PW/GEODYNE
NPI PARTNERSHIP P-3
AGREEMENT OF PARTNERSHIP
Agreement of Partnership, dated as of February 13, 1989, among Geodyne
Energy Company, a Delaware corporation, as Managing Partner, and
PaineWebber/Geodyne Institutional/Pension Energy Income Limited Partnership P-3,
an Oklahoma limited partnership, as General Partner.
Whereas, the parties hereto desire to form a general partnership under
the Uniform Partnership Act of the State of Oklahoma;
Now, Therefore, in consideration of the mutual promises and agreements
made herein, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE ONE
Defined Terms
The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Article One. The
singular shall include the plural and the masculine gender shall include the
feminine, the neuter and vice versa, as the context requires. 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 Partner for the NPI Partnership.
"Acquisitions Fee" shall mean the fee paid by the NPI Partnership to the
Managing Partner pursuant to Section 5.2(1) of this Agreement in connection with
the NPI Partnership's acquisition of Net Profits Interests and Royalties and the
conduct of its business operations.
"Acquisition Reserve Report" shall mean a Hydrocarbon reserve report made
available to the NPI Partnership prepared by a qualified independent petroleum
engineering firm acceptable to the Managing Partner in connection with the
proposed acquisition of a Net Profits Interest or Royalty, which shall include
statements (i) identifying reserves of Hydrocarbons referred to in such report
as Proved Developed Producing Reserves, Proved Developed Non-Producing Reserves
or Proved Undeveloped Reserves, as the case may be, and identifying all
computations and determinations made for purposes of such report, including,
without limitation, the present and future prices for Hydrocarbons and the
present and future costs to produce and develop such Hydrocarbons used in such
computations and determinations, (ii) with respect to the determination of the
nature and extent of the reserves of Hydrocarbons reflected in such report, that
the collection, analysis and evaluation of the basic physical data upon which
such determination is based were performed by such qualified petroleum
engineering firm or if such data were collected by another Person, that such
qualified petroleum engineering firm has made inquiry with respect
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to the methods employed in such collection, (iii) specifying the respective
amounts of Proved Developed Producing Reserves, Proved Developed Non-Producing
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 Partner and otherwise in accordance with sound engineering and industry
practices, including such standards and practices as may be promulgated by the
Society of Petroleum Engineers of the American Institute of Mining and
Metallurgical Engineers. Any such report may state that such qualified petroleum
engineering firm expresses no opinion and makes no warranty or representation
with respect to the proposed acquisition of such Net Profits Interest or Royalty
and that such qualified petroleum engineering firm is relying on information
furnished by the Managing Partner as to the historical volumes of any
Hydrocarbons actually produced and as to the proposed ownership interest of the
NPI Partnership in such Net Profits Interest or Royalty.
"Act" shall mean the Oklahoma Uniform Partnership Act, as amended from
time to time.
"Activation" or "Activated" shall mean the date on which (i) with respect
to the Limited Partnership, the Depositary, on behalf of the Unit Holders, shall
have contributed the Unit Holders' Subscription to the Limited Partnership, and
(ii) with respect to the NPI Partnership, the date on which the Limited
Partnership shall have made its Capital Contribution to the NPI 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. Notwithstanding the foregoing, no Person shall be deemed to be an
Affiliate solely by reason of its ownership of depositary units of or limited
partnership interests in a limited partnership.
"Affiliated Program" shall mean a drilling or income program (whether in
the form of a limited partnership, general partnership, joint venture or
otherwise) interests in which were offered (but not necessarily exclusively) to
persons or entities not engaged in a trade or business within the oil and gas
industry (other than by virtue of its participation in an Affiliated Program)
and of which the Managing Partner or an Affiliate thereof serves as general
partner, venturer, sponsor or manager.
"Agreement" shall mean this Agreement of Partnership as amended from time
to time.
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"Capital Account" shall mean, as to any Partner, an account maintained on
the books of the NPI Partnership in accordance with the provisions of Section
5.3D below.
"Capital Contribution" shall mean the total amount of money contributed
to the NPI Partnership by all Partners or any class of Partners or any one
Partner (or the predecessor 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 1986, as amended (or any
corresponding provisions of succeeding law).
"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.
"Depositary Unit" shall mean an increment of the attributes of the
Interest of the Depositary as the Limited Partner of the Limited Partnership
that is assigned to a Unit Holder.
"Direct Administrative Costs" shall mean the actual and necessary direct
costs attributable to services provided to the NPI Partnership by parties other
than the Managing Partner or its Affiliates, whether incurred by the NPI
Partnership directly or incurred by the Managing Partner or its Affiliates,
including the annual audit fees, legal fees and expenses, the costs of reviewing
tax returns and reports, the cost of reserve reports (other than the cost of
Acquisition Reserve Reports, Engineering Audit Letters and evaluations thereof
conducted on behalf of a NPI Partnership) prepared by independent petroleum
engineering firms, and all other such costs directly incurred by or for the
benefit of the NPI Partnership.
"Distributable Cash" shall mean, with respect to the NPI 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 Partner, 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
independent petroleum engineering firm acceptable to the Managing Partner in
connection with the proposed acquisition of a Producing Property, which shall
include statements indicating that (i) such qualified petroleum engineering firm
has reviewed an oil and gas reserve report prepared by the engineering staff of
Geodyne Resources, Inc. or an Affiliate, (ii) in the opinion of such qualified
petroleum engineering firm, the reserve report was prepared in accordance with
sound engineering and industry practices, including such standards and practices
as may be promulgated by the Society of Petroleum Engineers of the American
Institute of Mining and Metallurgical Engineers, and (iii) with respect to the
determination of the nature and extent of the reserves of Hydrocarbons reflected
in such report, such qualified petroleum engineering firm has made inquiry with
respect to the methods employed in the collection, analysis and evaluation of
the basic physical data upon which such determination is based.
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"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 (other than depreciation
relating to real property), geological, engineering, travel, office rent,
telephone, secretarial, employee compensation and benefits, and other items of a
general and administrative nature, whether like or unlike the foregoing, and any
other incidental expenses reasonably necessary to the conduct of the NPI
Partnership's business, including the acquisition and administration of Net
Profits Interests and Royalties, computed on a cost basis, determined by the
Managing Partner in accordance with generally accepted accounting principles and
subject to review by an independent public accountant or certified public
accountant in connection with the annual audit of the NPI Partnership and its
Affiliates. General and Administrative Costs shall not include any costs
includable under the foregoing but which are included as Property Acquisition
Costs or Direct Administrative Costs.
"General Partner" shall mean PaineWebber/Geodyne Institutional/Pension
Energy Income Limited Partnership P-3, an Oklahoma limited partnership, acting
in such capacity, any successor in that capacity, and any other General Partner
admitted to the NPI Partnership pursuant to the provisions of this Agreement
subsequent to the Activation of the NPI Partnership.
"Geodyne Energy" shall mean Geodyne Energy Company, a Delaware
corporation.
"Hydrocarbons" shall mean crude oil, natural gas, condensate, natural gas
liquids and other liquid or gaseous hydrocarbons.
"Incapacity" or "Incapacitated" shall mean the adjudication of bankruptcy
(except that, in the case of the 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 NPI 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 NPI Partnership.
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"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 NPI Partnership at any particular time,
including the rights and obligations of such Partner under this Agreement and
the Act.
"Investment Income" shall mean all interest and dividend income earned on
temporary investments of the NPI Partnership at any time prior to the time at
which an amount equal to the Capital Contributions to the NPI Partnership has
been (1) 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 Geodyne Institutional Depositary Company or
any substituted limited partners of the Limited Partnership.
"Limited Partnership" shall mean the PaineWebber/Geodyne
Institutional/Pension Energy Income Limited Partnership P-3, an Oklahoma limited
partnership.
"Limited Partnership Agreement" shall mean the agreement under which the
Limited Partnership was formed, as amended and restated.
"Managing Partner" shall mean Geodyne Energy Company, a Delaware
corporation, and any other Person admitted as additional or Substituted Managing
Partner pursuant to Article Six of this Agreement.
"Net Profits Interest" shall mean an interest in a Producing Property
which entitles the holder thereof to a share of the gross revenues from oil and
gas production from the Producing Property less all operating, production,
development, transportation, transmission and marketing expenses, severance,
sales, ad valorem and excise taxes (including the windfall profit tax)
attributable to such production.
"Notification" shall mean a writing, containing the information required
by this Agreement to be communicated to any Person, hand delivered or sent by
registered or certified mail, return receipt requested, postage prepaid, to such
Person at the last 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.
"NPI Partnership" shall mean the general partnership governed under and
pursuant to this Agreement, as said general partnership may from time to time be
constituted.
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"NPI Partnership Account" shall mean the bank account or accounts
maintained by the Managing Partner pursuant to Section 9.3.
"NPI Partnership Property" shall mean any interest, property and right of
any type owned by the NPI Partnership.
"NPI Partnership Well" shall mean any well in which the NPI Partnership
has an interest.
"Organization and Offering Costs" shall mean all costs and expenses
incurred by the Managing Partner in connection with the organization of the NPI
Partnership, including, without limitation, the legal, printing, accounting and
other costs incurred in connection with the organization of the NPI Partnership,
and costs incurred in connection with preparing, filing and recording this
Agreement.
"Partner" shall mean the Managing Partner or any General Partner of the
NPI Partnership.
"Payout" shall mean that time at which cash distributions have been made
by the Limited Partnership to the Unit Holders (together with their predecessors
in interest) pursuant to Section 5.1 of the Limited Partnership Agreement
(together with any distributions to such Unit Holders pursuant to Section 3.3 of
the Limited Partnership Agreement), in an aggregate amount equal to the Unit
Holders' Subscriptions to the Limited Partnership.
"Person" shall mean any individual, partnership, corporation, trust or
other entity.
"Prior NPI Partnership" shall mean a general partnership of which Geodyne
Energy is managing partner, and a limited partnership, of which depositary units
or units of limited partnership interest were offered pursuant to a public
offering registered with the Securities and Exchange Commission, is the other
general partner, formed prior to the Activation of the NPI 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.
"Profits" and "Losses" shall mean the net income or losses of the NPI
Partnership for federal income tax purposes determined as of the close of the
NPI Partnership's Fiscal Year, as well as, when the context requires, any
tax-exempt income and nondeductible expenses.
"Property Acquisition Costs" shall mean, without duplication, the sum of
(1) the prices paid by the NPI Partnership or the Managing Partner or an
Affiliate to acquire a Net Profits Interest or Royalty ultimately sold to the
NPI Partnership, including the price paid to acquire a purchase option with
respect to a Net Profits Interest or
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Royalty, lease bonuses and equipment costs associated therewith; (2) title
insurance or examination costs, brokers' commissions and finders fees, filing
fees, recording fees, transfer taxes, if any, and like charges in connection
with the acquisition of Net Profits Interest or Royalty; (3) delay rentals and
ad valorem taxes paid by the buyer with respect to such property to the date of
its transfer to the buyer; (4) interest actually incurred by the Managing
Partner or its Affiliates to acquire or maintain such Net Profits Interest or
Royalty prior to its transfer to the NPI Partnership; and (5) all reasonable,
necessary and actual expenses incurred by the Managing Partner or an Affiliate
in connection with the acquisition of Net Profits Interest or Royalty and paid
to third parties who are not Affiliates for geological, geophysical, seismic,
land, engineering, drafting, accounting, auditing, legal and other like
services, including the NPI Partnership's costs incurred (to the extent
consistent with generally accepted industry standards) in connection with the
NPI Partnership's review of proposed acquisitions of Net Profits Interest or
Royalty, Reports and Engineering Audit Letters, all allocated to the property in
accordance with the allocation procedures used by the Managing Partner, any of
its Affiliates or the NPI 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 NPI 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 Partner and which is
reasonably anticipated by the Managing Partner to contain at least one
reservoir.
"Prospectus" shall mean the prospectus pursuant to which the Depositary
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
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
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(2) "Proved Developed Non-Producing Reserves" which are proved
developed reserves which exist behind the casing of existing wells,
or at minor depths below the present bottom of such wells, which
are expected to be produced through these wells in the predictable
future, where the cost of making 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; provided that proved reserves for other
undrilled units can be claimed where it can be demonstrated with
certainty, based on accepted geological, geophysical and engineering
studies and data, that there is continuity of production from an existing
productive formation. No estimates for Proved Undeveloped Reserves are
attributable to any acreage for which improved recovery is contemplated,
unless the techniques to be employed have been proved effective by actual
tests in the same area and reservoir.
"Remove", "Removed" or "Removal" shall mean, with reference to the
removal of the Managing Partner, the termination of the management powers,
duties and responsibilities of the Managing Partner pursuant to Section 6.2 and
the removal of the Managing Partner as a Partner.
"Royalty" shall mean an interest, including an overriding royalty, 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 NPI Partnership
of any NPI Partnership Property.
"State" shall mean the State of Oklahoma.
"Substituted Partner" shall mean any Person admitted to the NPI
Partnership as a Partner pursuant to Sections 7.3 and 10.2 of this Agreement.
"Unit Holders" shall mean those persons who hold a Depositary Unit and
who are reflected on the books and records of Geodyne Institutional Depositary
Company, as Depositary of the Limited Partnership, as holders of record of
Depositary Units as of the close of business at the time of reference thereto.
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"Unit Holders' Subscriptions" shall mean the aggregate amount subscribed
for by the initial Unit Holders to acquire their Depositary Units in the Limited
Partnership.
"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.
ARTICLE TWO
Name, Place of Business and Office; Term
Section 2.1. Name, Place of Business and Office
The NPI Partnership shall be conducted under the name PW/Geodyne NPI
Partnership P-3. The business of the NPI Partnership may, however, be conducted
under any other name deemed necessary or desirable by the Managing Partner in
order to comply with applicable laws. The office and principal place of business
of the NPI Partnership shall be c/o Geodyne Energy Company, 320 South Boston
Avenue, The Mezzanine, Tulsa, Oklahoma 74103-3708. The Managing Partner 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 Partner.
The Managing Partner may change the principal place of business and the
location of such office and may establish such additional offices as it deems
advisable from time to time; provided, however, that in the event the principal
place of business of the NPI Partnership shall be changed, the Managing Partner
shall give written notice thereof to the Unit Holders.
Section 2.2. Purpose
The business and purpose of the NPI Partnership shall be to acquire, own,
hold, manage, trade, sell and exchange Hydrocarbon properties and interests
therein of all kinds onshore and offshore in the continental United States,
including, without limitation, Net Profits Interests, Royalties, interests in
general or limited partnerships, joint ventures and other entities that hold or
are formed to acquire interests in such properties or interests; to purchase,
lease, own, hold, operate, sell and exchange all equipment, machinery,
facilities, systems and 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.
The NPI Partnership shall continue in force and effect until December 31,
2005, provided that the Managing Partner may extend such term for up to five
periods of two years each, or until dissolution prior thereto pursuant to the
provisions hereof.
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ARTICLE THREE
Partners and Capital
Section 3.1. Managing Partner
A. The name, address and Capital Contribution of the Managing Partner are
set forth in Schedule A attached hereto and are incorporated herein. The
Managing Partner shall not be required to make any Capital Contribution except
as set forth in Sections 3.1B, 3.4 and 8.2C.
B. The Managing Partner shall also contribute an amount of cash
sufficient to pay its share of costs allocated to it pursuant to Section 5.3 of
this Agreement to the extent that the amount of Income allocated to it (and/or
the amount of NPI Partnership borrowings incurred on its behalf) is insufficient
to pay such costs.
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 Partner shall deposit in the NPI Partnership Account the
Capital Contributions of the Limited Partnership and the Managing Partner and
apply such Capital Contributions to the payment of the Acquisitions Fee. The
balance of such Capital Contributions shall be held in the NPI Partnership
Account to be applied to the payment of Property Acquisition Costs and, to the
extent not payable out of Income or Investment Income, Direct Administrative
Costs and other NPI Partnership costs (except General and Administrative Costs)
allocable to the Limited Partnership; provided, however, that such funds may be
temporarily invested prior to the payment of such costs in accordance with
Section 9.3.
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 Partner, will not be committed for
expenditure by the second anniversary of the Activation of the NPI 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 NPI Partnership. In addition, the Managing
Partner shall contribute cash to the NPI Partnership (with respect to which its
Capital Accounts will be credited) in an amount equal to the amount paid to the
Managing Partner in respect of the Acquisitions 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 shall be
responsible for the obligation of the Managing Partner to contribute
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cash to the NPI Partnership pursuant to this Section 3.4. All amounts so
refunded to the Limited Partnership shall reduce dollar for dollar its Capital
Account.
Section 3.5 NPI Partnership Capital
A. No Partner shall be paid interest on any Capital Contribution to the
NPI Partnership or on such Partner's Capital Account, notwithstanding any
disproportion therein as between Partners.
B. The NPI Partnership shall not redeem any Partner's Interest. Except as
provided in Sections 3.4, 6.1, 6.2 and 8.2, 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.
Section 3.6. Liability of Partners
Each Partner signatory hereto or subsequently admitted to the NPI
Partnership agrees that it shall remain generally liable for any obligation or
recourse liability of the NPI 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 NPI Partnership obligations and recourse
liabilities in proportion to each Partner's share of such obligations and
liabilities at the time of their accrual.
ARTICLE FOUR
Rights, Powers and Duties of
The Managing Partner
Section 4.1. Management and Control of the NPI Partner
A. Subject to the Consent of the Limited Partnership as and when required
by this Agreement, the Managing Partner, within the authority granted to it
under and in accordance with the provisions of this Agreement, shall have the
full and exclusive right to manage and control the business and affairs of the
NPI Partnership and to make all decisions regarding the business of the NPI
Partnership and shall have all of the rights, powers and obligations of a
managing general partner of a general partnership under the laws of the State.
The Managing Partner 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 NPI Partnership's business nor shall any other Partner have the
power to represent, act for, sign for or bind the Managing Partner or the NPI
Partnership. The Limited Partnership hereby Consents to the exercise by the
Managing Partner of the powers conferred on it by this Agreement.
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Section 4.2. Authority of the Managing Partner
A. In addition to any other rights and powers which the Managing Partner
may possess under this Agreement and the Act, the Managing Partner shall, except
and subject to the extent otherwise provided or limited in this Agreement, have
all specific rights and powers required or appropriate to its management of the
NPI 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 NPI
Partnership revenues, subject to Section 4.3C of this Agreement, in
furtherance of the business of the NPI Partnership;
(ii) acquire and manage Net Profits Interests and Royalty interests
in Hydrocarbon properties and hold all such property and interests in the
name of the NPI Partnership; provided, however, that in connection
therewith, the Managing Partner shall, contemporaneously with the
acquisition of an interest in a Producing Property, or as soon as
practicable thereafter, file or cause to be filed for recordation an
appropriate conveyance or agreement evidencing the NPI 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 Partner believes necessary to establish the
NPI Partnership's priority of interest; and, provided, further, Producing
Properties may be held in the name of a nominee for the NPI Partnership
if such action is deemed necessary by the Managing Partner to facilitate
the acquisition and administration of such interest and if such nominee
record holder conducts no other business or operations other than holding
record title to interests in properties;
(iii) execute such instruments and agreements, to do such acts, to
employ such persons and to contract for such services as the Managing
Partner determines are necessary or appropriate to conduct the NPI
Partnership's business, including the entering into management and
advisory contracts;
(iv) enter into any partnership agreement, sharing arrangement, or
joint venture with any Person acceptable to the Managing Partner and which
is engaged in any business or transaction in which the NPI Partnership is
authorized to engage, provided that the NPI Partnership shall not be
deemed thereby to be an "investment company" for purposes of the
Investment Company Act of 1940, as amended;
(v) subject to Section 4.3B, abandon or otherwise dispose of any
interest in Hydrocarbon properties acquired for the NPI Partnership upon
such terms and for such consideration as the Managing Partner may
determine;
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(vi) sell production payments payable out of all or any part of any
one or more of the Producing Properties acquired by the NPI Partnership
and to devote and expend the proceeds of any such sale for any of the
purposes of the NPI Partnership for which the proceeds of borrowings may
be applied;
(vii) 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 NPI Partnership Property, including Net Profits Interests and
Royalties, production and proceeds of production, or to assign any monies
owing or to be owing to the NPI 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 NPI 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
NPI Partnership other than as a secured creditor;
(viii) invest Capital Contributions temporarily in the
investments set forth in Section 9.3;
(ix) employ on behalf of the NPI 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 Partner may deem reasonable and appropriate;
(x) incur expenses for travel, telephone, telegraph, insurance, and
for such other things, whether similar or dissimilar, as may be deemed
necessary or appropriate for carrying on and performing the business of
the NPI Partnership;
(xi) enter into such agreements and contracts with such parties and
to give such receipts, releases, and discharges with respect to any and
all of the foregoing and any matters incident thereto as the Managing
Partner may deem advisable or appropriate;
(xii) guarantee the payment of money or the performance of any
contract or obligation by any person, firm, or corporation on behalf of
the NPI Partnership;
(xiii) sue and be sued, complain and defend in the name and on
behalf of the NPI Partnership;
(xiv) make such classifications and determinations as the Managing
Partner deems advisable, having due regard for any relevant generally
accepted accounting principles and oil and gas industry practices;
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(xv) purchase insurance, or extend the Managing Partner's or its
Affiliates' insurance, at the NPI Partnership's expense, to protect the
NPI Partnership Property and the business of the NPI Partnership against
loss, and to protect the Managing Partner against liability to third
parties arising out of NPI Partnership activities, such insurance to be in
such limits, to be subject to such deductibles and to cover such risks as
the Managing Partner deems appropriate;
(xvi) pay all ad valorem taxes levied or assessed against the NPI
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 NPI Partnership;
(xvii) enter into agreements on behalf of the NPI Partnership with
Affiliates subject to the limitations set forth in Section 4.3C;
(xviii) sell a portion or all or substantially all of the properties
and other assets of the NPI Partnership to itself, or any of its
Affiliates or Affiliated Programs or any other person and to receive for
the NPI 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 it deems in the best
interests of the Unit Holders; provided, however, that no such sale shall
be consummated without the prior Consent of the Limited Partnership
pursuant to the provisions of Section 4.4B of this Agreement. In the event
of the dissolution of the NPI Partnership followed by any such sale of the
NPI Partnership's assets, the Managing Partner shall, subject to the
provisions of Section 8.2 of this Agreement, be appointed the liquidating
agent for the NPI Partnership;
(xix) make, exercise or deliver any general assignment for the
benefit of the NPI Partnership's creditors, but only upon the prior
Consent of the Limited Partnership pursuant to the provisions of Section
4.4B;
(xx) take such other action and perform such other acts as may be
deemed appropriate to carry out the business of the NPI Partnership; and
(xxi) inform each other Partner of all administrative and judicial
proceedings for an adjustment at the NPI 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 NPI 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 NPI
Partnership items; the power to extend the statute of limitations for all
Partners with respect to NPI Partnership tax items; and (b) the power to
file a petition with an appropriate federal court for review of a final
partnership administrative adjustment.
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B. No person, firm or corporation dealing with the NPI Partnership shall
be required to inquire into the authority of the Managing Partner to take or
refrain from taking any action or make or refrain from making any decision, but
any person so inquiring shall be entitled to rely upon a certificate of the
Managing Partner as to its due authorization.
Section 4.3. Sales, Purchases and Management of Net Profits Interests
and Royalties; Additional Financing
A. The provisions of Section 4.3C notwithstanding, if one or more
Affiliated Programs intends to acquire Working Interests, acquisitions of Net
Profits Interests by the NPI Partnership may be made in connection with such
Affiliated Program's acquisitions of Working Interests. Net Profits Interests
acquired by the NPI Partnership may either be carved-out of the Affiliated
Program's Working Interests or reserved from the limited partnership Affiliate's
Working Interests by the sellers of such Working Interests on such basis as the
Managing Partner determines. Any Net Profits Interest acquired by an NPI
Partnership may not exceed 75% of the net profits attributable to the aggregate
Working Interests in the Producing Properties acquired by the NPI Partnership
and Affiliated Program together. The primary factor in determining the sharing
of net profits between the Working Interests acquired by the Affiliated Program
and the Net Profits Interest acquired by the NPI Partnership will be the amount
of money contributed to each acquisition by each purchaser. In fixing such
sharing percentages, the Managing Partner need not give special consideration to
risks associated with the ownership of the Working Interests or to costs of
equipment which will be owned by the Affiliated Program as Working Interest
owners if such costs will be amortized against the proceeds of oil and gas
production in arriving at the amount of net profits from which the NPI
Partnership's (as Net Profits Interest holder) share of production is
determined. If the NPI Partnership acquires a Royalty interest in a Producing
Property in which a Working Interest is acquired by the Affiliated Program, each
participant's portion of the purchase price will be determined on the basis of
an appraisal by the Managing Partner's petroleum reservoir engineer of the fair
market values of the respective interests in the property being acquired (taking
into account the tax consequences applicable to the several participants). If
the Managing Partner or an Affiliate other than an Affiliated Program acquires
an interest in any such property acquisition, such appraisal will be performed
by an independent petroleum engineer and if the aggregate revenue interest of
the Managing Partner and its Affiliates in any Affiliated Program participant in
such a property acquisition is greater than their aggregate revenue interest in
the NPI Partnership, then with respect to the property interests so acquired the
greater aggregate revenue interest shall be reduced so as not to exceed the
lesser revenue interest.
B. Net Profits Interests and Royalties whose purchase price exceeds 10%
of the Unit Holders' Subscriptions to the Limited Partnership may be acquired by
the NPI Partnership only if an Acquisition Reserve Report or an Engineering
Audit Letter has been prepared and evaluated with respect thereto.
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C. Neither the Managing Partner nor any Affiliate shall sell, transfer or
convey any or all of its interest in a Producing Property (including any Net
Profits Interests and any Royalty interest therein) to the NPI Partnership or
purchase or acquire any oil and gas properties or interest from the NPI
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 NPI Partnership has fully
expended that portion of its Capital Contribution available for the
acquisition of Net Profits Interests and Royalties, neither the Managing
Partner nor any Affiliate of the Managing Partner (other than an
Affiliated Program) shall acquire an interest in any Producing Property
after the Activation of the NPI Partnership unless prior thereto the NPI
Partnership shall have been offered the right to acquire an interest in
such Producing Property, or an interest therein, and the Managing Partner
shall have determined that the acquisition of an interest in such
Producing Property is not in the best interests of the NPI Partnership;
(ii) Any purchase or sale of an interest in a Producing Property
from or to the Managing Partner or any Affiliate shall be made at the
Property Acquisition Cost for an interest in 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 the Managing Partner or its Affiliates sells, transfers or
conveys any oil, gas or other mineral interests or property (including
Net Profits Interests and Royalties) to the NPI Partnership, it must, at
the same time, sell to the NPI Partnership an equal proportionate
interest in all its other property in the same Prospect. A Sale or
conveyance to the NPI Partnership of less than the entire ownership
interest of the Managing Partner or any Affiliate is only permitted if:
(a) the interests retained or obtained by the Managing Partner or
Affiliate and acquired by the NPI Partnership are either (x)
proportionate, uniform and undivided Net Profits Interests if the
interest in a Producing Property acquired by the NPI Partnership is a Net
Profits Interest or (y) proportionate, uniform and undivided Royalty
interests if the interest in a Producing Property acquired by the NPI
Partnership is a Royalty, (b) the respective obligations of the Managing
Partner or Affiliate and the NPI Partnership are substantially the same,
and (c) the interest of the Managing Partner or its Affiliate in revenues
does not exceed the amount proportionate to its interest. The Managing
Partner and its Affiliate may not retain or obtain any overrides or other
burdens on the interest obtained by the NPI Partnership, and may not
enter into any Farmouts with respect to its retained interest, except to
nonaffiliated third parties or to an Affiliated Program;
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(iv) In the event the Managing Partner or any Affiliate proposes to
acquire an interest in a Prospect in which the NPI Partnership has an
interest or in a Prospect abandoned by the NPI Partnership within one year
preceding such proposed acquisition, the Managing Partner or Affiliate
shall offer the interest to the NPI Partnership; and if cash or financing
is not available to the NPI Partnership to purchase such interest, neither
the Managing Partner nor Affiliate shall acquire an interest in such
Prospect. The term "abandon" for the purpose of this subparagraph shall
mean the termination, either voluntary or by operation of the Lease or
otherwise, of all of the NPI Partnership's interest in the Prospect. This
subsection shall not apply after the lapse of five years of the Activation
of the NPI Partnership or to any Affiliated Program where the interest of
the Managing Partner or an Affiliate is less than or equal to its interest
in the NPI Partnership, there are no duplication of fees to the Managing
Partner or an Affiliate, and the Managing Partner or an Affiliate does not
obtain a greater benefit from purchase of the interest by the Affiliated
Program than it would if the interest were purchased by the NPI
Partnership;
(v) During the existence of the NPI Partnership and before it has
ceased operations, neither the Managing Partner nor any Affiliate
(excluding any Affiliated Program where the interest of the Managing
Partner or an Affiliate is less than or equal to its interest in the NPI
Partnership) shall acquire, retain or drill for its own account any oil
and gas interest in any Prospect upon which the NPI Partnership possesses
an interest, except for transactions which comply with Section 4.3C(iii).
The geological limits of a Prospect shall be enlarged or contracted on the
basis of subsequently acquired geological data to define the productive
limits of a reservoir and shall include all of the acreage determined by
the subsequent data to be encompassed by such reservoir. If the geological
limits of a Prospect, as so enlarged, encompass any interest held by the
Managing Partner or an Affiliate of the Managing Partner (excluding an
Affiliated Program where the interest of the Managing Partner or an
Affiliate is identical to or less than its interest in the NPI
Partnership), such a Net Profits Interest therein shall be sold to the NPI
Partnership in accordance with the provisions of Section 4.3C(iv) and any
net income previously received by the Managing Partner or Affiliate shall
be paid over to the NPI Partnership. If the Managing Partner or an
Affiliate acquires additional acreage or interests in a Prospect of the
NPI Partnership, it must sell such to the NPI Partnership and is
prohibited from retaining any such interest, except as may be permitted by
Section 4.3C. Notwithstanding the foregoing, neither the NPI Partnership
nor the Limited Partnership will be required to expend additional funds to
acquire any such interest unless funds are available from the Capital
Contributions of the Partners;
(vi) If a Net Profits Interest or Royalty held by the NPI
Partnership burdens undeveloped acreage in which an Affiliated Program
owns an interest, the owner of such undeveloped leasehold interest shall
have the right to farm out all or a portion of the
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Working Interest constituting such undeveloped leasehold interest, and if
the Working Interest remaining or reverting to the owner of the
undeveloped leasehold interest is reduced by such Farmout, the Net Profits
Interest or Royalty shall be proportionately reduced, but shall share
proportionately in any benefits derived from such Farmout. In the event a
Net Profits Interest does not, by its terms, provide the specific
consequences of a Farmout of the Working Interest constituting such
undeveloped leasehold interest and if such undeveloped leasehold interest
is farmed out to an Affiliate, the Managing Partner may subordinate the
NPI Partnership's Net Profits Interest to such Farmout, provided that the
Net Profits Interest shall burden any Working Interest or other interest
retained by, or which may revert to, the owner of the undeveloped
leasehold interest pursuant to any such Farmout. The terms of the Farmout
will be consistent with and no less favorable to the NPI Partnership than
the terms of Farmouts prevalent in the geographic area for similar
arrangements.
(vii) Any operating agreements pursuant to which the Managing
Partner or any Affiliate acts as operator of Producing Properties
burdened with a Net Profits Interest owned by the NPI Partnership, shall
be of a nature customary in the industry and payments to the 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; and
(viii) To the extent the Managing Partner or any Affiliate acquires
an interest in a Producing Property in which the NPI Partnership acquires
an interest, the 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.
D. If the Managing Partner determines that funds in addition to the
Capital Contributions to the NPI Partnership are required for the payment of NPI
Partnership costs (other than Property Acquisition Costs), the Managing Partner
may apply or reserve Income or Investment Income for the payment of such NPI
Partnership costs and/or the Managing Partner may cause the NPI Partnership to
borrow funds for the payment of such costs; provided, however, that the
aggregate outstanding principal amount of such borrowings shall not at any one
time exceed an amount equal to 5% of the Unit Holders' Subscriptions to the
Limited Partnership.
E. The 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 NPI Partnership costs by assigning to lenders all or part of
its interest in Profits and Distributable Cash; provided, however, that the
Managing Partner, shall retain unencumbered at least a 1% interest in Profits
and Distributable Cash. Notwithstanding anything to the contrary in this
Agreement, in the event of any sale or foreclosure of the Managing Partner's
interest
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in full or partial satisfaction of such borrowings: (i) 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 will not bear any of the costs attributable to such sold or
foreclosed interest and that the 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 the Managing Partner; and (ii) the Limited Partnership's share of
General and Administrative Costs and Direct Administrative Costs shall not be
increased as a result of such sale or foreclosure. The Managing Partner shall
indemnify the Limited Partnership against any expenses resulting from a sale or
foreclosure of the Managing Partner's interest.
Section 4.4. Prohibited Transactions
A. Notwithstanding any other provision of this Agreement to the
contrary, the following transactions are expressly prohibited:
(i) the NPI Partnership shall not make any loans to the Managing
Partner or any Affiliate;
(ii) neither the Managing Partner nor any Affiliate shall make any
loans to the NPI Partnership except at a rate of interest not in excess
of the interest cost incurred by the Managing Partner or Affiliates or
the amount of interest that would be charged to the NPI Partnership
(without regard to the Managing Partner's or Affiliate's financial
abilities or guarantees) by unrelated banks on comparable loans for the
same purpose, whichever is lower, and the Managing Partner and Affiliates
shall not receive points or financing charges or fees regardless of the
amount;
(iii) except as expressly contemplated hereby, no agent, attorney,
accountant or other independent consultant or contractor who is also
employed on a full-time basis by the Managing Partner or any Affiliate
shall be compensated by the NPI Partnership for his or her services;
(iv) other than those received for the account of the NPI
Partnership, no rebates may be received by the Managing Partner or any
Affiliate in connection with NPI Partnership operations or expenditures,
nor may the 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 the
Managing Partner or an Affiliate for the account of the NPI Partnership
shall be determined and the net amount resulting from such monthly
settlement shall be deposited into a NPI Partnership Account and no funds
which, after such monthly settlement, are determined to be held for the
account of the NPI Partnership shall be kept in any account other than a
NPI Partnership Account, and the Managing Partner shall not employ, or
permit any other Person to employ, such funds in any manner except for
the benefit of the NPI Partnership; it being understood that the Managing
Partner may invest NPI Partnership funds temporarily in
-19-
the investments set forth in Section 9.3 of this Agreement pending their
use by the NPI Partnership. After such monthly settlement, NPI Partnership
funds may not be commingled with separate funds of the Managing Partner or
any other entity; and
(vi) the Limited Partnership shall not make any advance payment to
the Managing Partner or its Affiliates.
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 Partner shall not:
(i) lease, sell, or dispose of all or substantially all of the
NPI Partnership's assets;
(ii) make, exercise or deliver any general assignment for the
benefit of the NPI Partnership's creditors;
(iii) except as set forth in Section 10.1A, amend any provision
of this Agreement; or
(iv) dissolve the NPI Partnership.
Section 4.5 Other Agreements of the Managing Partner
Anything in this Agreement to the contrary notwithstanding, it is agreed
that:
(i) the Managing Partner and its Affiliates shall not take any
action with respect to the assets or property of the NPI Partnership
which does not benefit exclusively the NPI Partnership, including:
(a) the utilization of NPI Partnership funds as
compensating balances for the benefit of the Managing Partner or
an Affiliate of the Managing Partner; and
(b) the commitment of future production;
(ii) all benefits from marketing arrangements or other
relationships affecting property of the Managing Partner or its Affiliate
and the NPI Partnership shall be fairly and equitably apportioned
according to the respective interests of each;
Section 4.6. Contracts with the Managing Partner and
Affiliates
All services provided to the NPI Partnership by the 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 NPI
Partnership and the Managing Partner or any Affiliate shall contain a provision
which shall permit termination of the contract by the NPI Partnership without
penalty on 30 days' prior
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written notice. The Limited Partnership shall have the power to terminate,
without cause or penalty, any such contract on behalf of the NPI Partnership.
Section 4.7. Other Operations
The Managing Partner shall devote such time to the NPI Partnership as is
reasonably required to carry on the NPI Partnership business, and the Managing
Partner and its Affiliates shall at all times be free, subject to any
restrictions contained herein, to engage in all aspects of the Hydrocarbons and
natural resources business for their own accounts and for the accounts of
others. The Managing Partner will meet all fiduciary obligations that it owes to
the Limited Partnership and the Unit Holders. Without limiting the generality of
the foregoing, the Managing Partner and its Affiliates shall have the right to
organize and operate other partnerships, joint ventures or other oil and gas
investment programs similar to the Limited Partnership and the NPI Partnership.
Section 4.8. Prosecution, Defense and Settlement of Claims;
Indemnification
A. The Managing Partner shall arrange to prosecute, defend, settle or
compromise actions at law or in equity at the expense of the NPI Partnership as
may be necessary to enforce or protect the interests of the NPI Partnership. The
Managing Partner shall satisfy any judgment, decree, decision or settlement,
first, out of any insurance proceeds available therefor, next, out of the NPI
Partnership assets and Income, and, finally, out of the assets of the Managing
Partner and the general partner of the Limited Partnership.
B. The Managing Partner and its Affiliates shall have no liability to the
NPI Partnership or to any Partner or Unit Holders for any loss suffered by the
NPI Partnership which arises out of any action or inaction of the Managing
Partner or its Affiliates if the Managing Partner and its Affiliates, in good
faith, determined that such course of conduct was in the best interests of the
NPI Partnership and such course of conduct did not constitute negligence or
misconduct of the Managing Partner or its Affiliates. The Managing Partner and
its Affiliates shall be indemnified by the NPI Partnership against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
sustained by them in connection with the NPI Partnership, provided that the same
were not the result of negligence or misconduct on the part of the Managing
Partner or its Affiliates. Any indemnification under this Section 4.8 shall be
satisfied solely out of the Assets and Income of the NPI Partnership. All
amounts payable under this Section 4.8 shall be a liability of the NPI
Partnership only and no Unit Holders or Limited Partners will have any liability
therefor.
C. Notwithstanding the above, the Managing Partner and its Affiliates and
any Person acting as a broker-dealer shall not be indemnified for liabilities
arising under federal and state securities laws unless (1) there has been a
successful adjudication on the merits of each count involving securities law
violations and the court approves such indemnification and the litigation costs
thereof; or (2) such claims have been dismissed with prejudice on the merits by
a court of competent jurisdiction and the court approves such indemnification
-21-
and the litigation costs thereof. In any such case, the Managing Partner shall
apprise the court of the current published positions, if any, of the federal,
the Massachusetts State Securities Administrators and other applicable state
securities administrators regarding indemnification of program sponsors prior to
obtaining court approval of any such indemnification.
D. The NPI Partnership shall not incur the costs of that portion of
insurance which insures the Managing Partner for any liability as to which the
Managing Partner is prohibited from being indemnified under Section 4.8.
E. For purposes of this Section 4.8, the term Affiliate shall include
only those Affiliates, as defined in Article I, performing services on behalf of
the NPI Partnership.
ARTICLE FIVE
Distributions, Fees and Allocations
Section 5.1. Distributions of NPI Partnership Funds
The Distributable Cash of the NPI Partnership shall be distributed
simultaneously to the Limited Partnership and the Managing Partner within 45
days after the close of each calendar quarter. Each Partner's share of each such
distribution of Distributable Cash other than as specified in Section 5.3G shall
be based on the ratio of their respective positive Capital Account balances,
such balances being determined after giving effect to the allocations set forth
in Sections 5.3 and 5.4 for such period. All distributions of Distributable
Cash, including sales proceeds pursuant to Section 5.3G, shall reduce
dollar-for-dollar the balances of the Partners' Capital Accounts.
Section 5.2. Fees and Reimbursement of Expenses to the Managing
Partner
Geodyne Energy shall receive as Managing Partner (1) upon Activation and
on a nonrecurring basis, the Acquisitions Fee in an amount equal to 3.5% of the
Unit Holders' Subscriptions; and (2) reimbursement for Direct Administrative
Costs billed directly to the Managing Partner and General and Administrative
Costs incurred by the Managing Partner or its Affiliates allocable to the NPI
Partnership, except to the extent that the Managing Partner or its Affiliate is
otherwise reimbursed for such costs through the payment of Property Acquisition
Costs or otherwise. The aggregate amount of General and Administrative Costs
allocable to the accounts of the Unit Holders for which the Managing Partner
will be reimbursed by the NPI Partnership and the General Partner by the Limited
Partnership will not (a) in the first 12 months following Activation of the NPI
Partnership, exceed an amount equal to 2.5% of the Unit Holders' Subscriptions,
and (b) in any succeeding 12 month period, exceed an amount equal to 1% of the
Unit Holders' Subscriptions.
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Section 5.3. Allocation of Income, Investment Income, Gains,
Losses, Deductions and Credits
A. The Income, Investment Income, gains, losses, deductions, credits and
costs of the NPI Partnership shall be determined and allocated with respect to
each Fiscal Year of the NPI Partnership as of and within 75 days after the end
of such Fiscal Year.
B. Except as otherwise provided in this Article Five
(i) 100% of Investment Income, Property Acquisition Costs, and the
Acquisitions Fee referred to in Section 5.2(1) 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 Partner. Except as otherwise provided
in this Section 5.3B(i) and Sections 5.3B(ii) and (iii),
Income, gain, General and Administrative Costs, and Direct
Administrative Costs and other losses, deductions and credits
shall be allocated among, and borne by, the Partners in the
following percentages:
(a) Until Payout:
Limited Partnership 95.9596%
Geodyne Energy 4.0404%
(b) After Payout:
Limited Partnership 85.8586%
Geodyne Energy 14.1414%
(ii) As used in this subsection, the "Property Investment Period"
shall mean that period which begins with the first day of the
calendar quarter following either (i) the calendar quarter during
which 90% of the NPI Partnership's capital available for
purchasing Net Profits Interests and Royalties has been so
expended, or (ii) the calendar quarter in which 50% of the NPI
Partnership's capital available for purchasing Net Profits
Interests and Royalties has been so expended, as the Managing
Partner shall elect, and terminates at Payout. Notwithstanding
anything to the contrary contained herein, if, at Payout, the
total amount of cash distributions by the Limited Partnership to
the Unit Holders from the commencement of the Property Investment
Period have averaged on a twelve-month basis an amount that is
less than 12% of the Unit Holders' Subscriptions, the percentage
of Income, and costs which are shared in the same proportions as
Income, allocated to the Managing and General Partners will
increase to only 10% and the Unit Holders will be allocated 90%
thereof until such time, if ever, that the distributions to the
Unit Holders from the commencement of the Property Investment
Period reaches a twelve-month average equal to at least 12% of
the Unit Holders' Subscriptions, at which time Income, gain and
costs and other losses, deductions and credits shared in the same
proportions as Income will be allocated 14.1414% to the Managing
Partner and 85.8586% to the Limited Partnership.
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(iii)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 Unit
Holders' Subscriptions to the Limited Partnership shall not
include any amounts attributable to the NPI Partnership's payment
of any windfall profits tax.
(iv) Notwithstanding anything to the contrary contained herein, if and
to the extent the NPI Partnership sells any Royalty or Net
Profits Interest and applies any portion of the proceeds thereof
to the purchase of any additional Royalties or Net Profits
Interests, the Property Acquisition Costs of the additional
Producing Property shall be allocated to and considered charged
to the Managing Partner and Limited Partnership in the same
proportions that such portion of sale proceeds would have been
distributed to them, had the sale proceeds been distributed.
C. All items of Income, gain, loss, expense, deduction and credit 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 NPI
Partnership shall allocate, under Section 613A(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 NPI 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
Partner deems 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:
(i) 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 NPI Partnership (net of liabilities securing such
contributed property that the NPI 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 including sales proceeds
distributed to it, the fair market value of property distributed to it by
the NPI Partnership (net of liabilities
-24-
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 NPI Partnership loss, deduction (except to the extent such loss
or deduction has previously been reflected in its Capital Account by
adjustments thereto) and expenditures described in section 705(a)(2)(B) of
the Code.
(ii) In the event NPI 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 NPI 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
NPI Partnership Property for its fair market value on the date of
distribution.
(iii) If, pursuant to this Agreement, NPI Partnership Property is
reflected on the books of the NPI Partnership at a book value that differs
from the adjusted tax basis of such NPI 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 NPI Partnership Property.
(iv) 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 choice shall be binding for all NPI
Partnership taxable years during which such oil or gas property is held by
the NPI Partnership. Such reductions for depletion shall not exceed the
aggregate adjusted basis allocated to the Partners and Unit Holders with
respect to such oil or gas property. 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 allocated to each
Partner. Upon the taxable disposition of an oil or gas property by the NPI
Partnership, the NPI 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.
(v) For purposes of determining the Capital Account balance of any
Partner as of the end of any NPI Partnership taxable year for purposes of
Subsection 5.3I hereto, such Partner's Capital Account shall be reduced
by:
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(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 NPI
Partnership, and
(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 NPI
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 NPI 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 NPI
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
NPI Partnership's Net Profits Interest or Royalties shall be distributed 100% to
the Limited Partnership to the extent of its adjusted basis in such sold or
transferred NPI Partnership Property. Proceeds in excess of said amount shall be
distributed 100% in accordance with the percentages set forth in Section
5.3B(i)(a) and (b), 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 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 NPI Partnership of NPI
Partnership Property and such NPI Partnership Property's fair market value, then
all items of Income, gain, loss, and
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deduction with respect to such NPI Partnership Property shall be allocated among
the Partners so as to take account of the variation between the basis of such
NPI 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,
(i) Subject only to the provisions of Section 5.3J, there shall be
allocated to the Managing Partner, 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 NPI Partnership's taxable year to which such allocation
related (after taking into consideration the provisions of Subsection
5.3D(v) hereof);
(ii) 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
(iii) In the event any allocations of loss, deduction, credit or
allowance are made to the Managing Partner pursuant to clause (i) of this
Subsection 5.3I, the Managing Partner shall be subsequently allocated all
items of Income and gain until the aggregate amount of such allocations
of Income and gain is equal to the aggregate amount of any such
allocations of loss, deduction, credit or allowance allocated to such
Partners pursuant to clause (1) of this Subsection 5.3I.
J. In the event there is a net decrease in the "minimum gain," as that
term is defined in the 704 Regulations, of the NPI Partnership during an NPI
Partnership taxable year, all Partners with deficit Capital Account balances at
the end of such year shall be allocated, before any other allocation is made
under this Article Five, Income and gain of the NPI Partnership for such taxable
year (and, if necessary, subsequent years) in the amount and in the proportion
necessary to eliminate such deficits as quickly as possible. The allocations
required by this Section 5.3J shall be made as required by and in accordance
with Section l.704-1(b)(4)(iv)(e) of the 704 Regulations. It is intended that
the provision set forth in this Section 5.3J will constitute a "minimum gain
chargeback" as described in Section 1.704-l(b)(4)(iv)(e) of the 704 Regulations.
The 704 Regulations shall control in the case of any conflict between the 704
Regulations and this Section 5.3J.
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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 7.3 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 Net Profits
Interest or Royalty shall be distributed to those Partners who are Partners on
the day the distribution of such Distributable Cash occurs. The Managing Partner
shall inform the other Partners of the occurrence and terms of any such Sale by
the NPI Partnership as soon as practicable after such Sale has been consummated.
ARTICLE SIX
Withdrawal or Removal of Managing Partner
Section 6.1. Transferability of Managing Partner's Interest
A. Upon 120 days Notification to all other Partners, the Managing Partner
may retire or withdraw from the NPI Partnership as Managing Partner, subject to
its obligation to pay all costs and expenses incurred by the NPI Partnership by
virtue of such retirement or withdrawal. In addition, there may be substituted
in its stead as Managing Partner any entity that has, by merger, consolidation
or otherwise, acquired substantially all of the Managing Partner's assets or
capital stock and continued its business.
B. Subject to Section 11.1 of this Agreement, upon the Consent of the
Limited Partnership, which shall be given if the Consent of Unit Holders owning
more than 50% of the outstanding Depositary Units is obtained, the Managing
Partner may assign or transfer its Managing Partner Interest; provided, however,
that no such consent shall be required in connection with an assignment or
transfer pursuant to the merger, consolidation or transfer of all or
substantially all of the assets of the Managing Partner.
C. The Managing Partner may, upon at least 90 days' Notification to the
Limited Partnership, cause the NPI Partnership to distribute, in partial
liquidation of its Interest in the NPI Partnership, to the Managing Partner
fractional, undivided interests in the Net Profits Interests and Royalties of
the NPI Partnership (such interest of the Managing Partner in a Net Profits
Interest or Royalty distributed is hereinafter referred to as the "Distributed
Interest") up to an aggregate interest equal in value to 75% of the value of the
Net Profits Interests and Royalties of the NPI Partnership that it would have
been entitled to upon a hypothetical liquidation of the NPI Partnership after
application of the provisions of Section 8.2 (the interest in a Net Profits
Interest or Royalty of the Managing Partner retained in the NPI Partnership is
hereinafter referred to as the "Retained Interest"); provided, however, that no
such distribution
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shall occur (i) more than once, (ii) prior to seven years after the Activation
of the NPI Partnership and (iii) unless the Managing Partner obtains an opinion
of counsel to the NPI Partnership to the effect that such distribution will not
result in any material adverse tax consequence to the Unit Holders.
Notwithstanding anything to the contrary in this Agreement, in the event that
any such distribution is made, the Managing Partner shall:
(1) make appropriate adjustments in the Capital Accounts of the
Partners and in the allocation of NPI Partnership Income and costs
to assure that the Managing Partner will not share or participate
in any of the capital, costs, Income, or distributions attributable
to the Net Profits Interests and Royalties of the NPI Partnership
except to the extent of the Retained Interest of the Managing
Partner;
(2) not voluntarily or otherwise dispose of its Distributed Interest
unless the undivided interest of the NPI Partnership in such Net
Profits Interests and Royalties is also sold or disposed of for a
proportionately equivalent consideration;
(3) ensure that the Limited Partnership's share of General and
Administrative Costs and Direct Administrative Costs does not
increase as a result of such withdrawal; and
(4) indemnify the Limited Partnership against any expenses resulting
from such withdrawal.
Section 6.2. Removal of the Managing Partner
The power shall be vested in the Limited Partnership to remove at any
time the 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 the Managing Partner by the Limited Partnership. A successor Managing
Partner shall be selected pursuant to the provisions of Section 6.3C of this
Agreement.
Section 6.3. Successor Managing Partner
A. (i) If the Managing Partner is Removed or withdraws and a successor
Managing Partner is to be admitted to the NPI Partnership, the departing
Managing Partner shall not withdraw or be Removed until a successor
Managing Partner has been admitted to the NPI Partnership pursuant to
Article Ten of this Agreement.
(ii) In the event the Managing Partner withdraws or is Removed by
the Limited Partnership and a successor Managing Partner is to be
admitted, the incoming Managing Partner and the departing Managing
Partner shall, by mutual agreement, select an independent petroleum
consultant to value the departing Managing
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Partner's Interest in the NPI Partnership. If no agreement can be reached
on the selection of a qualified consultant, the departing Managing Partner
and incoming Managing Partner shall each select an independent petroleum
consultant, who together shall select a third consultant, and the three
consultants shall together determine a value of the interests of the
departing Managing Partner. The incoming Managing Partner, or the NPI
Partnership, shall have the option to purchase at least 20% of the
Interest of the departing Managing Partner for the value determined by the
independent appraisal. The departing Managing Partner's Interest in the
NPI Partnership shall be transferred to the successor Managing Partner,
and the successor Managing Partner shall assign to the departing Managing
Partner a portion of NPI Partnership Income, costs and Distributable Cash
as and when such items are allocated or distributed, as the case may be,
by the NPI Partnership equal to the percentage interest of the departing
Managing Partner in the NPI Partnership prior to withdrawal or Removal,
less the portion purchased by the successor Managing Partner or the NPI
Partnership.
B. Notwithstanding Section 3.6, the Managing Partner, upon withdrawal or
removal shall be released by the other Partners from all liability for NPI
Partnership debts and obligations incurred by the NPI Partnership prior to the
date of such withdrawal or Removal.
C. Under circumstances in which the Limited Partnership Consents to the
admission of a successor Managing Partner, such admission shall not become
effective unless the NPI 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 departing 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 NPI Partnership, such
Sale, exchange, transfer or assignment, would cause the NPI Partnership to lose
its status as a partnership for federal income tax purposes. In addition, the
Managing Partner may require an opinion of the transferor's counsel,
satisfactory to the Managing Partner, 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 the 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 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
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in satisfying conditions precedent to such assignee becoming a Substituted
Partner. The Incapacity of a Partner shall not dissolve the NPI Partnership.
Section 7.3. Assignees and Substituted Partners
A. The NPI 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 NPI 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 NPI 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 NPI Partnership, and otherwise shall
be recognized as effective on the date such Notification is filed with the NPI
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 NPI 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 and an amendment to this Agreement
executed by the Managing Partner on its own behalf, as well as on behalf of each
other Partner, pursuant to the power of attorney granted pursuant to Section
12.5.
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 NPI Partnership as, a Partner on such date as the sale,
assignment or transfer to such Person was recognized by the NPI Partnership
pursuant to Section 7.3A.
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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 NPI Partnership, the successor to such
Limited Partnership's Interest ("Successor") shall be deemed an assignee of such
Limited Partnership's Interest in the NPI Partnership and neither the NPI
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 NPI Partnership
Section 8.1. Events Causing Dissolution
A. The NPI 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 Managing Partner pursuant to Section 2.3;
(ii) the Incapacity of the Managing Partner. However, within
ninety days thereafter the remaining Partners may elect to reconstitute
the NPI Partnership prior to application of the liquidation provisions
of Section 8.2;
(iii) the Sale or other disposition at one time of all or
substantially all of the assets of the NPI Partnership existing at the
time of such Sale;
(iv) the election to dissolve the NPI Partnership (a) by the
Managing Partner (which election shall be Consented to by the Limited
Partnership), or (b) by the Consent of all Partners other than the
Managing Partner;
(v) ninety days after the Removal or withdrawal (unless the Limited
Partnership Consents to a Successor pursuant to Section 6.2) of the
Managing Partner;
(vi) the happening of any other event causing the dissolution of
the NPI Partnership under the laws of the State, except that the
Incapacity of any Partner (other than the Managing Partner) shall not
dissolve the NPI Partnership and the seizure of the Interest of any
Partner shall not dissolve the NPI Partnership.
B. Dissolution of the NPI Partnership shall be effective on the day on
which the event occurs giving rise to the dissolution, but the NPI Partnership
shall not terminate until the Managing Partner has recorded a notice of
dissolution of the NPI 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 it does business and the assets of the NPI Partnership have
been distributed as provided in Section 8.2.
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C. Nothing contained in this Agreement shall impair, restrict or limit
the rights and powers of the Partners under the laws of the State of Oklahoma or
any other jurisdiction in which the NPI Partnership is doing business to reform
and reconstitute themselves as a general partnership following dissolution of
the NPI Partnership either under provisions identical to those set forth herein
or under any other provisions.
Section 8.2. Liquidation of the NPI Partnership; Liquidation of a
Partner's Interest
A. Upon dissolution of the NPI Partnership, its liabilities shall be paid
in the order provided herein. The Managing Partner shall either distribute in
kind or sell the NPI Partnership's property so that such disposition is in the
best interests of the Limited Partnership, and shall execute all amendments
terminating the NPI Partnership. In connection with any such Sale, the Managing
Partner shall attempt to obtain the best prices for such property. Pending such
Sales, the Managing Partner shall have the right to continue to manage and
otherwise to deal with NPI Partnership property. In the event the NPI
Partnership is dissolved on account of the Incapacity or Removal of the Managing
Partner, the NPI 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 NPI Partnership and winding up
its affairs, and shall pay to such Liquidating Agent its reasonable fees and
expenses incurred in connection therewith. In the event of a distribution in
kind of any NPI Partnership Property (including a Net Profits Interest and
Royalty), each Partner's Capital Account shall first be credited or debited with
its share of the unrealized appreciation of depreciation in the fair market
value of such NPI Partnership 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 the gain or loss on an actual Sale of such
NPI Partnership Property. The Capital Account of each Partner to whom a NPI
Partnership Property is distributed shall be debited with the fair market value
of the NPI Partnership Property distributed to it. The Capital Account of each
Partner to whom an interest in a Producing Property is distributed shall be
debited with the fair market value of the interest distributed to it. Any
liquidation of the NPI 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 NPI
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
Partner and any Liquidating Agent for any expenses of the NPI Partnership paid
by or payable to them to the extent they are entitled to reimbursement there-for
pursuant to this Agreement; (iii) to the 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
Partner in the amount equivalent to the amount of its positive Capital Account
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balances (as adjusted pursuant to Section 8.2A) on the date of distribution; and
(v) the balance shall be paid to the Partners in proportion to and to the extent
of the positive balances in the Partners' Capital Accounts.
C. If the 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 NPI Partnership during which such distribution(s) occur, it shall
restore the amount of such deficit balance to the NPI Partnership within 90 days
and such amount shall be distributed to the other Partners in accordance with
their positive Capital Account balances.
D. Upon the liquidation or partial liquidation of the Managing Partner's
Interest pursuant to Article Six hereof, any distribution to the Managing
Partner shall be made pro rata to such Partner in accordance with and to the
extent of its positive Capital Account balance after the Partners' Capital
Accounts are adjusted as if all of the NPI 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 Five 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 NPI Partnership by the later of the end of the NPI Partnership taxable year
in which the liquidation of such Partner's Interest occurs or 90 days after the
date of such liquidation.
ARTICLE NINE
Books and Records; Accounting; Tax Elections; etc.
Section 9.1. Books and Records
The books and records of the NPI Partnership, including information
relating to the sale by the Managing Partner or any Affiliates of goods or
services to the NPI Partnership, and a list of the names and addresses and
Interests of all Partners, shall be maintained by the Managing Partner at the
principal office of the NPI 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 Unit Holder or its duly authorized
representatives at any and all reasonable times. Any Partner or Unit Holder, or
its duly authorized representatives, upon paying the costs of collection,
duplication and mailing, shall be entitled for any proper purpose to a copy of
the list of names and addresses and Interests of the Partners. The NPI
Partnership may maintain such other books and records and may provide such
financial or other statements as the Managing Partner in its discretion deems
advisable.
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Section 9.2. Accounting Basis for Tax and Reporting Purposes; Fiscal
Year
The books and records of the NPI Partnership for tax purposes, for
purposes of this agreement and for the purpose of reports to the Partners shall
be kept on the accrual basis. The Fiscal Year of the NPI Partnership shall be
the calendar year to the extent permissible and the Managing Partner shall use
its best efforts to obtain any necessary approvals therefor.
Section 9.3. Bank Accounts
The Managing Partner shall maintain a bank account or accounts on behalf
of the NPI Partnership with any bank in the United States having total assets in
excess of $100,000,000. The Managing Partner shall not deposit NPI Partnership
funds in an account with any bank in an aggregate amount in excess of 5% of such
bank's total assets. Withdrawals shall be made only in the regular course of the
NPI Partnership's business on such signature or signatures as the Managing
Partner may determine. All deposits and other funds not needed in the operation
of the business may be deposited in interest-bearing accounts, certificates of
deposit, money market funds (including those managed or marketed by the Dealer
Manager or its Affiliates) or invested in short-term United States Government
obligations maturing within one year, commercial paper of 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 Partner shall furnish to the Limited Partnership
sufficient information and data with respect to the properties and operations of
the NPI Partnership in order to permit the Limited Partnership to satisfy its
reporting obligations under Section 10.4 of the Limited Partnership Agreement.
B. The Managing Partner shall file on a timely basis with the Securities
and Exchange Commission all filings required to be made by the NPI 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 Partner shall cause the NPI Partnership to make all
elections required or permitted to be made by the NPI Partnership under the Code
and not otherwise expressly provided for in this Agreement, in the manner that
the Managing Partner believes will be most advantageous to the Limited
Partnership, except that the Managing Partner shall not be required to make an
election under Section 754 of the Code or corresponding provisions of applicable
state income tax laws.
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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 Partner may, without prior notice or consent of any other Partner,
amend any provision of this Agreement (including an amendment to admit an
additional or successor Managing Partner) if, in its opinion, such amendment
does not have a material adverse effect upon the Limited Partnership. Such
amendment shall thereafter be disclosed to the Unit Holders 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 Partner or the
Limited Partnership. The Partner or Partners proposing such amendment shall
submit a Notification containing (i) the text of such amendment, (ii) a
statement of the purpose of such amendment, and (iii) 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 Unit Holders, and will not adversely affect the classification of the
Limited Partnership or the NPI Partnership as partnerships for federal income
tax purposes. The Managing Partner shall, within 15 days after receipt of any
proposal under this Section 10.1A, 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 Partner with respect to such proposed amendment.
B. Amendments to this Agreement shall be adopted if: (i) in the case of
amendments referred to in Section l0.2A, the conditions specified in Section 7.3
shall have been satisfactorily completed and the NPI Partnership shall have been
furnished with an opinion of counsel to the NPI Partnership to the effect that
such amendment will not adversely affect the classification of the Limited
Partnership or the NPI Partnership as partnerships for federal income tax
purposes; (ii) in the case of amendments referred to in Section 10.2B, the
conditions specified in Section 6.3 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 10.1A); provided, however, that no such amendment may: (i)
enlarge the obligations of any Partner under this Agreement without the Consent
of such Partner; (ii) 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; (iii) amend Sections 6.1,
6.2 or 6.3 without the Consent of all the Partners; or (iv) amend Sections 2.3,
4.3, 4.4, 4.5, 4.7, 4.8 or this Article Ten without the Consent of all the
Partners.
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C. Upon the adoption of any amendment to this Agreement, the amendment
shall be executed by the Managing Partner and all other Partners, and shall be
recorded in the proper records of the State and any other state in which the NPI
Partnership is then doing business.
Section 10.2. Amendments on Admission, Withdrawal 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 the
Managing Partner, 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 the
Managing Partner, 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 withdrawal or
Removal of the Managing Partner and the continuation of the business of the NPI
Partnership, such amendment shall be signed by the successor Managing Partner
and by the departing Managing Partner.
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 Partner with evidence satisfactory to counsel for the NPI
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
NPI Partnership and the Managing Partner 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: (1) 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 Partner prior to such meeting, or (2) 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 Partner 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.
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Section 11 .2. Meeting of Partners
The Managing Partner 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 Partner 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 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 NPI
Partnership meeting or the date upon which such votes, without a meeting, will
be counted (regardless of whether the Managing Partner has 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 Partner. All
expenses of the meetings, voting and such Notification shall be borne by the NPI
Partnership.
Section 11.3. Submissions to Other Partners
The Managing Partner 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 Unit Holders owning more
than 50% of the Depositary Units, may without the concurrence of the Managing
Partner:
(i) amend the NPI Partnership Agreement;
(ii) dissolve the NPI Partnership;
(iii) remove the Managing Partner and elect a new one;
(iv) approve or disapprove the sale of all or substantially all of the
assets of the NPI Partnership; and
(v) cancel or amend the terms of any contract for services with the
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 NPI Partnership or the Managing
Partner
Any Notification to the NPI Partnership or the Managing Partner shall be
sent to the principal office of the NPI 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 NPI 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.
Section 12.5. Appointment of the Managing Partner as Attorney- in-Fact
A. Each Partner, by the execution of this Agreement, irrevocably
constitutes and appoints the Managing Partner, 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 Partner deems
appropriate to form, reform, qualify or continue the NPI Partnership (or a new
partnership with substantially the same provisions as the NPI Partnership) as a
partnership in the jurisdiction in which the NPI Partnership may conduct
business; (ii) all amendments and other instruments necessary to admit into the
NPI Partnership additional or substituted Partners pursuant to Section 10.2;
(iii) all instruments that the Managing Partner deems appropriate to reflect a
change or modification of the NPI Partnership in accordance with the terms of
this Agreement (including those necessary to reflect any additional
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Capital Contributions); and (iv) all conveyances and other instruments that the
Managing Partner deem appropriate to reflect the dissolution and termination of
the NPI Partnership.
B. The appointment by all Partners of the Managing Partner 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 Partner to act as
contem-- plated by this Agreement in any filing and other action by it on behalf
of the NPI 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 NPI Partnership as a 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
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 Partners.
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GEODYNE ENERGY COMPANY
By:/s/ Michael W. Tomasso
--------------------------------
Michael W. Tomasso
President
PAINEWEBBER/GEODYNE
INSTITUTIONAL/PENSION ENERGY
INCOME P-3 LIMITED PARTNERSHIP
By: GEODYNE PROPERTIES, INC.
General Partner
By: /s/ Michael E. Luttrell
-------------------------------
Michael E. Luttrell,
Executive Vice President
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