easements, permits, licenses, servitudes and rights-of-way situated upon, or
used or held for future use in connection with, the exploration, development or
operation of such interest.
"Limited Partners" shall mean the limited partners of the Limited
Partnership or any substituted limited partners thereof.
"Limited Partnership" shall mean the PaineWebber/Geodyne Energy Income
Limited Partnership I-F, an Oklahoma limited partnership.
"Limited Partnership Agreement" shall mean the agreement under which the
Limited Partnership was formed, as amended and restated.
"Management Committee" shall mean the committee, composed of two
representatives from each Managing Partner, established for the purposes set
forth in Sections 4.lC and 4.2A(iii) of this Agreement.
"Management Fee" shall mean the fee paid by the Production Partnership
to the Managing Partners pursuant to Section 5.2(l) of this Agreement in
connection with their management of the affairs of the Production Partnership.
"Managing Partners" shall mean Geodyne Production Company, a Delaware
corporation, and PW Production, Inc., a Delaware corporation, and any other
Person admitted as additional or Substituted Managing Partner pursuant to
Article Six of this Agreement.
"Notification" shall mean a writing, containing the information required
by this Agreement to be communicated to any Person, hand delivered or sent by
registered or certified mail, return receipt requested, postage prepaid, to such
Person at the
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last known address of such Person, the date of the certified receipt (or such
other evidence of receipt) therefor being deemed the date of the giving of
Notification; provided, however, that any written communication containing the
information sent or delivered to the Person and actually received by the Person
shall constitute Notification for all purposes of this Agreement.
"Operating Costs" shall mean all expenditures made and costs incurred by
the Production Partnership with respect to (i) the production and marketing of
Hydrocarbons from completed Production Partnership Wells, including labor, fuel,
repairs, hauling, materials, supplies, utility charges and other costs incident
to or therefrom, costs of maintaining inventories incidental to the operations
of Producing Properties, costs of making transfers of lease and well equipment
to and from Production Partnership Wells, ad valorem and severance taxes,
insurance and casualty loss expense, and compensation to well operators or
others for services rendered in conducting such operations; (ii) the interest,
commitment fees and other finance charges and expenses of Production Partnership
borrowings incurred in connection with Development Drilling and Improved
Recovery Projects; and (iii) processing facilities, pipelines, gas sales
facilities, Improved Recovery projects, and other procedures and facilities
necessary to produce efficiently the Hydrocarbon reserves from a Producing
Property, all to the extent such costs and expenditures are not Property
Acquisition Costs.
"Organization and Offering Costs" shall mean all costs and expenses
incurred by the Managing Partners in connection with the organization of the
Production Partnership, including, without limitation, the legal, printing,
accounting and other costs incurred in connection with the organization of the
Production Partnership, including, without limitation, the legal, printing,
accounting and other costs incurred in connection with preparing, filing and
recording this Agreement.
"Partner" shall mean any Managing Partner or any General Partner of the
Production Partnership.
"Payout" shall mean that time at which cash distributions have been made
by the Limited Partnership to the Limited Partners pursuant to Section 5.1 of
the Limited Partnership Agreement (together with any distributions to such
Limited Partners pursuant to Section 3.4 of the Limited Partnership
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Agreement), in an aggregate amount equal to the Limited Partners' Capital
Contributions to the Limited Partnership.
"Person" shall mean any individual, partnership, corporation, trust or
other entity.
"Prior Production Partnership" shall mean a general partnership of which
PW Production and Geodyne Production are managing partners, and a limited
partnership, of which units of limited partnership interest were offered
pursuant to the Prospectus, is the other general partner, formed prior to the
Activation of the Production Partnership.
"Producing Property" shall mean any property (or interest in such
property) with a well or wells capable of producing Hydrocarbons in commercial
quantities or properties unitized with such properties or properties adjacent to
such properties which are acquired as an incidental part of the acquisition of
such properties. The term also includes well machinery and equipment, gathering
systems, storage facilities or processing installations or other equipment and
property associated with the production of Hydrocarbons. Interests in properties
may include Working Interests, production payments, Royalties and other
nonworking and nonoperating interests.
"Production Partnership" shall mean the general partnership governed
under and pursuant to this Agreement, as said general partnership may from time
to time be constituted.
"Production Partnership Account" shall mean the bank account or accounts
maintained by the Managing Partners pursuant to Section 9.3.
"Production Partnership Property" shall mean any interest, property and
right of any type owned by the Production Partnership.
"Production Partnership Well" shall mean any well in which the
Production Partnership has an interest.
"Profits" and "Losses" shall mean the income or losses of the Production
Partnership for Federal income tax purposes determined as of the close of the
Production Partnership's Fiscal Year, as well as, when the context requires, any
tax-exempt income and nondeductible expenses.
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"Property Acquisition Costs" shall mean, without duplication, the sum of
(1) the prices paid by the Production Partnership or a Managing Partner or an
Affiliate to acquire a Producing Property ultimately sold to the Production
Partnership, including the price paid to acquire a purchase option with respect
to a Producing Property, lease bonuses and equipment costs associated therewith;
(2) title insurance or examination costs, transfer taxes, if any, and like
charges in connection with the acquisition of Producing Properties; (3) delay
rentals and ad valorem taxes paid by the seller with respect to such property to
the date of its transfer to the buyer; (4) interest actually incurred by the
Managing Partners or their Affiliates to acquire or maintain such Producing
Properties prior to their transfer to the Production Partnership; and (5) such
portion of the Managing Partners' or Affiliates' reasonable, necessary and
actual expenses for geological, geophysical, seismic, land, engineering,
drafting, accounting, auditing, legal and other like services, including the
Production Partnership's costs incurred (to the extent consistent with generally
accepted industry standards) in connection with the Production Partnership's
review of proposed acquisitions of Producing Properties, Reports and Engineering
Audit Letters, all allocated to the property in accordance with the allocation
procedures used by the Managing Partners, any of their Affiliates or the
Production Partnership; provided that the portion of the Managing Partner's or
Affiliates' expenses allocated to the property, as set forth in items (3), (4)
and (5), shall have been incurred not more than 36 months prior to the property
transaction.
"Prospect" shall mean an area in which the Production Partnership owns
or intends to own one or more oil and gas interests, which is geographically
defined on the basis of geological data by the Managing Partners and which is
reasonably anticipated by the Managing Partners to contain at least one
reservoir.
"Prospectus" shall mean the prospectus pursuant to which the Units were
offered, and all supplements or amendments thereto, if any.
"Proved Reserves" shall mean those quantities of Hydrocarbons, which,
upon analysis of geologic and engineering data, appear with reasonable certainty
to be recoverable in the future from known Hydrocarbon reservoirs under existing
economic and operating conditions. Proved reserves are limited to those
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quantities of Hydrocarbons which can be expected, with little doubt, to be
recoverable commercially at current prices and costs, under existing regulatory
practices and with existing conventional equipment and operating methods.
Depending upon their status of development, such proved reserves shall be
subdivided into the following classifications and have the following
definitions:
(a) "Proved Developed Reserves" shall mean proved reserves which
can be expected to be recovered through existing wells with existing
equipment and operating methods. This classification shall include:
(1) "Proved Developed Producing Reserves" which are proved
developed reserves which are expected to be produced from existing
wells; and
(2) "Proved Developed Nonproducing 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 Hydrocarbons
available for production should be relatively small compared to
the cost of a new well.
Additional Hydrocarbons expected to be obtained through the
application of improved recovery techniques are included as "Proved
Developed Reserves" only after testing by a pilot project or after the
operation of an installed program has confirmed through production
responses that increased recovery will be achieved.
(b) "Proved Undeveloped Reserves" shall mean all reserves which
are expected to be recovered from new 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 production from an existing productive
formation. No estimates for Proved Undeveloped Reserves are attributable
to any acreage for which improved recovery is contemplated, unless the
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techniques to be employed have been proved effective by actual tests in
the same area and reservoir.
"PW Production" shall mean PW Production Inc., a Delaware corporation.
"Remove", "Removed" or "Removal" shall mean, with reference to the
removal of a Managing Partner, the termination of the management powers, duties
and responsibilities of such Managing Partner pursuant to Section 6.2 of this
Agreement and the removal of such Managing Partner as a Partner.
"Royalty" shall mean an interest, including an overriding royalty and a
net profits interest, in gross production or the proceeds therefrom which does
not require the owner thereof to bear any of the cost of production,
development, operation or maintenance.
"Sale" shall mean any event or transaction that is, for Federal income
tax purposes, considered a sale, exchange or abandonment by the Production
Partnership of any Production Partnership Property.
"State" shall mean the State of Oklahoma.
"Subscription Agreement and Power of Attorney" shall mean the
Subscription Agreement and Power of Attorney in the form attached to the
Prospectus.
"Substituted Partner" shall mean any Person admitted to the Production
Partnership as a Partner pursuant to Sections 7.3 and 10.2 of this Agreement.
"Unit" shall mean a $1,000 investment in the Limited Partnership by a
Limited Partner pursuant to the terms of a Subscription Agreement and Power of
Attorney; provided, however, that fractional Units may be acquired to the extent
provided under Section 5.lB of the Limited Partnership Agreement.
"Working Interest" shall mean the interest (whether held directly or
indirectly) in a Lease which is subject to some portion of the expense of
production, development, operation or maintenance.
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ARTICLE TWO
Continuation; Name, Place of Business and Office; Term
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Section 2.1. Continuation
--------------------------
The parties hereto hereby continue the general partnership heretofore
formed pursuant to the provisions of the Act and the rights and liabilities of
the Partners shall be as provided in the Act, except as otherwise expressly
provided in this Agreement.
Section 2.2. Name, Place of Business and Office, Agent
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The Production Partnership shall be conducted under the name
PaineWebber/Geodyne Energy Income Production Partnership I-F. The business of
the Production Partnership may, however, be conducted under any other name
deemed necessary or desirable by the Managing Partners in order to comply with
applicable laws. The office and principal place of business of the Production
Partnership shall be c/o Geodyne Production Company, 320 South Boston Avenue,
The Mezzanine, Tulsa, Oklahoma 74103-3708. The Managing Partners shall record an
assumed name or fictitious name certificate in the State and in each state in
which it owns property or transacts business when deemed necessary by the
Managing Partners.
The Managing Partners may change the principal place of business and the
location of such office and may establish such additional offices as they deem
advisable from time to time; provided, however, that in the event the principal
place of business of the Production Partnership shall be changed, the Managing
Partners shall give written notice thereof to the Limited Partners.
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Section 2.3 Purpose
---------------------
The business and purpose of the Production Partnership shall be to
acquire, own, hold, operate, explore, develop, trade, sell and exchange
Hydrocarbon properties and interests therein of all kinds onshore and offshore
in the continental United States, including, without limitation, interests in
general or limited partnerships, joint ventures and other entities that hold or
are formed to acquire interests in such properties or interests; to engage in
development drilling and enhanced recovery operations thereon, to produce,
transport, market, purchase and trade Hydrocarbons and products thereof; to
purchase, lease, own, hold, operate, sell and exchange all equipment, machinery,
facilities, systems and plans necessary or appropriate for such purposes; and to
do any and all things necessary or proper in connection with or incident to the
foregoing activities.
Section 2.4. Term
------------------
The Production Partnership shall continue in force and effect until
December 31, 1999, provided that the Management Committee may extend such term
for up to five periods of two years each, or until dissolution prior thereto
pursuant to the provisions hereof.
ARTICLE THREE
Partners and Capital
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Section 3.1. Managing Partners
-------------------------------
A. The names, addresses and Capital Contributions of the Managing
Partners are set forth in Schedule A attached hereto and are incorporated
herein. The Managing Partners shall not be required to make any Capital
Contribution except as set forth in Sections 3.lB, 3.4 and 8.2C.
B. The Managing Partners shall also contribute an amount of cash
sufficient to pay their share of costs allocated to them pursuant to Section 5.3
of this Agreement to the extent that the amount of Income allocated to them
(and/or the amount of Production Partnership borrowings incurred on their
behalf) is insufficient to pay such costs.
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Section 3.2. Other General Partner
-----------------------------------
The name, address and Capital Contribution of the Limited Partnership
are set forth in Schedule A attached hereto and are hereby incorporated herein.
Section 3.3. Application of Capital Contributions
--------------------------------------------------
The Managing Partners shall deposit in the Production Partnership
Account the Capital Contributions of the Limited Partnership and the Managing
Partners and apply such Capital Contributions to the payment of Organization and
Offering Costs and the Management Fee. The balance of such Capital Contributions
shall be held in the Production Partnership Account to be applied to the payment
of Property Acquisition Costs and, to the extent not payable out of Income or
Investment Income, Operating Costs, General and Administrative Costs, Direct
Administrative Costs and other Production Partnership costs; provided, however,
that such funds may be temporarily invested prior to the payment of such costs
in accordance with Section 9.3 of this Agreement.
Section 3.4. Certain Returns of Capital
----------------------------------------
Any portion of the Capital Contribution of the Limited Partnership
(except for necessary operating capital) that has not been expended or that is
not, or in the determination of the Managing Partners, will not be committed for
expenditure by the second anniversary of the Activation of the Production
Partnership will promptly be refunded to the Limited Partnership as a return of
part of its Capital Contribution at the earlier of such determination or the
second anniversary of the Activation of the Production Partnership. Such funds
will be deemed to have been committed for expenditure by such date to the extent
they are payable under contractual agreements or understandings in effect on
such date, or have been applied to a reasonable working capital reserve or have
been set aside as a condition to obtaining any financing in the form of a
compensating balance or similar arrangement. In addition, the Managing Partners
shall contribute cash to the Production Partnership (with respect to which their
Capital Accounts will be credited) in an amount equal to the amount paid to the
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Managing Partners in respect of the Management Fee attributable (on a
proportionate basis) to the unexpended amount of Capital Contributions so
refunded, which cash shall be refunded to the Limited Partnership together with
the unexpended Capital Contributions so refunded. Geodyne Production and PW
Production shall be responsible for the obligation of the Managing Partners to
contribute cash to the Production Partnership pursuant to this Section 3.4 in
the relative percentages which they allocated between themselves the payment of
the Management Fee pursuant to Section 5.2. All amounts so refunded to the
Limited Partnership shall reduce dollar for dollar its Capital Account.
Section 3.5. Production Partnership Capital
--------------------------------------------
A. No Partner shall be paid interest on any Capital Contribution to the
Production Partnership or on such Partner's Capital Account, notwithstanding any
disproportion therein as between Partners.
B. The Production Partnership shall not redeem any Partner's Interest.
Except as provided in Sections 3.4, 6.1, 6.2 and 8.2 of this Agreement, no
Partner shall have the right to withdraw or receive any return of the Capital
Contribution. Under circumstances involving a return of any Capital
Contribution, no Partner shall have the right to receive any property other than
cash, except as may otherwise be provided in Sections 6.1, 6.2 and 8.2 of this
Agreement.
Section 3.6. Liability of Partners
-----------------------------------
Each Partner signatory hereto or subsequently admitted to the Production
Partnership agrees that it shall remain generally liable for any obligation or
recourse liability of the Production Partnership incurred during the period in
which it is a Partner. However, all present and future Partners hereby agree
among themselves to contribute to each other the amount of funds necessary to
effectuate a sharing of such Production Partnership obligations and recourse
liabilities in proportion to each Partner's share of such obligations and
liabilities at the time of their accrual.
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ARTICLE FOUR
Rights, Powers and Duties of
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The Managing Partners
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Section 4.1. Management and Control of the Production Partnership
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A. Subject to Section 4.lC of this Agreement and to the Consent of the
Limited Partnership as and when required by this Agreement, the Managing
Partners, within the authority granted to them under and in accordance with the
provisions of this Agreement, shall have the full and exclusive right to manage
and control the business and affairs of the Production Partnership and to make
all decisions regarding the business of the Production Partnership and shall
have all of the rights, powers and obligations of managing general partners of a
general partnership under the laws of the State. The Managing Partners shall
exercise those powers as a fiduciary to the Limited Partnership.
B. No other Partner shall participate in the management of or have any
control over the Production Partnership's business nor shall any other Partner
have the power to represent, act for, sign for or bind the Managing Partners or
the Production Partnership. The Limited Partnership hereby Consents to the
exercise by the Managing Partners of the powers conferred on them by this
Agreement.
C. The Managing Partners' management authority with respect to
significant Production Partnership actions shall be exercised by the Management
Committee, including without limitation such actions as: (i) the acquisition of
a Producing Property or an option to purchase a Producing Property, provided
that Geodyne Production shall have the authority to acquire
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Producing Properties and options to acquire Producing Properties without the
approval of the Management Committee, provided further that (a) Geodyne
Production does not expend an aggregate amount of Production Partnership funds
with respect to the acquisition of Producing Properties whose aggregate
acquisition price, together with the anticipated aggregate acquisition price of
Producing Properties subject to such purchase options, is in excess of 20% of
the Limited Partnership's Capital Contribution, and (b) no single acquisition of
Producing Properties by Geodyne Production pursuant to this proviso shall exceed
10% of the Limited Partners' capital contributions to the Limited Partnership;
(ii) the incurrence of indebtedness; (iii) the determination of the amount of
and the distribution of Distributable Cash to the Partners; (iv) the engaging in
and making decisions with respect to any Development Drilling, Identified
Development Drilling and Improved Recovery operations; (v) the sale or other
transfer of any Producing Property that constitutes a significant portion of the
assets of the Production Partnership; and (vi) the determination not to extend
the term of the Production Partnership as set forth in Section 2.4 of this
Agreement. The Management Committee shall have the power to delegate its
management authority with respect to any "significant" action to a Managing
Partner at such times and under such conditions as it may decide in its own
discretion.
The Managing Partners' management authority respecting all other actions
which are in the ordinary course of the Production Partnership's operations may
be exercised by either Managing Partner without the concurrence of the other
Managing Partner, provided that the Managing Partner exercising such management
authority shall, upon inquiry by the other Managing Partner, notify the
inquiring Managing Partner of the nature of such actions undertaken without the
concurrence of the inquiring Managing Partner. The Management Committee shall
have the authority (i) to determine that the "significant" actions specified
herein shall no longer be "significant" actions for the purposes of this Section
4.1C and to amend this Agreement pursuant to Section l0.1A of this Agreement to
reflect such determination, and (ii) to determine which other Production
Partnership operations, other than those specified herein, are "significant"
actions for purposes of this Section 4.1C.
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Section 4.2. Authority of the Managing Partners
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A. In addition to any other rights and powers which the Managing
Partners may possess under this Agreement and the Act, the Managing Partners
shall, except and subject to the extent otherwise provided or limited in this
Agreement, have all specific rights and powers required or appropriate to their
management of the Production Partnership's business which, by way of
illustration but not by way of limitation, shall include the following rights
and powers to:
(i) expend the Capital Contributions of the Partners and apply
Production Partnership revenues, subject to Section 4.3C of this
Agreement, in furtherance of the business of the Production Partnership;
(ii) acquire, explore, develop, manage and operate Hydrocarbon
properties and interests therein (including interests in corporations and
partnerships owning Hydrocarbon properties if in the Managing Partners'
judgment such purchase is a necessary or advisable step in acquiring
interests in producing properties held by any such corporation or
partnership, provided, no such purchase will be made for the purpose of
investment in the securities of any such corporation or partnership, the
Production Partnership will not conduct or participate in a hostile tender
offer, and no such purchase will be made unless there is assurance that
sufficient control of the corporation or partnership can be obtained in
the initial acquisition to liquidate it, and it is determined the purchase
would not thereby render the Production Partnership an investment company
within the meaning of the Investment Company Act of 1940, and provided
further the Production Partnership's interest in the underlying assets of
any such corporation or partnership is distributed as soon as practical
thereafter to the Production Partnership in redemption for the Production
Partnership's interest in such corporation or partnership) of all kinds
and acquire units of limited partnership interest tendered to the General
Partners pursuant to the terms of any right of presentment of a Prior
Limited Partnership (as defined in the Limited Partnership Agreement)
(provided that the Production Partnership shall not expend an aggregate
amount in excess of 10% of the Limited Partnership's Capital Contribution
to acquire such units) and hold all such property, interests and units in
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the name of the Production Partnership; provided, however, that in
connection therewith, the Managing Partners shall, contemporaneously with
the acquisition of a Producing Property, or as soon as practicable
thereafter, file or cause to be filed for recordation an appropriate
conveyance or agreement evidencing the Production Partnership's interest
in such Producing Property in the jurisdiction where such Producing
Property is located pursuant to such jurisdiction's Uniform Commercial
Code and/or in the real property records of the clerk or recorder of the
county in which the Producing Property is situated; and, provided,
further, that filings of such conveyances or agreements shall also be made
as the Managing Partners believe necessary to establish the Production
Partnership's priority of interest; and, provided, further, Producing
Properties may be held temporarily in the name of a nominee for the
Production Partnership if such action is deemed necessary by the Managing
Partners to facilitate acquisition;
(iii) execute such instruments and agreements, to do such acts, to
employ such persons and to contract for such services as the Managing
Partners determine are necessary or appropriate to conduct the Production
Partnership's business, including (x) the employment of any Managing
Partner or any Affiliate as an operator, (y) the entering into management
and advisory contracts, and (z) the establishment of the Management
Committee to exercise, pursuant to Section 4.lC of this Agreement, or
supervise the exercise of the Managing Partners' powers set forth in this
Agreement, subject to any restrictions contained in the Act and in this
Agreement, and to provide for any reasonable compensation to be paid to
the Persons comprising the Management Committee pursuant to such contracts
as the Managing Partners shall deem necessary and appropriate;
(iv) execute, in the name of the Production Partnership, contracts
for the sale of Hydrocarbons and division orders and transfer orders as
necessary or incident to the sale of production on behalf of the
Production Partnership;
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(v) produce, treat, transport and market Hydrocarbons, execute
processing contracts, transportation contracts, and enter into contracts
for the marketing or sale of Hydrocarbons and other marketing agreements
in the name of the Production Partnership, whether or not extending beyond
the term of the Production Partnership;
(vi) execute offers for United States and any state Leases on behalf
of the Production Partnership; execute and file requests for approval of
assignments of interests in United States and any state Leases, together
with any and all contracts for the option, sale or purchase of such Leases
or the sale or purchase of any products therefrom; to execute any plans of
development under unit agreements, conveyances, subleases, mortgages,
deeds of trust, affidavits or reports concerning the drilling of wells and
production, designations of operator, Lease bonds, operator's bonds and
consents of surety; and in general to do all things necessary or desirable
on behalf of the Production Partnership regarding any United States or
state Leases or offers therefor; provided, however, that the Production
Partnership shall have the authority to acquire or otherwise deal with any
such interests respecting Leases located in "offshore waters" (as that
term is generally understood in the oil and gas industry) only on the
condition that the Production Partnership shall not participate in any
Development Drilling or Identified Development Drilling in "offshore
waters" which are not state-owned waters;
(vii) enter into any partnership agreement, sharing arrangement, or
joint venture with any Person acceptable to the Managing Partners and
which is engaged in any business or transaction in which the Production
Partnership is authorized to engage, provided that the Production
Partnership shall not be deemed thereby to be an "investment company" for
purposes of the Investment Company Act of 1940, as amended;
(viii) enter into and execute drilling contracts, Farmout
agreements, operating agreements, unitization agreements, pooling
agreements, unit or pooling designations, recycling contracts, dry hole,
bottom hole and acreage contribution letters and agreements, participation
agreements, agreements and conveyances respecting rights-of-way,
agreements respecting surface and
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subsurface storage and any other agreements customarily employed in the
oil and gas industry in connection with the acquisition, exploration,
development, operation, or abandonment of any Leases, and any and all
other instruments or documents considered by the Managing Partners to be
necessary or appropriate to conduct the business of the Production
Partnership;
(ix) pay or elect not to pay delay rentals on Production Partnership
Properties as appropriate in the judgment of the Managing Partners, it
being understood that the Managing Partners will not be liable for failure
to make correct or timely payments of delay rentals if such failure was
due to any reason other than negligence or lack of good faith;
(x) subject to Section 4.3B of this Agreement, abandon or otherwise
dispose of any interest in Hydrocarbon properties acquired for the
Production Partnership upon such terms and for such consideration as the
Managing Partners may determine;
(xi) sell production payments payable out of all or any part of any
one or more of the Producing Properties acquired by the Production
Partnership and to devote and expend the proceeds of any such sale for any
of the purposes of the Production Partnership for which the proceeds of
borrowings may be applied;
(xii) borrow monies from time to time, for the purpose and subject
to the limitations stated in Section 4.3C of this Agreement, in the form
of recourse or nonrecourse borrowings, or otherwise to draw, make, execute
and issue promissory notes and other negotiable or nonnegotiable
instruments and evidences of indebtedness, and to secure the payments of
the sums so borrowed and to mortgage, pledge, or assign in trust all or
any part of Production Partnership Property, including Producing
Properties, production and proceeds of production, or to assign any monies
owing or to be owing to the Production Partnership, and to engage in any
other means of financing customary in the petroleum industry; provided,
however, that a creditor who makes a nonrecourse loan to the Production
Partnership shall not have or acquire, at any time as a result of making
the loan, any direct or indirect interest in the profits, capital, or
property of the Production Partnership other than as a secured creditor;
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(xiv) invest Capital Contributions temporarily in the investments
set forth in Section 9.3 of this Agreement;
(xv) employ on behalf of the Production Partnership agents,
employees, accountants, lawyers, geologists, geophysicists, landpersons,
clerical help, and such other assistance and consulting and other services
as may deem necessary or convenient and to pay therefor such remuneration
as the Managing Partners may deem reasonable and appropriate;
(xvi) 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 Production Partnership, purchase and establish adequate inventories of
equipment and material required or expected to be required in connection
with its operations, dispose of tangible lease and well equipment for use
or used in connection with Production Partnership Property, 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 Production
Partnership;
(xvii) 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
Partners may deem advisable or appropriate;
(xviii) guarantee the payment of money or the performance of any
contract or obligation by any person, firm, or corporation on behalf of
the Production Partnership;
(xix) sue and be sued, complain and defend in the name and on behalf
of the Production Partnership;
(xx) make such classifications and determinations as the Managing
Partners deem advisable, having due regard for any relevant generally
accepted accounting principles and oil and gas industry practices;
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(xxi) purchase insurance, or extend the Managing Partners' or their
Affiliates' insurance, at the Production Partnership's expense, to protect
the Production Partnership Property and the business of the Production
Partnership against loss, and to protect the Managing Partners against
liability to third parties arising out of Production Partnership
activities, such insurance to be in such limits, to be subject to such
deductibles and to cover such risks as the Managing Partners deem
appropriate;
(xxii) pay all ad valorem taxes levied or assessed against the
Production Partnership Properties, all taxes upon or measured by the
production of Hydrocarbons therefrom, and all other taxes (other than
income taxes) directly related to operations conducted by the Production
Partnership;
(xxiii) enter into agreements on behalf of the Production
Partnership with Affiliates subject to the limitations set forth in
Section 4.3B of this Agreement;
(xxiv) sell all or substantially all of the properties and other
assets of the Production Partnership to themselves, or any of their
Affiliates or any other person and to receive for the Production
Partnership consideration consisting of cash, securities, other property
or any other form of consideration, or any combination thereof, at such
prices and for such forms of consideration as they deem in the best
interests of the Limited Partners; provided, however, that no such sale
shall be consummated without the prior Consent of the Limited Partnership
pursuant to the provisions of Section 4.4B of this Agreement. In the event
of the dissolution of the Production Partnership followed by any such sale
of the Production Partnership's assets, the Managing Partners shall,
subject to the provisions of Section 8.2 of this Agreement, be appointed
the liquidating agents for the Production Partnership;
(xxv) make, exercise or deliver any general assignment for the
benefit of the Production Partnership's creditors, but only upon the prior
Consent of the Limited Partnership pursuant to the provisions of Section
4.4B of this Agreement;
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(xxvi) take such other action and perform such other acts as may be
deemed appropriate to carry out the business of the Production
Partnership; and
(xxvii) inform each other Partner of all administrative and judicial
proceedings for an adjustment at the Production Partnership level for
partnership tax items and forward to each other Partner within 30 days of
receipt all notices received from the Internal Revenue Service regarding
the commencement of a partnership level audit or a final partnership
administrative judgment, and Geodyne Production shall perform all duties
imposed by Sections 6221 through 6232 of the Code as the "tax matters
partner" of the Production Partnership, including, but not limited to, the
following: (a) the power to conduct all audits and other administrative
proceedings (including windfall profit tax audits) with respect to
Production Partnership items; the power to extend the statute of
limitations for all Partners with respect to Production Partnership tax
items; and (b) the power to file a petition with an appropriate federal
court for review of a final partnership administrative adjustment. Geodyne
Production shall consult with PW Production with respect to the
performance of its duties as "tax matters partner."
B. Reliance by Third Parties on Managing Partners' Authority. No person,
firm or corporation dealing with the Production Partnership shall be required to
inquire into the authority of the Managing Partners to take or refrain from
taking any action or make or refrain from making any decision, but any person so
inquiring shall be entitled to rely upon a certificate of the Managing Partners
as to their due authorization.
Section 4.3. Sales, Purchases and Operation of Producing Properties;
Additional Financing
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A. Except with respect to Producing Properties whose aggregate purchase
price does not exceed 10% of the Limited Partners' capital contributions to the
Limited Partnership, no Producing Property shall be acquired by the Production
Partnership unless there has been prepared and evaluated with respect thereto
either an Acquisition Reserve Report or an Engineering Audit Letter acceptable
to the Management Committee;
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B. Neither the Managing Partners nor any Affiliate shall sell, transfer or
convey any or all of their interest in Producing Properties to the Production
Partnership or purchase or acquire any oil and gas properties or interest from
the Production Partnership, directly or indirectly, except pursuant to
transactions that are fair and reasonable to the Limited Partnership under the
circumstances at the time such transaction is consummated. Such transactions
shall be further subject to the following restrictions:
(i) Prior to the date on which the Production Partnership has
acquired its final Producing Property, neither the Managing Partners nor
any Affiliate of a Managing Partner (other than an Affiliated Program)
shall acquire any Producing Property after the Activation of the
Production Partnership unless prior thereto the Production Partnership
shall have been offered the right to acquire such Producing Property, or
an interest therein, and the Management Committee shall have determined
that the acquisition of such Producing Property, or an interest therein,
is not in the best interests of the Production Partnership;
(ii) Any purchase or sale of a Producing Property from or to a
Managing Partner or any Affiliate shall be made at the Property
Acquisition Cost for such Producing Property as adjusted for intervening
operations, unless the Managing Partner or such Affiliate has reasonable
grounds to believe that cost is materially more or less than the fair
market value of such property, in which case such sale or purchase shall
be made at a price equal to the fair market value thereof as determined by
an independent petroleum engineer;
(iii) If a Managing Partner sells, transfers or conveys any oil, gas
or other mineral interests or property to the Production Partnership, it
must, at the same time, sell to the Production Partnership an equal
proportionate interest in all its other property in the same Prospect. A
Sale or conveyance to the Production Partnership of less than the entire
ownership interest of a Managing Partner or any Affiliate is only
permitted if: (a) the interests retained or obtained by the Managing
Partners or Affiliate and acquired by the Production Partnership are
either (x) proportionate, uniform and undivided Working Interests if the
Producing Property
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acquired by the Production Partnership is a Working Interest or (y)
proportionate, uniform and undivided Royalty Interests if the Producing
Property acquired by the Production Partnership is a Royalty, (b) the
respective obligations of the Managing Partners or Affiliate and the
Production Partnership are substantially the same, and (c) the interest of
the Managing Partners or their Affiliates in revenues does not exceed the
amount proportionate to their interest. The Managing Partners and their
Affiliates may not retain or obtain any overrides or other burdens on the
interest obtained by the Production Partnership, and may not enter into
any Farmouts with respect to their retained interest, except to
nonaffiliated third parties or to an Affiliated Program;
(iv) In the event a Managing Partner or any Affiliate proposes to
acquire an interest in a Producing Property in which the Production
Partnership has an interest or in a Producing Property abandoned by the
Production Partnership within one year preceding such proposed
acquisition, such Managing Partner or Affiliate shall offer the interest
to the Production Partnership; and if cash or financing is not available
to the Production Partnership to purchase such interest, neither such
Managing Partner nor Affiliate shall acquire an interest in such Producing
Property. The term "abandon" for the purpose of this subparagraph shall
mean the termination, either voluntary or by operation of the Lease or
otherwise, of all of the Production Partnership's interest in the
Producing Property. This subsection shall not apply after the lapse of
five years of the Activation of the Production Partnership or to any
Affiliated Program where the interest of such Managing Partner is less
than or equal to its interest in the Production Partnership, there are no
duplication of fees to the Managing Partners, and the Managing Partners do
not obtain a greater benefit from purchase of the interest by the
Affiliated Program than they would if the interest were purchased by the
Production Partnership;
(v) During the existence of the Production Partnership and before it
has ceased operations, neither Managing Partner nor any Affiliate
(excluding any Affiliated Program where the interest of such Managing
Partner is less than or equal to its interest in the Production
Partnership) shall acquire, retain or drill for its own account any oil
and gas interest in any Prospect
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upon which the Production Partnership possesses an interest, except for
transactions which comply with Section 4.3B(iii) or 4.8 of this Agreement.
The geological limits of a Producing Property owned by the Production
Partnership shall be enlarged or contracted on the basis of subsequently
acquired geological data to define the productive limits of a reservoir
and must include all of the acreage determined by the subsequent data to
be encompassed by such reservoir. If the geological limits of a Producing
Property, as so enlarged, encompass any interest held by either a Managing
Partner or an Affiliate of a Managing Partner (excluding an Affiliated
Program where the interest of such Managing Partner is identical to or
less than its interest in the Production Partnership), such interest shall
be sold to the Production Partnership in accordance with the provisions of
Section 4.3B(iv) of this Agreement and any net income previously received
by the Managing Partner or Affiliate shall be paid over to the Production
Partnership. If a Managing Partner acquires additional acreage or
interests in a Prospect of the Production Partnership, it must sell such
to the Production Partnership and is prohibited from retaining any such
interest, except as may be permitted by Section 4.3B of this Agreement.
Notwithstanding the foregoing, the Production Partnership will not be
required to expend additional funds to acquire any such interest unless
funds are available from the Capital Contributions of the Partners;
(vi) Producing Properties may be sold, Farmed-out or otherwise
transferred from or to an Affiliated Program only pursuant to transactions
that (a) comply with Sections 4.3B(iii) and 4.3B(iv) of this Agreement,
and (b) are in exchange for the transferee's obligation to conduct
exploratory drilling, Development Drilling, Identified Development
Drilling or Improved Recovery operations on such properties or in
connection with the formation of a joint venture among the Production
Partnership and such Affiliated Program, provided that the compensation
arrangement or any other interest or right of the Managing Partners or any
Affiliate is the same in the Production Partnership and Affiliated
Program, or, if different, the aggregate compensation of the Managing
Partners does not exceed the lower of the compensation they would have
received in the Production Partnership or the Affiliated Program, and the
terms of such Sale, Farmout or transfer comply with the provisions of
Section 4.8 of this Agreement;
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(vii) Any Sale of inventory or other materials by the Production
Partnership to any Managing Partner or Affiliate shall be made at the
applicable rates set forth in the standard form of the accounting
procedure then recommended by the Council of Petroleum Accountants
Societies of North America;
(viii) Any operating agreements pursuant to which any Managing
Partner or any Affiliate acts as operator of Producing Properties shall be
of a nature customary in the industry and payments to any Managing Partner
or any Affiliate for acting as operator shall not exceed the compensation
which would be paid by unaffiliated third parties in the same geographic
area for similar goods and services. Reimbursement of the Managing
Partner's overhead pursuant to such operating agreement will not be
duplicative of any reimbursement of General and Administrative Costs made
pursuant to Section 5.2 of this Agreement; and
(ix) To the extent a Managing Partner or any Affiliate acquires an
interest in a Producing Property in which the Production Partnership
acquires an interest, such Managing Partner or Affiliate shall pay its
allocable portion of the cost of the preparation of the Acquisition
Reserve Report or Engineering Audit Letter, as the case may be, respecting
such Producing Property.
C. The Managing Partners may not expend any amount of Production
Partnership funds over the term of the Production Partnership for the payment of
Production Partnership costs (other than recompletion costs) incurred in
connection with Development Drilling and Identified Development Drilling in
excess of 10% of the amount of the Limited Partners' capital contributions to
the Limited Partnership and the Production Partnership borrowings. If the
Managing Partners determine that funds in addition to the Capital Contributions
to the Production Partnership are required for the payment of Production
Partnership costs (other than Property Acquisition Costs), the Managing Partners
may apply or reserve Income or Investment Income for the payment of such
Production Partnership costs and/or the Managing Partners may cause the
Production Partnership to borrow funds for the payment of Production Partnership
costs incurred in connection with Development
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Drilling, Identified Development Drilling and Improved Recovery operations;
provided, however, that the aggregate outstanding principal amount of such
borrowings shall not at any one time exceed an amount equal to 20% of the
Limited Partners' capital contributions to the Limited Partnership.
D. Each Managing Partner shall have the authority to secure the payment
of borrowings incurred by it for its own account or for purposes of paying its
allocable share of Production Partnership costs by assigning to lenders all or
part of its Managing Partner's interest in Profits and Distributable Cash, and
by granting such lenders a security interest or mortgage in an undivided
interest in any Production Partnership Property not to exceed its Managing
Partner's percentage interest in Income; provided, however, that the Managing
Partners, in the aggregate, shall retain unencumbered at least a 1% interest in
each of Production Partnership Property, Profits and Distributable Cash.
Notwithstanding anything to the contrary in this Agreement, in the event of any
sale or foreclosure of a Managing Partner's interest in full or partial
satisfaction of such borrowings, appropriate adjustments shall be made in the
Capital Accounts of the Partners and in the method by which Income and costs are
allocated to the Partners to assure that the Limited Partnership and the other
Managing Partner will not bear any of the costs attributable to such sold or
foreclosed interest and that such Managing Partner will not share or participate
in any of the capital, Income, costs or distributions attributable to such sold
or foreclosed interest except to the extent of the unencumbered interest
retained by such Managing Partner.
Section 4.4. Prohibited Transactions
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A. Notwithstanding any other provision of this Agreement to the contrary,
the following transactions are expressly prohibited:
(i) the Production Partnership shall not make any loans to a
Managing Partner or any Affiliate;
(ii) neither the Managing Partners nor any Affiliate shall make
any loans to the Production Partnership except at a rate of interest not
in excess of the interest cost incurred by the Managing Partners or
Affiliates or the amount of interest that would be charged to the
Production Partnership (without regard to the Managing Partner's or
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Affiliate's financial abilities or guarantees) by unrelated banks on
comparable loans for the same purpose, whichever is lower, and the
Managing Partners and Affiliates shall not receive points or financing
charges or fees regardless of the amount;
(iii) except as expressly contemplated hereby, no agent, attorney,
accountant or other independent consultant or contractor who is also
employed on a full-time basis by any Managing Partner or any Affiliate
shall be compensated by the Production Partnership for his or her
services;
(iv) other than those received for the account of the Production
Partnership, no rebates may be received by any Managing Partner or any
Affiliate in connection with Production Partnership operations or
expenditures, nor may any Managing Partner or any Affiliate participate in
any reciprocal business arrangement that would circumvent any of the
provisions of this Agreement;
(v) on a monthly basis, costs paid and revenues received by a
Managing Partner or an Affiliate for the account of the Production
Partnership shall be determined and the net amount resulting from such
monthly settlement shall be deposited into a Production Partnership
Account and no funds which, after such monthly settlement, are determined
to be held for the account of the Production Partnership shall be kept in
any account other than a Production Partnership Account, and the Managing
Partners shall not employ, or permit any other Person to employ, such
funds in any manner except for the benefit of the Production Partnership;
it being understood that the Managing Partners may invest Production
Partnership funds temporarily in the investments set forth in Section 9.3
of this Agreement pending their use by the Production Partnership. After
such monthly settlement, Production Partnership funds may not be
commingled with separate funds of either Managing Partner or any other
entity; and
(vi) the Limited Partnership shall not make any advance payment to
the Managing Partners or their Affiliates, except where necessary to
secure tax benefits of prepaid drilling costs.
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B. Notwithstanding any other provision of this Agreement to the contrary,
without the prior Consent of the Limited Partnership granted pursuant to the
provisions of Article Eleven of this Agreement and the provisions of the Limited
Partnership Agreement, the Managing Partners shall not:
(i) lease, sell, or dispose of all or substantially all of the
Production Partnership's assets;
(ii) make, exercise or deliver any general assignment for the
benefit of the Production Partnership's creditors;
(iii) except as set forth in Section l0.1A, amend any provision of
this Agreement; or
(iv) dissolve the Production Partnership.
Section 4.5. Other Agreements of the Managing Partners
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A. Anything in this Agreement to the contrary notwithstanding, it is
agreed that:
(i) the Managing Partners and their Affiliates shall not take any
action with respect to the assets or property of the Production
Partnership which does not benefit exclusively the Production Partnership,
including:
(a) the utilization of Production Partnership funds as
compensating balances for the benefit of the Managing Partners or an
Affiliate of a Managing Partner; and
(b) the commitment of future production;
(ii) all benefits from marketing arrangements or other
relationships affecting property of any Managing Partner or its Affiliate
and the Production Partnership shall be fairly and equitably apportioned
according to the respective interests of each;
(iii) the Managing Partners may never profit themselves nor any
Affiliate by Development Drilling, Identified Development Drilling or
Improved Recovery operations in contravention of their fiduciary
obligation to the Limited Partnership; and
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(iv) neither the Managing Partners nor any Affiliate shall render
to the Production Partnership any oil field, equipage or drilling services
nor sell or lease to the Production Partnership any equipment or related
supplies unless:
(a) such Person is engaged, independently of the Production
Partnership and as an ordinary and ongoing business, in the business
of rendering such services or selling or leasing such equipment and
supplies to a substantial extent to other Persons in the oil and gas
industry in addition to drilling and income programs in which such
Person has an interest;
(b) the compensation, price or rental therefor is competitive
with the compensation, price or rental of other Persons in the area
engaged in the business of rendering comparable services or selling
or leasing comparable equipment and supplies which could reasonably
be made available to the Production Partnership;
(c) the drilling services are billed on either a per foot,
per day or per hour rate, or some combination thereof; and
(d) provided that, if such Person is not engaged in a business
within the meaning of subdivision (a), then such compensation, price
or rental shall be the cost of such services, equipment or supplies
to such Person or the competitive rate which could be obtained in
the area, whichever is less.
Section 4.6. Construction of Gas Gathering Lines
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The Managing Partners may cause the Production Partnership to construct
gas gathering lines if, in the opinion of the Managing Partners, it would be
economically feasible and otherwise consistent with prudent operating practice
to do so. The costs of any such gathering lines will be deemed to be Operating
Costs and shall be charged to the accounts of the Partners as such. The Managing
Partners may, in their discretion, construct, or cause an Affiliate of a
Managing Partner or other person to construct, gathering lines from Production
Partnership Wells to gas transmission systems.
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Whenever the Managing Partners construct, or cause an Affiliate of a Managing
Partner to construct, a gathering line from a Production Partnership Well to a
gas transmission system, the Production Partnership shall pay the Managing
Partners or such Affiliate an amount that is not greater than the compensation
that an unrelated party could have reasonably charged in an arm's-length
transaction for similar services in the area as a transmission fee for the
transmission of all gas through the gathering system so constructed, and no
other transmission fee shall be paid to the Managing Partners or to any
Affiliate.
Section 4.7. Contracts with the Managing Partners and Affiliates
-----------------------------------------------------------------
All services provided to the Production Partnership by a Managing Partner
or any Affiliate for which it is compensated shall be embodied in a written
contract precisely setting forth the services to be rendered and the
compensation to be paid. Each contract relating to a transaction between the
Production Partnership and any Managing Partner or any Affiliate shall contain a
provision which shall permit termination of the contract by the Production
Partnership without penalty on 30 days' prior written notice. The Limited
Partnership shall have the power to terminate, without cause or penalty, any
such contract on behalf of the Production Partnership.
Section 4.8. Farmouts
----------------------
The Management Committee may dispose of Producing Properties by Sale or
Farmout when the Management Committee, exercising the standard of a prudent
operator, determines that (a) the Production Partnership lacks sufficient funds
to conduct Development Drilling, Identified Development Drilling or Improved
Recovery operations on the properties and cannot obtain suitable alternative
financing for such Development Drilling, Identified Development Drilling or
Improved Recovery operations; (b) the properties have been downgraded by events
occurring after assignment to the Production Partnership to the point that
additional Development Drilling, Identified Development Drilling, Improved
Recovery operations or continued production would no longer be desirable to the
Production Partnership; (c) Development Drilling, Identified Development
Drilling or Improved Recovery operations on the properties would result in an
excessive concentration of Production Partnership funds on a
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Producing Property creating, in the opinion of the Management Committee, undue
risk to the Production Partnership; or (d) the best interests of the Production
Partnership would be served by the Sale or Farmout. The Production Partnership
shall not conduct any drilling of wells other than Development Drilling and
Identified Development Drilling; provided, however, that the drilling of wells
other than Development Drilling and Identified Development Drilling may be
performed on behalf of the Production Partnership pursuant to Farmouts. Neither
the Managing Partners nor any Affiliate shall enter into any Farmout or other
agreement with the Production Partnership where in consideration for services to
be rendered, an interest in production is payable to the Managing Partners or
any Affiliate, unless the Production Partnership has previously expended or
committed to expend the maximum amount that is authorized to use for Development
Drilling or Identified Development Drilling. Any Sale, Farmout or similar
agreement between the Production Partnership and a Managing Partner, Affiliate
or Affiliated Program will be permitted under the restrictions set forth in this
Article Four and will be subject to the following conditions:
(i) the Management Committee (or a Managing Partner, if
management authority of the Production Partnership with respect thereto
has been delegated to it by the Management Committee) exercising the
standard of a prudent operator, shall determine that the Sale, Farmout or
similar agreement is in the best interests of the Production Partnership;
and
(ii) the terms of the Sale, Farmout or similar agreement are
consistent with and in any case no less favorable than those utilized in
the same geographic area for similar arrangements.
Section 4.9. Other Operations
------------------------------
The Managing Partners and the Management Committee shall devote such time
to the Production Partnership as is reasonably required to carry on the
Production Partnership business, and the Managing Partners, members of the
Management Committee and their Affiliates shall at all times be free, subject to
any restrictions contained herein, to engage in all aspects of the Hydrocarbons
and natural resources business for their own accounts and for the accounts of
others. Without limiting the generality of the foregoing, the Managing Partners
and their Affiliates shall have the right to organize and operate other
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partnerships, joint ventures or other oil and gas investment programs similar to
the Limited Partnership and the Production Partnership.
Section 4.10. Prosecution, Defense and Settlement of Claims;
Indemnification
-------------------------------------------------------------
A. The Managing Partners shall arrange to prosecute, defend, settle or
compromise actions at law or in equity at the expense of the Production
Partnership as may be necessary to enforce or protect the interests of the
Production Partnership. The Managing Partners shall satisfy any judgment,
decree, decision or settlement, first, out of any insurance proceeds available
therefor, next, out of the Production Partnership assets and Income, and,
finally, out of the assets of the Managing Partners and the general partners of
the Limited Partnership.
B. In any threatened, pending or completed action, suit or proceeding to
which the Managing Partners are a party or are threatened to be made a party by
reason of the fact that they are the Managing Partners of the Production
Partnership (other than an action by or in the right of the Production
Partnership) involving an alleged cause of action for damages arising from the
performance of their duties under this Agreement or other activities relative to
the management and disposition of Producing Properties or production from such
properties, the Production Partnership shall indemnify the Managing Partners
against expenses, including attorneys' fees, judgments and amounts paid in
settlement, actually and reasonably incurred by them in connection with such
action, suit or proceeding if they acted in good faith and in a manner they
reasonably believed to be in the best interests of the Production Partnership,
and provided that their conduct does not constitute negligence or misconduct.
The termination of any action, suit or proceeding by judgment, order or
settlement shall not of itself create a presumption that the Managing Partners
did not act in good faith and in a manner which they reasonably believed to be
in the best interests of the Production Partnership.
C. In any threatened, pending or completed action or suit by or in the
right of the Production Partnership, to which the Managing Partners are a party
or are threatened to be made a party, involving an alleged cause of action by
the Limited Partnership for damages arising from the activities of the
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Managing Partners in the management of the internal affairs of the Production
Partnership as prescribed in this Agreement or by law, or both, the Production
Partnership shall indemnify the Managing Partners against expenses, including
attorneys' fees, actually and reasonably incurred by them in connection with the
defense or settlement of such action or suit if they acted in good faith and in
a manner they reasonably believed to be in the best interests of the Production
Partnership as specified in this subsection, except that no indemnification
shall be made in respect of any claim, issue or matter as to which the Managing
Partners' course of conduct constituted negligence or misconduct.
D. To the extent that a Managing Partner has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 4.l0B or 4.l0C of this Agreement, or in defense of any claim, issue or
matter therein, the Production Partnership shall indemnify it against the
expenses, including attorneys' fees, actually and reasonably incurred by it in
connection therewith.
E. Any indemnification under Section 4.l0B and 4.10C of this Agreement,
unless ordered by a court, shall be made by the Production Partnership only as
authorized in the specific case and only upon a determination by independent
legal counsel in a written opinion that such indemnification is proper in the
circumstances because the indemnified party has met the applicable standard of
conduct set forth in Sections 4.l0B or 4.l0C of this Agreement.
F. The Production Partnership shall not incur the costs of that portion of
insurance which insures the Managing Partners for any liability as to which the
Managing Partners are prohibited from being indemnified under Section 4.10.
ARTICLE FIVE
Distributions, Fees and Allocations
-----------------------------------
Section 5.1. Distributions of Production Partnership Funds
-----------------------------------------------------------
The Distributable Cash of the Production Partnership shall be distributed
simultaneously to the Limited Partnership and the Managing Partners within 45
days after the close of each calendar quarter. Each Partner's share of each such
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distribution of Distributable Cash shall be determined after giving effect to
the allocations set forth in Sections 5.3 and 5.4 of this Agreement for such
period. All distributions of Distributable Cash shall reduce dollar-for-dollar
the balances of the Partners' Capital Accounts.
Section 5.2. Fees and Reimbursement of Expenses to the Managing Partners
-------------------------------------------------------------------------
Geodyne Production and PW Production shall receive as Managing Partners
(1) on a nonrecurring basis, the Management Fee in an amount equal to 1-1/2% of
the Limited Partners' capital contributions to the Limited Partnership; and (2)
reimbursement for Direct Administrative Costs billed directly to the Managing
Partners and General and Administrative Costs incurred by the Managing Partners
or their Affiliates allocable to the Production Partnership, except to the
extent that the Managing Partners or their Affiliates are otherwise reimbursed
for such costs through the payment of Property Acquisition Costs, Operating
Costs or otherwise. Geodyne Production and PW Production shall allocate between
themselves the payment of the Management Fee as follows: in the event the Fee
(as defined in the Limited Partnership Agreement) (hereinafter referred to as
the "Limited Partnership Fee") is less than the actual organization and offering
costs of the Limited Partnership plus Unreimbursed Prior Organization and
Offering Costs (as defined in the Limited Partnership Agreement), then the
Management Fee shall be paid 60% to PW Production and 40% to Geodyne Production
to the extent of such deficiency, 60% to PW Production and 40% to Geodyne
Production to the extent of organization and offering costs and the remainder of
the Management Fee shall be paid 75% to PW Production and 25% to Geodyne
Production. In the event the Limited Partnership Fee is equal to or greater than
the actual organization and offering costs of the Limited Partnership plus
Unreimbursed Prior Organization and Offering Costs (as defined in the Limited
Partnership Agreement), then the Management Fee shall be paid 60% to PW
Production and 40% to Geodyne Production to the extent of organization and
offering costs and the remainder shall be paid as follows: in the event the
payment referred to in Section 3.6B(i) of the Limited Partnership Agreement has
been made (but the payments in Section 3.6B(ii) and (iii) have not been made) to
the general partners of the Limited Partnership, the Management Fee shall be
paid 75% to PW Production and 25% to Geodyne Production; in the event the
payment referred to in Section 3.6B(ii) of the Limited
-39-
Partnership Agreement has been made (but the payment in Section 3.6B(iii) has
not been made) to the general partners of the Limited Partnership, the excess of
the Management Fee over the amount paid to the general partners of the Limited
Partnership pursuant to Section 3.6B(ii) of the Limited Partnership Agreement
shall be paid 75% to PW Production and 25% to Geodyne Production, the balance of
the Management Fee, but not in excess of 1% of the Limited Partners' capital
contributions to the Limited Partnership, shall be paid 50% to PW Production and
50% to Geodyne Production, and any remaining balance of the Management Fee shall
be paid 70% to PW Production and 30% to Geodyne Production; and in the event the
payment referred to in Section 3.6B(iii) of the Limited Partnership Agreement
has been made to the general partners of the Limited Partnership, the excess of
the Management Fee over the amount paid to the general partners of the Limited
Partnership pursuant to Section 3.6B(iii) of the Limited Partnership Agreement,
but not in excess of 1% of the Limited Partners' capital contributions to the
Limited Partnership, shall be paid 50% to PW Production and 50% to Geodyne
Production, and the balance of the Management Fee shall be paid 70% to PW
Production and 30% to Geodyne Production.
Section 5.3. Allocation of Income, Investment Income, Costs and
Deductions
----------------------------------------------------------------
A. The Income, Investment Income, Profits, Production Partnership costs
and losses of the Production Partnership shall be determined and allocated with
respect to each Fiscal Year of the Production Partnership as of and within 75
days after the end of such Fiscal Year.
B. (i) 100% of Investment Income, Property Acquisition Costs, costs
incurred in connection with Identified Development Drilling (including any
interest, commitment fees and other finance charges with respect to
borrowings incurred in connection therewith) and the Management Fee
referred to in Section 5.2(1) of this Agreement shall all be allocated to,
and borne by, the Limited Partnership. 100% of Organization and Offering
Costs shall be allocated to, and borne by, the Managing Partners as
follows: 60% to PW Production and 40% to Geodyne Production. Except as
otherwise provided in Sections 5.3B(ii) and 5.3B(iii), Income, General and
Administrative Costs, Operating Costs, costs incurred in connection with
Development Drilling and
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Direct Administrative Costs shall be allocated among, and borne by, the
Partners in the following percentages:
(a) Until Payout:
Limited Partnership 90.9091%
PW Production and Geodyne
Production (in the aggregate) 9.0909%
(b) After Payout:
Limited Partnership 85.8586%
PW Production and Geodyne
Production (in the aggregate) 14.1414%
The Managing Partners shall allocate between themselves their aggregate
Interest before and after Payout as follows: 70% to PW Production and 30%
to Geodyne Production if the Production Partnership is Activated within
twelve months after the date on which the registration statement filed
with the Securities and Exchange Commission with respect to the Units is
declared effective (the "Effective Date"), and 60% to PW Production and
40% to Geodyne Production if the Production Partnership is Activated
during the twelve month period ending twenty-four months after the
Effective Date; provided, however, that if the Production Partnership was
Activated more than twelve months after the Effective Date and the
immediately preceding Prior Production Partnership was activated (as
defined in the partnership agreement respecting such Prior Production
Partnership) within twelve months after the Effective Date, then PW
Production shall be allocated that percentage of the aggregate Managing
Partners' Interest represented by a fraction, the numerator of which is
equal to the sum of (i) 70 multiplied by the number of days from the
activation of the immediately preceding Prior Production Partnership
through the date that is 12 months after the Effective Date, and (ii) 60
multiplied by the number of days from the date that is 12 months after the
Effective Date through the date of the Activation of the Production
Partnership, and the denominator of which is the total number of days that
has elapsed from the activation of the immediately preceding Prior
Production Partnership to the Activation of the Production Partnership,
and Geodyne Production shall be allocated the balance of the aggregate
Managing Partners' Interest (such allocation
-41-
between the Managing Partners of their aggregate Interest being their
"Sharing Ratios"). The Managing Partners shall have the authority to amend
this Agreement to provide for any different allocation between themselves
at their discretion.
(ii) As used in this subsection, the "Measuring Date" shall be the
earlier of the date on which 90% of the Limited Partnership's Capital
Contribution has been expended or the second anniversary of the Activation
of the Production Partnership; the first "Allocation Period" shall be the
twelve month period beginning on the last day of the first full Fiscal
Year quarter after the Measuring Date; and each twelve month period
following the end of the first Allocation Period shall also be referred to
as an "Allocation Period". Notwithstanding anything to the contrary
contained herein, if during each of the first two Allocation Periods the
amount of cash distributed to the Limited Partnership that is attributable
to the allocations set forth in Section 5.3B(i) is less than a 15.1515%
cumulative (but not compounded) twelve-month return on the Limited
Partners' capital contributions to the Limited Partnership, then there
shall be distributed to the Limited Partnership thereafter (in addition to
the amount of Distributable Cash distributed to the Limited Partnership
resulting from the allocations to the Limited Partnership set forth in
Section 5.3B(i)) an amount of cash up to 50% of the cash otherwise
distributable to the Managing Partners thereafter pursuant to the
allocations set forth in Section 5.3B(i) not to exceed the amount of any
such deficiency (the amount of such cash distribution being a "Transfer
Amount"), and Income and costs sufficient to yield an amount of
Distributable Cash equal to the Transfer Amount and otherwise allocable to
the Managing Partners during the Fiscal Year in which such Allocation
Period ends and, to the extent necessary, each Fiscal Year thereafter
pursuant to Section 5.3B(i) shall be allocated to the Limited Partnership.
If during any Allocation Period after the initial two Allocation Periods,
the Limited Partnership is being allocated Income and costs pursuant to
Section 5.3B(i) such that there is distributed to the Limited Partnership
an amount of cash in excess of a 15.1515% cumulative (but not compounded)
twelve-month return on the Limited Partners' capital contributions to the
Limited Partnership since the beginning of the first two Allocation
Periods (such excess amount of cash being the "Surplus"), and there has
been distributed to the Limited Partnership a
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Transfer Amount, then there shall be distributed to the Managing Partners
thereafter an aggregate amount of cash otherwise distributable to the
Limited Partnership pursuant to the allocations set forth in Section
5.3B(i) equal to the amount of any Surplus (the amount of such cash
distribution being a "Reverse Transfer Amount"), and Income and costs
sufficient to yield an amount of Distributable Cash equal to the Reverse
Transfer Amount and otherwise allocable to the Limited Partnership during
the Fiscal Year in which such Allocation Period ends and, to the extent
necessary, each Fiscal Year thereafter pursuant to Section 5.3B(i) shall
be allocated to the Managing Partners; provided, however, that the amount
of any Reverse Transfer Amount distributed to the Managing Partners shall
not exceed an amount equal to the aggregate of the Transfer Amounts
distributed to the Limited Partnership less the aggregate of all Reverse
Transfer Amounts previously distributed to the Managing Partners.
(iii) Notwithstanding anything to the contrary contained herein, if
on the seventh anniversary of the last day of the Fiscal Year in which the
Production Partnership commences Development Drilling, or Identified
Development Drilling, and in each Fiscal Year thereafter, (a) the
aggregate amount of Income less the aggregate amount of direct lease
operating expenses and severance, ad valorem, windfall profits, excise and
other taxes (but not income taxes) allocated to the Limited Partnership
pursuant to Section 5.3(B)(i) attributable to production resulting from
Development Drilling and Identified Development Drilling on Producing
Properties is less than (b) the aggregate amount of costs allocated to the
Limited Partnership pursuant to Section 5.3(B)(i) incurred in connection
with Development Drilling and Identified Development Drilling on Producing
Properties during each Fiscal Year ending seven or more years prior
thereto, then Income and costs otherwise allocable to the Managing
Partners pursuant to Section 5.3B(i) shall thereafter be allocated to the
Limited Partnership until such deficiency in Income is eliminated.
(iv) For purposes of the allocations set forth in Section 5.3B(ii)
of this Agreement, the amount of cash distributed to the Limited
Partnership for purposes of determining the return on the Limited
Partners' capital contributions to the Limited Partnership shall not
include any amounts attributable to the Production Partnership's payment
of any windfall profits tax.
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C. All items of Income, gain, loss, deduction and credit allowable for
Federal income tax purposes and all recapture of any such deductions and credits
shall be allocated and charged or credited to the Partners in the same manner
that the revenues, costs or expenses giving rise to such items of income, gain,
loss, deduction and credit are allocated and charged. Federal income tax
deductions for cost or percentage depletion with respect to any Producing
Property shall be determined at the Partner level and shall be determined in the
case of percentage depletion on the same basis that the Income from the
Producing Property is allocated; and the Production Partnership shall allocate,
under Section 612A(c)(7)(D) of the Code, its adjusted basis in each Producing
Property to the Partners in proportion to the interest of each in the Production
Partnership capital ultimately used to acquire that property. If such allocation
of basis is not permitted under the Code, the basis of each such property shall
be allocated in the manner which the Managing Partners deem will most closely
achieve the result intended above.
D. Capital Accounts shall be established and maintained for each Partner
in accordance with tax accounting principles and with valid regulations issued
by the U.S. Treasury Department under subsection 704(b) of the Code (the "704
Regulations"). To the extent that tax accounting principles and the 704
Regulations may conflict, the latter shall control. In connection with the
establishment and maintenance of such Capital Accounts, the following provisions
shall apply:
(1) Each Partner's Capital Account shall be (i) increased by the
amount of its Capital Contribution, the fair market value of property
contributed by it to the Production Partnership (net of liabilities
securing such contributed property that the Production Partnership is
considered to assume or take subject to under section 752 of the Code) and
allocations to it of Income and gain (except to the extent such Income or
gain has previously been reflected in its Capital Account by adjustments
thereto) and (ii) decreased by the amount of Distributable Cash
distributed to it, the fair market value of property distributed to it by
the Production Partnership (net of liabilities securing such distributed
property that such Partner is considered to assume or take subject to
under section 752 of the Code) and allocations to it of Production
Partnership loss, deduction (except to the extent such loss or deduction
has previously been reflected
-44-
in its Capital Account by adjustments thereto) and expenditures described
in section 705(a)(2)(B) of the Code.
(ii) In the event Production Partnership Property is distributed to
a Partner, then, before the Capital Account of such Partner is adjusted as
required by clause (i) of this Section 5.3D, the Capital Accounts of the
Partners shall be adjusted to reflect the manner in which the unrealized
Income, gain, loss and deduction inherent in such Production Partnership
Property (that has not been reflected in such Capital Accounts previously)
would be allocated among the Partners if there were a taxable disposition
of such Production Partnership Property for its fair market value on the
date of distribution.
(iii) If, pursuant to this Agreement, Production Partnership
Property is reflected on the books of the Production Partnership at a book
value that differs from the adjusted tax basis of such Production
Partnership Property, then the Partners' Capital Accounts shall be
adjusted in accordance with the 704 Regulations for allocations to the
Partners of depreciation, depletion, amortization, and gain or loss, as
computed for book purposes, with respect to such Production Partnership
Property.
(iv) The Partner's Capital Accounts shall be adjusted for depletion
and gain or loss with respect to the Production Partnership's oil or gas
properties in whichever of the following manners the Managing Partners
determine is in the best interests of the Partners:
(a) The Partners' Capital Accounts shall be reduced by a
simulated depletion allowance computed on each oil or gas property
using either the cost depletion method or the percentage depletion
method (without regard to the limitations under the Code which could
apply to less than all Partners); provided, however, that the choice
between the cost depletion method and the percentage depletion
method shall be made on a property-by-property basis and such
choices shall be binding for all Production Partnership taxable
years during which such oil or gas property is held by the
Production Partnership. Such reductions for depletion shall be
allocated among the Partners' Capital Accounts in the same
proportions as the adjusted basis in the particular property is
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allocated to each Partner. Upon the taxable disposition of an oil or
gas property by the Production Partnership, the Production
Partnership's simulated gain or loss shall be determined by
subtracting its simulated adjusted basis (aggregate adjusted tax
basis of the Partners less simulated depletion allowances) in such
property from the amount realized on such disposition and the
Partners' Capital Accounts shall be increased or reduced, as the
case may be, by the amount of the simulated gain or loss on such
disposition in proportion to the Partners' allocable shares of the
total amount realized on such disposition, or
(b) The Production Partnership shall reduce the Capital
Account of each Partner in an amount equal to such Partner's
depletion allowance with respect to each oil or gas property of the
Production Partnership (for the Partner's taxable year that ends
within the Production Partnership's taxable year), but such
reductions for depletion shall not exceed the adjusted basis
allocated to such Partner with respect to such property. Upon the
taxable disposition of an oil or gas property by the Production
Partnership, the Capital Account of each Partner shall be reduced or
increased, as the case may be, by the amount of the difference
between such Partner's allocable share of the total amount realized
on such disposition and such Partner's remaining adjusted tax basis
in such property.
(v) For purposes of determining the Capital Account balance of any
Partner as of the end of any Production Partnership taxable year for
purposes of Subsection 5.3I hereto, such Partner's Capital Account shall
be reduced by:
(a) Adjustments that, as of the end of such year, reasonably
are expected to be made to such Partner's Capital Account pursuant
to paragraph (b)(2)(iv)(k) of the 704 Regulations for depletion
allowances with respect to oil and gas properties of the Production
Partnership, and
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(b) Distributions that, as of the end of such year, reasonably
are expected to be made to such Partner pursuant to Code section
704(e)(2), Code section 706(d), and paragraph (b)(2)(ii) of section
1.751-1 of regulations promulgated under the Code, and
(c) Distributions that, as of the end of such year, reasonably
are expected to be made to such Partner to the extent they exceed
offsetting increases to such Partner's Capital Account that
reasonably are expected to occur during (or prior to) the Production
Partnership taxable years in which such distributions are expected
to be made.
E. The Capital Accounts of those Partners which are charged with an
expense of the Production Partnership shall be credited with any portion of that
expense which is finally determined, judicially or administratively, to be
nondeductible for Federal income tax purposes, less any amortization or
depreciation thereof incurred prior to the date that the credit is made.
F. In allocating Income and costs for any Fiscal Year in which the ratio
for sharing Income and costs changes pursuant to Section 5.3B(i), the
allocations of Income and costs shall be made, and the books of the Production
Partnership shall be closed, as soon as practicable after the date Payout
occurs, to determine each Partner's share of pre-change Income and costs and
each Partner's share of post-change Income and costs for that Fiscal Year.
G. Proceeds received from the Sale or transfer of all or any part of the
Production Partnership's Producing Properties shall be allocated to the Limited
Partnership and the Managing Partners to the extent of their adjusted basis in
such sold or transferred Production Partnership Property. Proceeds in excess of
said amount shall be allocated in accordance with the percentages set forth in
Section 5.3B(i) , except that, notwithstanding the provisions of Section 5.3F
and solely for purposes of this Section 5.3G, where the proceeds from such Sale
are distributed to the Partners and a portion of the Distributable Cash
attributable to such Sale proceeds is sufficient in amount to cause Payout to
occur in accordance with the allocation percentages in effect until Payout,
Payout shall be deemed to occur such that Income and Distributable Cash
attributable to the portion of such Sale proceeds in excess of
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the portion of Sales proceeds sufficient in amount to cause Payout to occur
shall be allocated in accordance with the allocation percentages in effect after
Payout.
H. Notwithstanding any other provision of this Agreement, if, under any
provision of this Agreement, the Capital Account of any Partner is adjusted to
reflect the difference between the basis to the Production Partnership of
Production Partnership Property and such Production Partnership Property's fair
market value, then all items of Income, gain, loss, and deduction with respect
to such Production Partnership Property shall be allocated among the Partners so
as to take account of the variation between the basis of such Production
Partnership Property and its fair market value at the time of the adjustment to
such Partner's Capital Account in accordance with the requirements of subsection
704(c) of the Code, or in the same manner as provided under subsection 704(c) of
the Code.
I. Notwithstanding anything to the contrary stated herein,
(a) There shall be allocated to the Managing Partners, pro rata, any
item of loss, deduction, credit or allowance that, but for this Section
5.3I, would have been allocated to the other General Partner that is not
obligated to restore any deficit balance in such Partner's Capital Account
and would have thereupon caused or increased a deficit balance in such
Partner's Capital Account as of the end of the Production Partnership's
taxable year to which such allocation related (after taking into
consideration the provisions of Subsection 5.3D(v) hereof);
(b) Any General Partner that is not obligated to restore any deficit
balance in such Partner's Capital Account who unexpectedly receives an
adjustment, allocation or distribution specified in Subsection 5.3D(v)
hereof shall be allocated items of Income and gain in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible; and
(c) In the event any allocations of loss, deduction, credit or
allowance are made to the Managing Partners pursuant to clause (a) of this
Subsection 5.3I, the Managing Partners shall be subsequently allocated all
items of Income and gain until the aggregate amount of such allocations of
Income and gain is equal to the aggregate
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amount of any such allocations of loss, deduction, credit or allowance
allocated to such Partners pursuant to clause (a) of this Subsection 5.3I.
Section 5.4. Determinations of Allocations and Distributions
-------------------------------------------------------------
Distributable Cash, Income, Investment Income, costs, deductions, Profits
and Losses allocable to the Partners shall be distributed or allocated, as the
case may be, to the Persons who were Partners, as of the last day of the fiscal
period for which the distribution or allocation is to be made, except that in
any fiscal period in which a Partner sells, assigns or transfers all or any part
of such Partner's Interest to any Person who during the fiscal period is
admitted as a Substituted Partner, the Distributable Cash, Income, Investment
Income, costs, deductions, Profits and Losses attributable to the Interest so
sold, assigned or transferred shall, subject to the provisions of Section 10.2
of this Agreement, be allocated between the transferor and the transferee on the
basis of the number of days in the fiscal period before the admission, and on
and after the admission, of the transferee as a Substituted Partner; provided,
however, that the Distributable Cash attributable to a Sale of a Producing
Property shall be distributed to those Partners who are Partners on the day the
distribution of such Distributable Cash occurs. The Managing Partners shall
inform the other Partners of the occurrence and terms of any such Sale by the
Production Partnership as soon as practicable after such Sale has been
consummated.
ARTICLE SIX
Transferability of Managing Partner's Interests
-----------------------------------------------
Section 6.1. Transferability of Managing Partner's Interest
------------------------------------------------------------
A. Except as provided in Sections 6.lB and 6.2B, each of the Managing
Partners shall not have the right to retire, withdraw, transfer or assign its
Managing Partner Interest, except that there may be substituted in its stead as
Managing Partner any entity that has, by merger, consolidation or otherwise,
acquired substantially all of its assets or capital stock and continued its
business.
-49-
B. Each Managing Partner may, upon at least ninety days' written notice
to the Limited Partnership and the other Managing Partner, cause the Production
Partnership to distribute, in partial liquidation of its Interest in the
Production Partnership, to such Managing Partner fractional, undivided interests
in the Producing Properties of the Production Partnership (such interest of a
Managing Partner in a Producing Property distributed is hereinafter referred to
as the "Distributed Interest") up to an aggregate interest equal in value to 75%
of the value of the Producing Properties of the Production Partnership that it
would have been entitled to upon a hypothetical liquidation of the Production
Partnership after application of the provisions of Section 8.2 of this Agreement
(the interest in a Producing Property of a Managing Partner retained in the
Production Partnership is hereinafter referred to as the "Retained Interest")
provided, however, that no such distribution shall occur (i) more than once with
respect to a Managing Partner, (ii) prior to seven years after the Activation of
the Production Partnership and (iii) unless such Managing Partner obtains an
opinion of counsel to the Production Partnership to the effect that such
distribution will not result in any material adverse tax consequence to the
other Managing Partner or to the Limited Partners. Notwithstanding anything to
the contrary in this Agreement, in the event that any such distribution is made,
appropriate adjustments shall be made in the Capital Accounts of the Partners
and in the allocation of Production Partnership Income and costs to assure that
the other Managing Partner will not share or participate in any of the capital,
costs, Income, or distributions attributable to the Producing Properties of the
Production Partnership except to the extent of the Retained Interest of such
Managing Partner.
Section 6.2. Removal of Managing Partners
------------------------------------------
A. (i) The power shall be vested in the Limited Partnership to remove
at any time any Managing Partner. The power shall be vested in the
Limited Partnership to consent to the admission of a successor
Managing Partner following the Removal of any Managing Partner by
the Limited Partnership. A successor Managing Partner shall be
selected pursuant to the provisions of Section 6.2D of this
Agreement.
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(ii) (a) A Managing Partner shall have the power to Remove the
other Managing Partner, and pursuant to Section l0.lA of this
Agreement, admit a successor Managing Partner, for "Cause" as
defined in Section 6.2A(ii)(b), but for no other reason.
(b) "Cause" for purposes of Section 6.2A(ii)(a) shall be
deemed to exist only (i) when a court of competent jurisdiction
shall have made a final determination (which determination is not
successfully appealed) that a Managing Partner has been guilty of
gross negligence, fraud, intentional misconduct or similar breach of
fiduciary responsibility in carrying out its duties as a Managing
Partner, or (ii) a Managing Partner is dissolved or liquidated on
account of insolvency or any other event occurs resulting in the
appointment of a trustee or receiver who acquires control of the
affairs of such Managing Partner for the purpose of dissolution or
liquidation on account of insolvency, and such trustee or receiver
is not dismissed within 90 days after appointment of such trustee or
receiver, or (iii) (a) a report on the audited financial statements
of a Managing Partner and its consolidated corporate affiliates is
issued by the independent accountants for such Managing Partner that
is qualified on a going concern basis, or (b) either Managing
Partner requests an audit to be performed of the other Managing
Partner and its consolidated corporate affiliates by the independent
accountants for the other Managing Partner (the expense of such
audit being paid by the Managing Partner requesting the audit) , and
such audit results in the issuance of an opinion with respect to the
financial statements of the other Managing Partner and its
consolidated corporate affiliates for the period ending, and as of,
the most recent date feasible, that is qualified on a going concern
basis.
B. (i) In the event that a Managing Partner is Removed, the Removed
Managing Partner's Interest in the Production Partnership shall be
transferred to the other Managing Partner, and the other Managing
Partner shall assign to the Removed Managing Partner a portion of
Production Partnership Income, costs and Distributable Cash as and
when such items are allocated or distributed, as the case may be, by
the
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Production Partnership equal to the percentage interest of the
Removed Managing Partner in the Production Partnership prior to its
Removal; provided, however, that such assignment shall be reduced
proportionately in the event of a foreclosure or sale referred to in
Section 4.3D with respect to the Removed Managing Partner's interest
transferred to the other Managing Partner to the extent of the
foreclosed or sold interest.
(ii) If a sole Managing Partner is Removed and a successor Managing
Partner is to be admitted to the Production Partnership, the removed
Managing Partner shall not be Removed until a successor Managing
Partner has been admitted to the Production Partnership pursuant to
Article 10 of this Agreement.
(iii) In the event a sole Managing Partner is Removed by the Limited
Partnership and a successor Managing Partner is to be admitted, the
incoming Managing Partner and the Removed Managing Partner shall, by
mutual agreement, select an independent petroleum consultant to
value the Removed Managing Partner's Interest in the Production
Partnership. In determining the value of the Managing Partner's
Interest, the independent consultant will take into account
appropriate discount factors in light of the risk of recovery of oil
and gas reserves, and, in any event, will utilize a "risk factor"
discount no less than that utilized in the most recent offer
extended pursuant to Section 7.5 of the Limited Partnership
Agreement, if any. The incoming Managing Partner, or the Production
Partnership, shall have the option to purchase at least 20% of the
Interest of the Removed Managing Partner for the value determined by
the independent appraisal. The Removed Managing Partner's Interest
in the Production Partnership shall be transferred to the successor
Managing Partner, and the successor Managing Partner shall assign to
the Removed Managing Partner a portion of Production Partnership
Income, costs and Distributable Cash as and when such items are
allocated or distributed, as the case may be, by the Production
Partnership equal to the percentage interest of the Removed Managing
Partner in the Production Partnership prior to Removal, less the
portion purchased by the successor Managing Partner or the
Production Partnership.
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C. Notwithstanding Section 3.6, any Managing Partner who shall be Removed
pursuant to the provisions of Section 6.2 shall be released by the other
Partners from all liability for Production Partnership debts and obligations
incurred by the Production Partnership prior to the date of such Removal.
D. Under circumstances in which the Limited Partnership Consents to the
admission of a successor Managing Partner, such admission shall not become
effective unless the Production Partnership shall have received a certificate,
duly executed by or on behalf of such proposed successor Managing Partner to the
effect that it is experienced in the performance (or employs sufficient
personnel who are experienced in performing) of functions of the type then being
performed by the Removed Managing Partner.
ARTICLE SEVEN
Transferability of Limited Partnership's Interest
--------------------------------------------------
Section 7.1. Transferability of Limited Partnership's Interest
---------------------------------------------------------------
No Sale, exchange, transfer or assignment of the Limited Partnership's
Interest may be made if in the opinion of counsel to the Production Partnership,
such Sale, exchange, transfer or assignment, would (i) result in the Production
Partnership being considered to have terminated within the meaning of Section
708 of the Code, or (ii) cause the Production Partnership to lose its status as
a partnership for Federal income tax purposes. In addition, the Managing
Partners may require an opinion of the transferor's counsel, satisfactory to the
Managing Partners, that such Sale, exchange, transfer or assignment would not
violate the Securities Act of 1933, as amended, or any state securities or "blue
sky" laws.
Section 7.2. Incapacity of Partners
------------------------------------
If a Partner (including a Managing Partner) becomes Incapacitated, the
Person who is its legal representative shall have all the rights of a Partner
for the purpose of settling or
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managing its estate and such power as the Incapacitated Partner possessed to
assign all or any part of its Interest and to join with such assignee in
satisfying conditions precedent to such assignee becoming a Substituted Partner.
The Incapacity of a Partner shall not dissolve the Production Partnership.
Section 7.3. Assignees and Substituted Partners
------------------------------------------------
A. The Production Partnership shall not recognize for any purpose any
purported sale, assignment or transfer of all or any fraction of the Interest of
the Limited Partnership unless the provisions of Section 7.1 shall have been
complied with and there shall have been filed with the Production Partnership a
dated Notification of such sale, assignment or transfer, executed and
acknowledged by both the seller, assignor or transferor and the purchaser,
assignee or transferee and such Notification (i) contains the acceptance by the
purchaser, assignee or transferee of all of the terms and provisions of this
Agreement and (ii) represents that such sale, assignment or transfer was made in
accordance with all applicable laws and regulations. Any sale, assignment or
transfer shall be recognized by the Production Partnership as effective on the
date of such Notification if the date of such Notification is within 30 days of
the date on which such Notification is filed with the Production Partnership,
and otherwise shall be recognized as effective on the date such Notification is
filed with the Production Partnership.
B. If the Limited Partnership assigns all of its Interest to an assignee,
the Limited Partnership shall cease to be a Partner.
C. A Person who is the assignee of all or any fraction of the Interest of
the Limited Partnership shall be subject to all the provisions of this Article
Seven to the same extent and in the same manner as the Limited Partnership
desiring to make an assignment of its Interest.
D. Any purchaser, assignee, transferee, donee, heir, legatee or other
recipient of an Interest shall be admitted to the Production Partnership as a
Substituted Partner only with the Consent of the other Partners, which Consent
may be granted or withheld by such Partners at their sole and absolute
discretion. The admission of such Person as a Substituted Partner shall be
evidenced by the execution by the Partners of a certificate evidencing the
admission of such Person as a Partner
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and an amendment to this Agreement executed by the Managing Partners on their
own behalf, as well as on behalf of each other Partner, pursuant to the power of
attorney granted pursuant to Section 12.5 of this Agreement.
E. No Person shall become a Substituted Partner until such Person shall
have satisfied the requirements of Section 10.2; provided, however, that for the
purpose of allocating Income, Investment Income, Profits, Losses, costs, and
Distributable Cash, a Person shall be treated as having become, and as appearing
in the records of the Production Partnership as, a Partner on such date as the
sale, assignment or transfer to such Person was recognized by the Production
Partnership pursuant to Section 7.3A.
Section 7.4. Incapacity of the Limited Partnership
---------------------------------------------------
Upon the Incapacity of the Limited Partnership or upon the seizure of a
Limited Partnership's Interest in the Production Partnership, the successor to
such Limited Partnership's Interest ("Successor") shall be deemed an assignee of
such Limited Partnership's Interest in the Production Partnership and neither
the Production Partnership nor the Successor shall have the right to demand
immediate valuation and payment of such Limited Partnership's Interest.
ARTICLE EIGHT
Dissolution, Liquidation and Termination
of the Production Partnership
-----------------------------
Section 8.1. Events Causing Dissolution
----------------------------------------
A. The Production Partnership shall be dissolved upon the happening of any
of the following events:
(i) the expiration of its term, unless its term shall have been
extended by the Management Committee pursuant to Section 2.4 of this
Agreement;
(ii) the Incapacity of the sole Managing Partner. However, within
ninety days thereafter the remaining Partners may elect to reconstitute
the Production Partnership prior to application of the liquidation
provisions of Section 8.2;
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(iii) the Sale or other disposition at one time of all or
substantially all of the assets of the Production Partnership existing at
the time of such Sale;
(iv) the election to dissolve the Production Partnership (a) by the
Managing Partners (which election shall be Consented to by the Limited
Partnership), or (b) by the Consent of all Partners;
(v) ninety days after the Removal (unless the Limited Partnership
Consents to a Successor pursuant to Section 6.2 of this Agreement) of the
sole Managing Partner;
(vi) the happening of any other event causing the dissolution of
the Production Partnership under the laws of the State, except that the
Incapacity of any Partner (other than the sole Managing Partner) shall not
dissolve the Production Partnership and the seizure of the Interest of any
Partner shall not dissolve the Production Partnership.
B. Dissolution of the Production Partnership shall be effective on the day
on which the event occurs giving rise to the dissolution, but the Production
Partnership shall not terminate until the Managing Partners have recorded a
notice of dissolution of the Production Partnership in the proper records of any
jurisdiction in which this Agreement has been recorded and shall have complied
with the laws of the states in which its does business and the assets of the
Production Partnership have been distributed as provided in Section 8.2.
C. Nothing contained in this Agreement shall impair, restrict or limit the
rights and powers of the Partners under the laws of the State or any other
jurisdiction in which the Production Partnership is doing business to reform and
reconstitute themselves as a general partnership following dissolution of the
Production Partnership either under provisions identical to those set forth
herein or under any other provisions.
Section 8.2. Liquidation
-------------------------
A. Upon dissolution of the Production Partnership, its liabilities shall
be paid in the order provided herein. The Managing Partners shall either
distribute in kind or sell the Production Partnership's property so that such
disposition is in
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the best interests of the Limited Partnership, and shall execute all amendments
terminating the Production Partnership. In connection with any such Sale, the
Managing Partners shall attempt to obtain the best prices for such property.
Pending such Sales, the Managing Partners shall have the right to continue to
operate and otherwise to deal with Production Partnership property. In the event
the Production Partnership is dissolved on account of the Incapacity or Removal
of the sole Managing Partner, the Production Partnership shall elect, in
accordance with the provisions of Article Eleven, a person (the "Liquidating
Agent") to perform the function of a Managing Partner in liquidating the assets
of the Production Partnership and winding up its affairs, and shall pay to such
Liquidating Agent its reasonable fees and expenses incurred in connection
therewith. Gain or loss realized on the Sale or other disposition of the
Production Partnership's assets will be credited to (in the case of gain) or
charged against (in the case of loss) each Partner's Capital Account to the
extent allocable to it under Sections 5.3 and 5.4 of this Agreement. In the
event of a distribution in kind of (a) any property other than an interest in a
Producing Property, each Partner's Capital Account shall be debited with the
portion of the Production Partnership's adjusted basis thereof attributable to
the interest therein distributed to it and (b) any Producing Property or an
interest in any Producing Property, each Partner's Capital Account shall first
be credited or debited with its share of the unrealized appreciation or
depreciation in the fair market value of said Producing Property or interest in
said Producing Property. Each Partner's share of said unrealized appreciation or
depreciation shall be equivalent to its share (allocated pursuant to Sections
5.3 and 5.4 of this Agreement) of the gain or loss on an actual Sale of such
Producing Property or interest therein. The Capital Account of each Partner to
whom a Producing Property or an interest in a Producing Property is distributed
shall be debited with the fair market value of the Producing Property
distributed to it. Any liquidation of the Production Partnership shall take
place out of court and without application being made therefor to the Secretary
of State of the State of Oklahoma.
B. In settling accounts after dissolution, the assets of the Production
Partnership shall be paid out in the following order: (i) to third party
creditors, in the order or priority as provided by law; (ii) to the Managing
Partners and any Liquidating Agent for any expenses of the Production
Partnership paid by or payable to them to the extent they are entitled to
reimbursement therefor pursuant to this Agreement; (iii) to the
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Limited Partnership in the amount equivalent to the amount of its positive
Capital Account balances (as adjusted pursuant to Section 8.2A) on the date of
distribution; (iv) to the Managing Partners in the amount equivalent to the
amount of their positive Capital Account balances (as adjusted pursuant to
Section 8.2A) on the date of distribution; and (v) the balance shall be paid to
the Partners in the manner provided for by Sections 5.1, 5.3 and 5.4 of this
Agreement with respect to Distributable Cash.
C. If any Managing Partner has a deficit balance in its Capital Account
following the distribution(s) provided for in Section 8.2B above, as determined
after taking into account all adjustments to its Capital Account for the taxable
year of the Production Partnership during which such distribution(s) occur, it
shall restore the amount of such deficit balance to the Production Partnership
within 90 days and such account shall be distributed to the other Parties in
accordance with their positive Capital Account balances.
D. Upon the liquidation or partial liquidation of any Managing Partner's
Interest pursuant to Article 6 hereof, distribution to the Managing Partner
whose Interest is being liquidated shall be made pro rata to such Partner in
accordance with and to the extent of such Partner's positive Capital Account
balance after the Partners' Capital Accounts are adjusted as if all of the
Production Partnership's property had been sold at its fair market value
immediately prior to such distribution and the gain or loss realized on such
sale charged or credited to the Partners' Capital Accounts in accordance with
the provisions of Article 5 hereof, provided, however, that if such Partner has
a deficit balance in its Capital Account following such distribution (or
adjustment of such Partner's Capital Account pursuant to this Section 8.2D),
such Partner shall restore the amount of such deficit balance to the Production
Partnership by the later of the end of the Production Partnership taxable year
in which the liquidation of such Partner's Interest occurs or 90 days after the
date of such liquidation.
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ARTICLE NINE
Books and Records; Accounting; Tax Elections; etc.
--------------------------------------------------
Section 9.1. Books and Records
-------------------------------
The books and records of the Production Partnership, including information
relating to the sale by the Managing Partners or any Affiliates of goods or
services to the Production Partnership, and a list of the names and addresses
and Interests of all Partners, shall be maintained by the Managing Partners at
the principal office of the Production Partnership for a period of five years
following the close of the Fiscal Year to which they relate and shall be
available for examination there by any Partner or its duly authorized
representatives at any and all reasonable times. Any Partner, or its duly
authorized representatives, upon paying the costs of collection, duplication and
mailing, shall be entitled for any proper purpose to a copy of the list of names
and addresses and Interests of the Partners. The Production Partnership may
maintain such other books and records and may provide such financial or other
statements as the Managing Partners in their discretion deem advisable.
Section 9.2. Accounting Basis for Tax and Reporting Purposes; Fiscal Year
--------------------------------------------------------------------------
The books and records of the Production Partnership for tax purposes, for
purposes of this agreement and for the purpose of reports to the Partners shall
be kept on the cash or accrual basis, as the Managing Partners shall determine.
The Fiscal Year of the Production Partnership shall be the calendar year to the
extent permissible and the Managing Partners shall use their best efforts to
obtain any necessary approvals therefor.
Section 9.3. Bank Accounts
---------------------------
The General Partners shall maintain a bank account or accounts to be
maintained by the Managing Partners on behalf of the Production Partnership with
any bank in the United States having total assets in excess of $100,000,000. The
Managing Partners shall not deposit Production Partnership funds in an
-59-
account with any bank in an aggregate amount in excess of 5% of such bank's
total assets. Withdrawals shall be made only in the regular course of the
Production Partnership's business on such signature or signatures as the
Managing Partners may determine. All deposits and other funds not needed in the
operation of the business may be deposited in interest-bearing accounts,
certificates of deposit, money market funds (including those managed or marketed
by the Dealer Manager or its Affiliates) or invested in short-term United States
Government obligations maturing within one year, commercial paper of United
States corporations having the highest credit rating granted by Moody's
Investors Services, Inc. or Standard & Poors Corporation, or other similar
highly liquid investments.
Section 9.4. Reports
---------------------
A. The Managing Partners shall furnish to the Limited Partnership
sufficient information and data with respect to the properties and operations of
the Production Partnership in order to permit the Limited Partnership to satisfy
its reporting obligations under Section 9.4 of the Limited Partnership
Agreement.
B. The Managing Partners shall file on a timely basis with the Securities
and Exchange Commission all filings required to be made by the Production
Partnership pursuant to the Securities Act of 1933, the Securities Exchange Act
of 1934, and the rules and regulations promulgated thereunder.
Section 9.5. Elections
-----------------------
The Managing Partners shall cause the Production Partnership to make all
elections required or permitted to be made by the Production Partnership under
the Code and not otherwise expressly provided for in this Agreement, in the
manner that the Managing Partners believe will be most advantageous to Limited
Partnership, except that (i) the Managing Partners shall not be required to make
an election under Section 754 of the Code or corresponding provisions of
applicable state income tax laws, and (ii) the Managing Partners shall make the
election under Section 263(c) of the Code to expense all intangible drilling and
development costs in the initial Production Partnership Federal income tax
return filed for the Fiscal Year in which such costs are incurred.
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ARTICLE TEN
Amendments
----------
Section 10.1. Proposal and Adoption of Amendments Generally
------------------------------------------------------------
A. Notwithstanding anything to the contrary contained herein, the Managing
Partners may, without prior notice or consent of any other Partner, amend any
provision of this Agreement (including an amendment to admit an additional
Managing Partner) if, in their opinion, such amendment does not have a material
adverse effect upon the Limited Partnership. Such amendment shall thereafter be
disclosed to the Limited Partners within a reasonable time thereafter.
Amendments to this Agreement to reflect the addition or substitution of a
Partner or the admission of a successor Managing Partner shall be made at the
time and in the manner referred to in Section 10.2. Any other amendment to this
Agreement may be proposed by the Managing Partners or the Limited Partnership.
The Partner or Partners proposing such amendment shall submit a Notification
containing (a) the text of such amendment, (b) a statement of the purpose of
such amendment, and (c) an opinion of counsel obtained by the Partner or
Partners proposing such amendment to the effect that such amendment is permitted
by the Act, will not impair the limited liability of the Limited Partners, and
will not adversely affect the classification of the Limited Partnership or the
Production Partnership as partnerships for Federal income tax purposes. The
Managing Partners shall, within 15 days after receipt of any proposal under this
Section l0.lA, give Notification to all Partners of such proposed amendment, of
such statement of purpose and of such opinion of counsel, together, in the case
of an amendment proposed by other Partners, with the views, if any, of the
Managing Partners with respect to such proposed amendment.
B. Amendments to this Agreement shall be adopted if: (i) in the case of
amendments referred to in Section l0.2A, the conditions specified in Section 7.3
shall have been satisfactorily completed and the Production Partnership shall
not have been furnished with an opinion of counsel to the Production Partnership
to the effect that such amendment will adversely affect the classification of
the Limited Partnership or the Production Partnership as partnerships for
Federal income
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tax purposes; (ii) in the case of amendments referred to in Section l0.2B, the
conditions specified in Section 6.2 shall have been satisfactorily completed; or
(iii) in the case of all other amendments, such amendment shall have been
Consented to by the Limited Partnership (unless such Consent is not required
pursuant to Section l0.lA); provided, however, that no such amendment may: (a)
enlarge the obligations of any Partner under this Agreement without the Consent
of such Partner; (b) modify the method provided in Article Five of determining
and allocating or distributing, as the case may be, Income, Investment Income,
Profits, Losses, Distributable Cash or costs and expenses without the Consent of
each Partner adversely affected by such modification; (c) amend Sections 6.1 or
6.2 without the Consent of all the Partners; or (d) amend Sections 2.3, 4.3A,
4.3B, 4.3C, 4.3D, 4.4A, 4.4B, 4.5A, 4.9, 4.10 or this Article Ten without the
Consent of all the Partners.
C. Upon the adoption of any amendment to this Agreement, the amendment
shall be executed by the Managing Partners and all other Partners, and shall be
recorded in the proper records of the State and any other state in which the
Production Partnership is then doing business.
Section 10.2. Amendments on Admission or Removal of Partners
-------------------------------------------------------------
A. If this Agreement shall be amended to reflect the admission or
substitution of a Partner, the amendment to this Agreement may be adopted by
either of the Managing Partners, the Person to be substituted or added, and the
assigning Partner. Any such amendment shall be executed on behalf of all
Partners but may be executed by the substituted or added Partner, the assigning
Partner, and either of the Managing Partners, individually and on behalf of all
of the other Partners pursuant to the power of attorney granted in Section 12.5.
B. If this Agreement shall be amended to reflect the Removal of a Managing
Partner and the continuation of the business of the Production Partnership, such
amendment shall be signed by the remaining or successor Managing Partner and by
the Removed Managing Partner.
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C. No Person shall become a Partner, unless such Person shall have: (i)
become a party to, and adopted all of the terms and conditions of, this
Agreement; (ii) if such Person is other than an individual, provided upon
request the Managing Partners with evidence satisfactory to counsel for the
Production Partnership of such Person's authority to become a Partner under the
terms and provisions of this Agreement; and (iii) paid all reasonable legal fees
of the Production Partnership and the Managing Partners and filing and
publication costs in connection with such Person's becoming a Partner.
ARTICLE ELEVEN
Consents, Voting and Meetings
-----------------------------
Section 11.1. Method of Giving Consent
---------------------------------------
Any Consent required by this Agreement may be given by a Partner as
follows: (i) at a meeting, in person, by a written proxy or signed writing
directing the manner in which it desires that its vote be cast, which writing
must be received by the Managing Partners prior to such meeting, or (ii) without
a meeting, by a signed writing directing the manner in which it desires that its
vote be cast, which writing must be received by the Managing Partners prior to
the date upon which the vote of Partners are to be counted. Any Partner may
waive notice of or attendance at any meeting of the Partners and may execute a
signed written consent. Only the votes of Partners of record on the date of
Notification, whether at a meeting or otherwise, shall be counted. The laws of
the State pertaining to the validity and use of corporate proxies shall govern
the validity and use of proxies given by Partners.
Section 11.2. Meetings of Partners
-----------------------------------
The Managing Partners may at any time call a meeting of the Partners or
for a vote, without a meeting, of the Partners on matters upon which the
Partners are entitled to vote, and shall call for such a meeting or vote upon
receipt of a Notification therefor of the Limited Partnership. Within 15 days of
the receipt of the Notification, the Managing Partners shall notify all Partners
of record as of the date of the Notification as to the time and place of the
meeting, if called, and the general
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nature of the business to be transacted thereat, or if no such meeting has been
called, of the matter or matters to be voted upon and the date upon which the
votes will be counted. Any Production Partnership meeting or the date upon which
such votes, without a meeting, will be counted (regardless of whether the
Managing Partners have called for such meeting or vote upon the request of
Limited Partnership or have initiated such event without such request) shall be
not less than 30 or more than 60 days following mailing of the Notification
thereof by the Managing Partners. All expenses of the meetings, voting and such
Notification shall be borne by the Production Partnership.
Section 11.3. Submissions to Other Partners
--------------------------------------------
The Managing Partners shall give all the other Partners Notification of
any proposal or other matter required by any provisions of this Agreement or by
law to be submitted for the consideration and approval of the other Partners.
Such Notification shall include any information required by the relevant
provision of the Agreement or by law.
Section 11.4. Limited Partnership Consent
------------------------------------------
To the extent allowed in the Limited Partnership Agreement and subject to
Section 10.1, the Limited Partnership, by and through more than 50% in Interest
(as to capital and Profits and Losses) of the Limited Partners, may without the
concurrence of the Managing Partners:
(a) amend the Production Partnership Agreement;
(b) dissolve the Production Partnership;
(c) remove either or both Managing Partners and elect new ones;
(d) approve or disapprove the sale of all or substantially all of the
assets of the Production Partnership; and
(e) cancel or amend the terms of any contract for services with a
Managing Partner or any Affiliate thereof without penalty upon 30
days' notice.
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ARTICLE TWELVE
Miscellaneous Provisions
------------------------
Section 12.1. Notification to the Production Partnership of the
Managing Partners
----------------------------------------------------------------
Any Notification to the Production Partnership or the Managing Partners
shall be sent to the principal office of the Production Partnership, as set
forth in this Agreement. Except as provided herein, any Notification to a
Partner shall be sent to its last known address.
Section 12.2. Binding Provisions
---------------------------------
The covenants and agreements contained herein shall be binding upon and
inure to the benefit of the heirs, executors, administrators, successors and
assigns of the respective parties hereto.
Section 12.3. Applicable Law
-----------------------------
This Agreement shall be construed and enforced in accordance with the laws
of the State applicable to contracts made and to be performed wholly within the
State.
Section 12.4. Separability of Provisions
-----------------------------------------
If for any reason any provision or provisions hereof which are not
material to the purposes or business of the Production Partnership or of the
Partners' Interests are determined to be invalid and contrary to any existing or
future law, such invalidity shall not impair the operation of or affect those
portions of this Agreement that are valid.
-65-
Section 12.5. Appointment of the Managing Partners as Attorney-in-Fact
-----------------------------------------------------------------------
A. Each Partner, by the execution of this Agreement, irrevocably
constitutes and appoints each of the Managing Partners, its true and lawful
agent and attorney-in-fact with full power and authority in its name, place and
stead to execute, acknowledge, deliver, swear to, file and record at the
appropriate public offices such documents, instruments and conveyances that may
be necessary or appropriate to carry out the provisions or purposes of this
Agreement, including without limitation: (i) all certificates and other
instruments (including counterparts of this Agreement), and any amendment
thereof, including any amendment substituting a Partner, that the Managing
Partners deem appropriate to form, reform, qualify or continue the Production
Partnership (or a new partnership with substantially the same provisions as the
Production Partnership) as a partnership in the jurisdiction in which the
Production Partnership may conduct business; (ii) all amendments and other
instruments necessary to admit into the Production Partnership additional or
substituted Partners pursuant to Section 10.2; (iii) all instruments that the
Managing Partners deem appropriate to reflect a change or modification of the
Production Partnership in accordance with the terms of this Agreement (including
those necessary to reflect any additional Capital Contributions); and (iv) all
conveyances and other instruments that the Managing Partners deem appropriate to
reflect the dissolution and termination of the Production Partnership.
B. The appointment by all Partners of each of the Managing Partners as
agent and attorney-in-fact shall be deemed irrevocable and to be a power coupled
with an interest, in recognition of the fact that each of the Partners under
this Agreement will be relying upon the power of the Managing Partners to act as
contemplated by this Agreement in any filing and other action by it on behalf of
the Production Partnership, and shall survive the Incapacity of any Person
hereby giving such power and the transfer or assignment of all or any part of
the Interest of such person; provided, however, that in the event of the
transfer by a Partner of all of its Interest, the foregoing powers of attorney
of the transferor Partner shall survive such transfer only until such time as
the transferee shall have been admitted to the Production Partnership as a
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Substituted Partner and all required documents and instruments shall have been
duly executed, filed and recorded to effect such substitution.
Section 12.6. Entire Agreement
-------------------------------
This Agreement constitutes the entire agreement among the parties. This
Agreement supersedes any prior agreement or understanding among the parties and
may not be modified or amended in any manner other than as set forth herein.
Section 12.7. Paragraph Titles
-------------------------------
Article and section titles are for descriptive purposes only and shall not
control or alter the meaning of this Agreement as set forth in the text.
Section 12.8. Counterparts
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This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the same counterpart except
that no counterpart shall be binding unless signed by the General Partners.
GEODYNE PRODUCTION COMPANY PW PRODUCTION INC.
By: // Thomas W. Kitchin // By: // Lawrence S. Kash //
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Thomas W. Kitchin, Lawrence S. Kash,
President President
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PAINEWEBBER/GEODYNE ENERGY
INCOME LIMITED PARTNERSHIP I-F
By: GEODYNE PROPERTIES, INC.
General Partner
By: // Thomas W. Kitchin //
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Thomas W. Kitchin,
President
BY: PW ENERGY INC.
General Partner
By: // Lawrence S. Kash //
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Lawrence S. Kash,
President
ACKNOWLEDGMENTS
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
BEFORE ME, the undersigned Notary Public, duly commissioned and qualified
in and for the County and State aforesaid, personally came and appeared Lawrence
S. Kash who, after being duly sworn by me, did declare that he is the President
of PW Production Inc. and that by and with the authority of the Board of
Directors of PW Production Inc. he executed the foregoing Amended and Restated
Agreement of Partnership of PaineWebber/Geodyne Energy Income Production
Partnership I-F as the free and voluntary act and deed of PW Production Inc. for
the purposes therein set forth.
Subscribed and sworn to and acknowledged by said Lawrence S. Kash on this
____ day of November, 1986.
// Dorothy F. Haughey //
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Notary Public
My Commission Expires:
March 30, 1987
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STATE OF OKLAHOMA )
) ss.
COUNTY OF TULSA )
BEFORE ME, the undersigned Notary Public, duly commissioned and qualified
in and for the County and State aforesaid, personally came and appeared Thomas
W. Kitchin who, after being duly sworn by me, did declare that he is the
President of Geodyne Production Company and that by and with the authority of
the Board of Directors of Geodyne Production Company he executed the foregoing
Amended and Restated Agreement of Partnership of PaineWebber/Geodyne Energy
Income Production Partnership I-F as the free and voluntary act and deed of
Geodyne Production Company for the purposes therein set forth.
Subscribed and sworn to and acknowledged by said Thomas W. Kitchin on the
13th day of November, 1986.
// Cindy L. Hays //
-------------------
Notary Public
My Commission Expires:
August 19, 1987
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STATE OF OKLAHOMA )
) ss.
COUNTY OF TULSA )
BEFORE ME, the undersigned Notary Public, duly commissioned and qualified
in and for the County and State aforesaid, personally came and appeared Thomas
W. Kitchin who, after being duly sworn by me, did declare that he is the
President of Geodyne Properties, Inc. and that by and with the authority of the
Board of Directors of Geodyne Properties, Inc. and as general partner for
PaineWebber/Geodyne Energy Income Limited Partnership I-F he executed the
foregoing Amended and Restated Agreement of Partnership of PaineWebber/Geodyne
Energy Income Production Partnership I-F as the free and voluntary act and deed
of Geodyne Properties, Inc. as general partner of PaineWebber/Geodyne Energy
Income Limited Partnership I-F for the purposes therein set forth.
Subscribed and sworn to and acknowledged by said Thomas W. Kitchin on the
13th day of November, 1986.
// Cindy L. Hays //
-------------------
Notary Public
My Commission Expires:
August 19, 1987
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STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
BEFORE ME, the undersigned Notary Public, duly commissioned and qualified
in and for the County and State aforesaid, personally came and appeared Lawrence
s. Kash who, after being duly sworn by me, did declare that he is the President
of PW Energy, Inc. and that by and with the authority of the Board of Directors
of PW Energy, Inc. and as general partner for PaineWebber/Geodyne Energy Income
Limited Partnership I-F he executed the foregoing Amended and Restated Agreement
of Partnership of PaineWebber/Geodyne Energy Income Production Partnership I-F
as the free and voluntary act and deed of PW Energy, Inc. as general partner of
PaineWebber/Geodyne Energy Income Limited Partnership I-F for the purposes
therein set forth.
Subscribed and sworn to and acknowledged by said Lawrence S. Kash on this
____ day of November, 1986.
// Dorothy F. Haughey //
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Notary Public
My Commission Expires:
March 30, 1987
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