Release from Shareholders
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--------------------------------RELEASE
FROM SHAREHOLDERS
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Exhibit 4(c)
FIRST AMENDMENT
TO
SHARE ACQUISITION AGREEMENT
THIS FIRST AMENDMENT TO SHARE ACQUISITION AGREEMENT
made and entered into as of this 24 day of November, 1992,
by and between ATLAS ENERGY GROUP, INC. (the
"Company"), an Ohio corporation, and JOSEPH R.
SADOWSKI ("Shareholder").
WITNESSETH THAT:
WHEREAS, the Company and the Shareholder executed
that certain Share Acquisition Agreement dated as
of November 14, 1990 (the "Share Acquisition
Agreement"), providing for the purchase by the
Company of certain shares of common stock of the
Company (the "Common Stock") and the grant of
certain options as set forth in Sections 5.3, 5.4
and 5.5 of the Share Acquisition Agreement (the
"Shareholder Put Options") pursuant to which the
Shareholder may require the Company to buy
additional shares of Common Stock, held by
Shareholder in the future; and
WHEREAS, the Company and the Shareholder believe
the
existence of the Shareholder Put Options impairs
the ability of the Company to raise capital for
the Company's oil and gas drilling operations;
and
WHEREAS, the Company and the Shareholder believe
said oil and gas drilling operations are
necessary for the continued growth of the
Company; and
WHEREAS, the Shareholder will benefit from the
Company's continued growth; and
WHEREAS, the parties hereto desire to amend the
provisions of the Share Acquisition Agreement.
NOW THEREFORE, in consideration of the premises
herein and intending to be legally bound hereby,
the parties hereto agree as follows:
1. Shareholder hereby agrees to unconditionally
waive any and all rights under the
Shareholder Put Options and hereby
acknowledges and agrees that the execution of
this First Amendment will extinguish any and
all rights under said Shareholder Put
Options.
2. Sections 5.3, 5.4 and 5.5 of the Share
Acquisition Agreement are deleted.
3. Sections 5.6, 5.7, 5.8 and 5.9 of the
Share Acquisition Agreement are renumbered
5.3, 5.4, 5.5 and 5.6, respectively.
4. The reference to "First Shareholder
Option" in
Section 5.2 of the Share Acquisition
Agreement is deleted.
5. The reference to "Section 5.7(a)" in
Sections 5.1
and 5.2 of the Share Acquisition Agreement
is amended to read "Section 5.4 (a)".
6. The reference to "Sections 5.3, 5.4 or
5.5" in
newly renumbered Sections 5.3 and 5.4 of the Share
Acquisition Agreement is deleted.
7. The reference to "Section 5.7" in newly
renumbered Section 5.5 of the Share Acquisition
Agreement
is amended to read "Section 5.4".
8. Except as expressly amended hereby, the
provisions of the Share Acquisition Agreement are
hereby affirmed in all respects.
WITNESS the due execution hereof as of the date
first
above written.
ATLAS ENERGY GROUP, INC.
By: /s/ J. R.
O'Mara
J.R. O'Mara,
Executive Vice
President
/s/ Joseph R.
Sadowski Joseph
R. Sadowski
FIRST AMENDMENT
TO
SHARE ACQUISITION AGREEMENT
THIS FIRST AMENDMENT TO SHARE ACQUISITION
AGREEMENT
made and entered into as of this 24 day of
November, 1992, by and between ATLAS ENERGY GROUP,
INC. (the "Company"), an Ohio corporation, and
CHARLES KOVAL ("Shareholder").
WITNESSETH THAT:
WHEREAS, the Company and the Shareholder executed
that certain Share Acquisition Agreement dated as
of November 14, 1990 (the "Share Acquisition
Agreement"), providing for the purchase by the
Company of certain shares of common stock of the
Company (the "Common Stock") and the grant of
certain options as set forth in Sections 5.3, 5.4
and 5.5 of the Share Acquisition Agreement (the
"Shareholder Put Options") pursuant to which the
Shareholder may require the Company to buy
additional shares of Common Stock, held by
Shareholder in the future; and
WHEREAS, the Company and the Shareholder believe
the
existence of the Shareholder Put Options impairs
the ability of the Company to raise capital for
the Company's oil and gas drilling operations;
and
WHEREAS, the Company and the Shareholder believe
said oil and gas drilling operations are
necessary for the continued growth of the
Company; and
WHEREAS, the Shareholder will benefit from the
Company's continued growth; and
WHEREAS, the parties hereto desire to amend the
provisions of the Share Acquisition Agreement.
NOW THEREFORE, in consideration of the premises
herein and intending to be legally bound hereby,
the parties hereto agree as follows:
1. Shareholder hereby agrees to unconditionally
waive any and all rights under the
Shareholder Put Options and hereby
acknowledges and agrees that the execution of
this First Amendment will extinguish any and
all rights under said Shareholder Put
Options.
2. Sections 5.3, 5.4 and 5.5 of the Share
Acquisition Agreement are deleted.
3. Sections 5.6, 5.7, 5.8 and 5.9 of the
Share Acquisition Agreement are renumbered
5.3, 5.4, 5.5 and 5.6, respectively.
4. The reference to "First Shareholder
Option" in
Section 5.2 of the Share Acquisition
Agreement is deleted.
5. The reference to "Section 5.7(a)" in
Sections 5.1
and 5.2 of the Share Acquisition Agreement
is amended to read "Section 5.4 (a)".
6. The reference to "Sections 5.3, 5.4 or
5.5" in
newly renumbered Sections 5.3 and 5.4 of the
Share Acquisition Agreement is deleted.
7. The reference to "Section 5.7" in newly
renumbered Section 5.5 of the Share
Acquisition Agreement is amended to read
"Section 5.4".
8. Except as expressly amended hereby, the
provisions of the Share Acquisition Agreement
are hereby affirmed in all respects.
WITNESS the due execution hereof as of the date first
above written.
ATLAS ENERGY GROUP, INC.
By: /s/ J. R. O'Mara
J.R. O'Mara, Executive
Vice President
/s/ Charles Koval
Charles Koval
CONSENT OF INDEPENDENT AUDITOR
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
The firm, as Independent Certified Public Accountants,
hereby consents to the use of the audit report dated July
11, 1997 on the balance sheet of Atlas-Energy for the
Nineties-Public #6 Ltd. as of July 1, 1997, the audit report
dated November 11, 1996, on the consolidated statements of
financial position for the years ending July 31, 1996 and
1995, of AEG Holdings, Inc. and subsidiaries and the
related consolidated statements of income and cash flows
for the years then ended; and the audit report dated
November 11, 1996, on the audited balance sheets as of July
31, 1996 and 1995 of Atlas Resources, Inc. in the
Registration Statement, and any supplements thereto,
including post-effective amendments, for Atlas-Energy for
the Nineties-Public #6 Ltd. In addition, the firm hereby
consents to all references to it as having prepared such
reports and to the reference to the firm under the caption
"Experts".
McLaughlin & Courson
Certified Public
Accountants
July 16, 1997
Pittsburgh, Pennsylvania
Consent of United Energy Development
Consultants, Inc.
EXHIBIT INDEX
Exhibi Description Page
t No.
1(a) Proposed form of Dealer-Manager
Agreement for
Anthem Securities, Inc.
1(b) Proposed form of Dealer-Manager
Agreement for
Bryan Funding, Inc.
3(a) Articles of Incorporation of Atlas
Resources,
Inc.
3(b) Bylaws of Atlas Resources, Inc.
4(a) Certificate of Limited Partnership for
Atlas-
Energy for the Nineties-
Public #6 Ltd.
4(b) Amended and Restated Certificate and
Agreement
of Limited
Partnership for Atlas-Energy for the
Nineties- Public #6 Ltd.
(See Exhibit (A) to Prospectus)
4(c) Release from Shareholders
5 Opinion of Kunzman & Bollinger, Inc. as
to the
legality of the Units
registered hereby
8 Opinion of Kunzman & Bollinger, Inc. as
to tax
matters
10(a) Escrow Agreement
10(b) Proposed form of Drilling and
Operating
Agreement
(See Exhibit (II) to the Amended and
Restated Certificate and
Agreement of Limited Partnership,
Exhibit (A)
to Prospectus)
24(a) Consent of McLaughlin & Courson
24(b) Consent of United Energy
Development
Consultants, Inc.
24(c) Consent of Kunzman & Bollinger, Inc.
(See
Exhibits 5 and 8)
25 Power of Attorney
Exhibit 1(a) ANTHEM SECURITIES, INC.
DEALER-MANAGER AGREEMENT
(Best Efforts)
RE: ATLAS-ENERGY FOR THE NINETIES-
PUBLIC #6 LTD.
Anthem Securities, Inc.
P.O. Box 926
Coraopolis, Pennsylvania 15108-0926
Gentlemen:
The undersigned, Atlas Resources, Inc. ("Atlas"), on
behalf of ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.,
hereby confirms its agreement with you as Dealer-Manager as
follows:
1. Description of Units. Atlas, as Managing General
Partner, has
formed a limited partnership known as Atlas-Energy for the
Nineties-Public #6 Ltd. (the "Partnership"), and will issue and
sell Units of Participation in the Partnership (the "Units")
at a price of $10,000 per Unit. No subscriptions to the
Partnership will be accepted after receipt of the maximum
Partnership Subscription of $8,000,000 (which may be
increased to $10,000,000 in Atlas' discretion) or
December 31, 1997, whichever event occurs first (the
"Offering Termination Date").
2. Representations. Warranties and Agreements of Atlas.
Atlas
represents and warrants to and agrees with you that:
(a) The Units have been or will be registered
with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as
amended (the "Act").
(b) Atlas shall provide to you for delivery to all
offerees and
purchasers and their representatives such information and
documents as Atlas deems appropriate to comply with the Act and
applicable state securities ("blue sky") laws.
(c) The Units when issued will be duly authorized and validly
issued as set forth in the Amended and Restated Certificate
and Agreement of Limited Partnership of the Partnership
("Partnership Agreement") set forth as Exhibit (A) to the
offering circular (the "Prospectus") and subject only to
the rights and obligations set forth in the Partnership
Agreement or imposed by the laws of the state of formation
of the Partnership or of any jurisdiction to the laws of
which the Partnership is subject.
(d) The Partnership was duly formed pursuant to the laws
of the Commonwealth of Pennsylvania and is validly
existing as a limited partnership in good standing under
the laws of Pennsylvania with full power and authority to
own its properties and conduct its business as described in
the Prospectus. The Partnership will be qualified to do
business as a limited partnership or similar entity
offering limited liability in those jurisdictions where
Atlas deems such qualification necessary to assure limited
liability of the limited partners.
(e) The Prospectus, as heretofore or hereafter supplemented or
amended,
does not contain an untrue statement of a material fact or
omit to state any material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they are made, not misleading.
3. Grant of Authority to the Dealer-Manager. On the basis of
the
representations and warranties herein contained, and subject to
the
terms and conditions herein set forth, Atlas, as Managing
General
Partner of the Partnership, hereby appoints you as the
DealerManager for the Partnership and gives you the exclusive
right to solicit subscriptions for the Units in all
states other than
Minnesota and New Hampshire, on a "best efforts" basis,
subject to the terms and conditions set forth herein. In all
states other than Minnesota and New Hampshire you agree to
use your best efforts to effect such sales and to form and
manage a selling group composed of soliciting broker-dealers
("Selling Agents"), each of which shall be a member of the
National Association of Securities Dealers, Inc. ("NASD"),
pursuant to "Selling Agent Agreements" in substantially the
form attached hereto as Exhibit "B." The Managing General
Partner shall have three business days after the receipt
of an executed Selling Agent Agreement to refuse that
Selling Agent's participation.
4. Compensation and Fees.
(a) As Dealer-Manager you will receive from the Partnership
the
following fees on each Unit sold to investors who are situated
and/or residents in states other than Minnesota and New Hampshire:
a 2.5%
Dealer-Manager fee, a 7.5% Sales Commission, and a .5%
reimbursement of the Selling Agents' bona fide accountable
due diligence expenses based on the amount of the Agreed
Subscription. The 7.5% Sales Commission and the .5%
reimbursement of bona fide accountable due diligence
expenses will be reallowed to the Selling Agents. The 2.5%
Dealer-Manager fee will be reallowed to the wholesalers for
Agreed Subscriptions obtained through such wholesalers'
effort.
(b) Pending receipt and acceptance by Atlas of the minimum
Partnership Subscription ($1,000,000 excluding any optional
subscription by the Managing General Partner and its
Affiliates), all proceeds received by you from the sale of
Units will be held in a separate interest bearing escrow
account as provided in Section 15. Unless at least the
minimum Partnership Subscription of $1,000,000 is received
on or before December 31, 1997, the offering shall be
terminated, in which event no fee shall be payable to you
and all funds advanced by purchasers shall be returned to
them with interest earned. In addition, you shall deliver
a termination letter in the form provided to you by Atlas to
each such subscriber and to each of the offerees previously
solicited by you and the Selling Agents in connection with
the offering of the Units. The fees set forth in Section
4(a), which shall be reallowed by you to the Selling Agents
which made the sale and the wholesalers, will be paid within
five business days after at least the minimum Partnership
Subscription ($1,000,000) has been received and accepted by
Atlas and the subscription proceeds have been released to
Atlas from the escrow account. Thereafter, such fees will be
paid to you and reallowed to the Selling Agents and
wholesalers as described in the previous sentence
approximately every two weeks until the Offering Termination
Date and all of your remaining fees shall be paid by Atlas
no later than 14 business days after the Offering
Termination Date.
5. Covenants of Atlas. Atlas covenants and agrees that:
(a) Atlas will deliver to you ample copies of the Prospectus
and
of all amendments or supplements thereto, heretofore or
hereafter
made, including all exhibits and other
documents included therein.
(b) If any event affecting the Partnership or Atlas
shall occur which in the opinion of Atlas should be
set forth in a supplement to or an amendment of the
Prospectus, Atlas will forthwith at its own expense
prepare and furnish to you a sufficient number of
copies of a supplement or amendment to the Prospectus
so that it, as so supplemented or amended, will
not contain an untrue statement of a material
fact or omit to state any material fact necessary
in order to make the statements therein, in the
light of the circumstances under which they are made,
not misleading.
6. Representations and Warranties of Dealer-Manager.
You, as the
Dealer-Manager, represent and warrant to Atlas that:
(a) You are a corporation duly organized, validly
existing and
in good standing under the laws of the state of your
formation or of any jurisdiction to the laws of
which you are subject, with all requisite power
and authority to enter into this Agreement and to
carry out your obligations hereunder.
(b) This Agreement when accepted and approved
will be duly
authorized, executed and delivered by you and will be
a valid and binding agreement on your part in
accordance with its terms.
(c) The consummation of the transactions
contemplated by this
Agreement and the Prospectus will not result in any
breach of any of the terms or conditions of, or
constitute a default under your Articles of
Incorporation, Bylaws, any indenture, agreement or
other instrument to which you are a party, or
violate any order applicable to you of any court or
any federal or state regulatory body or
administrative agency having jurisdiction over you
or over your affiliates.
(d) You are duly registered pursuant to the
provisions of the
Securities Exchange Act of 1934 (the "Act of 1934")
as a dealer and you are a member in good standing
of the NASD, and are duly registered as a broker-
dealer in such states as you are required to be
registered in order to carry out your obligations
as contemplated by this Agreement and the Prospectus.
You agree to maintain all of the foregoing
registrations in good standing throughout the term
of the offer and sale of the Units and you agree
to comply with all statutes and other
requirements applicable to you as a broker-
dealer pursuant to those registrations.
(e) Pursuant to your appointment as Dealer-Manager,
you shall
use your best efforts to exercise such supervision
and control as you deem necessary and appropriate to
the activities of you and the Selling Agents to
comply with all of the provisions of the Act,
insofar as the Act applies to your and their
activities hereunder, and you and the Selling Agents
shall not engage in any activity which would cause
the offer and/or sale of Units not to comply with
the Act, the Act of 1934 and the applicable rules and
regulations of the Commission, the applicable state
securities laws and regulations, this Agreement and
the NASD Conduct Rules including Rules 2730, 2740,
2420 and 2750, and also including, but not limited
to, Rule 2810(b)(2) and (b)(3) of the NASD
Conduct Rules, which provide as follows:
Sec. (b)(2)
Suitability
(A) A member or person associated with a
member shall not underwrite or participate
in a public offering of a direct
participation program unless standards
of suitability have been established by
the program for participants therein
and such standards are fully disclosed
in the prospectus and are consistent
with the provisions of subsection (B) of
this section.
(B) In recommending to a participant the
purchase, sale or exchange of an
interest in a direct participation
program, a member or person associated
with a member shall:
(i) have reasonable grounds to believe, on the
basis of information obtained from the
participant concerning his investment objectives,
other investments, financial situation and needs,
and any other information known by the member or
associated person, that:
(a) the participant is or will be in a
financial position appropriate to enable him
to realize to a significant extent the
benefits described in the prospectus,
including the tax benefits where they are a
significant aspect of the program;
(b) the participant has a fair market net
worth sufficient to sustain the risks
inherent in the program, including loss of
investment and lack of liquidity; and
(c) the program is otherwise suitable for the
participant; and
(ii) maintain in the files of the member documents
disclosing the basis upon which the determination
of suitability was reached as to each
participant.
(C) Notwithstanding the provisions of subsections (A)
and (B) hereof, no member shall execute any
transaction in a direct participation program in a
discretionary account without prior written approval
of the transaction by the customer.
Sec. (b)(3)
Disclosure
(A) Prior to participating in a public offering of a
direct participation program, a member or person
associated with a member shall have reasonable grounds
to believe, based on information made available to him
by the sponsor through a prospectus or other
materials, that all material facts are adequately and
accurately disclosed and provide a basis for
evaluating the program.
(B) In determining the adequacy of disclosed facts
pursuant to subsection (A) hereof, a member or person
associated with a member shall obtain information on
material facts relating at a minimum to the following,
if relevant in view of the nature of the program:
(i) items of compensation;
(ii) physical properties;
(iii) tax aspects;
(iv) financial stability and experience of the
sponsor;
(v) the program's conflicts and risk factors; and
(vi) appraisals and other pertinent reports.
(C) For purposes of subsections (A) and (B) hereof, a
member or person associated with a member may rely upon
the results of an inquiry conducted by another member or
members, provided that:
(i) the member or person associated with a member has
reasonable grounds to believe that such inquiry was
conducted with due care;
(ii) the results of the inquiry were provided to the
member or person associated with a member with the
consent of the member or members conducting or
directing the inquiry; and
(iii) no member that participated in the inquiry is a
sponsor of the program or an affiliate of such sponsor.
(D) Prior to executing a purchase transaction in a
direct participation program, a member or person
associated with a member shall inform the prospective
participant of all pertinent facts relating to the
liquidity and marketability of the program during the term of
investment.
(f) You and the Selling Agents have received copies of the Prospectus
relating to the Units and you and the Selling Agents have relied only on the
statements contained in such Prospectus and not on any other statements
whatsoever, either written or oral, with respect to the details of the
offering of Units.
(g) You and the Selling Agents agree that you and the Selling Agents
shall not place any advertisement or other solicitation with respect to
the Units (including without limitation any material for use in any
newspaper, magazine, radio or television commercial, telephone
recording, motion picture, or other public media) without the prior
written approval of Atlas, and without the prior written approval of the
form and content thereof by the Commission, the NASD and the securities
authorities of the states where such advertisement or solicitation is to
be circulated. Any such advertisements or solicitations shall be at your
expense.
(h) If a supplement or amendment to the Prospectus is prepared and
delivered to you by Atlas, you agree and shall require any Selling Agent
to agree to distribute each such supplement or amendment to the
Prospectus to every person who has previously received a copy of the
Prospectus from you and/or the Selling Agent and you further agree and
shall require any Selling Agent to further agree to include such
supplement or amendment in all future deliveries of any Prospectus.
(i) You agree to advise Atlas in writing of each state in which you and
the Selling Agents propose to offer or sell the Units and you shall not
nor shall you permit any Selling Agent to offer or sell Units in any
state until such time as you shall have been advised in writing by Atlas,
or Atlas' special counsel, that such offer or sale has been qualified in
such state or is exempt from the qualification requirements imposed by
such state or such qualification is otherwise not required.
(j) In connection with any offer or sale of the Units, you agree and
shall require any Selling Agent to agree to comply in all respects with
statements set forth in the Prospectus and the Partnership Agreement and
you agree and shall require any Selling Agent to agree not to make any
statement inconsistent with the statements in the Prospectus or the
Partnership Agreement and you further agree and shall require any Selling
Agent to further agree that you shall not provide and shall require any
Selling Agent not to provide any written information, statements or sales
literature other than the Prospectus, The Atlas Group, Inc.'s corporate
profile and a brochure entitled "Atlas-Energy for the Nineties-Public #6
Ltd." (the corporate profile and the brochure collectively referred to
herein as the "Brochure"), and any supplements or amendments thereto
unless approved in writing by Atlas; and you agree and shall require any
Selling Agent to agree not to make any untrue or misleading statements of
a material fact in connection with the Units.
(k) You agree to use your best efforts in the solicitation and sale of
said Units and to coordinate and supervise the efforts of the Selling
Agents and you shall require any Selling Agent to agree to use its best
efforts in the solicitation and sale of said Units, including insuring
that the prospective purchasers meet the suitability requirements set
forth in the Prospectus and the Subscription Agreement and properly
execute the Subscription Agreement, which has been provided as Exhibit (I
B) to the Partnership Agreement, Exhibit (A) of the Prospectus, together
with any additional forms provided in any supplement or amendment to the
Prospectus, or otherwise provided to you by Atlas to be completed by
prospective purchasers. Executed Subscription Agreements shall be
delivered or mailed immediately to Atlas and must be received by Atlas at
or prior to the Offering Termination Date. Atlas shall have the right to
reject any subscription at any time for any reason without liability to
it. Investor funds shall be transmitted as set forth in Section 16.
(l) Although not anticipated, in the event you assist in any transfers
of the Units, you shall comply, and you shall require any Selling Agent
to comply, with the requirements of Rule 2810(b)(2)(B) and (b)(3)(D) of
the NASD Conduct Rules.
7. State Securities Registration. Incident to the offer and sale of
the Units, Atlas will either use its best efforts in taking all
necessary action and filing all necessary forms and documents deemed
reasonable by it in order to qualify or register Units for sale
under the securities laws of the states requested by you pursuant to
Section 6 (i) hereof or use its best efforts in taking any necessary
action and filing any necessary forms deemed reasonable by it which
are required to obtain an exemption from qualification or
registration in such states; provided Atlas may elect not to qualify
or register Units in any state in which it deems such qualification
or registration is not warranted for any reason in its sole
discretion. Atlas and its counsel will inform you as to the
jurisdictions in which the Partnership Units have been qualified for
sale or are exempt under the respective securities or blue sky laws
of such jurisdictions; but Atlas has not assumed and will not assume
any obligation or responsibility as to your right or any Selling
Agent's right to act as a broker-dealer with respect to the Units in
any such jurisdiction.
Atlas will provide to you and the Selling Agents for delivery to
all offerees and purchasers and their representatives, any
additional information, documents and instruments which Atlas deems
necessary to comply with the rules, regulations and judicial and
administrative interpretations in those states and jurisdictions for
the offer and sale of the Units in such states. Atlas will file all
post-offering forms, documents or materials and take all other
actions required by the states in which the offer and sale of Units
have been qualified or are exempt or in which the Units have been
registered; provided, Atlas shall not be required to take any
actions, make any filings or prepare any documents necessary or
required in connection with your status or any Selling Agent's
status as a broker-dealer under the laws of such states.
Atlas shall promptly provide you with copies of all applications,
filings, correspondence, orders or other documents or instruments
relating to any application for qualification, registration or other
approval under applicable state or Federal securities laws for the
offering.
8. Expense of Sale. The expenses in connection with the offer and
sale of the Units shall be payable as set forth below.
(a) Atlas shall pay all expenses incident to the performance of its
obligations hereunder, including the fees and expenses of Atlas'
attorneys and accountants and all fees and expenses of registering or
qualifying the Units for offer and sale in the states as set forth in
Section 7 hereof, or obtaining exemptions therefrom, even in the event
this offering is not successfully completed.
(b) You shall pay all expenses incident to the performance of your
obligations hereunder, including the formation and management of the
selling group and the fees and expenses of your own counsel and
accountants, even in the event this offering is not successfully
completed.
9. Conditions of Your Duties. Your obligations provided herein shall
be subject to the accuracy, as of the date hereof and at the
applicable closing date (as if made at the applicable closing date),
of the representations and warranties of Atlas herein and to the
performance by Atlas of its obligations hereunder.
10. Condition of Atlas' Duties. Atlas' obligations provided herein,
including the duty to pay compensation as set forth in Section 4
hereof, shall be subject to the accuracy, as of the date hereof and
at the applicable closing date (as if made at the applicable closing
date) of your representations and warranties made herein, and to the
performance by you of your obligations hereunder, and to the
additional condition that Atlas shall have received, at or prior to
the applicable closing date, the following documents:
(a) a fully executed Subscription Agreement for each prospective
purchaser;
(b) certification to Atlas that you and each Selling Agent are
registered as required by Section 6(d) and that such registrations were,
during the term of the offering and through the applicable closing date,
in full force and effect; and
(c) a certificate from you, dated at the applicable closing date, to
the effect that your representations and warranties made herein are true
and correct as if made at the applicable closing date and that you have
fulfilled all your obligations hereunder.
11. Indemnification.
(a) You and the Selling Agents shall indemnify and hold harmless Atlas,
the Partnership and its attorneys, against any losses, claims, damages or
liabilities, joint or several, to which such parties may become subject,
under the Act, the Act of 1934 or otherwise insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon your agreements with the Selling Agents or your
breach of any of your duties and obligations, representations, or
warranties under the terms or provisions of this Agreement and you and
the Selling Agents shall reimburse such parties for any legal or other
expenses reasonably incurred in connection with investigating or
defending any such loss, claim, damage, liability or action.
(b) Atlas shall indemnify and hold you and the Selling Agents harmless
against any losses, claims, damages or liabilities, joint or several, to
which you and the Selling Agents may become subject, under the Act, the
Act of 1934 or otherwise insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon Atlas' breach of any of its duties and obligations,
representations, or warranties under the terms or provisions of this
Agreement and Atlas shall reimburse you and the Selling Agents for any
legal or other expenses reasonably incurred in connection with
investigating or defending such loss, claim, damage, liability or action.
(c) The foregoing indemnity agreements shall extend upon the same terms
and conditions to, and shall inure to the benefit of, each person, if
any, who controls each indemnified party within the meaning of the Act.
(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to any indemnified party.
In case any such action shall be brought against such indemnified party,
it shall notify the indemnifying party of the commencement thereof, and
the indemnifying party shall be entitled to participate in, and, to the
extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified and indemnifying parties, and after the
indemnified party shall have received notice from the agreed upon counsel
that the defense under such paragraph has been so assumed, the
indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than with respect to the agreed upon
counsel who assumed the defense thereof.
12. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements of Atlas and you herein
or in certificates delivered pursuant hereto, and the indemnity
agreements contained in Section 11 hereof, shall survive the
delivery, execution and closing hereof, and shall remain operative
and in full force and effect regardless of any investigation made by
or on behalf of you or any person who controls you within the
meaning of the Act, or by Atlas, or any of its officers, directors
or any person who controls Atlas within the meaning of the Act, or
any other indemnified party, and shall survive delivery of the Units
hereunder.
13. Termination. You shall have the right to terminate this
agreement other than the indemnification provisions of Section 11 by
giving notice as hereinafter specified any time at or prior to a
closing date:
(a) if Atlas shall have failed, refused, or been unable at or
prior to the closing date, to perform any of its obligations
hereunder; or
(b) there has occurred an event materially and adversely
affecting the value of the Units.
If you elect to terminate this Agreement other than the
indemnification provisions of Section 11, Atlas shall be promptly
notified by you by telephone, telecopier or telegram, confirmed by
letter.
Atlas may terminate this Agreement other than the indemnification
provisions of Section 11 for any reason by promptly giving notice to
you by telephone, telecopier or telegram, confirmed by letter as
hereinafter specified at or prior to a closing date.
14. Notices. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing, and if
sent to you shall be mailed, delivered or telegraphed and confirmed
to you at the address set forth below your signature hereto or if
sent to Atlas or on behalf of the Partnership, at 311 Rouser Road,
Moon Township, Pennsylvania 15108.
15. Format of Checks/Escrow Agent. Pending receipt of the minimum
Partnership Subscription, Atlas and you and the Selling Agents agree
that all subscribers shall be instructed to make their checks,
drafts, or money orders payable solely to "National City Bank of
Pennsylvania, Escrow Agent, Atlas Public #6 Ltd." as agent for the
Partnership.
If you receive a check, draft, or money order not conforming to the
foregoing instructions you shall return such check, draft, or money
order to the Selling Agent not later than the end of the next
business day following its receipt by you and the Selling Agent
shall then return such check, draft, or money order directly to the
subscriber not later than the end of the next business day following
its receipt from you. Checks, drafts, or money orders received by
you or a Selling Agent which conform to the foregoing instructions
shall be transmitted by you pursuant to Section 16 "Transmittal
Procedures," below.
You represent that you have executed the Escrow Agreement and agree
that you are bound by the terms of the Escrow Agreement executed by
you, the Partnership and Atlas, a copy of which is attached hereto
as Exhibit "A".
16. Transmittal Procedures. You and each Selling Agent shall
transmit received investor funds in accordance with the following
procedures. For purposes of the following, the term Selling Agent
shall also include you as Dealer-Manager where you receive
subscriptions from investors.
(a) Pending receipt of the minimum subscription of $1,000,000,
the Selling Agents shall promptly, upon receipt of any and all
checks, drafts, and money orders received from prospective
purchasers of Units, transmit same together with the original
executed Subscription Agreement to you, as Dealer-Manager by the
end of the next business day following receipt of the check,
draft, or money order by the Selling Agent. By the end of the
next business day following receipt of the check, draft, or money
order and Subscription Agreement by you as Dealer-Manager, you as
Dealer-Manager shall transmit the check, draft or money order and
a copy of the executed Subscription Agreement to the Escrow
Agent, and the original Subscription Agreement and a copy of the
check, draft or money order to Atlas.
(b) Upon receipt by you as Dealer-Manager of notice from Atlas
that the minimum Partnership Subscription has been received,
Atlas, you and the Selling Agent agree that all subscribers
thereafter may be instructed, in Atlas' sole discretion, to make
their checks, drafts, or money orders payable solely to "Atlas
Public #6 Ltd.". Thereafter, Selling Agents shall promptly, upon
receipt of any and all checks, drafts, and money orders received
from prospective purchasers of Units, transmit same together with
the original Subscription Agreement to you as Dealer-Manager by
the end of the next business day following receipt of the check,
draft, or money order by the Selling Agent. By the end of the
next business day following receipt of the check, draft, or money
order and Subscription Agreement by you as Dealer-Manager, you as
Dealer-Manager shall transmit the check, draft or money order and
the original Subscription Agreement to Atlas.
17. Parties. This Agreement shall inure to the benefit of and be
binding upon you, Atlas, and any respective successors and assigns
and shall also inure to the benefit of the indemnified parties,
their successors and assigns. This Agreement is intended to be and
is for the sole and exclusive benefit of the parties hereto,
including the Partnership, and their respective successors and
assigns, and the indemnified parties and their successors and
assigns, and for the benefit of no other person, and no other person
shall have any legal or equitable right, remedy or claim under or in
respect of this Agreement. No purchaser of any of the Units from you
shall be construed a successor or assign merely by reason of such
purchase
18. Relationship. This Agreement shall not constitute you a partner
of Atlas or the Partnership or any general partner thereof, nor
render Atlas, the Partnership, or the Managing General Partner
thereof liable for any of your obligations except as otherwise
provided herein.
19. Effective Date. This Agreement is made effective between the
parties as of the date accepted by you as indicated by your
signature hereto.
20. Entire Agreement Waiver. This Agreement constitutes the entire
agreement between the parties hereto and shall not be amended or
modified in any way except by subsequent agreement executed in
writing, and no party shall be liable or bound to the other by any
agreement, except as specifically set forth herein. Any party hereto
may waive, but only in writing, any term, condition, or requirement
under this Agreement which is intended for its own benefit, and
written waiver of any term or condition of this Agreement shall not
operate as a waiver of any other breach of such term or condition,
nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or any other provision hereof.
If the foregoing correctly sets forth our understanding please so
indicate in the space provided below for the purpose whereupon this
letter shall constitute a binding agreement between us.
Very truly yours,
ATLAS RESOURCES, INC.,
a Pennsylvania corporation
, 1997 By:
Date J.R. O'Mara, President
ATTEST:
(SEAL) Secretary
PARTNERSHIP
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
By: Atlas Resources, Inc.,
Managing General Partner
, 1997 By:
Date J.R. O'Mara, President
ATTEST:
(SEAL) Secretary
DEALER-MANAGER
ANTHEM SECURITIES, INC.,
a Pennsylvania corporation
, 1997 By:
Date Eric D. Koval, President
ATTEST:
(SEAL) Secretary
EXHIBIT "A"
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
ESCROW AGREEMENT
THIS AGREEMENT, made to be effective as of the _____ day of
_________, 1997, by and between Atlas Resources, Inc., a Pennsylvania
corporation ("Atlas"), Anthem Securities, Inc., a Pennsylvania
corporation ("Anthem"), Bryan Funding, Inc., a Pennsylvania corporation
("Bryan Funding"), collectively Anthem and Bryan Funding are referred to as
the "Dealer-Manager", Atlas-Energy for the Nineties-Public #6 Ltd., a
Pennsylvania limited partnership (the "Partnership") and National City
Bank of Pennsylvania, Pittsburgh, Pennsylvania, as escrow agent (the
"Escrow Agent").
WITNESSETH:
WHEREAS, Atlas, as Managing General Partner, intends to offer
publicly for sale to qualified investors (the "Investors") up to 1,000
limited partnership interests in the Partnership (the "Units"); and
WHEREAS, each Investor will be required to pay his subscription in
full upon subscribing ($10,000 per Unit, however, the Managing General
Partner, in its discretion, may accept one-half Unit [$5,000]
subscriptions, with larger subscriptions permitted in $1,000
increments), by check, draft or money order except that the
broker-dealers and Atlas and its officers and directors may purchase
Units net of the Dealer-Manager Fee, the commissions and accountable due
diligence fees set forth below (the "Subscription Proceeds"); and
WHEREAS, the Managing General Partner and Anthem have executed an
agreement ("Anthem Dealer-Manager Agreement") pursuant to which Anthem
will solicit subscriptions for Units in all states other than Minnesota and
New Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on
a "best efforts" basis for the remaining Units on behalf of the Managing
General Partner and the Partnership and pursuant to which Anthem has
been authorized to select certain members in good standing of the National
Association of Securities Dealers, Inc. ("NASD") to participate in the
offering of the Units ("Selling Agents"); and
WHEREAS, the Managing General Partner and Bryan Funding have
executed an agreement ("Bryan Funding Dealer-Manager Agreement")
pursuant to which Bryan Funding will solicit subscriptions for Units in the
states of Minnesota and New Hampshire on a "best efforts" "all or none"
basis for $1,000,000 and on a "best efforts" basis for the remaining
Units on behalf of the Managing General Partner and the
Partnership and pursuant to which Bryan Funding has been authorized to
select certain members in good standing of the National Association of
Securities Dealers, Inc. ("NASD") to participate in the offering of the
Units ("Selling Agents"); and
WHEREAS, the Anthem Dealer-Manager Agreement and the Bryan Funding
Dealer-Manager Agreement, collectively referred to as the "Dealer
Manager Agreement", provide for compensation to the Dealer-Manager which
includes, but is not limited to, a 2.5% Dealer-Manager Fee, a 7.5% sales
commission, and reimbursement of the Selling Agents' bona fide
accountable due diligence expenses of .5% per Unit to participate in the
offering of the Units, which compensation will be reallowed to the
Selling Agents and wholesalers; and
WHEREAS, under the terms of the Dealer-Manager Agreement the
Subscription Proceeds are required to be held in escrow subject to the
receipt and acceptance by Atlas of the minimum Subscription Proceeds of
$1,000,000, excluding any optional subscription by the Managing General
Partner, its officers, directors and Affiliates; and
WHEREAS, no subscriptions to the Partnership will be accepted after
receipt of the maximum Subscription Proceeds of $8,000,000 (which may be
increased to $10,000,000 in Atlas' discretion) or December 31, 1997,
whichever event occurs first (the "Offering Termination Date"); and
WHEREAS, to facilitate compliance with the terms of the Dealer
Manager Agreement, Atlas and the Dealer-Manager desire to have the
Subscription Proceeds deposited with the Escrow Agent and the Escrow
Agent desires to hold the Subscription Proceeds pursuant to the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
conditions herein contained, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Appointment of Escrow Agent. Atlas, the Partnership and the
Dealer-Manager hereby appoint Escrow Agent as the escrow agent to
receive and to hold the Subscription Proceeds deposited with Escrow
Agent by the Dealer-Manager and the Selling Agents pursuant hereto and
Escrow Agent hereby agrees to serve in such capacity during the term and
based upon the provisions hereof.
2. Deposit of Subscription Proceeds. Pending receipt of the minimum
Subscription Proceeds of $1,000,000, the Dealer-Manager shall
deposit the Subscription Proceeds of each Investor with the Escrow
Agent and shall deliver to the Escrow Agent a copy of the
Subscription Agreement of such Investor. Payment for each
subscription for Units shall be in the form of a check made payable to
"National City Bank of Pennsylvania, Escrow Agent, Atlas Public #6
Ltd." The Escrow Agent shall deliver a receipt to Anthem and Atlas
for each deposit of Subscription Proceeds made pursuant hereto by
Anthem, and to Bryan Funding and Atlas for each deposit of
subscription proceeds made pursuant hereto by Bryan Funding.
3. Investment of Subscription Proceeds. The Subscription Proceeds
shall be deposited in an interest bearing account maintained by the
Escrow Agent entitled "Armada Government Fund." Subscription
Proceeds may be temporarily invested by the Escrow Agent only in
income producing short-term, highly liquid investments secured by the
United States government where there is appropriate safety of
principal, such as U.S. Treasury Bills. The interest earned shall be
added to the Subscription Proceeds and disbursed in accordance with the
provisions of paragraph 4 or 5, as the case may be.
4. Distribution of Subscription Proceeds. If the Escrow Agent (a)
receives written notice from an authorized officer of Atlas that at
least the minimum aggregate subscriptions of $1,000,000 have been
received and accepted by Atlas, and (b) determines that Subscription
Proceeds for at least $1,000,000 as determined by Atlas have cleared the
banking system and are good, the Escrow Agent shall promptly release
and distribute to Atlas such escrowed Subscription Proceeds which have
cleared the banking system and are good plus any interest paid and
investment income earned on such Subscription Proceeds while held
by the Escrow Agent in an escrow account. Any remaining Subscription
Proceeds, plus any interest paid and investment income earned on such
Subscription Proceeds while held by the Escrow Agent in an escrow
account shall be promptly released and distributed to Atlas by the
Escrow Agent as such Subscription Proceeds clear the banking system and
become good.
5. Separate Partnership Account. During the continuation of the
offering after the Partnership is funded with cleared Subscription
Proceeds of at least $1,000,000 and the Escrow Agent receives the notice
described in Paragraph 4 of this Agreement, and prior to the Offering
Termination Date, any additional Subscription Proceeds may be deposited by
the Dealer-Manager directly in a separate Partnership account which shall
not be subject to the terms of this Agreement.
6. Distributions to Subscribers.
(a) In the event that the Partnership will not be funded as
contemplated because less than the minimum aggregate
subscriptions of $1,000,000 have been received and accepted by
Atlas by twelve p.m. (noon), local time, on December 31, 1997, or for
any other reason, Atlas shall so notify the Escrow Agent,
whereupon the Escrow Agent promptly shall distribute to each
Investor a refund check made payable to such Investor in an
amount equal to the Subscription Proceeds of such Investor, plus any
interest paid or investment income earned thereon while held
by the Escrow Agent in an escrow account as calculated by Atlas.
(b) In the event that a subscription for Units submitted by an
Investor is rejected by Atlas for any reason after the
Subscription Proceeds relating to such subscription have been
deposited with the Escrow Agent, then Atlas promptly shall notify
the Escrow Agent of such rejection, and the Escrow Agent shall
promptly distribute to such Investor a refund check made payable
to such Investor in an amount equal to the Subscription Proceeds
of such Investor, plus any interest paid or investment income
earned thereon while held by the Escrow Agent in an escrow
account as calculated by Atlas.
7. Compensation and Expenses of Escrow Agent. Atlas shall be solely
responsible for and shall pay the compensation of the Escrow Agent
for its services hereunder, as provided in Appendix 1 to this
Agreement and made a part hereof, and the charges, expenses
(including any reasonable attorneys' fees), and other out-of-pocket
expenses incurred by the Escrow Agent in connection with the
administration of the provisions of this Agreement. The Escrow Agent
shall have no lien on the Subscription Proceeds deposited in an
escrow account unless and until the Partnership is funded with
cleared Subscription Proceeds of at least $1,000,000 and the Escrow
Agent receives the notice described in Paragraph 4 of this
Agreement, at which time the Escrow Agent shall have, and is hereby
granted, a prior lien upon any property, cash, or assets held
hereunder, with respect to its unpaid compensation and nonreimbursed
expenses, superior to the interests of any other persons or
entities.
8. Duties of Escrow Agent. The Escrow Agent shall not be obligated
to accept any notice, make any delivery, or take any other action
under this Escrow Agreement unless the notice or request or demand
for delivery or other action is in writing and given or made by the
party given the right or charged with the obligation under this
Escrow Agreement to give the notice or to make the request or
demand. In no event shall the Escrow Agent be obligated to accept
any notice, request, or demand from anyone other than Atlas or the
Dealer-Manager.
9. Liability of Escrow Agent. The Escrow Agent shall not be liable
for any damages, or have any obligations other than the duties
prescribed herein in carrying out or executing the purposes and
intent of this Escrow Agreement; provided, however, that nothing
herein contained shall relieve the Escrow Agent from liability
arising out of its own willful misconduct or gross negligence.
Escrow Agent's duties and obligations under this Agreement shall be
entirely administrative and not discretionary. Escrow Agent shall
not be liable to any party hereto or to any third party as a result
of any action or omission taken or made by Escrow Agent in good
faith. The parties to this Agreement will indemnify Escrow Agent,
hold Escrow Agent harmless, and reimburse Escrow Agent from, against
and for, any and all liabilities, costs, fees and expenses
(including reasonable attorney's fees) Escrow Agent may suffer or
incur by reason of its execution and performance of this Agreement.
In the event any legal questions arise concerning Escrow Agent's
duties and obligations hereunder, Escrow Agent may consult with its
counsel and rely without liability upon written opinions given to it
by such counsel.
The Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, authorization, or other paper or
document which the Escrow Agent, in good faith, believes to be
genuine and what it purports to be.
In the event that there shall be any disagreement between any of the
parties to this Agreement, or between them or any of them and any
other person, resulting in adverse claims or demands being made in
connection with this Agreement, or in the event that Escrow Agent,
in good faith, shall be in doubt as to what action it should take
hereunder, Escrow Agent may, at its option, refuse to comply with
any claims or demands on it or refuse to take any other action
hereunder, so long as such disagreement continues or such doubt
exists; and in any such event, Escrow Agent shall not be or become
liable in any way or to any person for its failure or refusal to act
and Escrow Agent shall be entitled to continue to so refrain from
acting until the dispute is resolved by the parties involved.
National City Bank of Pennsylvania is acting solely as Escrow Agent
and is not a party to, nor has it reviewed or approved any agreement
or matter of background related to this Agreement, other than this
Agreement itself, and has assumed, without investigation, the
authority of the individuals executing this Agreement to be so
authorized on behalf of the party or parties involved.
10. Resignation or Removal of Escrow Agent. The Escrow Agent may
resign as such following the giving of thirty days' prior written
notice to the other parties hereto. Similarly, the Escrow Agent may
be removed and replaced following the giving of thirty days' prior
written notice to the Escrow Agent by the other parties hereto. In
either event, the duties of the Escrow Agent shall terminate thirty
days after the date of such notice (or as of such earlier date as
may be mutually agreeable); and the Escrow Agent shall then deliver
the balance of the Subscription Proceeds (and any interest paid or
investment income earned thereon while held by the Escrow Agent in
an escrow account) in its possession to a successor escrow agent as
shall be appointed by the other parties hereto as evidenced by a
written notice filed with the Escrow Agent. If the other parties
hereto are unable to agree upon a successor or shall have failed to
appoint a successor prior to the expiration of thirty days following
the date of the notice of resignation or removal, the then acting
Escrow Agent may petition any court of competent jurisdiction for
the appointment of a successor escrow agent or other appropriate
relief; and any such resulting appointment shall be binding upon all
of the parties hereto. Upon acknowledgment by any successor escrow
agent of the receipt of the then remaining balance of the
Subscription Proceeds (and any interest paid or investment income
earned thereon while held by the Escrow Agent in an escrow account),
the then acting Escrow Agent shall be fully released and relieved of
all duties, responsibilities, and obligations under this Agreement.
11. Termination. This Agreement shall terminate and the Escrow Agent
shall have no further obligation with respect hereto upon the
occurrence of the distribution of all Subscription Proceeds (and any
interest paid or investment income earned thereon while held by the
Escrow Agent in an escrow account) as contemplated hereby or upon
the written consent of all the parties hereto.
12. Notice. Any notices or instructions, or both, to be given
hereunder shall be validly given if set forth in writing and mailed
by certified mail, return receipt requested, as follows:
If to the Escrow Agent:
National City Bank of Pennsylvania
Attention: Mr. Robert Mialki, Vice President
Corporate Trust Department 300
Fourth Avenue
Pittsburgh, Pennsylvania 15278-2331
Phone: (412) 644-8401
Facsimile: (412) 644-7971
If to Atlas:
Atlas Resources, Inc.
311 Rouser Road
P.O. Box 611
Moon Township, Pennsylvania 15108
Attention: J. R. O'Mara
Phone: (412) 262-2830
Facsimile: (412) 262-2820
If to Anthem:
Anthem Securities, Inc.
311 Rouser Road
P.O. Box 926
Coraopolis, Pennsylvania 15108
Attention: Eric D. Koval
Phone: (412) 262-1680
Facsimile: (412) 262-7430
If to Bryan Funding:
Bryan Funding, Inc.
393 Vanadium Road
Pittsburgh, Pennsylvania 15243
Attention: Richard G. Bryan, Jr.
Phone: (412) 276-9393
Facsimile: (412) 276-9396
Any party may designate any other address to which notices and
instructions shall be sent by notice duly given in accordance herewith.
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
(b) This Agreement is binding upon and shall inure to the
benefit of the undersigned and their respective heirs, successors
and assigns.
(c) This Agreement may be executed in multiple copies, each
executed copy to serve as an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
to be effective as of the day and year first above written.
NATIONAL CITY BANK OF PENNSYLVANIA
ATTEST: As Escrow Agent
By: By:
(Authorized Officer) (Authorized Officer)
ATLAS RESOURCES, INC.
ATTEST: A Pennsylvania corporation
By: By:
Secretary J.R. O'Mara, President
ANTHEM SECURITIES, INC.
ATTEST: A Pennsylvania corporation
By: By: _______________________________________
Secretary Eric D. Koval, President
BRYAN FUNDING, INC.
ATTEST: A Pennsylvania corporation
By: By: _______________________________________
Secretary Richard G. Bryan, Jr., President
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
By: ATLAS RESOURCES, INC.
ATTEST: Managing General Partner
By: By: ______________________________________
Secretary J. R. O'Mara, President
APPENDIX I TO ESCROW AGREEMENT
Compensation for Services of Escrow Agent
Escrow Agent annual fee per year or any part thereof $3,000.00
EXHIBIT "B"
SELLING AGENT AGREEMENT
WITH ANTHEM SECURITIES, INC.
TO:
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
Gentlemen:
Atlas Resources, Inc. ("Atlas"), is the Managing General Partner in
a Pennsylvania limited partnership named Atlas-Energy for the Nineties-
Public #6 Ltd. (the "Partnership"). The Units of Participation (the
"Units") and the offering are described in the enclosed Prospectus dated
_________, 1997 (the "Prospectus"). Prospectuses relating to the Units
have been furnished to you with this Agreement. Our firm, Anthem
Securities, Inc. (the "Dealer-Manager"), has entered into a Dealer
Manager Agreement for sales in all states other than Minnesota and New
Hampshire, a copy of which has been furnished to you and is incorporated
herein by reference, with the Managing General Partner and the
Partnership under which the Dealer-Manager has agreed to form a group of
National Association of Securities Dealers, Inc. (the "NASD") member
firms (the "Selling Agents"), who will obtain subscriptions to the
Partnership in all states other than Minnesota and New Hampshire on a
"best efforts" basis pursuant to the Securities Act of 1933, as amended
(the "Act"), and the provisions of the Prospectus.
You are invited to become one of the Selling Agents, on a non
exclusive basis, and by your acceptance below you will have agreed to
act in that capacity and to use your best efforts, in accordance with
the following terms and conditions, to solicit such subscriptions in all
states other than Minnesota and New Hampshire. This Agreement shall not
be construed to prohibit your participation as a selling agent in
Minnesota and New Hampshire pursuant to a duly executed selling agent
agreement entered into by you and any other authorized "Dealer-Manager"
for the Partnership.
1. Representations and Warranties of Selling Agent. You, as a
Selling Agent, represent and warrant to the Dealer-Manager that:
(a) You are a corporation duly organized, validly existing and
in good standing under the laws of the state of your formation or
of any jurisdiction to the laws of which you are subject, with
all requisite power and authority to enter into this Agreement
and to carry out your obligations hereunder.
(b) This Agreement when accepted and approved will be duly
authorized, executed and delivered by you and will be a valid and
binding agreement on your part in accordance with its terms.
(c) The consummation of the transactions contemplated by this
Agreement and the Prospectus will not result in any breach of any
of the terms or conditions of, or constitute a default under your
Articles of Incorporation, Bylaws, any indenture, agreement or
other instrument to which you are a party, or violate any order
applicable to you of any court or any federal or state regulatory
body or administrative agency having jurisdiction over you or
over your affiliates.
(d) You are duly registered pursuant to the provisions of the
Securities Exchange Act of 1934 (the "Act of 1934") as a dealer
and you are a member in good standing of the NASD, and are duly
registered as a broker-dealer in such states as you are required
to be registered in order to carry out your obligations as
contemplated by this Agreement and the Prospectus. You agree to
maintain all of the foregoing registrations in good standing
throughout the term of the offer and sale of the Units and you
agree to comply with all statutes and other requirements
applicable to you as a broker-dealer pursuant to those
registrations.
(e) Pursuant to your appointment as a Selling Agent, you shall
comply with all of the provisions of the Act, insofar as the Act
applies to your activities hereunder, and you shall not engage in
any activity which would cause the offer and/or sale of Units not
to comply with the Act, the Act of 1934 and the applicable rules
and regulations of the Securities and Exchange Commission (the
"Commission"), the applicable state securities laws and
regulations, this Agreement and the NASD Conduct Rules including
Rules 2730, 2740, 2420 and 2750, and also including, but not
limited to, Rule 2810(b)(2) and (b)(3) of the NASD Conduct Rules,
which provide as follows:
Sec. (b)(2)
Suitability
(A) A member or person associated with a member shall
not underwrite or participate in a public offering of
a direct participation program unless standards of
suitability have been established by the program for
participants therein and such standards are fully
disclosed in the prospectus and are consistent with
the provisions of subsection (B) of this section.
(B) In recommending to a participant the purchase, sale
or exchange of an interest in a direct participation
program, a member or person associated with a member
shall:
(i) have reasonable grounds to believe, on the
basis of information obtained from the
participant concerning his investment objectives,
other investments, financial situation and needs,
and any other information known by the member or
associated person, that:
(a) the participant is or will be in a
financial position appropriate to enable him
to realize to a significant extent the
benefits described in the prospectus,
including the tax benefits where they are a
significant aspect of the program;
(b) the participant has a fair market net
worth sufficient to sustain the risks
inherent in the program, including loss of
investment and lack of liquidity; and
(c) the program is otherwise suitable for the
participant; and
(ii) maintain in the files of the member documents
disclosing the basis upon which the determination
of suitability was reached as to each
participant.
(C) Notwithstanding the provisions of subsections (A)
and (B) hereof, no member shall execute any
transaction in a direct participation program in a
discretionary account without prior written approval
of the transaction by the customer.
Sec. (b)(3)
Disclosure
(A) Prior to participating in a public offering of a
direct participation program, a member or person
associated with a member shall have reasonable grounds
to believe, based on information made available to him
by the sponsor through a prospectus or other
materials, that all material facts are adequately and
accurately disclosed and provide a basis for
evaluating the program.
(B) In determining the adequacy of disclosed facts
pursuant to subsection (A) hereof, a member or person
associated with a member shall obtain information on
material facts relating at a minimum to the following,
if relevant in view of the nature of the program:
(i) items of compensation;
(ii) physical properties;
(iii) tax aspects;
(iv) financial stability and experience of the
sponsor;
(v) the program's conflicts and risk factors; and
(vi) appraisals and other pertinent reports.
(C) For purposes of subsections (A) and (B) hereof, a
member or person associated with a member may rely
upon the results of an inquiry conducted by another
member or members, provided that:
(i) the member or person associated with a member
has reasonable grounds to believe that such
inquiry was conducted with due care;
(ii) the results of the inquiry were provided to
the member or person associated with a member
with the consent of the member or members
conducting or directing the inquiry; and
(iii) no member that participated in the inquiry
is a sponsor of the program or an affiliate of
such sponsor.
(D) Prior to executing a purchase transaction in a
direct participation program, a member or person
associated with a member shall inform the prospective
participant of all pertinent facts relating to the
liquidity and marketability of the program during the
term of investment.
(f) You have received copies of the Prospectus relating to the Units
and you have relied only on the statements contained in such Prospectus
and not on any other statements whatsoever, either written or oral, with
respect to the details of the offering of Units.
(g) You agree that you shall not place any advertisement or other
solicitation with respect to the Units (including without limitation any
material for use in any newspaper, magazine, radio or television
commercial, telephone recording, motion picture, or other public media)
without the prior written approval of Atlas, and without the prior
written approval of the form and content thereof by the Commission, the
NASD and the securities authorities of the states where such
advertisement or solicitation is to be circulated. Any such
advertisements or solicitations shall be at your expense.
(h) If a supplement or amendment to the Prospectus is prepared and
delivered to you by Atlas or the Dealer-Manager, you agree to distribute
each such supplement or amendment to the Prospectus to every person who
has previously received a copy of the Prospectus from you and you further
agree to include such supplement or amendment in all future deliveries of
any Prospectus.
(i) In connection with any offer or sale of the Units, you agree to
comply in all respects with statements set forth in the Prospectus and
the Partnership Agreement and you agree not to make any statement
inconsistent with the statements in the Prospectus or the Partnership
Agreement and you further agree that you shall not provide any written
information, statements or sales literature other than the Prospectus,
The Atlas Group, Inc.'s corporate profile and a brochure entitled "AtlasEnergy
for the Nineties-Public #6 Ltd." (the corporate profile and the brochure
collectively referred to herein as the "Brochure"), and any supplements or
amendments thereto unless approved in writing by Atlas; and you agree not to
make any untrue or misleading statements of a material fact in connection with
the Units.
(j) You agree to use your best efforts in the solicitation and sale of
said Units, including insuring that the prospective purchasers meet the
suitability requirements set forth in the Prospectus and the Subscription
Agreement and properly execute the Subscription Agreement, which has been
provided as Exhibit (I-B) to the Partnership Agreement, Exhibit (A) to the
Prospectus, together with any additional forms provided in any supplement
or amendment to the Prospectus, or otherwise provided to you by Atlas or
the Dealer-Manager to be completed by prospective purchasers. Atlas shall
have the right to reject any subscription at any time for any reason
without liability to it. Investor funds and executed Subscription
Agreements shall be transmitted as set forth in Section 11.
(k) Although not anticipated, in the event you assist in any transfers
of the Units, you shall comply with the requirements of Sections
(b)(2)(B) and (b)(3)(D) of Rule 2810 of the NASD Conduct Rules.
2. Commissions.
(a) Subject to the receipt of the minimum required Partnership
Subscription of $1,000,000, the Dealer-Manager is entitled to receive
from the Partnership a 7.5% Sales Commission and a .5% reimbursement of
the Selling Agents' bona fide accountable due diligence expenses based on
the aggregate amount of all Unit subscriptions to the Partnership secured
by the Dealer-Manager or the selling group formed by the DealerManager
and accepted by Atlas. Subject to the terms and conditions herein set
forth, including the Dealer-Manager's receipt from you of the
documentation required of you in Section 1 of this Agreement, the DealerManager
agrees to pay you a 7.5% cash commission, and a .5% reimbursement of your
bona fide accountable due diligence expenses, of
subscriptions sold by you and accepted by Atlas, within seven business
days after the Dealer-Manager has received the commissions and
reimbursements on such subscriptions. The Dealer-Manager is entitled to
receive its commissions and reimbursements within five business days
after at least the minimum Partnership Subscription ($1,000,000) has been
received and accepted by Atlas and the subscription proceeds have been
released to Atlas from the escrow account, and approximately every two
weeks thereafter until the Offering Termination Date, which is December
31, 1997, or when the maximum Partnership Subscription of $10,000,000 is
received if earlier. The balance will be paid to the Dealer-Manager
within 14 business days after the Offering Termination Date.
(b) Notwithstanding anything herein to the contrary, you agree to waive
payment of your commissions and reimbursements as set forth above in (a)
until the Dealer-Manager is in receipt of the related amounts owed to it
pursuant to the Dealer-Manager Agreement, and the Dealer-Manager's
liability for such amounts hereunder is limited solely to the proceeds of
the related amounts owed to it pursuant to the Dealer-Manager Agreement.
(c) The Partnership will not commence operations unless subscriptions
for at least $1,000,000 have been secured by December 31, 1997. In the
event this amount is not secured, nothing will be payable to you and all
funds advanced by purchasers will be returned to them with interest
earned, if any.
3. State Securities Registration. Atlas may elect not to qualify or
register Units in any state in which it deems such qualification or
registration is not warranted for any reason in its sole discretion.
Upon application to the Dealer-Manager you will be informed as to
the jurisdictions in which the Units have been qualified for sale or
are exempt under the respective securities or "Blue Sky" laws of
such jurisdictions; but the Dealer-Manager, the Partnership and the
Managing General Partner have not assumed and will not assume any
obligation or responsibility as to your right to act as a broker
dealer with respect to the Units in any such jurisdiction.
4. Expense of Sale. The expenses in connection with the offer and
sale of the Units shall be payable as set forth below.
(a) The Dealer-Manager shall pay all expenses incident to the
performance of its obligations hereunder, including the fees and
expenses of its attorneys and accountants, even in the event this
offering is not successfully completed.
(b) You shall pay all expenses incident to the performance of your
obligations hereunder, including the fees and expenses of your own
counsel and accountants, even in the event this offering is not
successfully completed.
5. Conditions of Your Duties. Your obligations provided herein, as
of the date hereof and at the applicable closing date, shall be
subject to the performance by the Dealer-Manager of its obligations
hereunder and to the performance by Atlas of its obligations under
the Dealer-Manager Agreement.
6. Conditions of Dealer-Manager's Duties. The Dealer-Manager's
obligations provided herein, including the duty to pay compensation
as set forth in Section 2 hereof, shall be subject to the accuracy,
as of the date hereof and at the applicable closing date (as if made
at the applicable closing date) of your representations and
warranties made herein, and to the performance by you of your
obligations hereunder, and to the additional condition that the
Dealer-Manager shall have received, at or prior to the applicable
closing date, the following documents:
(a) a fully executed Subscription Agreement for each prospective
purchaser ;
(b) certification to the Dealer-Manager that you are registered as
required by Section 1(d) and that such registrations were, during the
term of the offering and through the applicable closing date, in full
force and effect; and
(c) a certificate from you, dated at the applicable closing date, to
the effect that your representations and warranties made herein are true
and correct as if made at the applicable closing date and that you have
fulfilled all your obligations hereunder.
7. Indemnification.
(a) You shall indemnify and hold harmless the Dealer-Manager, Atlas,
the Partnership and its attorneys, against any losses, claims, damages or
liabilities, joint or several, to which such parties may become subject,
under the Act, the Act of 1934 or otherwise insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon your breach of any of your duties and obligations,
representations, or warranties under the terms or provisions of this
Agreement and you shall reimburse such parties for any legal or other
expenses reasonably incurred in connection with investigating or
defending any such loss, claim, damage, liability or action.
(b) The Dealer-Manager shall indemnify and hold you harmless against
any losses, claims, damages or liabilities, joint or several, to which
you may become subject, under the Act, the Act of 1934 or otherwise
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the Dealer-Manager's
breach of any of its duties and obligations, representations, or
warranties under the terms or provisions of this Agreement and the Dealer
Manager shall reimburse you for any legal or other expenses reasonably
incurred in connection with investigating or defending such loss, claim,
damage, liability or action.
(c) The foregoing indemnity agreements shall extend upon the same terms
and conditions to, and shall inure to the benefit of, each person, if
any, who controls each indemnified party within the meaning of the Act.
(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to any indemnified party.
In case any such action shall be brought against such indemnified party,
it shall notify the indemnifying party of the commencement thereof, and
the indemnifying party shall be entitled to participate in, and, to the
extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified and indemnifying parties, and after the
indemnified party shall have received notice from the agreed upon counsel
that the defense under such paragraph has been so assumed, the
indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than with respect to the agreed upon
counsel who assumed the defense thereof.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements of the Dealer-Manager and
you herein or in certificates delivered pursuant hereto, and the
indemnity agreements contained in Section 7 hereof, shall survive
the delivery, execution and closing hereof, and shall remain
operative and in full force and effect regardless of any
investigation made by or on behalf of you or any person who controls
you within the meaning of the Act, or by the Dealer-Manager, or any
of its officers, directors or any person who controls the Dealer-
Manager within the meaning of the Act, or any other indemnified
party, and shall survive delivery of the Units hereunder.
9. Termination. You shall have the right to terminate this
Agreement, other than the indemnification provisions of Section 7,
by giving notice as hereinafter specified any time at or prior to a
closing date:
(a) if the Dealer-Manager shall have failed, refused, or been
unable at or prior to the closing date, to perform any of its
obligations hereunder; or
(b) there has occurred an event materially and adversely
affecting the value of the Units.
If you elect to terminate this Agreement, other than the
indemnification provisions of Section 7, the Dealer-Manager shall be
promptly notified by you by telephone, telecopier or telegram,
confirmed by letter.
The Dealer-Manager may terminate this Agreement, other than the
indemnification provisions of Section 7, for any reason and at any
time by promptly giving notice to you by telephone, telecopier or
telegram, confirmed by letter.
10. Format of Checks/Escrow Agent. Pending receipt of the minimum
Partnership Subscription of $1,000,000 (100 Units), the Dealer
Manager and you agree that all subscribers shall be instructed to
make their checks, drafts, or money orders payable solely to
"National City Bank of Pennsylvania, Escrow Agent, Atlas Public #6
Ltd." as agent for the Partnership.
If you receive a check, draft, or money order not conforming to the
foregoing instructions you shall return such check, draft, or money
order directly to the subscriber not later than the end of the next
business day following its receipt from the subscriber. If the
Dealer-Manager receives a check, draft, or money order not
conforming to the foregoing instructions the Dealer-Manager shall
return such check, draft, or money order to you not later than the
end of the next business day following its receipt by the Dealer
Manager and you shall then return such check, draft, or money order
directly to the subscriber not later than the end of the next
business day following its receipt from the Dealer-Manager. Checks,
drafts, or money orders received by you which conform to the
foregoing instructions shall be transmitted by you pursuant to
Section 11 "Transmittal Procedures," below.
You agree that you are bound by the terms of the Escrow Agreement,
a copy of which is attached to the Dealer-Manager Agreement as
Exhibit "A".
11. Transmittal Procedures. You shall transmit received investor
funds in accordance with the following procedures.
(a) Pending receipt of the minimum Partnership Subscription of
$1,000,000, you shall promptly, upon receipt of any and all
checks, drafts, and money orders received from prospective
purchasers of Units, transmit same together with the original
executed Subscription Agreement to the Dealer-Manager by the end
of the next business day following receipt of the check, draft,
or money order by you. By the end of the next business day
following receipt of the check, draft, or money order and
Subscription Agreement by the Dealer-Manager, the Dealer-Manager
shall transmit the check, draft, or money order and a copy of the
executed Subscription Agreement to the Escrow Agent, and the
original Subscription Agreement and a copy of the check, draft,
or money order to Atlas.
(b) Upon receipt by you of notice from Atlas or the Dealer
Manager that the minimum Partnership Subscription has been
received, you agree that all subscribers thereafter may be
instructed, in Atlas' sole discretion, to make their checks,
drafts, or money orders payable solely to "Atlas Public #6 Ltd.".
Thereafter, you shall promptly, upon receipt of any and all
checks, drafts, and money orders received from prospective
purchasers of Units, transmit same together with the original
Subscription Agreement to the Dealer-Manager by the end of the
next business day following receipt of the check, draft, or money
order by you. By the end of the next business day following
receipt of the check, draft, or money order and subscription
documents by the Dealer-Manager, the Dealer-Manager shall
transmit the check, draft, or money order and the original
Subscription Agreement to Atlas.
12. Parties. This Agreement shall inure to the benefit of and be
binding upon you, the Dealer-Manager, and any respective successors
and assigns and shall also inure to the benefit of the indemnified
parties, their successors and assigns. This Agreement is intended to
be and is for the sole and exclusive benefit of the parties hereto,
and their respective successors and assigns, and the indemnified
parties and their successors and assigns, and for the benefit of no
other person, and no other person shall have any legal or equitable
right, remedy or claim under or in respect of this Agreement. No
purchaser of any of the Units from you shall be construed a
successor or assign merely by reason of such purchase
13. Relationship. You are not authorized to hold yourself out as
agent of the Dealer-Manager, the Managing General Partner, the
Partnership or of any other Selling Agent, nor shall this Agreement
constitute you a partner of the Managing General Partner, the Dealer
Manager, the Partnership or of any other Selling Agent, or render
the Managing General Partner, the Dealer-Manager, the Partnership or
any general partner thereof , or any other Selling Agent liable for
any of your obligations.
14. Effective Date. This Agreement is made effective between the
parties as of the date accepted by you as indicated by your
signature hereto.
15. Entire Agreement, Waiver. This Agreement constitutes the entire
agreement between the parties hereto and shall not be amended or
modified in any way except by subsequent agreement executed in
writing, and no party shall be liable or bound to the other by any
agreement, except as specifically set forth herein. Any party hereto
may waive, but only in writing, any term, condition, or requirement
under this Agreement which is intended for its own benefit, and
written waiver of any term or condition of this Agreement shall not
operate as a waiver of any other breach of such term or condition,
nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or any other provision hereof.
16. Notices. Any communications from you shall be in writing
addressed to the Dealer-Manager at P.O. Box 926, Coraopolis,
Pennsylvania 15108-0926. Any notice from the Dealer-Manager to you
shall be deemed to have been duly given if mailed, faxed or
telegraphed to you at your address shown below.
17. Acceptance. Please confirm your agreement to become a Selling
Agent under the terms and conditions set forth above by signing and
returning the enclosed duplicate copy of this Agreement to us at the
address set forth above.
Sincerely,
, 1997 ANTHEM SECURITIES, INC.
ATTEST:
By:
(SEAL) Secretary Eric D.
Koval, President
ACCEPTANCE:
We accept your invitation to become a Selling Agent under all the
terms and conditions stated in the above Agreement and confirm that all
the statements set forth in the above Agreement are true and correct. We
hereby acknowledge receipt of the Prospectuses and Brochures and a copy
of the Dealer-Manager Agreement referred to above.
, 1997 ,
a(n)
corporation,
ATTEST:
By:
(SEAL) Secretary _____________________________, President
(Address)
WHOLESALER AGREEMENT
(Best Efforts)
ADDENDUM TO SELLING AGENT AGREEMENT
WITH ANTHEM SECURITIES, INC.
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
1. Addendum and Grant of Authority. The terms and conditions of
this Wholesaler Agreement are in addition to the terms and conditions of
the Selling Agent Agreement entered into between the undersigned
parties hereto. Anthem Securities, Inc., the "Dealer-Manager" for sales in
all states other than Minnesota and New Hampshire, hereby appoints you a
Wholesaler for Atlas-Energy for the Nineties-Public #6 Ltd. (the
"Partnership") in the territory agreed upon by us (the "Territory") and
gives you the non-exclusive right on a best efforts basis to locate
registered broker-dealers that are members in good standing of the
National Association of Securities Dealers, Inc. that will enter into a
Selling Agent Agreement with the Dealer-Manager to effect subscriptions
for the Units.
2. Compensation and Fees. As compensation for services
rendered hereunder, except as otherwise agreed, you shall receive a fee
in an amount equal to 2.5% of each Unit sold by a registered
representative who is located in the Territory and is associated with a
Selling Agent that entered into a Selling Agent Agreement as a result of
your efforts and which subscription is accepted by Atlas Resources, Inc.
("Atlas") as Managing General Partner of the Partnership. The payment
of the foregoing compensation shall be reallowed in its entirety to your
registered representative who actually performs said wholesaling
services and shall only be made if subscriptions for at least the
minimum required Partnership Subscription of $1,000,000 have been
received and accepted by Atlas.
Your fees under this Wholesaler Agreement shall be paid by the
Dealer-Manager no later than seven business days after the Dealer
Manager has received the commissions and fees on such subscriptions.
The Dealer-Manager is entitled to receive its commissions and fees
within five business days after at least the minimum Partnership
Subscription ($1,000,000) has been received and accepted by Atlas and
the subscription proceeds have been released to Atlas from the escrow
account, and approximately every two weeks thereafter until the Offering
Termination Date, which is December 31, 1997, or when the maximum
Partnership Subscription of $10,000,000 is received if earlier. The
balance will be paid to the Dealer-Manager within 14 business days after
the Offering Termination Date.
Compensation paid to you pursuant to this Wholesaler Agreement is
in addition to the compensation paid to you and any other Selling Agent
pursuant to the Selling Agent Agreement.
Notwithstanding anything herein to the contrary, you agree to waive
payment of your commissions and fees as set forth above until the Dealer
Manager is in receipt of the related amounts owed to it pursuant to the
Dealer-Manager Agreement, and the Dealer-Manager's liability for such
amounts hereunder is limited solely to the proceeds of the related
amounts owed to it pursuant to the Dealer-Manager Agreement.
3. Termination of Wholesaler Agreement. Notwithstanding
anything herein to the contrary, the parties agree that this Wholesaler
Agreement may be terminated at any time, with or without cause, by
either party hereto by giving written notice of such termination to the
other party at its address designated in the Selling Agent Agreement.
DEALER-MANAGER
Anthem Securities, Inc.,
a Pennsylvania corporation
_________________________,1997 By:
Date Eric D. Koval, President
WHOLESALER
a___________________
corporation,
_________________________,1997 By:
Date
ATTEST:
__________________________
( S E A L ) Secretary
[Print Name, Title and Address]
Exhibit 1(b)
BRYAN FUNDING, INC.
DEALER-MANAGER AGREEMENT
(Best Efforts)
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
Bryan Funding, Inc.
393 Vanadium Road
Pittsburgh, Pennsylvania 15243
Gentlemen:
The undersigned, Atlas Resources, Inc. ("Atlas"), on behalf of ATLAS-
ENERGY FOR THE NINETIES-PUBLIC #6 LTD., hereby confirms its agreement
with you as Dealer-Manager as follows:
1. Description of Units. Atlas, as Managing General Partner, has
formed a limited partnership known as Atlas-Energy for the
Nineties-Public #6 Ltd. (the "Partnership"), and will issue and sell Units
of Participation in the Partnership (the "Units") at a price of $10,000
per Unit. No subscriptions to the Partnership will be accepted after
receipt of the maximum Partnership Subscription of $8,000,000 (which may
be increased to $10,000,000 in Atlas' discretion) or December 31,
1997, whichever event occurs first (the "Offering Termination Date").
2. Representations. Warranties and Agreements of Atlas. Atlas
represents and warrants to and agrees with you that:
(a) The Units have been or will be registered with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act of 1933
(the "Act"), as amended (the "Act").
(b) Atlas shall provide to you for delivery to all offerees and
purchasers and their representatives such information and documents as
Atlas deems appropriate to comply with the Act and applicable state
securities ("blue sky") laws.
(c) The Units when issued will be duly authorized and validly issued as
set forth in the Amended and Restated Certificate and Agreement of
Limited Partnership of the Partnership ("Partnership Agreement") set
forth as Exhibit (A) to the offering circular (the "Prospectus") and
subject only to the rights and obligations set forth in the Partnership
Agreement or imposed by the laws of the state of formation of the
Partnership or of any jurisdiction to the laws of which the Partnership
is subject.
(d) The Partnership was duly formed pursuant to the laws of the
Commonwealth of Pennsylvania and is validly existing as a limited partnership in
good standing under the laws of Pennsylvania with full power and authority to
own its properties and conduct its business as described in the Prospectus. The
Partnership will be qualified to do business as a limited partnership or similar
entity offering limited liability in those jurisdictions where Atlas deems such
qualification necessary to assure limited liability of the limited partners.
(e) The Prospectus, as heretofore or hereafter supplemented or amended,
does not contain an untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not
misleading.
3. Grant of Authority to the Dealer-Manager. On the basis of the
representations and warranties herein contained, and subject to the
terms and conditions herein set forth, Atlas, as Managing General
Partner of the Partnership, hereby appoints you as the Dealer-
Manager for the Partnership and gives you the exclusive right to
solicit subscriptions for the Units in the states of Minnesota and
New Hampshire only, on a "best efforts" basis, subject to the terms
and conditions set forth herein. In the states of Minnesota and New
Hampshire only you agree to use your best efforts to effect such
sales and to form and manage a selling group composed of soliciting
broker-dealers ("Selling Agents"), each of which shall be a member
of the National Association of Securities Dealers, Inc. ("NASD"),
pursuant to "Selling Agent Agreements" in substantially the form
attached hereto as Exhibit "B." The Managing General Partner shall
have three business days after the receipt of an executed Selling
Agent Agreement to refuse that Selling Agent's participation.
4. Compensation and Fees.
(a) As Dealer-Manager you will receive from the Partnership the
following fees on each Unit sold to investors who are situated
and/or residents in the states of Minnesota and New Hampshire: a
2.5% Dealer-Manager fee, a 7.5% Sales Commission and a .5%
reimbursement of the Selling Agents' bona fide accountable due
diligence expenses based on the amount of the Agreed
Subscription. The 7.5% Sales Commission and the .5% reimbursement
of bona fide accountable due diligence expenses will be reallowed
to the Selling Agents. The 2.5% Dealer-Manager fee will be
reallowed to the wholesalers for Agreed Subscriptions obtained
through such wholesalers' effort.
(b) Pending receipt and acceptance by Atlas of the minimum
Partnership Subscription ($1,000,000 excluding any optional
subscription by the Managing General Partner and its Affiliates),
all proceeds received by you from the sale of Units will be held
in a separate interest bearing escrow account as provided in
Section 15. Unless at least the minimum Partnership Subscription
of $1,000,000 is received on or before December 31, 1997, the
offering shall be terminated, in which event no fee shall be
payable to you and all funds advanced by purchasers shall be
returned to them with interest earned. In addition, you shall
deliver a termination letter in the form provided to you by Atlas
to each such subscriber and to each of the offerees previously
solicited by you and the Selling Agents in connection with the
offering of the Units. The fees set forth in Section 4(a), which
shall be reallowed by you to the Selling Agents which made the
sale and the wholesalers, will be paid within five business days
after at least the minimum Partnership Subscription ($1,000,000)
has been received and accepted by Atlas and the subscription
proceeds have been released to Atlas from the escrow account.
Thereafter, such fees will be paid to you and reallowed to the
Selling Agents and wholesalers as described in the previous
sentence approximately every two weeks until the Offering
Termination Date and all of your remaining fees shall be paid by
Atlas no later than 14 business days after the Offering
Termination Date.
5. Covenants of Atlas. Atlas covenants and agrees that:
(a) Atlas will deliver to you ample copies of the Prospectus and
of all amendments or supplements thereto, heretofore or hereafter
made, including all exhibits and other documents included
therein.
(b) If any event affecting the Partnership or Atlas shall occur
which in the opinion of Atlas should be set forth in a supplement
to or an amendment of the Prospectus, Atlas will forthwith at its
own expense prepare and furnish to you a sufficient number of
copies of a supplement or amendment to the Prospectus so that it,
as so supplemented or amended, will not contain an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they are made, not misleading.
6. Representations and Warranties of Dealer-Manager. You, as the
Dealer-Manager, represent and warrant to Atlas that:
(a) You are a corporation duly organized, validly existing and
in good standing under the laws of the state of your formation or
of any jurisdiction to the laws of which you are subject, with
all requisite power and authority to enter into this Agreement
and to carry out your obligations hereunder.
(b) This Agreement when accepted and approved will be duly
authorized, executed and delivered by you and will be a valid and
binding agreement on your part in accordance with its terms.
(c) The consummation of the transactions contemplated by this
Agreement and the Prospectus will not result in any breach of any
of the terms or conditions of, or constitute a default under your
Articles of Incorporation, Bylaws, any indenture, agreement or
other instrument to which you are a party, or violate any order
applicable to you of any court or any federal or state regulatory
body or administrative agency having jurisdiction over you or
over your affiliates.
(d) You are duly registered pursuant to the provisions of the
Securities Exchange Act of 1934 (the "Act of 1934") as a dealer
and you are a member in good standing of the NASD, and are duly
registered as a broker-dealer in such states as you are required
to be registered in order to carry out your obligations as
contemplated by this Agreement and the Prospectus. You agree to
maintain all of the foregoing registrations in good standing
throughout the term of the offer and sale of the Units and you
agree to comply with all statutes and other requirements
applicable to you as a broker-dealer pursuant to those
registrations.
(e) Pursuant to your appointment as Dealer-Manager, you shall
use your best efforts to exercise such supervision and control as
you deem necessary and appropriate to the activities of you and
the Selling Agents to comply with all of the provisions of the
Act, insofar as the Act applies to your and their activities
hereunder, and you and the Selling Agents shall not engage in any
activity which would cause the offer and/or sale of Units not to
comply with the Act, the Act of 1934 and the applicable rules and
regulations of the Commission, the applicable state securities
laws and regulations, this Agreement and the NASD Conduct Rules
including Rules 2730, 2740, 2420 and 2750, and also including,
but not limited to, Rule 2810(b)(2) and (b)(3) of the NASD
Conduct Rules, which provide as follows:
Sec. (b)(2)
Suitability
(A) A member or person associated with a member shall
not underwrite or participate in a public offering of
a direct participation program unless standards of
suitability have been established by the program for
participants therein and such standards are fully
disclosed in the prospectus and are consistent with
the provisions of subsection (B) of this section.
(B) In recommending to a participant the purchase, sale
or exchange of an interest in a direct participation
program, a member or person associated with a member
shall:
(i) have reasonable grounds to believe, on the
basis of information obtained from the
participant concerning his investment objectives,
other investments, financial situation and needs,
and any other information known by the member or
associated person, that:
(a) the participant is or will be in a
financial position appropriate to enable him
to realize to a significant extent the
benefits described in the prospectus,
including the tax benefits where they are a
significant aspect of the program;
(b) the participant has a fair market net
worth sufficient to sustain the risks
inherent in the program, including loss of
investment and lack of liquidity; and
(c) the program is otherwise suitable for the
participant; and
(ii) maintain in the files of the member documents
disclosing the basis upon which the determination
of suitability was reached as to each
participant.
(C) Notwithstanding the provisions of subsections (A)
and (B) hereof, no member shall execute any
transaction in a direct participation program in a
discretionary account without prior written approval
of the transaction by the customer.
Sec. (b)(3)
Disclosure
(A) Prior to participating in a public offering of a
direct participation program, a member or person
associated with a member shall have reasonable grounds
to believe, based on information made available to him
by the sponsor through a prospectus or other
materials, that all material facts are adequately and
accurately disclosed and provide a basis for
evaluating the program.
(B) In determining the adequacy of disclosed facts
pursuant to subsection (A) hereof, a member or person
associated with a member shall obtain information on
material facts relating at a minimum to the following,
if relevant in view of the nature of the program:
(i) items of compensation;
(ii) physical properties;
(iii) tax aspects;
(iv) financial stability and experience of the
sponsor;
(v) the program's conflicts and risk factors; and
(vi) appraisals and other pertinent reports.
(C) For purposes of subsections (A) and (B) hereof, a
member or person associated with a member may rely upon
the results of an inquiry conducted by another member or
members, provided that:
(i) the member or person associated with a member has
reasonable grounds to believe that such inquiry was
conducted with due care;
(ii) the results of the inquiry were provided to the
member or person associated with a member with the
consent of the member or members conducting or
directing the inquiry; and
(iii) no member that participated in the inquiry is a
sponsor of the program or an affiliate of such sponsor.
(D) Prior to executing a purchase transaction in a
direct participation program, a member or person
associated with a member shall inform the prospective
participant of all pertinent facts relating to the
liquidity and marketability of the program during the term of
investment.
(f) You and the Selling Agents have received copies of the Prospectus
relating to the Units and you and the Selling Agents have relied only on the
statements contained in such Prospectus and not on any other statements
whatsoever, either written or oral, with respect to the details of the offering
of Units.
(g) You and the Selling Agents agree that you and the Selling Agents
shall not place any advertisement or other solicitation with respect to
the Units (including without limitation any material for use in any
newspaper, magazine, radio or television commercial, telephone
recording, motion picture, or other public media) without the prior
written approval of Atlas, and without the prior written approval of the
form and content thereof by the Commission, the NASD and the securities
authorities of the states where such advertisement or solicitation is to
be circulated. Any such advertisements or solicitations shall be at your
expense.
(h) If a supplement or amendment to the Prospectus is prepared and
delivered to you by Atlas, you agree and shall require any Selling Agent
to agree to distribute each such supplement or amendment to the
Prospectus to every person who has previously received a copy of the
Prospectus from you and/or the Selling Agent and you further agree and
shall require any Selling Agent to further agree to include such
supplement or amendment in all future deliveries of any Prospectus.
(i) You agree to advise Atlas in writing of each state in which you and
the Selling Agents propose to offer or sell the Units and you shall not
nor shall you permit any Selling Agent to offer or sell Units in any
state until such time as you shall have been advised in writing by Atlas,
or Atlas' special counsel, that such offer or sale has been qualified in
such state or is exempt from the qualification requirements imposed by
such state or such qualification is otherwise not required.
(j) In connection with any offer or sale of the Units, you agree and
shall require any Selling Agent to agree to comply in all respects with
statements set forth in the Prospectus and the Partnership Agreement and
you agree and shall require any Selling Agent to agree not to make any
statement inconsistent with the statements in the Prospectus or the
Partnership Agreement and you further agree and shall require any Selling
Agent to further agree that you shall not provide and shall require any
Selling Agent not to provide any written information, statements or sales
literature other than the Prospectus, The Atlas Group, Inc.'s corporate
profile and a brochure entitled "Atlas-Energy for the Nineties-Public #6
Ltd." (the corporate profile and the brochure collectively referred to
herein as the "Brochure"), and any supplements or amendments thereto
unless approved in writing by Atlas; and you agree and shall require any
Selling Agent to agree not to make any untrue or misleading statements of
a material fact in connection with the Units.
(k) You agree to use your best efforts in the solicitation and sale of
said Units and to coordinate and supervise the efforts of the Selling
Agents and you shall require any Selling Agent to agree to use its best
efforts in the solicitation and sale of said Units, including insuring
that the prospective purchasers meet the suitability requirements set
forth in the Prospectus and the Subscription Agreement and properly
execute the Subscription Agreement, which has been provided as Exhibit (I
- -
B) to the Partnership Agreement, Exhibit (A) of the Prospectus, together
with any additional forms provided in any supplement or amendment to the
Prospectus, or otherwise provided to you by Atlas to be completed by
prospective purchasers. Executed Subscription Agreements shall be
delivered or mailed immediately to Atlas and must be received by Atlas at
or prior to the Offering Termination Date. Atlas shall have the right to
reject any subscription at any time for any reason without liability to
it. Investor funds shall be transmitted as set forth in Section 16.
(l) Although not anticipated, in the event you assist in any transfers
of the Units, you shall comply, and you shall require any Selling Agent
to comply, with the requirements of Rule 2810(b)(2)(B) and (b)(3)(D) of
the NASD Conduct Rules.
7. State Securities Registration. Incident to the offer and sale of
the Units, Atlas will either use its best efforts in taking all
necessary action and filing all necessary forms and documents deemed
reasonable by it in order to qualify or register Units for sale
under the securities laws of the states requested by you pursuant to
Section 6 (i) hereof or use its best efforts in taking any necessary
action and filing any necessary forms deemed reasonable by it which
are required to obtain an exemption from qualification or
registration in such states; provided Atlas may elect not to qualify
or register Units in any state in which it deems such qualification
or registration is not warranted for any reason in its sole
discretion. Atlas and its counsel will inform you as to the
jurisdictions in which the Partnership Units have been qualified for
sale or are exempt under the respective securities or blue sky laws
of such jurisdictions; but Atlas has not assumed and will not assume
any obligation or responsibility as to your right or any Selling
Agent's right to act as a broker-dealer with respect to the Units in
any such jurisdiction.
Atlas will provide to you and the Selling Agents for delivery to
all offerees and purchasers and their representatives, any
additional information, documents and instruments which Atlas deems
necessary to comply with the rules, regulations and judicial and
administrative interpretations in those states and jurisdictions for
the offer and sale of the Units in such states. Atlas will file all
post-offering forms, documents or materials and take all other
actions required by the states in which the offer and sale of Units
have been qualified or are exempt or in which the Units have been
registered; provided, Atlas shall not be required to take any
actions, make any filings or prepare any documents necessary or
required in connection with your status or any Selling Agent's
status as a broker-dealer under the laws of such states.
Atlas shall promptly provide you with copies of all applications,
filings, correspondence, orders or other documents or instruments
relating to any application for qualification, registration or other
approval under applicable state or Federal securities laws for the
offering.
8. Expense of Sale. The expenses in connection with the offer and
sale of the Units shall be payable as set forth below.
(a) Atlas shall pay all expenses incident to the performance of its
obligations hereunder, including the fees and expenses of Atlas'
attorneys and accountants and all fees and expenses of registering or
qualifying the Units for offer and sale in the states as set forth in
Section 7 hereof, or obtaining exemptions therefrom, even in the event
this offering is not successfully completed.
(b) You shall pay all expenses incident to the performance of your
obligations hereunder, including the formation and management of the
selling group and the fees and expenses of your own counsel and
accountants, even in the event this offering is not successfully
completed.
9. Conditions of Your Duties. Your obligations provided herein shall
be subject to the accuracy, as of the date hereof and at the
applicable closing date (as if made at the applicable closing date),
of the representations and warranties of Atlas herein and to the
performance by Atlas of its obligations hereunder.
10. Condition of Atlas' Duties. Atlas' obligations provided herein,
including the duty to pay compensation as set forth in Section 4
hereof, shall be subject to the accuracy, as of the date hereof and
at the applicable closing date (as if made at the applicable closing
date) of your representations and warranties made herein, and to the
performance by you of your obligations hereunder, and to the
additional condition that Atlas shall have received, at or prior to
the applicable closing date, the following documents:
(a) a fully executed Subscription Agreement for each prospective
purchaser as required by Section 6(e)(x);
(b) certification to Atlas that you and each Selling Agent are
registered as required by Section 6(d) and that such registrations were,
during the term of the offering and through the applicable closing date,
in full force and effect; and
(c) a certificate from you, dated at the applicable closing date, to
the effect that your representations and warranties made herein are true
and correct as if made at the applicable closing date and that you have
fulfilled all your obligations hereunder.
11. Indemnification.
(a) You and the Selling Agents shall indemnify and hold harmless Atlas,
the Partnership and its attorneys, against any losses, claims, damages
or liabilities, joint or several, to which such parties may become
subject, under the Act, the Act of 1934 or otherwise insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon your agreements with the Selling Agents
or your breach of any of your duties and obligations, representations,
or warranties under the terms or provisions of this Agreement and you
and the Selling Agents shall reimburse such parties for any legal or
other expenses reasonably incurred in connection with investigating or
defending any such loss, claim, damage, liability or action.
(b) Atlas shall indemnify and hold you and the Selling Agents harmless
against any losses, claims, damages or liabilities, joint or several, to
which you and the Selling Agents may become subject, under the Act, the
Act of 1934 or otherwise insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based
upon Atlas' breach of any of its duties and obligations,
representations, or warranties under the terms or provisions of this
Agreement and Atlas shall reimburse you and the Selling Agents for any
legal or other expenses reasonably incurred in connection with
investigating or defending such loss, claim, damage, liability or action.
(c) The foregoing indemnity agreements shall extend upon the same terms
and conditions to, and shall inure to the benefit of, each person, if
any, who controls each indemnified party within the meaning of the Act.
(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to any indemnified party.
In case any such action shall be brought against such indemnified party,
it shall notify the indemnifying party of the commencement thereof, and
the indemnifying party shall be entitled to participate in, and, to the
extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified and indemnifying parties, and after the
indemnified party shall have received notice from the agreed upon counsel
that the defense under such paragraph has been so assumed, the
indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than with respect to the agreed upon
counsel who assumed the defense thereof.
12. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements of Atlas and you herein
or in certificates delivered pursuant hereto, and the indemnity
agreements contained in Section 11 hereof, shall survive the
delivery, execution and closing hereof, and shall remain operative
and in full force and effect regardless of any investigation made by
or on behalf of you or any person who controls you within the
meaning of the Act, or by Atlas, or any of its officers, directors
or any person who controls Atlas within the meaning of the Act, or
any other indemnified party, and shall survive delivery of the Units
hereunder.
13. Termination. You shall have the right to terminate this
agreement other than the indemnification provisions of Section 11 by
giving notice as hereinafter specified any time at or prior to a
closing date:
(a) if Atlas shall have failed, refused, or been unable at or
prior to the closing date, to perform any of its obligations
hereunder; or
(b) there has occurred an event materially and adversely
affecting the value of the Units.
If you elect to terminate this Agreement other than the
indemnification provisions of Section 11, Atlas shall be promptly
notified by you by telephone, telecopier or telegram, confirmed by
letter.
Atlas may terminate this Agreement other than the indemnification
provisions of Section 11 for any reason by promptly giving notice to
you by telephone, telecopier or telegram, confirmed by letter as
hereinafter specified at or prior to a closing date.
14. Notices. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing, and if
sent to you shall be mailed, delivered or telegraphed and confirmed
to you at the address set forth below your signature hereto or if
sent to Atlas or on behalf of the Partnership, at 311 Rouser Road,
Moon Township, Pennsylvania 15108.
15. Format of Checks/Escrow Agent. Pending receipt of the minimum
Partnership Subscription, Atlas and you and the Selling Agents agree
that all subscribers shall be instructed to make their checks,
drafts, or money orders payable solely to "National City Bank of
Pennsylvania, Escrow Agent, Atlas Public #6 Ltd." as agent for the
Partnership.
If you receive a check, draft, or money order not conforming to the
foregoing instructions you shall return such check, draft, or money
order to the Selling Agent not later than the end of the next
business day following its receipt by you and the Selling Agent
shall then return such check, draft, or money order directly to the
subscriber not later than the end of the next business day following
its receipt from you. Checks, drafts, or money orders received by
you or a Selling Agent which conform to the foregoing instructions
shall be transmitted by you pursuant to Section 16 "Transmittal
Procedures," below.
You represent that you have executed the Escrow Agreement and agree
that you are bound by the terms of the Escrow Agreement executed by
you, the Partnership and Atlas, a copy of which is attached hereto
as Exhibit "A".
16. Transmittal Procedures. You and each Selling Agent shall
transmit received investor funds in accordance with the following
procedures. For purposes of the following, the term Selling Agent
shall also include you as Dealer-Manager where you receive
subscriptions from investors.
(a) Pending receipt of the minimum subscription of $1,000,000,
the Selling Agents shall promptly, upon receipt of any and all
checks, drafts, and money orders received from prospective
purchasers of Units, transmit same together with the original
executed Subscription Agreement to you, as Dealer-Manager by the
end of the next business day following receipt of the check,
draft, or money order by the Selling Agent. By the end of the
next business day following receipt of the check, draft, or money
order and Subscription Agreement by you as Dealer-Manager, you as
Dealer-Manager shall transmit the check, draft or money order and
a copy of the executed Subscription Agreement to the Escrow
Agent, and the original Subscription Agreement and a copy of the
check, draft or money order to Atlas.
(b) Upon receipt by you as Dealer-Manager of notice from Atlas
that the minimum Partnership Subscription has been received,
Atlas, you and the Selling Agent agree that all subscribers
thereafter may be instructed, in Atlas' sole discretion, to make
their checks, drafts, or money orders payable solely to "Atlas
Public #6 Ltd.". Thereafter, Selling Agents shall promptly, upon
receipt of any and all checks, drafts, and money orders received
from prospective purchasers of Units, transmit same together with
the original Subscription Agreement to you as Dealer-Manager by
the end of the next business day following receipt of the check,
draft, or money order by the Selling Agent. By the end of the
next business day following receipt of the check, draft, or money
order and Subscription Agreement by you as Dealer-Manager, you as
Dealer-Manager shall transmit the check, draft or money order and
the original Subscription Agreement to Atlas.
17. Parties. This Agreement shall inure to the benefit of and be
binding upon you, Atlas, and any respective successors and assigns
and shall also inure to the benefit of the indemnified parties,
their successors and assigns. This Agreement is intended to be and
is for the sole and exclusive benefit of the parties hereto,
including the Partnership, and their respective successors and
assigns, and the indemnified parties and their successors and
assigns, and for the benefit of no other person, and no other person
shall have any legal or equitable right, remedy or claim under or in
respect of this Agreement. No purchaser of any of the Units from you
shall be construed a successor or assign merely by reason of such
purchase
18. Relationship. This Agreement shall not constitute you a partner
of Atlas or the Partnership or any general partner thereof, nor
render Atlas, the Partnership, or the Managing General Partner
thereof liable for any of your obligations except as otherwise
provided herein.
19. Effective Date. This Agreement is made effective between the
parties as of the date accepted by you as indicated by your
signature hereto.
20. Entire Agreement Waiver. This Agreement constitutes the entire
agreement between the parties hereto and shall not be amended or
modified in any way except by subsequent agreement executed in
writing, and no party shall be liable or bound to the other by any
agreement, except as specifically set forth herein. Any party hereto
may waive, but only in writing, any term, condition, or requirement
under this Agreement which is intended for its own benefit, and
written waiver of any term or condition of this Agreement shall not
operate as a waiver of any other breach of such term or condition,
nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or any other provision hereof.
If the foregoing correctly sets forth our understanding please so
indicate in the space provided below for the purpose whereupon this
letter shall constitute a binding agreement between us.
Very truly yours,
ATLAS RESOURCES, INC.,
a Pennsylvania corporation
, 1997 By:
Date J.R. O'Mara, President
ATTEST:
(SEAL) Secretary
PARTNERSHIP
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
By: Atlas Resources, Inc.,
Managing General Partner
, 1997 By:
Date J.R. O'Mara, President
ATTEST:
(SEAL) Secretary
DEALER-MANAGER
BRYAN FUNDING, INC.,
a Pennsylvania corporation
, 1997 By:
Date Richard G. Bryan, Jr., President
ATTEST:
(SEAL) Secretary
EXHIBIT "A"
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
ESCROW AGREEMENT
THIS AGREEMENT, made to be effective as of the _____ day of
_________, 1997, by and between Atlas Resources, Inc., a Pennsylvania
corporation ("Atlas"), Anthem Securities, Inc., a Pennsylvania
corporation ("Anthem"), Bryan Funding, Inc., a Pennsylvania corporation
("Bryan Funding"), collectively Anthem and Bryan Funding are referred to as
the "Dealer-Manager", Atlas-Energy for the Nineties-Public #6 Ltd., a
Pennsylvania limited partnership (the "Partnership") and National City
Bank of Pennsylvania, Pittsburgh, Pennsylvania, as escrow agent (the
"Escrow Agent").
WITNESSETH:
WHEREAS, Atlas, as Managing General Partner, intends to offer
publicly for sale to qualified investors (the "Investors") up to 1,000
limited partnership interests in the Partnership (the "Units"); and
WHEREAS, each Investor will be required to pay his subscription in
full upon subscribing ($10,000 per Unit, however, the Managing General
Partner, in its discretion, may accept one-half Unit [$5,000]
subscriptions, with larger subscriptions permitted in $1,000
increments), by check, draft or money order except that the
broker-dealers and Atlas and its officers and directors may purchase
Units net of the Dealer-Manager Fee, the commissions and accountable due
diligence fees set forth below (the "Subscription Proceeds"); and
WHEREAS, the Managing General Partner and Anthem have executed an
agreement ("Anthem Dealer-Manager Agreement") pursuant to which Anthem
will solicit subscriptions for Units in all states other than Minnesota and
New Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on
a "best efforts" basis for the remaining Units on behalf of the Managing
General Partner and the Partnership and pursuant to which Anthem has
been authorized to select certain members in good standing of the National
Association of Securities Dealers, Inc. ("NASD") to participate in the
offering of the Units ("Selling Agents"); and
WHEREAS, the Managing General Partner and Bryan Funding have
executed an agreement ("Bryan Funding Dealer-Manager Agreement")
pursuant to which Bryan Funding will solicit subscriptions for Units in the
states of Minnesota and New Hampshire on a "best efforts" "all or none"
basis for $1,000,000 and on a "best efforts" basis for the remaining
Units on behalf of the Managing General Partner and the Partnership
and pursuant to which Bryan Funding has been authorized to
select certain members in good standing of the National Association of
Securities Dealers, Inc. ("NASD") to participate in the offering of the
Units ("Selling Agents"); and
WHEREAS, the Anthem Dealer-Manager Agreement and the Bryan Funding
Dealer-Manager Agreement, collectively referred to as the "Dealer
Manager Agreement", provide for compensation to the Dealer-Manager which
includes, but is not limited to, a 2.5% Dealer-Manager Fee, a 7.5% sales
commission, and reimbursement of the Selling Agents' bona fide
accountable due diligence expenses of .5% per Unit to participate in the
offering of the Units, which compensation will be reallowed to the
Selling Agents and wholesalers; and
WHEREAS, under the terms of the Dealer-Manager Agreement the
Subscription Proceeds are required to be held in escrow subject to the
receipt and acceptance by Atlas of the minimum Subscription Proceeds of
$1,000,000, excluding any optional subscription by the Managing General
Partner, its officers, directors and Affiliates; and
WHEREAS, no subscriptions to the Partnership will be accepted after
receipt of the maximum Subscription Proceeds of $8,000,000 (which may be
increased to $10,000,000 in Atlas' discretion) or December 31, 1997,
whichever event occurs first (the "Offering Termination Date"); and
WHEREAS, to facilitate compliance with the terms of the Dealer
Manager Agreement, Atlas and the Dealer-Manager desire to have the
Subscription Proceeds deposited with the Escrow Agent and the Escrow
Agent desires to hold the Subscription Proceeds pursuant to the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
conditions herein contained, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Appointment of Escrow Agent. Atlas, the Partnership and the
Dealer-Manager hereby appoint Escrow Agent as the escrow agent to
receive and to hold the Subscription Proceeds deposited with Escrow
Agent by the Dealer-Manager and the Selling Agents pursuant hereto and
Escrow Agent hereby agrees to serve in such capacity during the term and
based upon the provisions hereof.
2. Deposit of Subscription Proceeds. Pending receipt of the minimum
Subscription Proceeds of $1,000,000, the Dealer-Manager shall
deposit the Subscription Proceeds of each Investor with the Escrow
Agent and shall deliver to the Escrow Agent a copy of the
Subscription Agreement of such Investor. Payment for each
subscription for Units shall be in the form of a check made payable to
"National City Bank of Pennsylvania, Escrow Agent, Atlas Public #6
Ltd." The Escrow Agent shall deliver a receipt to Anthem and Atlas
for each deposit of Subscription Proceeds made pursuant hereto by
Anthem, and to Bryan Funding and Atlas for each deposit of
subscription proceeds made pursuant hereto by Bryan Funding.
3. Investment of Subscription Proceeds. The Subscription Proceeds
shall be deposited in an interest bearing account maintained by the
Escrow Agent entitled "Armada Government Fund." Subscription
Proceeds may be temporarily invested by the Escrow Agent only in
income producing short-term, highly liquid investments secured by the
United States government where there is appropriate safety of
principal, such as U.S. Treasury Bills. The interest earned shall be
added to the Subscription Proceeds and disbursed in accordance with the
provisions of paragraph 4 or 5, as the case may be.
4. Distribution of Subscription Proceeds. If the Escrow Agent (a)
receives written notice from an authorized officer of Atlas that at
least the minimum aggregate subscriptions of $1,000,000 have been
received and accepted by Atlas, and (b) determines that Subscription
Proceeds for at least $1,000,000 as determined by Atlas have cleared the
banking system and are good, the Escrow Agent shall promptly release
and distribute to Atlas such escrowed Subscription Proceeds which have
cleared the banking system and are good plus any interest paid and
investment income earned on such Subscription Proceeds while held
by the Escrow Agent in an escrow account. Any remaining Subscription
Proceeds, plus any interest paid and investment income earned on such
Subscription Proceeds while held by the Escrow Agent in an escrow
account shall be promptly released and distributed to Atlas by the
Escrow Agent as such Subscription Proceeds clear the banking system and
become good.
5. Separate Partnership Account. During the continuation of the
offering after the Partnership is funded with cleared Subscription
Proceeds of at least $1,000,000 and the Escrow Agent receives the notice
described in Paragraph 4 of this Agreement, and prior to the Offering
Termination Date, any additional Subscription Proceeds may be deposited by
the Dealer-Manager directly in a separate Partnership account which shall
not be subject to the terms of this Agreement.
6. Distributions to Subscribers.
(a) In the event that the Partnership will not be funded as
contemplated because less than the minimum aggregate
subscriptions of $1,000,000 have been received and accepted by
Atlas by twelve p.m. (noon), local time, on December 31, 1997, or for
any other reason, Atlas shall so notify the Escrow Agent,
whereupon the Escrow Agent promptly shall distribute to each
Investor a refund check made payable to such Investor in an
amount equal to the Subscription Proceeds of such Investor, plus any
interest paid or investment income earned thereon while held
by the Escrow Agent in an escrow account as calculated by Atlas.
(b) In the event that a subscription for Units submitted by an
Investor is rejected by Atlas for any reason after the
Subscription Proceeds relating to such subscription have been
deposited with the Escrow Agent, then Atlas promptly shall notify
the Escrow Agent of such rejection, and the Escrow Agent shall
promptly distribute to such Investor a refund check made payable
to such Investor in an amount equal to the Subscription Proceeds
of such Investor, plus any interest paid or investment income
earned thereon while held by the Escrow Agent in an escrow
account as calculated by Atlas.
7. Compensation and Expenses of Escrow Agent. Atlas shall be solely
responsible for and shall pay the compensation of the Escrow Agent
for its services hereunder, as provided in Appendix 1 to this
Agreement and made a part hereof, and the charges, expenses
(including any reasonable attorneys' fees), and other out-of-pocket
expenses incurred by the Escrow Agent in connection with the
administration of the provisions of this Agreement. The Escrow Agent
shall have no lien on the Subscription Proceeds deposited in an
escrow account unless and until the Partnership is funded with
cleared Subscription Proceeds of at least $1,000,000 and the Escrow
Agent receives the notice described in Paragraph 4 of this
Agreement, at which time the Escrow Agent shall have, and is hereby
granted, a prior lien upon any property, cash, or assets held
hereunder, with respect to its unpaid compensation and nonreimbursed
expenses, superior to the interests of any other persons or
entities.
8. Duties of Escrow Agent. The Escrow Agent shall not be obligated
to accept any notice, make any delivery, or take any other action
under this Escrow Agreement unless the notice or request or demand
for delivery or other action is in writing and given or made by the
party given the right or charged with the obligation under this
Escrow Agreement to give the notice or to make the request or
demand. In no event shall the Escrow Agent be obligated to accept
any notice, request, or demand from anyone other than Atlas or the
Dealer-Manager.
9. Liability of Escrow Agent. The Escrow Agent shall not be liable
for any damages, or have any obligations other than the duties
prescribed herein in carrying out or executing the purposes and
intent of this Escrow Agreement; provided, however, that nothing
herein contained shall relieve the Escrow Agent from liability
arising out of its own willful misconduct or gross negligence.
Escrow Agent's duties and obligations under this Agreement shall be
entirely administrative and not discretionary. Escrow Agent shall
not be liable to any party hereto or to any third party as a result
of any action or omission taken or made by Escrow Agent in good
faith. The parties to this Agreement will indemnify Escrow Agent,
hold Escrow Agent harmless, and reimburse Escrow Agent from, against
and for, any and all liabilities, costs, fees and expenses
(including reasonable attorney's fees) Escrow Agent may suffer or
incur by reason of its execution and performance of this Agreement.
In the event any legal questions arise concerning Escrow Agent's
duties and obligations hereunder, Escrow Agent may consult with its
counsel and rely without liability upon written opinions given to it
by such counsel.
The Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, authorization, or other paper or
document which the Escrow Agent, in good faith, believes to be
genuine and what it purports to be.
In the event that there shall be any disagreement between any of the
parties to this Agreement, or between them or any of them and any
other person, resulting in adverse claims or demands being made in
connection with this Agreement, or in the event that Escrow Agent,
in good faith, shall be in doubt as to what action it should take
hereunder, Escrow Agent may, at its option, refuse to comply with
any claims or demands on it or refuse to take any other action
hereunder, so long as such disagreement continues or such doubt
exists; and in any such event, Escrow Agent shall not be or become
liable in any way or to any person for its failure or refusal to act
and Escrow Agent shall be entitled to continue to so refrain from
acting until the dispute is resolved by the parties involved.
National City Bank of Pennsylvania is acting solely as Escrow Agent
and is not a party to, nor has it reviewed or approved any agreement
or matter of background related to this Agreement, other than this
Agreement itself, and has assumed, without investigation, the
authority of the individuals executing this Agreement to be so
authorized on behalf of the party or parties involved.
10. Resignation or Removal of Escrow Agent. The Escrow Agent may
resign as such following the giving of thirty days' prior written
notice to the other parties hereto. Similarly, the Escrow Agent may
be removed and replaced following the giving of thirty days' prior
written notice to the Escrow Agent by the other parties hereto. In
either event, the duties of the Escrow Agent shall terminate thirty
days after the date of such notice (or as of such earlier date as
may be mutually agreeable); and the Escrow Agent shall then deliver
the balance of the Subscription Proceeds (and any interest paid or
investment income earned thereon while held by the Escrow Agent in
an escrow account) in its possession to a successor escrow agent as
shall be appointed by the other parties hereto as evidenced by a
written notice filed with the Escrow Agent. If the other parties
hereto are unable to agree upon a successor or shall have failed to
appoint a successor prior to the expiration of thirty days following
the date of the notice of resignation or removal, the then acting
Escrow Agent may petition any court of competent jurisdiction for
the appointment of a successor escrow agent or other appropriate
relief; and any such resulting appointment shall be binding upon all
of the parties hereto. Upon acknowledgment by any successor escrow
agent of the receipt of the then remaining balance of the
Subscription Proceeds (and any interest paid or investment income
earned thereon while held by the Escrow Agent in an escrow account),
the then acting Escrow Agent shall be fully released and relieved of
all duties, responsibilities, and obligations under this Agreement.
11. Termination. This Agreement shall terminate and the Escrow Agent
shall have no further obligation with respect hereto upon the
occurrence of the distribution of all Subscription Proceeds (and any
interest paid or investment income earned thereon while held by the
Escrow Agent in an escrow account) as contemplated hereby or upon
the written consent of all the parties hereto.
12. Notice. Any notices or instructions, or both, to be given
hereunder shall be validly given if set forth in writing and mailed
by certified mail, return receipt requested, as follows:
If to the Escrow Agent:
National City Bank of Pennsylvania
Attention: Mr. Robert Mialki, Vice President
Corporate Trust Department 300
Fourth Avenue
Pittsburgh, Pennsylvania 15278-2331
Phone: (412) 644-8401
Facsimile: (412) 644-7971
If to Atlas:
Atlas Resources, Inc.
311 Rouser Road
P.O. Box 611
Moon Township, Pennsylvania 15108
Attention: J. R. O'Mara
Phone: (412) 262-2830
Facsimile: (412) 262-2820
If to Anthem:
Anthem Securities, Inc.
311 Rouser Road
P.O. Box 926
Coraopolis, Pennsylvania 15108
Attention: Eric D. Koval
Phone: (412) 262-1680
Facsimile: (412) 262-7430
If to Bryan Funding:
Bryan Funding, Inc.
393 Vanadium Road
Pittsburgh, Pennsylvania 15243
Attention: Richard G. Bryan, Jr.
Phone: (412) 276-9393
Facsimile: (412) 276-9396
Any party may designate any other address to which notices and
instructions shall be sent by notice duly given in accordance herewith.
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
(b) This Agreement is binding upon and shall inure to the
benefit of the undersigned and their respective heirs, successors
and assigns.
(c) This Agreement may be executed in multiple copies, each
executed copy to serve as an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
to be effective as of the day and year first above written.
NATIONAL CITY BANK OF PENNSYLVANIA
ATTEST: As Escrow Agent
By: By:
(Authorized Officer) (Authorized Officer)
ATLAS RESOURCES, INC.
ATTEST: A Pennsylvania corporation
By: By:
Secretary J.R. O'Mara, President
ANTHEM SECURITIES, INC.
ATTEST: A Pennsylvania corporation
By: By: _______________________________________
Secretary Eric D. Koval, President
BRYAN FUNDING, INC.
ATTEST: A Pennsylvania corporation
By: By: _______________________________________
Secretary Richard G. Bryan, Jr., President
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
By: ATLAS RESOURCES, INC.
ATTEST: Managing General Partner
By: By: ______________________________________
Secretary J. R. O'Mara, President
APPENDIX I TO ESCROW AGREEMENT
Compensation for Services of Escrow Agent
Escrow Agent annual fee per year or any part thereof $3,000.00
EXHIBIT "B"
SELLING AGENT AGREEMENT
WITH BRYAN FUNDING, INC.
TO:
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
Gentlemen:
Atlas Resources, Inc. ("Atlas"), is the Managing General Partner in
a Pennsylvania limited partnership named Atlas-Energy for the Nineties-
Public #6 Ltd. (the "Partnership"). The Units of Participation (the
"Units") and the offering are described in the enclosed Prospectus dated
__________, 1997 (the "Prospectus"). Prospectuses relating to the Units
have been furnished to you with this Agreement. Our firm, Bryan Funding,
Inc. (the "Dealer-Manager"), has entered into a Dealer-Manager Agreement
for sales in the states of Minnesota and New Hampshire, a copy of which
has been furnished to you and is incorporated herein by reference, with
the Managing General Partner and the Partnership under which the Dealer
Manager has agreed to form a group of National Association of Securities
Dealers, Inc. (the "NASD") member firms (the "Selling Agents"), who will
obtain subscriptions to the Partnership in the states of Minnesota and
New Hampshire on a "best efforts" basis pursuant to the Securities Act
of 1933, as amended (the "Act"), and the provisions of the Prospectus.
You are invited to become one of the Selling Agents, on a non
exclusive basis, and by your acceptance below you will have agreed to
act in that capacity and to use your best efforts, in accordance with
the following terms and conditions, to solicit such subscriptions in the
states of Minnesota and New Hampshire. This Agreement shall not be
construed to prohibit your participation as a selling agent in other
states in addition to Minnesota and New Hampshire pursuant to a duly
executed selling agent agreement entered into by you and any other
authorized "Dealer-Manager" for the Partnership.
1. Representations and Warranties of Selling Agent. You, as a
Selling Agent, represent and warrant to the Dealer-Manager that:
(a) You are a corporation duly organized, validly existing and
in good standing under the laws of the state of your formation or
of any jurisdiction to the laws of which you are subject, with
all requisite power and authority to enter into this Agreement
and to carry out your obligations hereunder.
(b) This Agreement when accepted and approved will be duly
authorized, executed and delivered by you and will be a valid and
binding agreement on your part in accordance with its terms.
(c) The consummation of the transactions contemplated by this
Agreement and the Prospectus will not result in any breach of any
of the terms or conditions of, or constitute a default under your
Articles of Incorporation, Bylaws, any indenture, agreement or
other instrument to which you are a party, or violate any order
applicable to you of any court or any federal or state regulatory
body or administrative agency having jurisdiction over you or
over your affiliates.
(d) You are duly registered pursuant to the provisions of the
Securities Exchange Act of 1934 (the "Act of 1934") as a dealer
and you are a member in good standing of the NASD, and are duly
registered as a broker-dealer in such states as you are required
to be registered in order to carry out your obligations as
contemplated by this Agreement and the Prospectus. You agree to
maintain all of the foregoing registrations in good standing
throughout the term of the offer and sale of the Units and you
agree to comply with all statutes and other requirements
applicable to you as a broker-dealer pursuant to those
registrations.
(e) Pursuant to your appointment as a Selling Agent, you shall
comply with all of the provisions of the Act, insofar as the Act
applies to your activities hereunder, and you shall not engage in
any activity which would cause the offer and/or sale of Units not
to comply with the Act, the Act of 1934 and the applicable rules
and regulations of the Securities and Exchange Commission (the
"Commission"), the applicable state securities laws and
regulations, this Agreement and the NASD Conduct Rules including
Rules 2730, 2740, 2420 and 2750, and also including, but not
limited to, Rule 2810(b)(2) and (b)(3) of the NASD Conduct Rules,
which provide as follows:
Sec. (b)(2)
Suitability
(A) A member or person associated with a member shall
not underwrite or participate in a public offering of
a direct participation program unless standards of
suitability have been established by the program for
participants therein and such standards are fully
disclosed in the prospectus and are consistent with
the provisions of subsection (B) of this section.
(B) In recommending to a participant the purchase, sale
or exchange of an interest in a direct participation
program, a member or person associated with a member
shall:
(i) have reasonable grounds to believe, on the
basis of information obtained from the
participant concerning his investment objectives,
other investments, financial situation and needs,
and any other information known by the member or
associated person, that:
(a) the participant is or will be in a
financial position appropriate to enable him
to realize to a significant extent the
benefits described in the prospectus,
including the tax benefits where they are a
significant aspect of the program;
(b) the participant has a fair market net
worth sufficient to sustain the risks
inherent in the program, including loss of
investment and lack of liquidity; and
(c) the program is otherwise suitable for the
participant; and
(ii) maintain in the files of the member documents
disclosing the basis upon which the determination
of suitability was reached as to each
participant.
(C) Notwithstanding the provisions of subsections (A)
and (B) hereof, no member shall execute any
transaction in a direct participation program in a
discretionary account without prior written approval
of the transaction by the customer.
Sec. (b)(3)
Disclosure
(A) Prior to participating in a public offering of a
direct participation program, a member or person
associated with a member shall have reasonable grounds
to believe, based on information made available to him
by the sponsor through a prospectus or other
materials, that all material facts are adequately and
accurately disclosed and provide a basis for
evaluating the program.
(B) In determining the adequacy of disclosed facts
pursuant to subsection (A) hereof, a member or person
associated with a member shall obtain information on
material facts relating at a minimum to the following,
if relevant in view of the nature of the program:
(i) items of compensation;
(ii) physical properties;
(iii) tax aspects;
(iv) financial stability and experience of the
sponsor;
(v) the program's conflicts and risk factors; and
(vi) appraisals and other pertinent reports.
(C) For purposes of subsections (A) and (B) hereof, a
member or person associated with a member may rely
upon the results of an inquiry conducted by another
member or members, provided that:
(i) the member or person associated with a member
has reasonable grounds to believe that such
inquiry was conducted with due care;
(ii) the results of the inquiry were provided to
the member or person associated with a member
with the consent of the member or members
conducting or directing the inquiry; and
(iii) no member that participated in the inquiry
is a sponsor of the program or an affiliate of
such sponsor.
(D) Prior to executing a purchase transaction in a
direct participation program, a member or person
associated with a member shall inform the prospective
participant of all pertinent facts relating to the
liquidity and marketability of the program during the
term of investment.
(f) You have received copies of the Prospectus relating to the Units
and you have relied only on the statements contained in such Prospectus
and not on any other statements whatsoever, either written or oral, with
respect to the details of the offering of Units.
(g) You agree that you shall not place any advertisement or other
solicitation with respect to the Units (including without limitation any
material for use in any newspaper, magazine, radio or television
commercial, telephone recording, motion picture, or other public media)
without the prior written approval of Atlas, and without the prior
written approval of the form and content thereof by the Commission, the
NASD and the securities authorities of the states where such
advertisement or solicitation is to be circulated. Any such
advertisements or solicitations shall be at your expense.
(h) If a supplement or amendment to the Prospectus is prepared and
delivered to you by Atlas or the Dealer-Manager, you agree to distribute
each such supplement or amendment to the Prospectus to every person who
has previously received a copy of the Prospectus from you and you further
agree to include such supplement or amendment in all future deliveries of
any Prospectus.
(i) In connection with any offer or sale of the Units, you agree to
comply in all respects with statements set forth in the Prospectus and
the Partnership Agreement and you agree not to make any statement
inconsistent with the statements in the Prospectus or the Partnership
Agreement and you further agree that you shall not provide any written
information, statements or sales literature other than the Prospectus,
The Atlas Group, Inc.'s corporate profile and a brochure entitled "AtlasEnergy
for the Nineties-Public #6 Ltd." (the corporate profile and the brochure
collectively referred to herein as the "Brochure"), and any supplements or
amendments thereto unless approved in writing by Atlas; and you agree not to
make any untrue or misleading statements of a material fact in connection with
the Units.
(j) You agree to use your best efforts in the solicitation and sale of
said Units, including insuring that the prospective purchasers meet the
suitability requirements set forth in the Prospectus and the
Subscription Agreement and properly execute the Subscription Agreement,
which has been provided as Exhibit (I-B) to the Partnership Agreement,
Exhibit (A) to the Prospectus, together with any additional forms
provided in any supplement or amendment to the Prospectus, or otherwise
provided to you by Atlas or the Dealer-Manager to be completed by
prospective purchasers. Atlas shall have the right to reject any
subscription at any time for any reason without liability to it.
Investor funds and executed Subscription Agreements shall be transmitted
as set forth in Section 11.
(k) Although not anticipated, in the event you assist in any transfers
of the Units, you shall comply with the requirements of Sections
(b)(2)(B) and (b)(3)(D) of Rule 2810 of the NASD Conduct Rules.
2. Commissions.
(a) Subject to the receipt of the minimum required Partnership
Subscription of $1,000,000, the Dealer-Manager is entitled to receive from the
Partnership a 7.5% Sales Commission and a .5% reimbursement of the Selling
Agents' bona fide accountable due diligence expenses based on the aggregate
amount of all Unit subscriptions to the Partnership secured by the Dealer-
Manager or the selling group formed by the DealerManager and accepted by Atlas.
Subject to the terms and conditions herein set forth, including the Dealer-
Manager's receipt from you of the
documentation required of you in Section 1 of this Agreement, the DealerManager
agrees to pay you a 7.5% cash commission and a .5% reimbursement of your
bona fide accountable due diligence expenses, of
subscriptions sold by you and accepted by Atlas, within seven business
days after the Dealer-Manager has received the commissions and
reimbursements on such subscriptions. The Dealer-Manager is entitled to
receive its commissions and reimbursements within five business days
after at least the minimum Partnership Subscription ($1,000,000) has been
received and accepted by Atlas and the subscription proceeds have been
released to Atlas from the escrow account, and approximately every two
weeks thereafter until the Offering Termination Date, which is December
31, 1997, or when the maximum Partnership Subscription of $10,000,000 is
received if earlier. The balance will be paid to the Dealer-Manager
within 14 business days after the Offering Termination Date.
(b) Notwithstanding anything herein to the contrary, you agree to waive
payment of your commissions and reimbursements as set forth above in (a)
until the Dealer-Manager is in receipt of the related amounts owed to it
pursuant to the Dealer-Manager Agreement, and the Dealer-Manager's
liability for such amounts hereunder is limited solely to the proceeds of
the related amounts owed to it pursuant to the Dealer-Manager Agreement.
(c) The Partnership will not commence operations unless subscriptions
for at least $1,000,000 have been secured by December 31, 1997. In the
event this amount is not secured, nothing will be payable to you and all
funds advanced by purchasers will be returned to them with interest
earned, if any.
3. State Securities Registration. Atlas may elect not to qualify or
register Units in any state in which it deems such qualification or
registration is not warranted for any reason in its sole discretion.
Upon application to the Dealer-Manager you will be informed as to
the jurisdictions in which the Units have been qualified for sale or
are exempt under the respective securities or "Blue Sky" laws of
such jurisdictions; but the Dealer-Manager, the Partnership and the
Managing General Partner have not assumed and will not assume any
obligation or responsibility as to your right to act as a broker
dealer with respect to the Units in any such jurisdiction.
4. Expense of Sale. The expenses in connection with the offer and
sale of the Units shall be payable as set forth below.
(a) The Dealer-Manager shall pay all expenses incident to the
performance of its obligations hereunder, including the fees and
expenses of its attorneys and accountants, even in the event this
offering is not successfully completed.
(b) You shall pay all expenses incident to the performance of your
obligations hereunder, including the fees and expenses of your own
counsel and accountants, even in the event this offering is not
successfully completed.
5. Conditions of Your Duties. Your obligations provided herein, as
of the date hereof and at the applicable closing date, shall be
subject to the performance by the Dealer-Manager of its obligations
hereunder and to the performance by Atlas of its obligations under
the Dealer-Manager Agreement.
6. Conditions of Dealer-Manager's Duties. The Dealer-Manager's
obligations provided herein, including the duty to pay compensation
as set forth in Section 2 hereof, shall be subject to the accuracy,
as of the date hereof and at the applicable closing date (as if made
at the applicable closing date) of your representations and
warranties made herein, and to the performance by you of your
obligations hereunder, and to the additional condition that the
Dealer-Manager shall have received, at or prior to the applicable
closing date, the following documents:
(a) a fully executed Subscription Agreement for each prospective
purchaser;
(b) certification to the Dealer-Manager that you are registered as
required by Section 1(d) and that such registrations were, during the
term of the offering and through the applicable closing date, in full
force and effect; and
(c) a certificate from you, dated at the applicable closing date, to
the effect that your representations and warranties made herein are true
and correct as if made at the applicable closing date and that you have
fulfilled all your obligations hereunder.
7. Indemnification.
(a) You shall indemnify and hold harmless the Dealer-Manager, Atlas,
the Partnership and its attorneys, against any losses, claims, damages
or liabilities, joint or several, to which such parties may become
subject, under the Act, the Act of 1934 or otherwise insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon your breach of any of your duties and
obligations, representations, or warranties under the terms or
provisions of this Agreement and you shall reimburse such parties for
any legal or other expenses reasonably incurred in connection with
investigating or defending any such loss, claim, damage, liability or
action.
(b) The Dealer-Manager shall indemnify and hold you harmless against
any losses, claims, damages or liabilities, joint or several, to which you may
become subject, under the Act, the Act of 1934 or otherwise insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon the Dealer-Manager's breach of any of its duties and
obligations, representations, or warranties under the terms or provisions of
this Agreement and the Dealer-Manager shall reimburse you for any legal or other
expenses reasonably incurred in connection with investigating or defending such
loss, claim, damage, liability or action.
(c) The foregoing indemnity agreements shall extend upon the same terms
and conditions to, and shall inure to the benefit of, each person, if
any, who controls each indemnified party within the meaning of the Act.
(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to any indemnified party.
In case any such action shall be brought against such indemnified party,
it shall notify the indemnifying party of the commencement thereof, and
the indemnifying party shall be entitled to participate in, and, to the
extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified and indemnifying parties, and after the
indemnified party shall have received notice from the agreed upon counsel
that the defense under such paragraph has been so assumed, the
indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than with respect to the agreed upon
counsel who assumed the defense thereof.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements of the Dealer-Manager and
you herein or in certificates delivered pursuant hereto, and the
indemnity agreements contained in Section 7 hereof, shall survive
the delivery, execution and closing hereof, and shall remain
operative and in full force and effect regardless of any
investigation made by or on behalf of you or any person who controls
you within the meaning of the Act, or by the Dealer-Manager, or any
of its officers, directors or any person who controls the Dealer
Manager within the meaning of the Act, or any other indemnified
party, and shall survive delivery of the Units hereunder.
9. Termination. You shall have the right to terminate this
Agreement, other than the indemnification provisions of Section 7,
by giving notice as hereinafter specified any time at or prior to a
closing date:
(a) if the Dealer-Manager shall have failed, refused, or been
unable at or prior to the closing date, to perform any of its
obligations hereunder; or
(b) there has occurred an event materially and adversely
affecting the value of the Units.
If you elect to terminate this Agreement, other than the
indemnification provisions of Section 7, the Dealer-Manager shall be
promptly notified by you by telephone, telecopier or telegram,
confirmed by letter.
The Dealer-Manager may terminate this Agreement, other than the
indemnification provisions of Section 7, for any reason and at any
time by promptly giving notice to you by telephone, telecopier or
telegram, confirmed by letter.
10. Format of Checks/Escrow Agent. Pending receipt of the minimum
Partnership Subscription of $1,000,000 (100 Units), the Dealer
Manager and you agree that all subscribers shall be instructed to
make their checks, drafts, or money orders payable solely to
"National City Bank of Pennsylvania, Escrow Agent, Atlas Public #6
Ltd." as agent for the Partnership.
If you receive a check, draft, or money order not conforming to the
foregoing instructions you shall return such check, draft, or money
order directly to the subscriber not later than the end of the next
business day following its receipt from the subscriber. If the
Dealer-Manager receives a check, draft, or money order not
conforming to the foregoing instructions the Dealer-Manager shall
return such check, draft, or money order to you not later than the
end of the next business day following its receipt by the Dealer
Manager and you shall then return such check, draft, or money order
directly to the subscriber not later than the end of the next
business day following its receipt from the Dealer-Manager. Checks,
drafts, or money orders received by you which conform to the
foregoing instructions shall be transmitted by you pursuant to
Section 11 "Transmittal Procedures," below.
You agree that you are bound by the terms of the Escrow Agreement,
a copy of which is attached to the Dealer-Manager Agreement as
Exhibit "A".
11. Transmittal Procedures. You shall transmit received investor
funds in accordance with the following procedures.
(a) Pending receipt of the minimum Partnership Subscription of
$1,000,000, you shall promptly, upon receipt of any and all
checks, drafts, and money orders received from prospective
purchasers of Units, transmit same together with the original
executed Subscription Agreement to the Dealer-Manager by the end
of the next business day following receipt of the check, draft,
or money order by you. By the end of the next business day
following receipt of the check, draft, or money order and
Subscription Agreement by the Dealer-Manager, the Dealer-Manager
shall transmit the check, draft, or money order and a copy of the
executed Subscription Agreement to the Escrow Agent, and the
original Subscription Agreement and a copy of the check, draft,
or money order to Atlas.
(b) Upon receipt by you of notice from Atlas or the Dealer
Manager that the minimum Partnership Subscription has been
received, you agree that all subscribers thereafter may be
instructed, in Atlas' sole discretion, to make their checks,
drafts, or money orders payable solely to "Atlas Public #6 Ltd.".
Thereafter, you shall promptly, upon receipt of any and all
checks, drafts, and money orders received from prospective
purchasers of Units, transmit same together with the original
Subscription Agreement to the Dealer-Manager by the end of the
next business day following receipt of the check, draft, or money
order by you. By the end of the next business day following
receipt of the check, draft, or money order and subscription
documents by the Dealer-Manager, the Dealer-Manager shall
transmit the check, draft, or money order and the original
Subscription Agreement to Atlas.
12. Parties. This Agreement shall inure to the benefit of and be
binding upon you, the Dealer-Manager, and any respective successors
and assigns and shall also inure to the benefit of the indemnified
parties, their successors and assigns. This Agreement is intended to
be and is for the sole and exclusive benefit of the parties hereto,
and their respective successors and assigns, and the indemnified
parties and their successors and assigns, and for the benefit of no
other person, and no other person shall have any legal or equitable
right, remedy or claim under or in respect of this Agreement. No
purchaser of any of the Units from you shall be construed a
successor or assign merely by reason of such purchase
13. Relationship. You are not authorized to hold yourself out as
agent of the Dealer-Manager, the Managing General Partner, the
Partnership or of any other Selling Agent, nor shall this Agreement
constitute you a partner of the Managing General Partner, the Dealer
Manager, the Partnership or of any other Selling Agent, or render
the Managing General Partner, the Dealer-Manager, the Partnership or
any general partner thereof , or any other Selling Agent liable for
any of your obligations.
14. Effective Date. This Agreement is made effective between the
parties as of the date accepted by you as indicated by your
signature hereto.
15. Entire Agreement, Waiver. This Agreement constitutes the entire
agreement between the parties hereto and shall not be amended or
modified in any way except by subsequent agreement executed in
writing, and no party shall be liable or bound to the other by any
agreement, except as specifically set forth herein. Any party hereto
may waive, but only in writing, any term, condition, or requirement
under this Agreement which is intended for its own benefit, and
written waiver of any term or condition of this Agreement shall not
operate as a waiver of any other breach of such term or condition,
nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or any other provision hereof.
16. Notices. Any communications from you shall be in writing
addressed to the Dealer-Manager at P.O. Box 926, Coraopolis,
Pennsylvania 15108-0926. Any notice from the Dealer-Manager to you
shall be deemed to have been duly given if mailed, faxed or
telegraphed to you at your address shown below.
17. Acceptance. Please confirm your agreement to become a Selling
Agent under the terms and conditions set forth above by signing and
returning the enclosed duplicate copy of this Agreement to us at the
address set forth above.
Sincerely,
, 1997 BRYAN FUNDING, INC.
ATTEST:
By:
(SEAL) Secretary Richard
G. Bryan, Jr., President
ACCEPTANCE:
We accept your invitation to become a Selling Agent under all the
terms and conditions stated in the above Agreement and confirm that all
the statements set forth in the above Agreement are true and correct. We
hereby acknowledge receipt of the Prospectuses and Brochures and a copy
of the Dealer-Manager Agreement referred to above.
, 1997 ,
a(n)
corporation,
ATTEST:
By:
(SEAL) Secretary _____________________________, President
(Address)
WHOLESALER AGREEMENT
(Best Efforts)
ADDENDUM TO SELLING AGENT AGREEMENT
WITH BRYAN FUNDING, INC.
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
1. Addendum and Grant of Authority. The terms and conditions
of this Wholesaler Agreement are in addition to the terms and conditions
of the Selling Agent Agreement entered into between the undersigned
parties hereto. Bryan Funding, Inc., the "Dealer-Manager", for sales in
the states of Minnesota and New Hampshire hereby appoints you a
Wholesaler for Atlas-Energy for the Nineties-Public #6 Ltd. (the
"Partnership") in the territory agreed upon by us (the "Territory") and
gives you the non-exclusive right on a best efforts basis to locate
registered broker-dealers that are members in good standing of the
National Association of Securities Dealers, Inc. that will enter into a
Selling Agent Agreement with the Dealer-Manager to effect subscriptions
for the Units.
2. Compensation and Fees. As compensation for services
rendered hereunder, except as otherwise agreed, you shall receive a fee
in an amount equal to 2.5% of each Unit sold by a registered
representative who is located in the Territory and is associated with a
Selling Agent that entered into a Selling Agent Agreement as a result of
your efforts and which subscription is accepted by Atlas Resources, Inc.
("Atlas") as Managing General Partner of the Partnership. The payment
of the foregoing compensation shall be reallowed in its entirety to your
registered representative who actually performs said wholesaling
services and shall only be made if subscriptions for at least the
minimum required Partnership Subscription of $1,000,000 have been
received and accepted by Atlas.
Your fees under this Wholesaler Agreement shall be paid by the
Dealer-Manager no later than seven business days after the Dealer
Manager has received the commissions and fees on such subscriptions.
The Dealer-Manager is entitled to receive its commissions and fees
within five business days after at least the minimum Partnership
Subscription ($1,000,000) has been received and accepted by Atlas and
the subscription proceeds have been released to Atlas from the escrow
account, and approximately every two weeks thereafter until the Offering
Termination Date, which is December 31, 1997, or when the maximum
Partnership Subscription of $10,000,000 is received if earlier. The
balance will be paid to the Dealer-Manager within 14 business days after
the Offering Termination Date.
Compensation paid to you pursuant to this Wholesaler Agreement is
in addition to the compensation paid to you and any other Selling Agent
pursuant to the Selling Agent Agreement.
Notwithstanding anything herein to the contrary, you agree to waive
payment of your commissions and fees as set forth above until the Dealer
Manager is in receipt of the related amounts owed to it pursuant to the
Dealer-Manager Agreement, and the Dealer-Manager's liability for such
amounts hereunder is limited solely to the proceeds of the related
amounts owed to it pursuant to the Dealer-Manager Agreement.
3. Termination of Wholesaler Agreement. Notwithstanding
anything herein to the contrary, the parties agree that this Wholesaler
Agreement may be terminated at any time, with or without cause, by
either party hereto by giving written notice of such termination to the
other party at its address designated in the Selling Agent Agreement.
DEALER-MANAGER
Bryan Funding, Inc.,
a Pennsylvania corporation
_________________________,1997 By:
Date Richard G. Bryan, Jr., President
WHOLESALER
a___________________
corporation,
_________________________,1997 By:
Date
ATTEST:
__________________________
( S E A L ) Secretary
[Print Name, Title and Address]
Exhibit 5
July 21, 1997
Atlas Resources, Inc.
311 Rouser Road
Moon Township, Pennsylvania 15108
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
Gentlemen:
You have requested our opinion on certain issues pertaining to Atlas
Energy for the Nineties-Public #6 Ltd. (the "Partnership") formed under
the Limited Partnership Laws of Pennsylvania. Atlas Resources, Inc.
("Atlas"), a Pennsylvania corporation, is the Managing General Partner
of the Partnership.
Basis of Opinion
Our opinion is based on our review of a certain Registration
Statement on Form SB-2 and any amendments thereto, including any post
effective amendments, for the Partnership (the "Registration Statement")
as filed with the Securities and Exchange Commission (the "Commission"),
including the Certificate of Limited Partnership for the Partnership,
the Prospectus and the Amended and Restated Certificate and Agreement of
Limited Partnership for the Partnership (the "Partnership Agreement"),
the Subscription Agreement and the Drilling and Operating Agreement
contained therein, and on our review of such other documents and records
as we have deemed necessary to review for purposes of rendering our
opinion. As to various questions of fact material to our opinion which
we have not independently verified, we have relied on certain
representations made to us by officers and directors of Atlas.
In rendering the opinion herein provided, we have assumed the due
authorization, execution and delivery of all relevant documents by all
parties thereto.
Opinion
Based upon the foregoing, we are of the opinion that:
The Units, when sold in accordance with the Registration Statement
as amended at the time it becomes effective
with the Commission, will be legally issued pursuant to
Pennsylvania partnership law, fully paid and
nonassessable except as described in the Registration
Statement with respect to the Investor General Partner Units.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm in the
Prospectus included in the Registration Statement.
Yours very truly,
KUNZMAN & BOLLINGER, INC. Kunzman
& Bollinger, Inc.
ATTORNEYS-AT-LAW
5100 N. BROOKLINE, SUITE 600
OKLAHOMA CITY, OKLAHOMA 73112
Telephone (405) 942-3501
Fax (405) 942-3527
Exhibit 8
July 21, 1997
Atlas Resources, Inc.
311 Rouser Road
Moon Township, Pennsylvania 15108
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
Gentlemen:
You have requested our opinions on the material federal income tax
issues pertaining to Atlas-Energy for the Nineties-Public #6 Ltd. (the
"Partnership"), a limited partnership formed under the Revised Uniform
Limited Partnership Act of Pennsylvania. We have acted as Special
Counsel to the Partnership with respect to the offering of interests in
the Partnership. Atlas Resources, Inc. ("Atlas") will be the Managing
General Partner of the Partnership. Terms used and not otherwise defined
herein have the respective meanings assigned to them in the Prospectus
under the caption "DEFINITIONS."
Basis of Opinion
Our opinions are based upon our review of: (1) a certain Registration
Statement on Form SB-2 for Atlas-Energy for the Nineties-Public #6 Ltd.,
as originally filed with the United States Securities and Exchange
Commission, and amendments thereto, including the Prospectus, the
Drilling and Operating Agreement and the Amended and Restated
Certificate and Agreement of Limited Partnership for the Partnership
(the "Partnership Agreement") included as exhibits to the Prospectus;
and (2) such corporate records, certificates, agreements, instruments
and other documents as we have deemed relevant and necessary to review
as a basis for the opinions herein provided.
Our opinions also are based upon our interpretation of existing
statutes, rulings and regulations, as presently interpreted by judicial
and administrative bodies. Such statutes, rulings, regulations and
interpretations are subject to change; and such changes could result in
different tax consequences than those set forth herein and could render
our opinions inapplicable.
In rendering our opinions, we have obtained from you certain
representations with respect to the Partnership. Any material inaccuracy
in such representations may render our opinions inapplicable. Included
among such representations are the following:
(1) The Partnership Agreement to be entered into by and
among Atlas, as Managing General Partner, and the
Participants will be duly executed by all parties
thereto. The Partnership Agreement will be duly recorded
in all places required under the Revised Uniform Limited
Partnership Act of Pennsylvania for the due formation of
the Partnership and for the continuation thereof in
accordance with the terms of the Partnership Agreement.
The Partnership will at all times be operated in
accordance with the terms of the Partnership Agreement,
the Prospectus, and the Revised Uniform Limited
Partnership Act of Pennsylvania.
(2) No election will be made by the Partnership or any
Partner for the Partnership to be excluded from the
application of the provisions of Subchapter K of the
Code or classified as a corporation for tax purposes.
(3) The Partnership will own record or legal title to the Working
Interest in all of its Prospects.
(4) The respective amounts that will be paid to Atlas or its Affiliates
pursuant to the Partnership Agreement and the Drilling and Operating
Agreement are amounts that would ordinarily be paid for similar services
in similar transactions between Persons having no affiliation and
dealing with each other "at arms' length."
(5) The Partnership will elect to deduct currently all intangible
drilling and development costs.
(6) The Partnership will have a calendar year taxable year.
(7) The Drilling and Operating Agreement and any amendments thereto
entered into by and between Atlas and the Partnership will be duly
executed and will govern the drilling and, if warranted, the completion
and operation of the wells in accordance with its terms.
(8) Based upon Atlas' review of its previous drilling programs for the
past several years and upon the intended operations of the Partnership,
Atlas reasonably believes that the aggregate deductions, including
depletion deductions, and 350% of the aggregate credits, if any, which
will be claimed by Atlas and the Participants, will not during the first
five tax years following the funding of the Partnership exceed twice the
amounts invested by Atlas and the Participants, respectively.
(9) The Investor General Partner Units will not be converted to Limited
Partner interests before substantially all of the Partnership Wells have
been drilled and completed.
(10) The Units will not be traded on an established securities
market.
In rendering our opinions we have further assumed that (1) each of
the Participants has an objective to carry on the business of the
Partnership for profit; (2) any amount borrowed by a Participant and
contributed to the Partnership will not be borrowed from a Person who
has an interest in the Partnership (other than as a creditor) or a
related person, as defined in 465 of the Code, to a person (other than
the Participant) having such interest and such Participant will be
severally, primarily, and personally liable for such amount; and (3) no
Participant will have protected himself from loss for amounts
contributed to the Partnership through nonrecourse financing,
guarantees, stop loss agreements or other similar arrangements.
We have considered the provisions of the American Bar Association's
Revised Formal Opinion 346 on Tax Law Opinions ("ABA Opinion 346") and
31 CFR, Part 10, 10.33 (Treasury Department Circular No. 230) on tax
law opinions and we believe that this opinion letter addresses all
material federal income tax issues associated with an investment in the
Units by an individual Participant who is a resident citizen of the
United States. We consider material those issues which would affect
significantly a Participant's deductions, credits or losses arising from
his investment in the Units and with respect to which, under present
law, there is a reasonable possibility of challenge by the IRS, or those
issues which are expected to be of fundamental importance to a
Participant but as to which a challenge by the IRS is unlikely. The
issues which involve a reasonable possibility of challenge by the IRS
have not been definitely resolved by statute, rulings or regulations, as
interpreted by judicial or administrative bodies.
Subject to the foregoing, however, in our opinion it is more likely
than not that the following tax treatment will be upheld if challenged
by the IRS and litigated:
Partnership Classification. The Partnership will be classified as a
partnership for federal income tax purposes, and not as an association
taxable as a corporation; the Partnership, as such, will not pay any
federal income taxes, and all items of income, gain, loss, deduction,
and credit of the Partnership will be reportable by the Partners in the
Partnership. (See "- Partnership Classification.")
Intangible Drilling and Development Costs. Intangible drilling and
development costs paid by the Partnership under the terms of bona fide
drilling contracts for the Partnership's wells will be deductible in the
taxable year in which the payments are made and the drilling services
are rendered, assuming such amounts are fair and reasonable
consideration and subject to certain restrictions summarized below
(including basis and "at risk" limitations and the passive activity loss
limitation with respect to the Limited Partners). (See "- Intangible
Drilling and Development Costs" and "- Drilling Contracts.")
Prepayments of Intangible Drilling and Development Costs. Depending
primarily on when the Partnership Subscription is received, it is
anticipated that the Partnership will prepay in 1997 most, if not all,
of the intangible drilling and development costs related to Partnership
Wells the drilling of which will be commenced in 1998. Assuming that
such amounts are fair and reasonable, and based in part on the factual
assumptions set forth below, in our opinion such prepayments of
intangible drilling and development costs will be deductible for the
1997 taxable year even though all Working Interest owners in the well
may not be required to prepay such amounts, subject to certain
restrictions summarized in "Tax Aspects" (including basis and "at risk"
limitations, and the passive activity loss limitation with respect to
the Limited Partners). (See "- Drilling Contracts", below.)
The foregoing opinion is based in part on the assumptions that: (1)
such costs will be required to be prepaid in 1997 for specified wells
pursuant to the Drilling and Operating Agreement; (2) pursuant to the
Drilling and Operating Agreement the wells are required to be, and
actually are, Spudded on or before March 31, 1998, and continuously
drilled thereafter until completed, if warranted, or abandoned; and (3)
the required prepayments are not refundable to the Partnership and any
excess prepayments are applied to intangible drilling and development
costs of substitute wells.
Not a Publicly Traded Partnership. Assuming that no more than 10% of
the Units are transferred in any taxable year of the Partnership (other
than in private transfers described in Treas. Reg. 1.7704-1(e)), it is
more likely than not that the Partnership will not be treated as a
"publicly traded partnership" under the Code. (See "- Limitations on
Passive Activities".)
Passive Activity Classification. Oil and gas production income
generated by the Partnership's oil and gas properties held as Working
Interests, together with gain, if any, from the disposition of such
properties and allocable to Limited Partners who are individuals,
estates, trusts, closely held corporations or personal service
corporations more likely than not will be characterized as income from a
passive activity which may be offset by passive activity losses (as
defined in 469(d) of the Code). Income or gain attributable to
investments of working capital of the Partnership will be characterized
as portfolio income, which cannot be offset by passive activity losses.
To the extent the Partnership's oil and gas properties are held as
Working Interests, it is more likely than not that the passive activity
limitations on losses under 469 will not be applicable to Investor
General Partners prior to the conversion of Investor General Partner
Units to Limited Partner interests. (See "- Limitations on Passive
Activities.")
Tax Basis of Participant's Interest. Each Participant's adjusted tax
basis in his Partnership interest will be increased by his total Agreed
Subscription. (See "- Tax Basis of Participants' Interests.")
At Risk Limitation on Losses. Each Participant initially will be "at
risk" to the full extent of his Agreed Subscription. (See "- `At Risk'
Limitation For Losses.")
Depletion Allowance. The greater of cost depletion or percentage
depletion will be available to qualified Participants as a current
deduction against Partnership income from oil and gas production
revenues on properties of the Partnership, subject to certain
restrictions summarized below. (See "- Depletion Allowance.")
ACRS. The Partnership's reasonable costs for recovery property
(tangible depreciable property used in a trade or business or held for
the production of income) which cannot currently be deducted but must be
capitalized will be eligible for cost recovery deductions under the
modified Accelerated Cost Recovery System, generally over a seven year
"cost recovery period", subject to certain restrictions summarized below
(including basis and "at risk" limitations and the passive activity loss
limitation in the case of Limited Partners). (See "- Depreciation
Accelerated Cost Recovery System.")
Availability of Certain Deductions. Business expenses, including
payments for personal services actually rendered in the taxable year in
which accrued, which are reasonable, ordinary and necessary and do not
include amounts for items such as Lease acquisition costs, organization
and syndication fees and other items which are required to be
capitalized, are currently deductible. (See "- 1997 Expenditures", "
Availability of Certain Deductions" and "- Partnership Organization and
Syndication Fees.")
Allocations. Assuming the effect of the allocations of income, gain,
loss, deduction and credit (or items thereof) set forth in the
Partnership Agreement, including the allocations of basis and amount
realized with respect to oil and gas properties, is substantial in light
of a Participant's tax attributes that are unrelated to the Partnership,
it is more likely than not that such allocations will have "substantial
economic effect" and will govern each Participant's distributive share
of such items to the extent such allocations do not cause or increase
deficit balances in the Participants' Capital Accounts. (See "-
Allocations.")
Agreed Subscription. No gain or loss will be recognized by the
Participants on payment of their Agreed Subscriptions.
Profit Motive. Based on the Managing General Partner's representation
that the Partnership will be conducted as described in the Prospectus,
it is more likely than not that the Partnership will possess the
requisite profit motive and will not be properly characterized as a tax
shelter for purposes of the tax shelter registration requirement and the
substantial understatement of income tax liability penalty. (See "
Disallowance of Deductions Under Section 183 of the Code" and "
Penalties and Interest.")
IRS Anti-Abuse Rule. Based on the Managing General Partner's
representation that the Partnership will be conducted as described in
the Prospectus, it is more likely than not that the Partnership will not
be subject to the anti-abuse rule set forth in Treas. Reg. 1.701-2.
(See "- Penalties and Interest - IRS Anti-Abuse Rule.")
Overall Evaluation of Tax Benefits. Based on our conclusion that
substantially more than half of the material tax benefits of the
Partnership, in terms of their financial impact on a typical
Participant, more likely than not will be realized if challenged by the
IRS, it is our opinion that the tax benefits of the Partnership, in the
aggregate, which are a significant feature of an investment in the
Partnership by a typical original Participant more likely than not will
be realized as contemplated by the Prospectus. Special Counsel intends
that the foregoing "more likely than not" opinion also is a "probably
will" opinion under the standard set forth in ABA Opinion 346. The
discussion in the Prospectus under the caption "TAX ASPECTS," insofar as
it contains statements of federal income tax law, is correct in all
material respects. (See "Tax Aspects" in the Prospectus.)
* * * * * * * * * * * * *
Our opinion is limited to the opinions expressed above. With respect
to some of the matters discussed in this opinion, existing law provides
little guidance. Although our opinions express what we believe a court
would probably conclude if presented with the applicable issues, there
is no assurance that the IRS will not challenge our interpretations or
that such a challenge would not be sustained in the courts and cause
adverse tax consequences to the Participants. It should be noted that
taxpayers bear the burden of proof to support claimed deductions and
opinions of counsel are not binding on the IRS or the courts.
In General
The following is a summary of some of the principal features under
present federal income tax law which will apply to the Partnership and
typical Participants. However, there is no assurance that the present
laws or regulations will not be changed and adversely affect a
Participant. The IRS may challenge the deductions claimed by the
Partnership or a Participant, or the taxable year in which such
deductions are claimed, and no guaranty can be given that any such
challenge would not be upheld if litigated. The practical utility of the
tax aspects of any investment depends largely on the income tax position
of the particular Participant in the year in which items of income,
gain, loss, deduction or credit are properly taken into account in
computing his federal income tax liability. In addition, except as
otherwise noted, different tax considerations may apply to foreign
persons, corporations partnerships, trusts and other prospective
Participants which are not treated as individuals for federal income tax
purposes. EACH PROSPECTIVE PARTICIPANT SHOULD SATISFY HIMSELF AS TO THE
TAX CONSEQUENCES OF PARTICIPATING IN THE PARTNERSHIP BY OBTAINING ADVICE
FROM HIS OWN TAX ADVISOR.
Partnership Classification
For federal income tax purposes, a partnership is not a taxable
entity but rather a conduit through which all items of income, gain,
loss, deduction, credit and tax preference are passed through to the
partners and are required to be reported on their federal income tax
returns for the taxable years in which or with which the partnership's
taxable year ends. I.R.C. 706(a). Thus, the partners, rather than the
partnership, receive any tax deductions and credits, as well as the
income, from the operations engaged in by the partnership. It is the
opinion of Special Counsel that, under currently existing laws, rules
and regulations, all of which are subject to change with or without
retroactive application, the Partnership will be treated as a
partnership for federal income tax purposes and not as an association
taxable as a corporation. Under new regulations a business entity with
two or more members is classified for federal tax purposes as either a
corporation or a partnership. Treas. Reg. 301.7701-2(a). The term
corporation includes a business entity organized under a State statute
which describes the entity as a corporation, body corporate, body
politic, joint-stock company or joint-stock association. Treas. Reg.
301.7701-2(b). The Partnership was formed under the Pennsylvania
Revised Uniform Limited Partnership Act which describes the Partnership
as a "partnership". Consequently, the Partnership is not required to be
classified as a corporation under Treas. Reg. 301.7701-2(b) and will be
automatically classified as a partnership unless it affirmatively elects
to be classified as a corporation. In this regard, the Managing General
Partner has represented that no election for the Partnership to be
classified as a corporation will be filed with the IRS.
Limitations on Passive Activities
Under the passive activity rules, all income of a taxpayer who is
subject to the rules is categorized as: (i) income from passive
activities such as limited partners' interests in a business; (ii)
active income (e.g., salary, bonuses, etc.); or (iii) portfolio income
(e.g., dividends, royalties and interest not derived in the ordinary
course of a trade or business). Losses generated by "passive activities"
can offset only passive income and cannot be applied against active
income or portfolio income.
The passive activity rules apply to individuals, estates, trusts,
closely held C corporations (generally, if five or fewer individuals own
directly or indirectly more than 50% of the stock) and personal service
corporations (other than corporations where the owner-employees together
own less than 10% of the stock). However, a closely held C corporation
(other than a personal service corporation) may use passive losses and
credits to offset taxable income of the company figured without regard
to passive income or loss or portfolio income. Passive activities
include: (i) any trade or business in which the taxpayer does not
materially participate; and (ii) any rental activity, whether or not the
taxpayer materially participates, subject to certain exceptions.
Material participation is defined as involvement in the operations of
the activity on a regular, continuous, and substantial basis. Under the
Partnership Agreement, Limited Partners will not have material
participation in the Partnership and generally will be subject to the
passive activity rules.
A taxpayer who holds a working interest in an oil and gas property
that is burdened with the cost of developing and operating the property
is excepted from the passive activity rules, whether or not he
materially participates in the activity. However, a taxpayer who holds a
working interest directly or indirectly through an entity (e.g., a
limited partnership interest or S corporation shares) which limits the
liability of the taxpayer with respect to such interest is not treated
as owning a working interest. Consequently, the exception is not
available to Limited Partners in the Partnership, but in the opinion of
Special Counsel it is more likely than not that the exception will be
available to Investor General Partners prior to their conversion to
Limited Partners to the extent the Partnership acquires Working
Interests in its Leases, except as noted above. Contractual limitations
on the liability of Investor General Partners under the Partnership
Agreement (e.g. insurance, limited indemnification, etc.) will not
prevent Investor General Partners from claiming deductions under the
working interest exception to the passive activity loss rules.
Overriding royalties, production payments and contract rights to extract
or share in oil and gas profits without liability for a share of
production costs are excluded from the definition of a working interest.
Deductions disallowed by the at-risk limitation on losses under 465
of the Code become subject to the passive loss limitation only if the
taxpayer's at-risk amount increases in future years. A taxpayer's
at-risk amount is reduced by losses allowed under 465 even if the
losses are suspended by the passive loss limitation. (See "- `At Risk'
Limitation For Losses," below.) Similarly, a taxpayer's basis is reduced
by deductions even if the deductions are disallowed under the passive
loss limitation. (See "- Tax Basis of Participants' Interests," below.)
Suspended losses and credits may be carried forward (but not back)
and used to offset future years' passive activity income. A suspended
loss (but not a credit) is allowed in full when the entire interest is
sold to an unrelated third party in a taxable transaction and in part
upon the disposition of substantially all of the passive activity if the
suspended loss as well as current gross income and deductions can be
allocated to the part disposed of with reasonable certainty. Upon such
disposition the excess of suspended losses and any loss from the
activity for the tax year (plus any loss on the sale) over net income or
gain for the tax year from all passive activities (determined without
regard to such losses) is not treated as a passive loss. Capital losses
are limited to the amount of capital gain, plus $3,000 (in the case of
married individuals filing joint returns). I.R.C. 1211. The
capital-loss limit is applied before the determination is made of the
amount of passive losses made available by a disposition. In an
installment sale, passive losses become available in the same ratio that
gain recognized each year bears to the total gain on the sale.
Any suspended losses remaining at a taxpayer's death are allowed as
deductions on his final return, subject to a reduction to the extent the
basis of the property in the hands of the transferee exceeds the
property's adjusted basis immediately prior to the decedent's death. If
a taxpayer makes a gift of his entire interest in a passive activity,
the donee's basis is increased by any suspended losses and no deductions
are allowed. If the interest is later sold at a loss, the donee's basis
is limited to the fair market value on the date the gift was made.
Net losses and credits of a partner from each publicly traded
partnership are suspended and carried forward to be netted against
income from that publicly traded partnership only. In addition, net
losses from other passive activities may not be used to offset net
income from a publicly traded partnership. I.R.C. 469(k)(2) and 7704.
However, it is more likely than not that the Partnership will not be
characterized as a publicly traded partnership under the Code, so long
as no more than 10% of the Units are transferred in any taxable year of
the Partnership (other than in private transactions described in Treas.
Reg. 1.7704-1(e)).
Characterization of the Partnership's Income. Income (e.g., interest)
earned on working capital is treated as portfolio income which cannot be
offset with passive losses by Limited Partners. "Portfolio income"
consists of (i) interest, dividends and royalties (unless earned in the
ordinary course of a trade or business); and (ii) gain or loss not
derived in the ordinary course of a trade or business on the sale of
property that generates portfolio income or is held for investment.
In the opinion of Special Counsel, it is more likely than not that
the Partnership's income from the Leases (excluding income attributable
to investment of working capital), held as Working Interests, together
with gain, if any, from the disposition of such property, will be
characterized as passive income rather than portfolio income with
respect to Limited Partners subject to the passive activity limitations.
Conversion from Investor General Partner to Limited Partner. Investor
General Partner Units will be converted to Limited Partner interests
after substantially all of the Partnership Wells have been drilled and
completed, which is anticipated to be in the late summer of 1998.
Thereafter, each Investor General Partner will be deemed a Limited
Partner in the Partnership and will enjoy the limited liability provided
to limited partners under the Revised Uniform Limited Partnership Act of
Pennsylvania with respect to his interest in the Partnership's oil and
gas properties. Concurrently, the Investor General Partner will lose the
availability of the working interest exception to the passive activity
limitations. Except as provided below, an Investor General Partner's
conversion of his Partnership interest into a Limited Partner interest
should not have adverse tax consequences unless the Investor General
Partner's share of any Partnership liabilities is reduced as a result of
the conversion. Rev. Rul. 84-52, 1984-1 C.B. 157 and Prop. Reg.
1.1254-2. A reduction in a partner's share of liabilities is treated as
a constructive distribution of cash to such partner, which reduces the
basis of the partner's interest in the partnership and is taxable to the
extent it exceeds such basis. In addition, if a taxpayer has a loss for
a taxable year from a working interest in an oil and gas property which
is treated as a loss which is not from a passive activity, then any net
income from such property for any succeeding taxable year will be
treated as income of the taxpayer which is not from a passive activity.
Consequently, if an Investor General Partner has a non-passive loss in
1997 with respect to the Partnership's Working Interests in the Leases,
which is anticipated, any net income from a Partnership Well allocable
to such Investor General Partner in any subsequent taxable year (even
though he may then be a Limited Partner) will be characterized as
non-passive income which cannot be offset with passive losses. For this
purpose the Partnership's Wells will be deemed to include any property
the value of which is directly enhanced by any drilling, logging, or
other activities any part of the costs of which were borne by the
Investor General Partners as a result of holding the Working Interests
in the Wells (and any property the basis of which is determined in whole
or in part by reference to the basis of the property receiving the
increase in value).
Taxable Year
The Partnership intends to adopt a calendar year taxable year. I.R.C.
706(b). The taxable year of the Partnership is important to a
prospective Participant because the Partnership's deductions, income and
other items of tax significance must be taken into account in computing
the Participant's taxable income for his taxable year within or with
which the Partnership's taxable year ends. The tax year of a partnership
generally must be the tax year of one or more of its partners who have
an aggregate interest in partnership profits and capital of greater than
50%.
1997 Expenditures
It is anticipated that all of the Partnership's subscription proceeds
will be expended in 1997 and that the income and deductions generated
pursuant thereto will be reflected on the Participants' federal income
tax returns for that period. (See "Capitalization and Source of Funds
and Use of Proceeds" and "Participation in Costs and Revenues" in the
Prospectus.) Depending primarily on when the Partnership Subscription is
received, it is anticipated that the Partnership will prepay in 1997
most, if not all, of its intangible drilling and development costs for
wells the drilling of which will be commenced in 1998. The deductibility
in 1997 of such advance payments cannot be guaranteed. (See "- Drilling
Contracts", below.)
Availability of Certain Deductions
The ordinary and necessary expenses of carrying on any trade or
business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered, are deductible in
the year incurred. The tests for deductibility in the case of
compensation payments are whether the payments are: (i) reasonable; and
(ii) purely for services actually rendered. Treasury Regulation
1.162-7(b)(3) provides that reasonable compensation is only such amount
as would ordinarily be paid for like services by like enterprises under
like circumstances. The Managing General Partner has represented to
counsel that the amounts payable to the Managing General Partner and its
Affiliates, including the amounts paid to Atlas or its Affiliates as
general drilling contractor, are the amounts which would ordinarily be
paid for similar services in similar transactions. (See "- Drilling
Contracts," below.)
The fees paid to the Managing General Partner and its Affiliates will
not be currently deductible to the extent it is determined that they are
in excess of reasonable compensation, are properly characterized as
organization or syndication fees, other capital costs such as the
acquisition cost of the Leases, or not "ordinary and necessary" business
expenses, or the services were rendered in tax years other than the tax
year in which such fees were deducted by the Partnership. (See "
Partnership Organization and Syndication Fees," below.) In the event of
an audit, payments to the Managing General Partner and its Affiliates by
the Partnership will be scrutinized by the IRS to a greater extent than
payments to an unrelated party.
Intangible Drilling and Development Costs
Assuming a proper election and subject to the passive activity loss
rules in the case of Limited Partners, each Participant will be entitled
to deduct his share of intangible drilling and development costs which
include items which do not have salvage value, such as labor, fuel,
repairs, supplies and hauling necessary to the drilling of a well.
Treas. Reg. 1.612-4(a). (See "Participation in Costs and Revenues" in
the Prospectus and "- Limitations on Passive Activities," above.) Such
costs generally will be subject to ordinary income recapture if a
property is sold at a gain and the amount to be recaptured is not
reduced by the amount of additional depletion that could have been
claimed if such costs had been capitalized and amortized. (See "- Sale
of the Properties," below.) Also, productive-well intangible drilling
and development costs may subject a Participant to an alternative
minimum tax in excess of regular tax unless an election is made to
deduct them on a straight-line basis over a 60 month period. (See "
Minimum Tax - Tax Preferences," below.)
In the preparation of the Partnership's informational tax returns,
Atlas will allocate Partnership costs paid by Atlas and the Participants
among Intangible Drilling Costs, Tangible Costs, Direct Costs,
Administrative Costs, Organization and Offering Costs and Operating
Costs based upon guidance from advisors to Atlas. Atlas has allocated
approximately 77% of the footage price paid by the Partnership for a
completed well in the Appalachian Basin to intangible drilling and
development costs ("Intangible Drilling Costs") which are charged 100%
to the Participants under the Partnership Agreement. The IRS could
challenge the characterization of costs claimed by Atlas to be
deductible intangible drilling and development costs and recharacterize
such costs as some other item which may be non-deductible however, this
would have no effect on the allocation and payment of such costs under
the Partnership Agreement. Where a Lease is acquired subject to an
obligation to pay an excessive drilling price, such excess amounts may
not qualify as deductible intangible drilling and development costs but
may be treated as Lease acquisition costs or some other non-deductible
expense.
In the case of corporations, other than S corporations, which are
"integrated oil companies," the amount allowable as a deduction for
intangible drilling and development costs in any taxable year under
263(c) of the Code is reduced by 30%. I.R.C. 291(b)(1). Integrated oil
companies are (i) those taxpayers who directly or through a related
person engage in the retail sale of oil or gas and whose gross receipts
for the calendar year from such activities exceed $5,000,000, or (ii)
those taxpayers and related persons who have refinery production in
excess of 50,000 barrels on any day during the taxable year. For these
purposes, two persons are "related" if either has a 5% interest in the
other or a third person has a 5% interest in both, determined under
special ownership attribution rules. Amounts disallowed as a current
deduction are allowable as a deduction ratably over the 60-month period
beginning with the month in which the costs are paid or incurred. The
portion of the adjusted basis of any property attributable to intangible
drilling and development costs disallowed under 291(b)(1) of the Code
cannot be taken into account to determine depletion under 611. Any
deductions of intangible drilling and development costs over the
60-month period will be subject to recapture.
Drilling Contracts
The Partnership will enter into the Drilling and Operating Agreement
with Atlas or its Affiliates, as a third-party general drilling
contractor, to drill and complete the Partnership's Development Wells on
a footage basis of $37.39 per foot for each well that is drilled and
completed in the Appalachian Basin, and at a competitive rate for wells,
if any, drilled in other areas of the United States. Under the footage
drilling contracts for wells situated in the Mercer County area of the
Appalachian Basin, Atlas anticipates that it will have reimbursement of
general and administrative overhead of $3,600 per well and a profit of
approximately 15% per well assuming the well is drilled to 6,150 feet.
However, the actual cost of the drilling of the wells may be more or
less than the estimated amount, due primarily to the uncertain nature of
drilling operations. Atlas believes the Drilling and Operating Agreement
is at competitive rates in the proposed areas of operation.
Nevertheless, the amount of the profit realized by Atlas under the
drilling contract, if any, could be challenged by the IRS as
unreasonable and disallowed as a deductible intangible drilling and
development cost. (See "- Intangible Drilling and Development Costs",
above, and "Proposed Activities" and "Compensation" in the Prospectus.)
Depending primarily on when the Partnership Subscription is received,
it is anticipated that the Partnership will prepay in 1997 most, if not
all, of the intangible drilling and development costs for drilling
activities that will be conducted in 1998. In Keller v. Commissioner, 79
T.C. 7 (1982), aff'd 725 F.2d 1173 (8th Cir. 1984), the Tax Court
applied a two-part test for the current deductibility of prepaid
intangible drilling and development costs: (1) the expenditure must be a
payment rather than a refundable deposit; and (2) the deduction must not
result in a material distortion of income taking into substantial
consideration the business purpose aspects of the transaction. The
drilling partnership in Keller entered into footage and daywork drilling
contracts which permitted it to terminate the contracts at any time
without default by the driller, and receive a return of the prepaid
amounts less amounts earned by the driller. The Tax Court found that the
right to receive, by unilateral action, a refund of the prepayments on
such footage and daywork drilling contracts rendered such prepayments
deposits instead of payments. Therefore, the prepayments were held to be
nondeductible in the year they were paid to the extent they had not been
earned by the driller. The Tax Court further found that the drilling
partnership failed to show a convincing business purpose for prepayments
under the footage and daywork drilling contracts.
The drilling partnership in Keller also entered into turnkey drilling
contracts which permitted it to stop work under the contract at any time
and apply the unearned balance of the prepaid amounts to another well to
be drilled on a turnkey basis. The Tax Court found that such prepayments
constituted "payments" and not nondeductible deposits, despite the right
of substitution. Further, the Tax Court noted that the turnkey drilling
contracts obligated "the driller to drill to the contract depth for a
stated price regardless of the time, materials or expenses required to
drill the well," thereby locking in prices and shifting the risks of
drilling from the drilling partnership to the driller. Since the
drilling partnership, a cash basis taxpayer, received the benefit of the
turnkey obligation in the year of prepayment, the Tax Court found that
the amounts prepaid on turnkey drilling contracts clearly reflected
income and were deductible in the year of prepayment.
In Leonard T. Ruth, TC Memo 1983-586, a drilling program entered into
nine separate turnkey contracts with a general contractor (the parent
corporation of the drilling program's corporate general partner), to
drill nine program wells. Each contract identified the prospect to be
drilled, stated the turnkey price, and required the full price to be
paid in 1974. The program paid the full turnkey price to the general
contractor on December 31, 1974; the receipt of which was found by the
court to be significant in the general contractor's financial planning.
The program had no right to receive a refund of any of such payments.
The actual drilling of the nine wells was subcontracted by the
general contractor to independent contractors who were paid by the
general contractor in accordance with their individual contracts. The
drilling of all wells commenced in 1975 and all wells were completed
that year. The amount paid by the general contractor to the independent
driller for its work on the nine wells was approximately $365,000 less
than the amount prepaid by the program to the general contractor.
The program claimed a deduction for intangible drilling and
development costs in 1974. The IRS challenged the timing of the
deduction, contending that there was no business purpose for the
payments in 1974, that the turnkey arrangements were merely "contracts
of convenience" designed to create a tax deduction in 1974, and that the
turnkey contracts constituted assets having a life beyond the taxable
year and that to allow a deduction for their entire costs in 1974
distorted income.
The Tax Court, relying on Keller, held that the program could deduct
the full amount of the payments in 1974. The court found that the
program entered into turnkey contracts, paid a premium to secure the
turnkey obligations, and thereby locked in the drilling price and
shifted the risks of drilling to the general contractor. Further, the
court found that by signing and paying the turnkey obligation, the
program got its bargained-for benefit in 1974, therefore the deduction
of the payments in 1974 clearly reflected income.
The Partnership will attempt to comply with the guidelines set forth
in Keller with respect to prepaid intangible drilling and development
costs. The Drilling and Operating Agreement will require the Partnership
to prepay in 1997 intangible drilling and development costs for
specified wells the drilling of which will be commenced in 1998.
Although the Partnership is not required to prepay completion costs of a
well prior to the time a decision has been made to complete the well, it
is anticipated that all Partnership Wells will be required to be
completed before an evaluation can be made as to their potential
productivity. Prepayments should not result in a loss of current
deductibility where there is a legitimate business purpose for the
required prepayment, the contract is not merely a sham to control the
timing of the deduction and there is an enforceable contract of economic
substance. The Drilling and Operating Agreement will require the
Partnership to prepay the intangible drilling and development costs of
the wells in order to enable the Operator to commence site preparation
for the wells, obtain suitable subcontractors at the then current prices
and insure the availability of equipment and materials. Under the
Drilling and Operating Agreement excess prepaid amounts, if any, will
not be refundable to the Partnership but will be applied to intangible
drilling and development costs to be incurred in drilling substitute
wells. Under Keller, such a provision for substitute wells should not
result in the prepayments being characterized as refundable deposits.
The likelihood that prepayments will be challenged by the IRS on the
grounds that there is no business purpose for the prepayment is
increased in the event prepayments are not required with respect to 100%
of the Working Interest. It is possible that less than 100% of the
Working Interest will be acquired by the Partnership in one or more
wells and prepayments may not be required of all holders of the Working
Interest. However, in the view of Special Counsel, a legitimate business
purpose for the required prepayments may exist under the guidelines set
forth in Keller, even though prepayment is not required, or actually
received, by the drilling contractor with respect to a portion of the
Working Interest.
In addition to the foregoing, a current deduction for prepaid
intangible drilling and development costs is available only if the
drilling of the wells is commenced before the close of the 90th day
after the close of the taxable year. The Managing General Partner will
attempt to cause prepaid Partnership Wells to be Spudded on or before
March 31, 1998. However, the Spudding of any Partnership Well may be
delayed due to circumstances beyond the control of the Partnership or
the drilling contractor. Such circumstances include the unavailability
of drilling rigs, weather conditions, inability to obtain drilling
permits or access right to the drilling site, or title problems. Due to
the foregoing factors no guaranty can be given that all prepaid
Partnership Wells required by the Drilling and Operating Agreement to be
Spudded on or before March 31, 1998, will actually be commenced by such
date. In that event, deductions claimed in 1997 for prepaid intangible
drilling and development costs would be disallowed and deferred to the
1998 taxable year.
No assurance can be given that on audit the IRS would not disallow
the current deductibility of a portion or all of any prepayments of
intangible drilling and development costs under the Partnership's
drilling contracts, thereby decreasing the amount of deductions
allocable to the Participants for the current taxable year, or that such
a challenge would not ultimately be sustained. In the event of
disallowance, the deduction would be available in the year the work is
actually performed.
Depletion Allowance
The Partnership intends to own an economic interest in all
Partnership Wells that produce gas or oil. Proceeds from the sale of oil
and gas production will constitute ordinary income. A certain portion of
such income will not be taxable by virtue of the depletion allowance
which permits the deduction from gross income for federal income tax
purposes of either the percentage depletion allowance or the cost
depletion allowance, whichever is greater. Accordingly, each Participant
will be entitled to take into account on his own federal income tax
return his share of allowable depletion as computed at the individual
partner level, rather than the partnership level.
Cost depletion for any year is determined by dividing the adjusted
tax basis for the property by the total units of gas or oil expected to
be recoverable therefrom and then multiplying the resultant quotient by
the number of units actually sold during the year. Cost depletion cannot
exceed the adjusted tax basis of the property to which it relates.
Percentage depletion generally is available to taxpayers other than
integrated oil companies. (See "- Intangible Drilling and Development
Costs.") Percentage depletion generally is based on the Participant's
share of gross income from the oil and gas producing property.
Generally, percentage depletion is available with respect to 6 million
cubic feet of average daily production of natural gas or 1,000 barrels
of average daily production of domestic crude oil. Taxpayers who have
both oil and gas production may allocate the production limitation
between such production. The rate of percentage depletion is 15%.
However, percentage depletion for marginal production increases 1% (up
to a maximum increase of 10%) for each whole dollar that the domestic
wellhead price of crude oil for the immediately preceding year is less
than $20 per barrel (without adjustment for inflation). The term
"marginal production" includes oil and gas produced from a domestic
stripper well property, which is defined as any property which produces
a daily average of 15 or less equivalent barrels of oil (90 MCF of
natural gas) per producing well on the property in the calendar year.
The rate of percentage depletion for marginal production presently is
16%. (See the model decline curve included in the United Energy
Development Consultants, Inc. Geological Report in "Proposed Activities
- - Information Regarding Currently Proposed Prospects" in the
Prospectus.)
Percentage depletion may not exceed 100% of the taxable income from
each oil and gas property before the deduction for depletion and is
limited to 65% of the taxpayer's taxable income for a year computed
without regard to percentage depletion, net operating loss carrybacks
and capital loss carrybacks.
On disposition of an oil and gas property there is recapture of the
lesser of: (i) the amounts that were deducted under 263 of the Code as
intangible drilling and development costs rather than added to basis,
plus depletion deductions that reduced the basis of the property; or
(ii) the amount realized in the case of a sale, exchange or involuntary
conversion or fair market value in all other cases, minus the property's
adjusted basis. Furthermore, the amount of recapturable intangible
drilling and development costs is not reduced by the amount by which
depletion would have been increased if the expensed intangible drilling
and development costs had been capitalized.
Availability of the percentage depletion allowance and limitations
thereon must be computed separately for each Participant and not by the
Partnership, or for Participants as a whole. Potential Participants are
urged to consult their own tax advisors with respect to the availability
of the percentage depletion allowance to them.
Depreciation - Accelerated Cost Recovery System
Tangible Costs and the related depreciation deductions are allocated
and charged under the Partnership Agreement 14% to the Managing General
Partner and 86% to the Participants. Most equipment placed in service
by the Partnership will be classified as "7-year" property and the cost
of such property generally will be recovered over a seven year cost
recovery period. I.R.C. 168(c). The depreciation method for property in
the 7-year class is 200% declining balance, with a switch to
straight-line to maximize the deduction. All property assigned to the
7-year class is treated as placed in service (or disposed of) in the
middle of the year and in the case of a short tax year the ACRS
deduction is prorated on a 12-month basis. The half-year convention
effectively adds another year onto the cost-recovery period.
No distinction is made between new and used property and salvage
value is disregarded. Component depreciation is prohibited and an
alternative depreciation system is used to compute the depreciation
preference subject to the alternative minimum tax (using the 150%
declining balance method, switching to straight-line, for most personal
property). (See "- Minimum Tax - Tax Preferences," below.) All gain on a
disposition of tangible personal property is treated as ordinary income
to the extent of ACRS deductions claimed by the taxpayer and deductions
allowed under 179 (expensing) are treated as depreciation deductions
for recapture purposes. As under prior law (unless otherwise provided by
regulations), the full amount of proceeds realized on a disposition of
property from a mass asset account is treated as ordinary income (with
no reduction for basis), however, no reduction is made in the
depreciable basis remaining in the account. Cost recovery deductions
allocable to the Participants in a taxable year may be reduced under
certain circumstances to the extent foreign persons or tax-exempt
entities subscribe to the Partnership.
Section 179 provides an election to expense a portion of the cost of
certain tangible personal property in the year such property is placed
in service. The amount allowable as a deduction in 1997 is $18,000.
However, the deductible amount is reduced dollar-for-dollar by the cost
of qualifying property in excess of $200,000 and the amount expensed
cannot exceed the taxable income derived from the active conduct by the
taxpayer of the trade or business in which the property is used. These
limitations are applied at both the partnership and the partner level.
I.R.C. 179(d)(8). Any excess expensed amount is carried forward. If
this special election to expense is made, the basis of the property used
to compute cost recovery deductions is reduced by the amount expensed
and is subject to recapture if the property is not used predominately in
a trade or business at any time. I.R.C. 179.
Leasehold Costs and Abandonment
The costs of acquiring oil and gas Lease interests, together with the
related cost depletion deduction and any abandonment loss, are allocated
under the Partnership Agreement 100% to Atlas, which will contribute the
Leases to the Partnership as a part of its Capital Contribution.
Tax Basis of Participants' Interests
The adjusted basis for federal income tax purposes of a Participant's
interest in the Partnership will be adjusted (but not below zero) for
any gain or loss to the Participant from a disposition by the
Partnership of an oil or gas property, and will be increased by: (i) his
cash subscription payment and any additional Capital Contributions paid
in cash to the Partnership, (ii) his share of any nonrecourse debt of
the Partnership, (iii) his share of any recourse debt of the
Partnership, (iv) his share of the taxable income of the Partnership;
and (v) his share of tax exempt income of the Partnership. (See
"Partnership Borrowings," below.)
The adjusted basis of a Participant's interest in the Partnership
will be reduced by: (i) his share of Partnership losses; (ii) his share
of Partnership expenditures that are not deductible in computing its
taxable income and are not properly chargeable to capital account; (iii)
his deduction for depletion for any partnership oil and gas property
(but not below zero); and (iv) cash distributions from the Partnership
to him. The reduction in a Participant's share of recourse or
nonrecourse liabilities is considered a cash distribution. Should cash
distributions exceed the tax basis of the Participant's interest in the
Partnership, taxable gain would result to the extent of the excess. (See
"- Distributions From a Partnership," below.)
A Participant's distributive share of Partnership loss is allowable
only to the extent of the adjusted basis of such Participant's interest
in the Partnership at the end of the Partnership's taxable year.
Participants will not be personally liable on any Partnership loans;
however, Investor General Partners will be liable for other obligations
of the Partnership. (See "Risk Factors - Special Risks of the
Partnership - Unlimited Liability of Investor General Partners" in the
Prospectus.)
Distributions From a Partnership
Generally, a cash distribution from a partnership to a partner in
excess of the adjusted basis of such partner's interest in the
partnership immediately before the distribution is treated as gain from
the sale or exchange of his interest in the partnership to the extent of
the excess. I.R.C. 731(a)(1). No loss is recognized by the partners on
these types of distributions. I.R.C. 731(a)(2). No gain or loss is
recognized by the Partnership on these types of distributions. I.R.C.
731(b). If property is distributed by the Partnership to the Managing
General Partner and the Participants, certain basis adjustments may be
made by the Partnership, the Managing General Partner and the
Participants. [Partnership Agreement, 5.04(d).] I.R.C. 732, 733, 734,
and 754. Other distributions of cash, disproportionate distributions of
property, and liquidating distributions may result in taxable gain
or loss. (See "- Disposition of Partnership Interests" and "
Termination of a Partnership," below.)
Sale of the Properties
Under current law, a noncorporate taxpayer's ordinary income is taxed
at a maximum rate of 39.6% but net capital gains of a noncorporate
taxpayer are taxed at a maximum rate of 28%. The annual capital loss
limitation for noncorporate taxpayers is the amount of capital gains
plus the lesser of $3,000 ($1,500 for married persons filing separate
returns) or the excess of capital losses over capital gains. Long-term
losses (like short-term losses) offset ordinary income on a one-for-one
basis. Section 1231 gain continues to be computed separately from
long-term gain.
Gains and losses from sales of oil and gas properties held for more
than twelve months and not held primarily for sale to customers would
be, except to the extent of depreciation recapture on equipment and
recapture of any intangible drilling and development costs, depletion
deductions and certain 1231 losses, gains and losses described in 1231
of the Code (in general, from sales or exchanges of real or depreciable
property used in a trade or business). A Participant's net 1231 gain
will be treated as a long-term capital gain while a net loss will be an
ordinary deduction. However, ordinary income will result to the extent
the net 1231 gain for any taxable year does not exceed the excess of
the aggregate amount of the net 1231 losses for the five most recent
preceding taxable years over the portion of such losses taken into
account in determining the portion of net 1231 gain to be treated as
ordinary income for such preceding taxable years. I.R.C. 1231(c). Other
gains and losses on sales of oil and gas properties will generally
result in ordinary gains or losses.
Intangible drilling and development costs that are incurred in
connection with an oil and gas property may be recaptured as ordinary
income when the property is disposed of by the Partnership. Generally,
the amount recaptured is the lesser of:
(1) the aggregate amount of expenditures which have been deducted
as intangible drilling and development costs with respect to the
property and which (but for being deducted) would be reflected
in the adjusted basis of the property; or
(2) the excess of (i) the amount realized (in the case of a sale,
exchange or involuntary conversion); or (ii) the fair market
value of the interest (in the case of any other disposition)
over the adjusted basis of the property. I.R.C. 1254(a).
In addition, the deductions for depletion which reduced the adjusted
basis of the property are subject to recapture as ordinary income.
Disposition of Partnership Interests
The sale or exchange of all or part of a Participant's interest in
the Partnership held by him for more than twelve months will generally
result in a recognition of long-term capital gain or loss except to the
extent of ordinary income or loss, if any, from Partnership 751 assets
(which consist of unrealized receivables or substantially appreciated
inventory). I.R.C. 751. In the event the interest is held for twelve
months or less, such gain or loss will generally be short-term gain or
loss. A portion of any gain recognized by a Limited Partner on the sale
or other disposition of his interest in the Partnership will also be
characterized as portfolio income under 469 to the extent the gain is
itself attributable to portfolio income (e.g. interest on investment of
working capital). The recapturable portions of depreciation, depletion
and intangible drilling and development costs constitute unrealized
receivables. A Participant's pro rata share of the Partnership's
nonrecourse liabilities, if any, as of the date of the sale or exchange
must be included in the amount realized. Therefore, the gain recognized
may result in a tax liability greater than the cash proceeds, if any,
from such disposition. A gift of an interest in the Partnership may
result in federal and/or state income tax and gift tax liability of the
donor.
A Participant who sells or exchanges all or part of his interest in
the Partnership is required by the Code to notify the Partnership within
30 days or by January 15 of the following year, if earlier. I.R.C.
6050K. After receiving such notice, the Partnership is required to make
a return with the IRS stating the name and address of the transferor and
the transferee and such other information as may be required by the IRS.
The Partnership must also provide each person whose name is set forth in
the return a written statement showing the information set forth on the
return with respect to such person.
If a partner sells or exchanges his entire interest in a partnership,
the taxable year of the partnership will close with respect to such
partner (but not the remaining partners) on the date of sale or
exchange, with a proration of partnership items for the partnership's
taxable year. If a partner sells less than his entire interest in a
partnership, the partnership year will not terminate with respect to the
selling partner, but his proportionate share of items of income, gain,
loss, deduction and credit will be determined by taking into account his
varying interests in the partnership during the taxable year. Deductions
or credits generally may not be allocated to a partner acquiring an
interest from a selling partner for a period prior to the purchaser's
admission to the partnership. I.R.C. 706(d).
Other dispositions of a Participant's interest, including a
repurchase of the interest by Atlas, may or may not result in
recognition of taxable gain. Interests in different partnerships do not
qualify for tax-free like-kind exchanges. I.R.C. 1031(a)(2)(D).
However, no gain should be recognized by an Investor General Partner
whose interest in the Partnership is converted to a Limited Partner
interest so long as there is no change in his share of the Partnership's
liabilities or 751 assets as a result of the conversion. Rev. Rul.
84-52, 1984-1 C.B. 157. No disposition of an interest in the Partnership
(including repurchase of the interest by Atlas) should be made by any
Participant prior to consultation with his tax advisor.
Minimum Tax - Tax Preferences
For taxpayers other than integrated oil companies (see "- Intangible
Drilling and Development Costs"), the 1992 National Energy Bill repealed
(1) the preference for excess intangible drilling and development costs
and (2) the excess percentage depletion preference for oil and gas. The
repeal of the excess intangible drilling and development costs
preference, however, may not result in more than a 40% reduction in the
amount of the taxpayer's alternative minimum taxable income computed as
if the excess intangible drilling and development costs preference had
not been repealed. These rules are summarized below.
The alternative minimum tax is intended to insure that no one with
substantial income can avoid tax liability by using deductions and
credits, including the deductions for intangible drilling and
development costs and accelerated depreciation. The alternative minimum
tax rate for individuals is 26% on alternative minimum taxable income up
to $175,000 ($87,500 for married individuals filing separate returns)
and 28% thereafter. Individual tax preferences may include, but are not
limited to: accelerated depreciation, intangible drilling and
development costs, incentive stock options and passive activity losses.
The exemption amount is $45,000 for married couples filing jointly and
surviving spouses, $33,750 for single filers, and $22,500 for married
persons filing separately, estates and trusts. These exemption amounts
are reduced by 25% of the alternative minimum taxable income in excess
of (1) $150,000 for joint returns and surviving spouses; (2) $75,000 for
estates, trusts and married persons filing separately, and (3) $112,500
for single taxpayers. Married individuals filing separately must
increase alternative minimum taxable income by the lesser of: (i) 25% of
the excess of alternative minimum taxable income over $165,000; or (ii)
$22,500. Regular tax personal exemptions are not available for purposes
of the alternative minimum tax.
The only itemized deductions allowed for minimum tax purposes are
those for casualty and theft losses, gambling losses to the extent of
gambling gains, charitable deductions, medical deductions (to the extent
in excess of 10% of adjusted gross income), interest expenses
(restricted to qualified housing interest as defined in 56(e) of the
Code and investment interest expense not exceeding net investment
income), and certain estate taxes. The net operating loss for
alternative minimum tax purposes generally is the same as for regular
tax purposes, except: (i) current year tax preference items are added
back to taxable income, and (ii) individuals may use only those itemized
deductions (as modified under 172(d)) allowable in computing
alternative minimum taxable income. Code sections suspending losses,
such as 465 and 704(d), are recomputed for minimum tax purposes and
the amount of the deductions suspended or recaptured may differ for
regular and minimum tax purposes.
Under the prior rules, the amount of intangible drilling and
development costs which is not deductible for alternative minimum tax
purposes is the excess of the "excess intangible drilling costs" over
65% of net income from oil and gas properties. Net oil and gas income is
determined for this purpose without subtracting excess intangible
drilling and development costs. Excess intangible drilling and
development costs is the regular intangible drilling and development
costs deduction minus the amount that would have been deducted under 120
month straight-line amortization, or (at the taxpayer's election) under
the cost depletion method. There is no preference for costs of
nonproductive wells and the preference for intangible drilling and
development costs for productive wells is computed separately for each
property. Taxpayers can elect to amortize the year's intangible drilling
and development costs for productive wells ratably over a 60 month
period for all tax purposes and then such costs are not treated as an
item of tax preference. The passive loss disallowance is determined
after all preferences ad adjustments have been computed, so the
suspended loss amount may be different for minimum and regular tax
purposes. I.R.C. 58(b).
The likelihood of a Participant incurring, or increasing, any minimum
tax liability by virtue of an investment in the Partnership, and the
impact of such liability on his personal tax situation, must be
determined on an individual basis, and requires consultation by a
prospective Participant with his personal tax advisor.
Limitations on Deduction of Investment Interest
Investment interest is deductible by a noncorporate taxpayer only to
the extent of net investment income each year (with an indefinite
carryforward of disallowed investment interest). I.R.C. 163. Interest
subject to the limitation generally includes all interest (except
consumer interest and qualified residence interest) on debt not incurred
in a person's active trade or business, provided the activity is not a
"passive activity" under the passive loss rule. Accordingly, an Investor
General Partner's allocable share of any interest expense incurred by
the Partnership, will be subject to the investment interest limitation.
In addition, an Investor General Partner's income and losses (including
intangible drilling and development costs) from the Partnership will be
considered investment income and losses for purposes of this limitation.
Losses allocable to an Investor General Partner will reduce his net
investment income and may affect the deductibility of his investment
interest expense, if any.
Net investment income is the excess of investment income over
investment expenses. Investment income includes: gross income from
interest, dividends, rents, and royalties; portfolio income under the
passive activity rules (which includes working capital investment income
and possibly royalty income of the Partnership, if any, in the case of
Limited Partners); and income from a trade or business in which the
taxpayer does not materially participate if the activity is not a
"passive activity" under the passive loss rule (which includes the
Partnership, at least prior to the conversion of Investor General
Partner Units to Limited Partner interests, in the case of Investor
General Partners). Gain from the disposition of investment property
generally is not included unless the taxpayer elects to reduce the
amount of net capital gain that qualifies for the 28% ceiling.
Investment expenses include deductions (other than interest) that are
directly connected with the production of net investment income
(including actual depreciation or depletion deductions allowable). No
item of income or expense subject to the passive activity loss rules of
469 of the Code is treated as investment income or investment expense.
In determining deductible investment expenses, investment expenses
are subject to a rule limiting deductions for miscellaneous expenses to
those exceeding 2% of adjusted gross income, however, expenses that are
not investment expenses are intended to be disallowed before any
investment expenses are disallowed.
Allocations
The Partnership Agreement allocates to each Partner his share of the
income, gains, credits and deductions (including the deductions for
intangible drilling and development costs and depreciation) generated by
the Partnership. Allocations of certain items are made in ratios that
are different than allocations of other items. (See "Participation in
Costs and Revenues" in the Prospectus.) The Capital Accounts of the
Partners are adjusted to reflect such allocations and the Capital
Accounts, as adjusted, will be given effect in distributions made to the
Partners upon liquidation of the Partnership or any Partner's interest
in the Partnership. Generally, the basis of oil and gas properties owned
by the Partnership for computation of cost depletion and gain or loss on
disposition will be allocated and reallocated when necessary in the
ratio in which the expenditure giving rise to the tax basis of each
property was charged as of the end of the year. [Partnership Agreement,
5.03(b).]
Special allocations (those made in a manner that is disproportionate
to the respective interests of the partners in a partnership), among
partners of any item of partnership income, gain, loss, deduction or
credit will not be given effect unless the special allocation has
"substantial economic effect." I.R.C. 704(b). An allocation generally
will have economic effect if throughout the term of the partnership:
(1) the partners' capital accounts are maintained in accordance
with rules set forth in the regulations (generally, tax
accounting principles);
(2) liquidation proceeds are distributed in accordance with the
partners' capital accounts; and
(3) any partner with a deficit balance in his capital account
following the liquidation of his interest in the partnership is
required to restore the amount of the deficit for distribution
to partners with positive capital account balances or to be paid
to creditors.
Generally, a Participant's Capital Account is increased by the amount of
money he contributes to the Partnership and allocations to him of income
and gain, and decreased by the value of property or cash distributed to
him and allocations to him of loss and deductions. The regulations also
require that there must be a reasonable possibility that the allocation
will affect substantially the dollar amounts to be received by the
partners from the partnership, independent of tax consequences.
Although Participants are not required to restore deficit balances in
their Capital Accounts beyond the amount of their agreed Capital
Contributions, an allocation which is not attributable to nonrecourse
debt will be considered to have economic effect to the extent it does
not cause or increase a deficit balance in a Participant's Capital
Account, if requirements (1) and (2) described above are met and the
partnership agreement provides that a partner who unexpectedly incurs a
deficit balance in his Capital Account because of certain adjustments,
allocations, or distributions will be allocated income and gain
sufficient to eliminate such deficit balance as quickly as possible.
Treas. Reg. 1.704-l(b)(2)(ii)(d). (See 5.03(h) of the Partnership
Agreement.)
In the event of a sale or transfer of a Partnership Unit or the
admission of an additional Participant, Partnership income, gain, loss,
deductions and credits generally will be allocated among the Partners on
a daily basis according to their varying interests in the Partnership
during the taxable year. In addition, in the discretion of the Managing
General Partner Partnership property may be revalued upon the admission
of additional Participants, or if certain distributions are made to the
Partners, to reflect unrealized income, gain, loss or deduction inherent
in the Partnership's property for purposes of adjusting the Partners'
Capital Accounts. It should be noted that a reduction in a
Participant's interest in the Partnership upon the admission of
additional Participants could be viewed by the IRS as a deemed sale or
exchange by the Participant of his share of "751 assets" under 751 of
the Code, which provides that to the extent a partner receives
partnership property, including money, in exchange for all or part of
his interest in the partnership's unrealized receivables, which includes
any intangible drilling and development costs, depletion and cost
recovery deductions recapture, and inventory items ("751 assets"), the
transaction will be considered a sale or exchange of the property
between the partner and the partnership. In Rev. Rul. 84-102, 1984-2
C.B. 119, the IRS ruled that upon the admission of a new partner to an
existing partnership having both unrealized receivables and liabilities
outstanding, the existing partners were considered to have received
distributions to which 751(b) applies and were taxable on the gain
resulting from such deemed sale.
It should also be noted that each Partner's share of Partnership
items of income, gain, loss, deduction and credit must be taken into
account whether or not there is any distributable cash. A Participant's
share of Partnership revenues applied to the repayment of loans or the
reserve for plugging wells will be included in his gross income in a
manner analogous to an actual distribution of the income to him. Thus, a
Participant may have taxable income from the Partnership for a
particular year in excess of any cash distributions from the Partnership
to him with respect to that year. To the extent the Partnership has cash
available for distribution, however, it is Atlas' policy that
Partnership distributions will not be less than the Participants'
estimated income tax liability with respect to Partnership income.
No assurance can be given that, on audit, the IRS will not take the
position that a portion of the deductions allocable to the Participants
is not allowable to them. If such a position is taken, there can be no
assurance that any resulting deficiency will not ultimately be
sustained. However, assuming the effect of the special allocations set
forth in the Partnership Agreement is substantial in light of a
Participant's tax attributes that are unrelated to the Partnership, in
the opinion of Special Counsel it is more likely than not that such
allocations will have "substantial economic effect" and will govern each
Participant's distributive share of such items to the extent such
allocations do not cause or increase deficit balances in the
Participants' Capital Accounts.
If any allocation under the Partnership Agreement is not recognized
for federal income tax purposes, each Participant's distributive share
of the items subject to such allocation generally will be determined in
accordance with his interest in the Partnership, determined by
considering relevant facts and circumstances. To the extent such
deductions as allocated by the Partnership Agreement, exceed deductions
which would be allowed pursuant to such a reallocation, Participants may
incur a greater tax burden.
"At Risk" Limitation For Losses
Subject to the limitations on "passive losses" generated by the
Partnership in the case of Limited Partners and a Participant's basis in
the Partnership, each Participant may use his share of the Partnership's
losses to offset income from other sources. (See "- Limitations on
Passive Activities" and "- Tax Basis of Participants' Interests,"
above.) However, any taxpayer (other than a corporation which is neither
an S corporation nor a corporation in which five or fewer individuals
own more than 50% of the stock) who sustains a loss in connection with
his oil and gas activities may deduct such loss only to the extent of
the amount he has "at risk" in such activities at the end of a taxable
year. In determining whether five or fewer individuals own 50% or more
of the stock of a corporation, the attribution rules of 544 apply. The
"at risk" limitation applies to each activity engaged in and not on an
aggregate basis for all activities. The amount "at risk" is limited to
the amount of money and the adjusted basis of other property the
taxpayer has contributed to the activity, and any amount he has borrowed
with respect thereto for which he is personally liable or with respect
to which he has pledged property other than property used in the
activity; limited, however, to the net fair market value of his
interest in such pledged property. I.R.C. 465(b)(1) and (2). However,
amounts borrowed will not be considered "at risk" if such amounts are
borrowed from any person who has an interest (other than as a creditor)
in such activity or from a related person to a person (other than the
taxpayer) having such an interest.
"Loss" is defined as being the excess of allowable deductions for a
taxable year from an activity over the amount of income actually
received or accrued by the taxpayer during such year from the activity.
The amount the taxpayer has "at risk" may not include the amount of any
loss that the taxpayer is protected against through nonrecourse loans,
guarantees, stop loss agreements, or other similar arrangements. The
amount of any such loss that is disallowed in any taxable year will be
carried over to the first succeeding taxable year, to the extent a
Participant is "at risk." Further, a taxpayer's "at risk" amount in
subsequent taxable years with respect to the activity involved will be
reduced by that portion of the loss which is allowable as a deduction.
Participants' Agreed Subscriptions are funded by a payment of cash
(usually "at risk"). Since income, gains, losses, and distributions of
the Partnership affect the amount considered to be "at risk," the extent
to which a Participant is "at risk" must be determined annually.
Further, conversion from recourse to nonrecourse liability would reduce
the amount "at risk" and could result in taxable income to the
Participant. Previously allowed losses must be recaptured (included in
gross income) when the "at risk" amount is reduced below zero. However,
the amount recaptured is limited by the amount the taxpayer's "at risk"
amount is reduced below zero, with special computations to reflect
previously recaptured losses. The amount included in income under this
recapture provision may be deducted in the first succeeding taxable year
to the extent of any increase in the amount which the Participant has
"at risk."
Partnership Borrowings
Under the Partnership Agreement, the Managing General Partner and its
Affiliates may make loans to the Partnership. The use of Partnership
revenues taxable to Participants to repay Partnership borrowing will
create income tax liability for such Participants in excess of cash
distributions to them, since repayments of principal are not deductible
for federal income tax purposes, and deductions for payment of interest
will be subject to the "investment interest" and "passive loss"
limitations previously discussed. In addition, interest paid (or imputed
at the applicable Federal rate) on such loans will not be deductible
unless such loans are bona fide loans that will not be treated as
Capital Contributions. In Revenue Ruling 72-135, 1972-1 C.B. 200, the
IRS ruled that a nonrecourse loan from a general partner to a limited
partner or to a partnership engaged in oil and gas exploration
represented a capital contribution by the general partner rather than a
loan. Whether a "loan" to the Partnership represents in substance, debt
or equity is a question of fact to be determined from all the
surrounding facts and circumstances. (See Kingbay v. Commissioner, 46
T.C. 147 (1966); Hambuechen v. Commissioner, 43 T.C. 90 (1964).)
Partnership Organization and Syndication Fees
Expenses connected with the issuance and sale of interests in a
partnership (i.e., promotional expense, selling expense, commissions,
professional fees and printing costs) are not deductible. Further,
except for certain expenses, amounts incurred to organize a partnership
may not be claimed as deductions under the partnership provisions of the
Code. However, expenses incident to the creation of a partnership which
are chargeable to capital account and which, if expended in connection
with the creation of a partnership having an ascertainable life, would
be amortized over that period of time, may be deducted and amortized
over a period of not less than 60 months. Such amortizable organization
expenses are charged 100% to the Managing General Partner as part of the
Partnership's Organization and Offering Costs and any related deductions
will be allocated to the Managing General Partner.
Tax Elections
The Code permits partnerships to elect to adjust the basis of
partnership property on the transfer of an interest in a partnership by
sale or exchange or on the death of a partner, and on the distribution
of property by the partnership to a partner (the 754 election). The
general effect of such an election is that transferees of the
partnership interests are treated, for purposes of depreciation and
gain, as though they had acquired a direct interest in the partnership
assets and the partnership is treated for such purposes, upon certain
distributions to partners, as though it had newly acquired an interest
in the partnership assets and therefore acquired a new cost basis for
such assets. Any such election, once made, may not be revoked without
the consent of the IRS. The Partnership Agreement, 5.04(d), provides
that the Partnership may make the 754 election. The Partnership may
also make various elections for federal tax reporting purposes which
could result in various items of income, gain, loss, deduction and
credit being treated differently for tax purposes than for accounting
purposes.
Code 195 permits taxpayers to elect to capitalize and amortize
"start-up expenditures" over a 60-month period. Such items include
amounts: (1) paid or incurred in connection with: (i) investigating the
creation or acquisition of an active trade or business, (ii) creating an
active trade or business, or (iii) any activity engaged in for profit
and for the production of income before the day on which the active
trade or business begins, in anticipation of such activity becoming an
active trade or business; and (2) which would be allowed as a deduction
if paid or incurred in connection with the expansion of an existing
business. Start-up expenditures do not include amounts paid or incurred
in connection with the sale of partnership interests. If it is
ultimately determined that any of the Partnership's expenses constituted
start-up expenditures and not deductible expenses under 162, the
Partnership's deductions would be reduced.
Disallowance of Deductions Under Section 183 of the Code
Under 183 of the Code, a Participant's ability to deduct his share
of the Partnership's losses on his federal income tax return could be
lost if the Partnership lacks the appropriate profit motive as
determined from an examination of all facts and circumstances at the
time. Section 183 creates a presumption that an activity is engaged in
for profit, if, in any three of five consecutive taxable years, the
gross income derived from such activity exceeds the deductions
attributable to such activity. Thus, if the Partnership fails to show a
profit in at least three out of five consecutive years, this presumption
will not be available. In that instance, the possibility that the IRS
could successfully challenge the deductions claimed by a Participant
would be substantially increased.
The fact that the possibility of ultimately obtaining profits is
uncertain, standing alone, does not appear to be sufficient grounds for
the denial of losses under 183. (See Treas. Reg. 1.183-2(c), Example
(5).) Based on Atlas' representation that the Partnership will be
conducted as described in the Prospectus, in the opinion of Special
Counsel it is more likely than not that the Partnership will possess the
requisite profit motive.
Termination of a Partnership
Pursuant to 708(b) of the Code, a partnership will be considered as
terminated for federal income tax purposes if within a twelve month
period there is a sale or exchange of 50% or more of the total interest
in partnership capital and profits. The closing of the partnership year
may result in more than twelve months' income or loss of the partnership
being allocated to certain partners for the year of termination (i.e.,
in the case of partners using fiscal years other than the calendar
year). Under 731 of the Code, a partner will realize taxable gain on a
termination of the partnership to the extent that money regarded as
distributed to him exceeds the adjusted basis of his partnership
interest. The conversion of Investor General Partner Units to Limited
Partner interests will not result in a termination of the Partnership
under 708 of the Code. Rev. Rul. 84-52, 1984-1 C.B. 157.
Lack of Registration as a Tax Shelter
Section 6111 of the Code generally requires an organizer of a "tax
shelter" to register the tax shelter with the Secretary of the Treasury,
and to obtain an identification number which must be included on the tax
returns of investors in such a tax shelter. For purposes of these
provisions, a "tax shelter" is generally defined to include investments
with respect to which any person could reasonably infer that the ratio
that (1) the aggregate amount of the potentially allowable deductions
and 350% of the potentially allowable credits with respect to the
investment during the first five years of the investment bears to (2)
the amount of money and the adjusted basis of property contributed to
the investment exceeds 2 to 1. Temporary Regulations promulgated by the
IRS provide that the aggregate amount of gross deductions must be
considered and determined without reduction for gross income derived, or
to be derived, from the investment.
Atlas does not believe that the Partnership will have a tax shelter
ratio greater than 2 to 1. Also, because the purpose of the Partnership
is to locate, produce and market natural gas on an economic basis, Atlas
does not believe that the Partnership will be a "potentially abusive tax
shelter." Accordingly, Atlas does not intend to cause the Partnership to
register with the IRS as a tax shelter.
If it is subsequently determined that the Partnership was required to
be registered with the IRS as a tax shelter, Atlas would be subject to
certain penalties, including a penalty of 1% of the aggregate amount
invested in the Units of the Partnership for failing to register and
$100 for each failure to furnish a Participant a tax shelter
registration number, and each Participant would be liable for a $250
penalty for failure to include the tax shelter registration number on
his tax return, unless such failure was due to reasonable cause. A
Participant also would be liable for a penalty of $100 for failing to
furnish the tax shelter registration number to any transferee of his
interest in the Partnership. However, based on the representations of
the Managing General Partner, Special Counsel has expressed the opinion
that the Partnership, more likely than not, is not required to register
with the IRS as a tax shelter.
Issuance of a registration number does not indicate that an
investment or the claimed tax benefits have been reviewed, examined, or
approved by the IRS.
Investor Lists
Section 6112 of the Code requires that any person who organizes a tax
shelter required to be registered with the IRS or who sells any interest
in such a shelter must maintain a list identifying each person who was
sold an interest in the shelter and setting forth other required
information. For the reasons described above, Atlas does not believe the
Partnership is subject to the requirements of 6112 If this
determination is wrong, 6708 of the Code provides for a penalty of $50
for each person with respect to whom there is a failure to meet any
requirements of 6112, unless the failure is due to reasonable cause.
Tax Returns and Audits
In General. The tax treatment of all partnership items is generally
determined at the partnership, rather than the partner, level; and the
partners are generally required to treat partnership items on their
individual returns in a manner which is consistent with the treatment of
such partnership items on the partnership return. I.R.C. 6221 and
6222. Regulations define "partnership items" for this purpose as
including distributive share items that must be allocated among the
partners, such as partnership liabilities, data pertaining to the
computation of the depletion allowance, and guaranteed payments. Treas.
Reg. 301.6231(a)(3)-1.
Generally, the IRS must conduct an administrative determination as to
partnership items at the partnership level before conducting deficiency
proceedings against a partner, and the partners must file a request for
an administrative determination before filing suit for any credit or
refund. The period for assessing tax against a Partner attributable to a
partnership item may be extended as to all partners by agreement between
the IRS and Atlas, which will serve as the Partnership's representative
("Tax Matters Partner") in all administrative and judicial proceedings
conducted at the partnership level. The Tax Matters Partner generally
may enter into a settlement on behalf of, and binding upon, partners
owning less than a 1% profits interest in partnerships having more than
100 partners. By executing the Partnership Agreement, each Participant
agrees that he will not form or exercise any right as a member of a
notice group and will not file a statement notifying the IRS that the
Tax Matters Partner does not have binding settlement authority.
In the event of an audit of the return of the Partnership, the Tax
Matters Partner, pursuant to advice of counsel, will take all actions
necessary, in its discretion, to preserve the rights of the
Participants. All expenses of such proceedings undertaken by the Tax
Matters Partner, which might be substantial, will be paid for by the
Partnership. The Tax Matters Partner is not obligated to contest
adjustments made by the IRS.
Tax Returns. The preparation and filing of each Participant's federal,
state and local income tax returns are the responsibility of the
Participant. The Partnership will provide each Participant with the tax
information applicable to his investment in the Partnership necessary to
prepare such returns; however, the treatment of the tax attributes of
the Partnership may vary among Participants. The Managing General
Partner, its Affiliates and Special Counsel assume no responsibility for
the tax consequences of this transaction to a Participant, nor for the
disallowance of any proposed deductions. EACH PARTICIPANT IS URGED TO
SEEK QUALIFIED, PROFESSIONAL ASSISTANCE IN THE PREPARATION OF HIS
FEDERAL, STATE AND LOCAL TAX RETURNS.
Penalties and Interest
In General. Interest (based on the applicable Federal short-term rate
plus 3 percentage points) is charged on underpayments of tax and various
civil and criminal penalties are included in the Code.
Penalty for Negligence or Disregard of Rules or Regulations. If any
portion of an underpayment of tax is attributable to negligence or
disregard of rules or regulations, 20% of such portion is added to the
tax. Negligence is strongly indicated if a partner fails to treat
partnership items on his tax return in a manner that is consistent with
the treatment of such items on the partnership's return or to notify the
IRS of the inconsistency. The term "disregard" includes any careless,
reckless or intentional disregard of rules or regulations. There is no
penalty, however, if the position is adequately disclosed, or the
position is taken with reasonable cause and in good faith, or the
position has a realistic possibility of being sustained on its merits.
Treas. Reg. 1.6662-3.
Valuation Misstatement Penalty. There is an addition to tax of 20% of
the amount of any underpayment of tax of $5,000 or more ($10,000 in the
case of corporations other than S corporations or personal holding
companies) which is attributable to a substantial valuation
misstatement. There is a substantial valuation misstatement if the value
or adjusted basis of any property claimed on a return is 200% or more of
the correct amount; or if the price for any property or services (or for
the use of property) claimed on a return is 200% or more (or 50% or
less) of the correct price. If there is a gross valuation misstatement
(400% or more of the correct value or adjusted basis or the
undervaluation is 25% or less of the correct amount) the penalty is 40%.
I.R.C. 6662(e) and (h).
Substantial Understatement Penalty. There is also an addition to tax
of 20% of any underpayment if the difference between the tax required
to be shown on the return over the tax actually shown on the return,
exceeds the greater of 10% of the tax required to be shown on the
return, or $5,000 ($10,000 in the case of corporations other than S
corporations or personal holding companies). I.R.C. 6662(d). The
amount of any understatement generally will be reduced to the extent it
is attributable to the tax treatment of an item supported by substantial
authority, or adequately disclosed on the taxpayer's return. However, in
the case of "tax shelters," the understatement may be reduced only if
the tax treatment of an item attributable to a tax shelter was supported
by substantial authority and the taxpayer reasonably believed that the
tax treatment claimed was more likely than not the proper treatment.
Disclosure of partnership items should be made on the Partnership's
return; however, a taxpayer partner also may make adequate disclosure on
his individual return with respect to pass-through items. Section
6662(d)(2)(C) provides that a "tax shelter" is any entity which has as
its principal purpose the avoidance or evasion of federal income tax.
Assuming the Partnership is conducted as set forth in the Prospectus, in
the opinion of Special Counsel it is more likely than not that the
Partnership will not be characterized as a tax shelter for purposes of
the substantial understatement of income tax penalty.
IRS Anti-Abuse Rule. Under Treas. Reg. 1.701-2, if a principal purpose
of a partnership is to reduce substantially the partners' federal income
tax liability in a manner that is inconsistent with the intent of the
partnership rules of the Code, based on all the facts and circumstances,
the IRS is authorized to remedy the abuse. For illustration purposes,
the following factors may indicate that a partnership is being used in a
prohibited manner: (i) the partners' aggregate federal income tax
liability is substantially less than had the partners owned the
partnership's assets and conducted its activities directly; (ii) the
partners' aggregate federal income tax liability is substantially less
than if purportedly separate transactions are treated as steps in a
single transaction; (iii) one or more partners are needed to achieve the
claimed tax results and have a nominal interest in the partnership or
are substantially protected against risk; (iv) substantially all of the
partners are related to each other; (v) income or gain are allocated to
partners who are not expected to have any federal income tax liability;
(vi) the benefits and burdens of ownership of property nominally
contributed to the partnership are related in substantial part by the
contributing party; and (vii) the benefits and burdens of ownership of
partnership property are in substantial part shifted to the distributee
partners before or after the property is actually distributed to the
distributee partners. Based on the Managing General Partner's
representation that the Partnership will be conducted as described in
the Prospectus, in the opinion of Special Counsel it is more likely than
not that the Partnership will not be subject to the anti-abuse rule set
forth in Treas. Reg. 1.701-2.
State and Local Taxes
The Partnership will operate in states and localities which impose a
tax on its assets or its income, or on each Participant. Deductions
which are available to Participants for federal income tax purposes may
not be available for state or local income tax purposes. A Participant's
distributive share of the net income or net loss of the Partnership
generally will be required to be included in determining his reportable
income for state or local tax purposes in the jurisdiction in which he
is a resident. To the extent that a non-resident Participant pays tax to
a state by virtue of Partnership operations within that state, he may be
entitled to a deduction or credit against tax owed to his state of
residence with respect to the same income. To the extent that the
Partnership operates in certain jurisdictions, state or local estate or
inheritance taxes may be payable upon the death of a Participant in
addition to taxes imposed by his own domicile.
Under Pennsylvania law, the Partnership is required to withhold state
income tax at the rate of 2.8% of Partnership income allocable to
Participants who are not residents of Pennsylvania. This requirement
does not obviate Pennsylvania tax return filing requirements for
Participants who are not residents of Pennsylvania. In the event of
overwithholding, a Pennsylvania income tax return must be filed by
Participants who are not residents of Pennsylvania in order to obtain a
refund. Prospective Participants should consult with their own tax
advisors concerning the possible effect of various state and local taxes
on their personal tax situations.
Severance, Franchise, and Ad Valorem (Real Estate) Taxes
The Partnership may incur various ad valorem or severance taxes
imposed by state or local taxing authorities. Currently, there is no
such tax liability in Mercer County, Pennsylvania.
Social Security Benefits and Self-Employment Tax
A Limited Partner's share of income or loss from the Partnership is
excluded from the definition of "net earnings from self-employment." No
increased benefits under the Social Security Act will be earned by
Limited Partners and if any Limited Partners are currently receiving
Social Security benefits, their shares of Partnership taxable income
will not be taken into account in determining any reduction in benefits
because of "excess earnings." An Investor General Partner's share of
income or loss from the Partnership will constitute "net earnings from
self-employment" for these purposes. I.R.C. 1402(a). For 1997 the
ceiling for social security tax of 12.4% is $65,400 and there is no
ceiling for medicare tax of 2.9%. Self-employed individuals can deduct
one-half of their self-employment tax.
Foreign Partners
The Partnership will be required to withhold and pay to the IRS tax
at the highest rate under the Code applicable to Partnership income
allocable to foreign partners, even if no cash distributions are made to
such partners. A purchaser of a foreign Partner's Units may be required
to withhold a portion of the purchase price and the Managing General
Partner may be required to withhold with respect to taxable
distributions of real property to a foreign Partner. The withholding
requirements described above do not obviate United States tax return
filing requirements for foreign Partners. In the event of
overwithholding, a foreign Partner must file a United States tax return
to obtain a refund.
Estate and Gift Taxation
There is no federal tax on lifetime or testamentary transfers of
property between spouses. The gift tax annual exclusion is $10,000 per
donee. The maximum estate and gift tax rate is 55% (subject to a 5%
surtax on amounts in excess of $10,000,000); and estates of $600,000 or
less generally are not subject to federal estate tax. In the event of
the death of a Participant, the fair market value of his interest as of
the date of death (or as of the alternate valuation date) will be
included in his estate for federal estate tax purposes. The decedent's
heirs will, for federal income tax purposes, take as their basis for the
interest the value as so determined for federal estate tax purposes.
Changes in Law
The Partnership and the Participants could be adversely affected by
any further changes in tax laws that may result through future
Congressional action, Tax Court or other judicial decisions, or
interpretations by the IRS. It is impossible to predict what, if any,
changes in the tax law may become law in the future or even if adopted,
would apply to the Partnership.
IT IS NOT POSSIBLE FOR US TO PREDICT THE EFFECT OF THE TAX LAWS ON
INDIVIDUAL PARTICIPANTS. EACH PARTICIPANT IS URGED TO SEEK, AND SHOULD
DEPEND UPON, THE ADVICE OF HIS OWN TAX ADVISORS WITH RESPECT TO HIS
INVESTMENT IN THE PARTNERSHIP WITH SPECIFIC REFERENCE TO HIS OWN TAX
SITUATION AND POTENTIAL CHANGES IN THE APPLICABLE LAW.
We consent to the use of this opinion letter as an exhibit to the
Registration Statement, and all amendments thereto, and to all
references to this firm in the Prospectus.
Very truly yours,
KUNZMAN & BOLLINGER, INC.
Kunzman & Bollinger, Inc.
ATTORNEYS-AT-LAW
5100 N. BROOKLINE, SUITE 600
OKLAHOMA CITY, OKLAHOMA 73112
Telephone (405) 942-3501
Fax (405) 942-3527
Exhibit 8
July 21, 1997
Atlas Resources, Inc.
311 Rouser Road
Moon Township, Pennsylvania 15108
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
Gentlemen:
You have requested our opinions on the material federal income tax
issues pertaining to Atlas-Energy for the Nineties-Public #6 Ltd. (the
"Partnership"), a limited partnership formed under the Revised Uniform
Limited Partnership Act of Pennsylvania. We have acted as Special
Counsel to the Partnership with respect to the offering of interests in
the Partnership. Atlas Resources, Inc. ("Atlas") will be the Managing
General Partner of the Partnership. Terms used and not otherwise defined
herein have the respective meanings assigned to them in the Prospectus
under the caption "DEFINITIONS."
Basis of Opinion
Our opinions are based upon our review of: (1) a certain Registration
Statement on Form SB-2 for Atlas-Energy for the Nineties-Public #6 Ltd.,
as originally filed with the United States Securities and Exchange
Commission, and amendments thereto, including the Prospectus, the
Drilling and Operating Agreement and the Amended and Restated
Certificate and Agreement of Limited Partnership for the Partnership
(the "Partnership Agreement") included as exhibits to the Prospectus;
and (2) such corporate records, certificates, agreements, instruments
and other documents as we have deemed relevant and necessary to review
as a basis for the opinions herein provided.
Our opinions also are based upon our interpretation of existing
statutes, rulings and regulations, as presently interpreted by judicial
and administrative bodies. Such statutes, rulings, regulations and
interpretations are subject to change; and such changes could result in
different tax consequences than those set forth herein and could render
our opinions inapplicable.
In rendering our opinions, we have obtained from you certain
representations with respect to the Partnership. Any material inaccuracy
in such representations may render our opinions inapplicable. Included
among such representations are the following:
(1) The Partnership Agreement to be entered into by and
among Atlas, as Managing General Partner, and the
Participants will be duly executed by all parties
thereto. The Partnership Agreement will be duly recorded
in all places required under the Revised Uniform Limited
Partnership Act of Pennsylvania for the due formation of
the Partnership and for the continuation thereof in
accordance with the terms of the Partnership Agreement.
The Partnership will at all times be operated in
accordance with the terms of the Partnership Agreement,
the Prospectus, and the Revised Uniform Limited
Partnership Act of Pennsylvania.
(2) No election will be made by the Partnership or any
Partner for the Partnership to be excluded from the
application of the provisions of Subchapter K of the
Code or classified as a corporation for tax purposes.
(3) The Partnership will own record or legal title to the Working
Interest in all of its Prospects.
(4) The respective amounts that will be paid to Atlas or its Affiliates
pursuant to the Partnership Agreement and the Drilling and Operating
Agreement are amounts that would ordinarily be paid for similar services
in similar transactions between Persons having no affiliation and
dealing with each other "at arms' length."
(5) The Partnership will elect to deduct currently all intangible
drilling and development costs.
(6) The Partnership will have a calendar year taxable year.
(7) The Drilling and Operating Agreement and any amendments thereto
entered into by and between Atlas and the Partnership will be duly
executed and will govern the drilling and, if warranted, the completion
and operation of the wells in accordance with its terms.
(8) Based upon Atlas' review of its previous drilling programs for the
past several years and upon the intended operations of the Partnership,
Atlas reasonably believes that the aggregate deductions, including
depletion deductions, and 350% of the aggregate credits, if any, which
will be claimed by Atlas and the Participants, will not during the first
five tax years following the funding of the Partnership exceed twice the
amounts invested by Atlas and the Participants, respectively.
(9) The Investor General Partner Units will not be converted to Limited
Partner interests before substantially all of the Partnership Wells have
been drilled and completed.
(10) The Units will not be traded on an established securities
market.
In rendering our opinions we have further assumed that (1) each of
the Participants has an objective to carry on the business of the
Partnership for profit; (2) any amount borrowed by a Participant and
contributed to the Partnership will not be borrowed from a Person who
has an interest in the Partnership (other than as a creditor) or a
related person, as defined in 465 of the Code, to a person (other than
the Participant) having such interest and such Participant will be
severally, primarily, and personally liable for such amount; and (3) no
Participant will have protected himself from loss for amounts
contributed to the Partnership through nonrecourse financing,
guarantees, stop loss agreements or other similar arrangements.
We have considered the provisions of the American Bar Association's
Revised Formal Opinion 346 on Tax Law Opinions ("ABA Opinion 346") and
31 CFR, Part 10, 10.33 (Treasury Department Circular No. 230) on tax
law opinions and we believe that this opinion letter addresses all
material federal income tax issues associated with an investment in the
Units by an individual Participant who is a resident citizen of the
United States. We consider material those issues which would affect
significantly a Participant's deductions, credits or losses arising from
his investment in the Units and with respect to which, under present
law, there is a reasonable possibility of challenge by the IRS, or those
issues which are expected to be of fundamental importance to a
Participant but as to which a challenge by the IRS is unlikely. The
issues which involve a reasonable possibility of challenge by the IRS
have not been definitely resolved by statute, rulings or regulations, as
interpreted by judicial or administrative bodies.
Subject to the foregoing, however, in our opinion it is more likely
than not that the following tax treatment will be upheld if challenged
by the IRS and litigated:
Partnership Classification. The Partnership will be classified as a
partnership for federal income tax purposes, and not as an association
taxable as a corporation; the Partnership, as such, will not pay any
federal income taxes, and all items of income, gain, loss, deduction,
and credit of the Partnership will be reportable by the Partners in the
Partnership. (See "- Partnership Classification.")
Intangible Drilling and Development Costs. Intangible drilling and
development costs paid by the Partnership under the terms of bona fide
drilling contracts for the Partnership's wells will be deductible in the
taxable year in which the payments are made and the drilling services
are rendered, assuming such amounts are fair and reasonable
consideration and subject to certain restrictions summarized below
(including basis and "at risk" limitations and the passive activity loss
limitation with respect to the Limited Partners). (See "- Intangible
Drilling and Development Costs" and "- Drilling Contracts.")
Prepayments of Intangible Drilling and Development Costs. Depending
primarily on when the Partnership Subscription is received, it is
anticipated that the Partnership will prepay in 1997 most, if not all,
of the intangible drilling and development costs related to Partnership
Wells the drilling of which will be commenced in 1998. Assuming that
such amounts are fair and reasonable, and based in part on the factual
assumptions set forth below, in our opinion such prepayments of
intangible drilling and development costs will be deductible for the
1997 taxable year even though all Working Interest owners in the well
may not be required to prepay such amounts, subject to certain
restrictions summarized in "Tax Aspects" (including basis and "at risk"
limitations, and the passive activity loss limitation with respect to
the Limited Partners). (See "- Drilling Contracts", below.)
The foregoing opinion is based in part on the assumptions that: (1)
such costs will be required to be prepaid in 1997 for specified wells
pursuant to the Drilling and Operating Agreement; (2) pursuant to the
Drilling and Operating Agreement the wells are required to be, and
actually are, Spudded on or before March 31, 1998, and continuously
drilled thereafter until completed, if warranted, or abandoned; and (3)
the required prepayments are not refundable to the Partnership and any
excess prepayments are applied to intangible drilling and development
costs of substitute wells.
Not a Publicly Traded Partnership. Assuming that no more than 10% of
the Units are transferred in any taxable year of the Partnership (other
than in private transfers described in Treas. Reg. 1.7704-1(e)), it is
more likely than not that the Partnership will not be treated as a
"publicly traded partnership" under the Code. (See "- Limitations on
Passive Activities".)
Passive Activity Classification. Oil and gas production income
generated by the Partnership's oil and gas properties held as Working
Interests, together with gain, if any, from the disposition of such
properties and allocable to Limited Partners who are individuals,
estates, trusts, closely held corporations or personal service
corporations more likely than not will be characterized as income from a
passive activity which may be offset by passive activity losses (as
defined in 469(d) of the Code). Income or gain attributable to
investments of working capital of the Partnership will be characterized
as portfolio income, which cannot be offset by passive activity losses.
To the extent the Partnership's oil and gas properties are held as
Working Interests, it is more likely than not that the passive activity
limitations on losses under 469 will not be applicable to Investor
General Partners prior to the conversion of Investor General Partner
Units to Limited Partner interests. (See "- Limitations on Passive
Activities.")
Tax Basis of Participant's Interest. Each Participant's adjusted tax
basis in his Partnership interest will be increased by his total Agreed
Subscription. (See "- Tax Basis of Participants' Interests.")
At Risk Limitation on Losses. Each Participant initially will be "at
risk" to the full extent of his Agreed Subscription. (See "- `At Risk'
Limitation For Losses.")
Depletion Allowance. The greater of cost depletion or percentage
depletion will be available to qualified Participants as a current
deduction against Partnership income from oil and gas production
revenues on properties of the Partnership, subject to certain
restrictions summarized below. (See "- Depletion Allowance.")
ACRS. The Partnership's reasonable costs for recovery property
(tangible depreciable property used in a trade or business or held for
the production of income) which cannot currently be deducted but must be
capitalized will be eligible for cost recovery deductions under the
modified Accelerated Cost Recovery System, generally over a seven year
"cost recovery period", subject to certain restrictions summarized below
(including basis and "at risk" limitations and the passive activity loss
limitation in the case of Limited Partners). (See "- Depreciation
Accelerated Cost Recovery System.")
Availability of Certain Deductions. Business expenses, including
payments for personal services actually rendered in the taxable year in
which accrued, which are reasonable, ordinary and necessary and do not
include amounts for items such as Lease acquisition costs, organization
and syndication fees and other items which are required to be
capitalized, are currently deductible. (See "- 1997 Expenditures", "
Availability of Certain Deductions" and "- Partnership Organization and
Syndication Fees.")
Allocations. Assuming the effect of the allocations of income, gain,
loss, deduction and credit (or items thereof) set forth in the
Partnership Agreement, including the allocations of basis and amount
realized with respect to oil and gas properties, is substantial in light
of a Participant's tax attributes that are unrelated to the Partnership,
it is more likely than not that such allocations will have "substantial
economic effect" and will govern each Participant's distributive share
of such items to the extent such allocations do not cause or increase
deficit balances in the Participants' Capital Accounts. (See "
Allocations.")
Agreed Subscription. No gain or loss will be recognized by the
Participants on payment of their Agreed Subscriptions.
Profit Motive. Based on the Managing General Partner's representation
that the Partnership will be conducted as described in the Prospectus,
it is more likely than not that the Partnership will possess the
requisite profit motive and will not be properly characterized as a tax
shelter for purposes of the tax shelter registration requirement and the
substantial understatement of income tax liability penalty. (See "
Disallowance of Deductions Under Section 183 of the Code" and "
Penalties and Interest.")
IRS Anti-Abuse Rule. Based on the Managing General Partner's
representation that the Partnership will be conducted as described in
the Prospectus, it is more likely than not that the Partnership will not
be subject to the anti-abuse rule set forth in Treas. Reg. 1.701-2.
(See "- Penalties and Interest - IRS Anti-Abuse Rule.")
Overall Evaluation of Tax Benefits. Based on our conclusion that
substantially more than half of the material tax benefits of the
Partnership, in terms of their financial impact on a typical
Participant, more likely than not will be realized if challenged by the
IRS, it is our opinion that the tax benefits of the Partnership, in the
aggregate, which are a significant feature of an investment in the
Partnership by a typical original Participant more likely than not will
be realized as contemplated by the Prospectus. Special Counsel intends
that the foregoing "more likely than not" opinion also is a "probably
will" opinion under the standard set forth in ABA Opinion 346. The
discussion in the Prospectus under the caption "TAX ASPECTS," insofar as
it contains statements of federal income tax law, is correct in all
material respects. (See "Tax Aspects" in the Prospectus.)
* * * * * * * * * * * * *
Our opinion is limited to the opinions expressed above. With respect
to some of the matters discussed in this opinion, existing law provides
little guidance. Although our opinions express what we believe a court
would probably conclude if presented with the applicable issues, there
is no assurance that the IRS will not challenge our interpretations or
that such a challenge would not be sustained in the courts and cause
adverse tax consequences to the Participants. It should be noted that
taxpayers bear the burden of proof to support claimed deductions and
opinions of counsel are not binding on the IRS or the courts.
In General
The following is a summary of some of the principal features under
present federal income tax law which will apply to the Partnership and
typical Participants. However, there is no assurance that the present
laws or regulations will not be changed and adversely affect a
Participant. The IRS may challenge the deductions claimed by the
Partnership or a Participant, or the taxable year in which such
deductions are claimed, and no guaranty can be given that any such
challenge would not be upheld if litigated. The practical utility of the
tax aspects of any investment depends largely on the income tax position
of the particular Participant in the year in which items of income,
gain, loss, deduction or credit are properly taken into account in
computing his federal income tax liability. In addition, except as
otherwise noted, different tax considerations may apply to foreign
persons, corporations partnerships, trusts and other prospective
Participants which are not treated as individuals for federal income tax
purposes. EACH PROSPECTIVE PARTICIPANT SHOULD SATISFY HIMSELF AS TO THE
TAX CONSEQUENCES OF PARTICIPATING IN THE PARTNERSHIP BY OBTAINING ADVICE
FROM HIS OWN TAX ADVISOR.
Partnership Classification
For federal income tax purposes, a partnership is not a taxable
entity but rather a conduit through which all items of income, gain,
loss, deduction, credit and tax preference are passed through to the
partners and are required to be reported on their federal income tax
returns for the taxable years in which or with which the partnership's
taxable year ends. I.R.C. 706(a). Thus, the partners, rather than the
partnership, receive any tax deductions and credits, as well as the
income, from the operations engaged in by the partnership. It is the
opinion of Special Counsel that, under currently existing laws, rules
and regulations, all of which are subject to change with or without
retroactive application, the Partnership will be treated as a
partnership for federal income tax purposes and not as an association
taxable as a corporation. Under new regulations a business entity with
two or more members is classified for federal tax purposes as either a
corporation or a partnership. Treas. Reg. 301.7701-2(a). The term
corporation includes a business entity organized under a State statute
which describes the entity as a corporation, body corporate, body
politic, joint-stock company or joint-stock association. Treas. Reg.
301.7701-2(b). The Partnership was formed under the Pennsylvania
Revised Uniform Limited Partnership Act which describes the Partnership
as a "partnership". Consequently, the Partnership is not required to be
classified as a corporation under Treas. Reg. 301.7701-2(b) and will be
automatically classified as a partnership unless it affirmatively elects
to be classified as a corporation. In this regard, the Managing General
Partner has represented that no election for the Partnership to be
classified as a corporation will be filed with the IRS.
Limitations on Passive Activities
Under the passive activity rules, all income of a taxpayer who is
subject to the rules is categorized as: (i) income from passive
activities such as limited partners' interests in a business; (ii)
active income (e.g., salary, bonuses, etc.); or (iii) portfolio income
(e.g., dividends, royalties and interest not derived in the ordinary
course of a trade or business). Losses generated by "passive activities"
can offset only passive income and cannot be applied against active
income or portfolio income.
The passive activity rules apply to individuals, estates, trusts,
closely held C corporations (generally, if five or fewer individuals own
directly or indirectly more than 50% of the stock) and personal service
corporations (other than corporations where the owner-employees together
own less than 10% of the stock). However, a closely held C corporation
(other than a personal service corporation) may use passive losses and
credits to offset taxable income of the company figured without regard
to passive income or loss or portfolio income. Passive activities
include: (i) any trade or business in which the taxpayer does not
materially participate; and (ii) any rental activity, whether or not the
taxpayer materially participates, subject to certain exceptions.
Material participation is defined as involvement in the operations of
the activity on a regular, continuous, and substantial basis. Under the
Partnership Agreement, Limited Partners will not have material
participation in the Partnership and generally will be subject to the
passive activity rules.
A taxpayer who holds a working interest in an oil and gas property
that is burdened with the cost of developing and operating the property
is excepted from the passive activity rules, whether or not he
materially participates in the activity. However, a taxpayer who holds a
working interest directly or indirectly through an entity (e.g., a
limited partnership interest or S corporation shares) which limits the
liability of the taxpayer with respect to such interest is not treated
as owning a working interest. Consequently, the exception is not
available to Limited Partners in the Partnership, but in the opinion of
Special Counsel it is more likely than not that the exception will be
available to Investor General Partners prior to their conversion to
Limited Partners to the extent the Partnership acquires Working
Interests in its Leases, except as noted above. Contractual limitations
on the liability of Investor General Partners under the Partnership
Agreement (e.g. insurance, limited indemnification, etc.) will not
prevent Investor General Partners from claiming deductions under the
working interest exception to the passive activity loss rules.
Overriding royalties, production payments and contract rights to extract
or share in oil and gas profits without liability for a share of
production costs are excluded from the definition of a working interest.
Deductions disallowed by the at-risk limitation on losses under 465
of the Code become subject to the passive loss limitation only if the
taxpayer's at-risk amount increases in future years. A taxpayer's
at-risk amount is reduced by losses allowed under 465 even if the
losses are suspended by the passive loss limitation. (See "- `At Risk'
Limitation For Losses," below.) Similarly, a taxpayer's basis is reduced
by deductions even if the deductions are disallowed under the passive
loss limitation. (See "- Tax Basis of Participants' Interests," below.)
Suspended losses and credits may be carried forward (but not back)
and used to offset future years' passive activity income. A suspended
loss (but not a credit) is allowed in full when the entire interest is
sold to an unrelated third party in a taxable transaction and in part
upon the disposition of substantially all of the passive activity if the
suspended loss as well as current gross income and deductions can be
allocated to the part disposed of with reasonable certainty. Upon such
disposition the excess of suspended losses and any loss from the
activity for the tax year (plus any loss on the sale) over net income or
gain for the tax year from all passive activities (determined without
regard to such losses) is not treated as a passive loss. Capital losses
are limited to the amount of capital gain, plus $3,000 (in the case of
married individuals filing joint returns). I.R.C. 1211. The
capital-loss limit is applied before the determination is made of the
amount of passive losses made available by a disposition. In an
installment sale, passive losses become available in the same ratio that
gain recognized each year bears to the total gain on the sale.
Any suspended losses remaining at a taxpayer's death are allowed as
deductions on his final return, subject to a reduction to the extent the
basis of the property in the hands of the transferee exceeds the
property's adjusted basis immediately prior to the decedent's death. If
a taxpayer makes a gift of his entire interest in a passive activity,
the donee's basis is increased by any suspended losses and no deductions
are allowed. If the interest is later sold at a loss, the donee's basis
is limited to the fair market value on the date the gift was made.
Net losses and credits of a partner from each publicly traded
partnership are suspended and carried forward to be netted against
income from that publicly traded partnership only. In addition, net
losses from other passive activities may not be used to offset net
income from a publicly traded partnership. I.R.C. 469(k)(2) and 7704.
However, it is more likely than not that the Partnership will not be
characterized as a publicly traded partnership under the Code, so long
as no more than 10% of the Units are transferred in any taxable year of
the Partnership (other than in private transactions described in Treas.
Reg. 1.7704-1(e)).
Characterization of the Partnership's Income. Income (e.g., interest)
earned on working capital is treated as portfolio income which cannot be
offset with passive losses by Limited Partners. "Portfolio income"
consists of (i) interest, dividends and royalties (unless earned in the
ordinary course of a trade or business); and (ii) gain or loss not
derived in the ordinary course of a trade or business on the sale of
property that generates portfolio income or is held for investment.
In the opinion of Special Counsel, it is more likely than not that
the Partnership's income from the Leases (excluding income attributable
to investment of working capital), held as Working Interests, together
with gain, if any, from the disposition of such property, will be
characterized as passive income rather than portfolio income with
respect to Limited Partners subject to the passive activity limitations.
Conversion from Investor General Partner to Limited Partner. Investor
General Partner Units will be converted to Limited Partner interests
after substantially all of the Partnership Wells have been drilled and
completed, which is anticipated to be in the late summer of 1998.
Thereafter, each Investor General Partner will be deemed a Limited
Partner in the Partnership and will enjoy the limited liability provided
to limited partners under the Revised Uniform Limited Partnership Act of
Pennsylvania with respect to his interest in the Partnership's oil and
gas properties. Concurrently, the Investor General Partner will lose the
availability of the working interest exception to the passive activity
limitations. Except as provided below, an Investor General Partner's
conversion of his Partnership interest into a Limited Partner interest
should not have adverse tax consequences unless the Investor General
Partner's share of any Partnership liabilities is reduced as a result of
the conversion. Rev. Rul. 84-52, 1984-1 C.B. 157 and Prop. Reg.
1.1254-2. A reduction in a partner's share of liabilities is treated as
a constructive distribution of cash to such partner, which reduces the
basis of the partner's interest in the partnership and is taxable to the
extent it exceeds such basis. In addition, if a taxpayer has a loss for
a taxable year from a working interest in an oil and gas property which
is treated as a loss which is not from a passive activity, then any net
income from such property for any succeeding taxable year will be
treated as income of the taxpayer which is not from a passive activity.
Consequently, if an Investor General Partner has a non-passive loss in
1997 with respect to the Partnership's Working Interests in the Leases,
which is anticipated, any net income from a Partnership Well allocable
to such Investor General Partner in any subsequent taxable year (even
though he may then be a Limited Partner) will be characterized as
non-passive income which cannot be offset with passive losses. For this
purpose the Partnership's Wells will be deemed to include any property
the value of which is directly enhanced by any drilling, logging, or
other activities any part of the costs of which were borne by the
Investor General Partners as a result of holding the Working Interests
in the Wells (and any property the basis of which is determined in whole
or in part by reference to the basis of the property receiving the
increase in value).
Taxable Year
The Partnership intends to adopt a calendar year taxable year. I.R.C.
706(b). The taxable year of the Partnership is important to a
prospective Participant because the Partnership's deductions, income and
other items of tax significance must be taken into account in computing
the Participant's taxable income for his taxable year within or with
which the Partnership's taxable year ends. The tax year of a partnership
generally must be the tax year of one or more of its partners who have
an aggregate interest in partnership profits and capital of greater than
50%.
1997 Expenditures
It is anticipated that all of the Partnership's subscription proceeds
will be expended in 1997 and that the income and deductions generated
pursuant thereto will be reflected on the Participants' federal income
tax returns for that period. (See "Capitalization and Source of Funds
and Use of Proceeds" and "Participation in Costs and Revenues" in the
Prospectus.) Depending primarily on when the Partnership Subscription is
received, it is anticipated that the Partnership will prepay in 1997
most, if not all, of its intangible drilling and development costs for
wells the drilling of which will be commenced in 1998. The deductibility
in 1997 of such advance payments cannot be guaranteed. (See "- Drilling
Contracts", below.)
Availability of Certain Deductions
The ordinary and necessary expenses of carrying on any trade or
business, including a reasonable allowance for salaries or other
compensation for personal services actually rendered, are deductible in
the year incurred. The tests for deductibility in the case of
compensation payments are whether the payments are: (i) reasonable; and
(ii) purely for services actually rendered. Treasury Regulation
1.162-7(b)(3) provides that reasonable compensation is only such amount
as would ordinarily be paid for like services by like enterprises under
like circumstances. The Managing General Partner has represented to
counsel that the amounts payable to the Managing General Partner and its
Affiliates, including the amounts paid to Atlas or its Affiliates as
general drilling contractor, are the amounts which would ordinarily be
paid for similar services in similar transactions. (See "- Drilling
Contracts," below.)
The fees paid to the Managing General Partner and its Affiliates will
not be currently deductible to the extent it is determined that they are
in excess of reasonable compensation, are properly characterized as
organization or syndication fees, other capital costs such as the
acquisition cost of the Leases, or not "ordinary and necessary" business
expenses, or the services were rendered in tax years other than the tax
year in which such fees were deducted by the Partnership. (See "
Partnership Organization and Syndication Fees," below.) In the event of
an audit, payments to the Managing General Partner and its Affiliates by
the Partnership will be scrutinized by the IRS to a greater extent than
payments to an unrelated party.
Intangible Drilling and Development Costs
Assuming a proper election and subject to the passive activity loss
rules in the case of Limited Partners, each Participant will be entitled
to deduct his share of intangible drilling and development costs which
include items which do not have salvage value, such as labor, fuel,
repairs, supplies and hauling necessary to the drilling of a well.
Treas. Reg. 1.612-4(a). (See "Participation in Costs and Revenues" in
the Prospectus and "- Limitations on Passive Activities," above.) Such
costs generally will be subject to ordinary income recapture if a
property is sold at a gain and the amount to be recaptured is not
reduced by the amount of additional depletion that could have been
claimed if such costs had been capitalized and amortized. (See "- Sale
of the Properties," below.) Also, productive-well intangible drilling
and development costs may subject a Participant to an alternative
minimum tax in excess of regular tax unless an election is made to
deduct them on a straight-line basis over a 60 month period. (See "
Minimum Tax - Tax Preferences," below.)
In the preparation of the Partnership's informational tax returns,
Atlas will allocate Partnership costs paid by Atlas and the Participants
among Intangible Drilling Costs, Tangible Costs, Direct Costs,
Administrative Costs, Organization and Offering Costs and Operating
Costs based upon guidance from advisors to Atlas. Atlas has allocated
approximately 77% of the footage price paid by the Partnership for a
completed well in the Appalachian Basin to intangible drilling and
development costs ("Intangible Drilling Costs") which are charged 100%
to the Participants under the Partnership Agreement. The IRS could
challenge the characterization of costs claimed by Atlas to be
deductible intangible drilling and development costs and recharacterize
such costs as some other item which may be non-deductible however, this
would have no effect on the allocation and payment of such costs under
the Partnership Agreement. Where a Lease is acquired subject to an
obligation to pay an excessive drilling price, such excess amounts may
not qualify as deductible intangible drilling and development costs but
may be treated as Lease acquisition costs or some other non-deductible
expense.
In the case of corporations, other than S corporations, which are
"integrated oil companies," the amount allowable as a deduction for
intangible drilling and development costs in any taxable year under
263(c) of the Code is reduced by 30%. I.R.C. 291(b)(1). Integrated oil
companies are (i) those taxpayers who directly or through a related
person engage in the retail sale of oil or gas and whose gross receipts
for the calendar year from such activities exceed $5,000,000, or (ii)
those taxpayers and related persons who have refinery production in
excess of 50,000 barrels on any day during the taxable year. For these
purposes, two persons are "related" if either has a 5% interest in the
other or a third person has a 5% interest in both, determined under
special ownership attribution rules. Amounts disallowed as a current
deduction are allowable as a deduction ratably over the 60-month period
beginning with the month in which the costs are paid or incurred. The
portion of the adjusted basis of any property attributable to intangible
drilling and development costs disallowed under 291(b)(1) of the Code
cannot be taken into account to determine depletion under 611. Any
deductions of intangible drilling and development costs over the
60-month period will be subject to recapture.
Drilling Contracts
The Partnership will enter into the Drilling and Operating Agreement
with Atlas or its Affiliates, as a third-party general drilling
contractor, to drill and complete the Partnership's Development Wells on
a footage basis of $37.39 per foot for each well that is drilled and
completed in the Appalachian Basin, and at a competitive rate for wells,
if any, drilled in other areas of the United States. Under the footage
drilling contracts for wells situated in the Mercer County area of the
Appalachian Basin, Atlas anticipates that it will have reimbursement of
general and administrative overhead of $3,600 per well and a profit of
approximately 15% per well assuming the well is drilled to 6,150 feet.
However, the actual cost of the drilling of the wells may be more or
less than the estimated amount, due primarily to the uncertain nature of
drilling operations. Atlas believes the Drilling and Operating Agreement
is at competitive rates in the proposed areas of operation.
Nevertheless, the amount of the profit realized by Atlas under the
drilling contract, if any, could be challenged by the IRS as
unreasonable and disallowed as a deductible intangible drilling and
development cost. (See "- Intangible Drilling and Development Costs",
above, and "Proposed Activities" and "Compensation" in the Prospectus.)
Depending primarily on when the Partnership Subscription is received,
it is anticipated that the Partnership will prepay in 1997 most, if not
all, of the intangible drilling and development costs for drilling
activities that will be conducted in 1998. In Keller v. Commissioner, 79
T.C. 7 (1982), aff'd 725 F.2d 1173 (8th Cir. 1984), the Tax Court
applied a two-part test for the current deductibility of prepaid
intangible drilling and development costs: (1) the expenditure must be a
payment rather than a refundable deposit; and (2) the deduction must not
result in a material distortion of income taking into substantial
consideration the business purpose aspects of the transaction. The
drilling partnership in Keller entered into footage and daywork drilling
contracts which permitted it to terminate the contracts at any time
without default by the driller, and receive a return of the prepaid
amounts less amounts earned by the driller. The Tax Court found that the
right to receive, by unilateral action, a refund of the prepayments on
such footage and daywork drilling contracts rendered such prepayments
deposits instead of payments. Therefore, the prepayments were held to be
nondeductible in the year they were paid to the extent they had not been
earned by the driller. The Tax Court further found that the drilling
partnership failed to show a convincing business purpose for prepayments
under the footage and daywork drilling contracts.
The drilling partnership in Keller also entered into turnkey drilling
contracts which permitted it to stop work under the contract at any time
and apply the unearned balance of the prepaid amounts to another well to
be drilled on a turnkey basis. The Tax Court found that such prepayments
constituted "payments" and not nondeductible deposits, despite the right
of substitution. Further, the Tax Court noted that the turnkey drilling
contracts obligated "the driller to drill to the contract depth for a
stated price regardless of the time, materials or expenses required to
drill the well," thereby locking in prices and shifting the risks of
drilling from the drilling partnership to the driller. Since the
drilling partnership, a cash basis taxpayer, received the benefit of the
turnkey obligation in the year of prepayment, the Tax Court found that
the amounts prepaid on turnkey drilling contracts clearly reflected
income and were deductible in the year of prepayment.
In Leonard T. Ruth, TC Memo 1983-586, a drilling program entered into
nine separate turnkey contracts with a general contractor (the parent
corporation of the drilling program's corporate general partner), to
drill nine program wells. Each contract identified the prospect to be
drilled, stated the turnkey price, and required the full price to be
paid in 1974. The program paid the full turnkey price to the general
contractor on December 31, 1974; the receipt of which was found by the
court to be significant in the general contractor's financial planning.
The program had no right to receive a refund of any of such payments.
The actual drilling of the nine wells was subcontracted by the
general contractor to independent contractors who were paid by the
general contractor in accordance with their individual contracts. The
drilling of all wells commenced in 1975 and all wells were completed
that year. The amount paid by the general contractor to the independent
driller for its work on the nine wells was approximately $365,000 less
than the amount prepaid by the program to the general contractor.
The program claimed a deduction for intangible drilling and
development costs in 1974. The IRS challenged the timing of the
deduction, contending that there was no business purpose for the
payments in 1974, that the turnkey arrangements were merely "contracts
of convenience" designed to create a tax deduction in 1974, and that the
turnkey contracts constituted assets having a life beyond the taxable
year and that to allow a deduction for their entire costs in 1974
distorted income.
The Tax Court, relying on Keller, held that the program could deduct
the full amount of the payments in 1974. The court found that the
program entered into turnkey contracts, paid a premium to secure the
turnkey obligations, and thereby locked in the drilling price and
shifted the risks of drilling to the general contractor. Further, the
court found that by signing and paying the turnkey obligation, the
program got its bargained-for benefit in 1974, therefore the deduction
of the payments in 1974 clearly reflected income.
The Partnership will attempt to comply with the guidelines set forth
in Keller with respect to prepaid intangible drilling and development
costs. The Drilling and Operating Agreement will require the Partnership
to prepay in 1997 intangible drilling and development costs for
specified wells the drilling of which will be commenced in 1998.
Although the Partnership is not required to prepay completion costs of a
well prior to the time a decision has been made to complete the well, it
is anticipated that all Partnership Wells will be required to be
completed before an evaluation can be made as to their potential
productivity. Prepayments should not result in a loss of current
deductibility where there is a legitimate business purpose for the
required prepayment, the contract is not merely a sham to control the
timing of the deduction and there is an enforceable contract of economic
substance. The Drilling and Operating Agreement will require the
Partnership to prepay the intangible drilling and development costs of
the wells in order to enable the Operator to commence site preparation
for the wells, obtain suitable subcontractors at the then current prices
and insure the availability of equipment and materials. Under the
Drilling and Operating Agreement excess prepaid amounts, if any, will
not be refundable to the Partnership but will be applied to intangible
drilling and development costs to be incurred in drilling substitute
wells. Under Keller, such a provision for substitute wells should not
result in the prepayments being characterized as refundable deposits.
The likelihood that prepayments will be challenged by the IRS on the
grounds that there is no business purpose for the prepayment is
increased in the event prepayments are not required with respect to 100%
of the Working Interest. It is possible that less than 100% of the
Working Interest will be acquired by the Partnership in one or more
wells and prepayments may not be required of all holders of the Working
Interest. However, in the view of Special Counsel, a legitimate business
purpose for the required prepayments may exist under the guidelines set
forth in Keller, even though prepayment is not required, or actually
received, by the drilling contractor with respect to a portion of the
Working Interest.
In addition to the foregoing, a current deduction for prepaid
intangible drilling and development costs is available only if the
drilling of the wells is commenced before the close of the 90th day
after the close of the taxable year. The Managing General Partner will
attempt to cause prepaid Partnership Wells to be Spudded on or before
March 31, 1998. However, the Spudding of any Partnership Well may be
delayed due to circumstances beyond the control of the Partnership or
the drilling contractor. Such circumstances include the unavailability
of drilling rigs, weather conditions, inability to obtain drilling
permits or access right to the drilling site, or title problems. Due to
the foregoing factors no guaranty can be given that all prepaid
Partnership Wells required by the Drilling and Operating Agreement to be
Spudded on or before March 31, 1998, will actually be commenced by such
date. In that event, deductions claimed in 1997 for prepaid intangible
drilling and development costs would be disallowed and deferred to the
1998 taxable year.
No assurance can be given that on audit the IRS would not disallow
the current deductibility of a portion or all of any prepayments of
intangible drilling and development costs under the Partnership's
drilling contracts, thereby decreasing the amount of deductions
allocable to the Participants for the current taxable year, or that such
a challenge would not ultimately be sustained. In the event of
disallowance, the deduction would be available in the year the work is
actually performed.
Depletion Allowance
The Partnership intends to own an economic interest in all
Partnership Wells that produce gas or oil. Proceeds from the sale of oil
and gas production will constitute ordinary income. A certain portion of
such income will not be taxable by virtue of the depletion allowance
which permits the deduction from gross income for federal income tax
purposes of either the percentage depletion allowance or the cost
depletion allowance, whichever is greater. Accordingly, each Participant
will be entitled to take into account on his own federal income tax
return his share of allowable depletion as computed at the individual
partner level, rather than the partnership level.
Cost depletion for any year is determined by dividing the adjusted
tax basis for the property by the total units of gas or oil expected to
be recoverable therefrom and then multiplying the resultant quotient by
the number of units actually sold during the year. Cost depletion cannot
exceed the adjusted tax basis of the property to which it relates.
Percentage depletion generally is available to taxpayers other than
integrated oil companies. (See "- Intangible Drilling and Development
Costs.") Percentage depletion generally is based on the Participant's
share of gross income from the oil and gas producing property.
Generally, percentage depletion is available with respect to 6 million
cubic feet of average daily production of natural gas or 1,000 barrels
of average daily production of domestic crude oil. Taxpayers who have
both oil and gas production may allocate the production limitation
between such production. The rate of percentage depletion is 15%.
However, percentage depletion for marginal production increases 1% (up
to a maximum increase of 10%) for each whole dollar that the domestic
wellhead price of crude oil for the immediately preceding year is less
than $20 per barrel (without adjustment for inflation). The term
"marginal production" includes oil and gas produced from a domestic
stripper well property, which is defined as any property which produces
a daily average of 15 or less equivalent barrels of oil (90 MCF of
natural gas) per producing well on the property in the calendar year.
The rate of percentage depletion for marginal production presently is
16%. (See the model decline curve included in the United Energy
Development Consultants, Inc. Geological Report in "Proposed Activities
- - Information Regarding Currently Proposed Prospects" in the
Prospectus.)
Percentage depletion may not exceed 100% of the taxable income from
each oil and gas property before the deduction for depletion and is
limited to 65% of the taxpayer's taxable income for a year computed
without regard to percentage depletion, net operating loss carrybacks
and capital loss carrybacks.
On disposition of an oil and gas property there is recapture of the
lesser of: (i) the amounts that were deducted under 263 of the Code as
intangible drilling and development costs rather than added to basis,
plus depletion deductions that reduced the basis of the property; or
(ii) the amount realized in the case of a sale, exchange or involuntary
conversion or fair market value in all other cases, minus the property's
adjusted basis. Furthermore, the amount of recapturable intangible
drilling and development costs is not reduced by the amount by which
depletion would have been increased if the expensed intangible drilling
and development costs had been capitalized.
Availability of the percentage depletion allowance and limitations
thereon must be computed separately for each Participant and not by the
Partnership, or for Participants as a whole. Potential Participants are
urged to consult their own tax advisors with respect to the availability
of the percentage depletion allowance to them.
Depreciation - Accelerated Cost Recovery System
Tangible Costs and the related depreciation deductions are allocated
and charged under the Partnership Agreement 14% to the Managing General
Partner and 86% to the Participants. Most equipment placed in service
by the Partnership will be classified as "7-year" property and the cost
of such property generally will be recovered over a seven year cost
recovery period. I.R.C. 168(c). The depreciation method for property in
the 7-year class is 200% declining balance, with a switch to
straight-line to maximize the deduction. All property assigned to the
7-year class is treated as placed in service (or disposed of) in the
middle of the year and in the case of a short tax year the ACRS
deduction is prorated on a 12-month basis. The half-year convention
effectively adds another year onto the cost-recovery period.
No distinction is made between new and used property and salvage
value is disregarded. Component depreciation is prohibited and an
alternative depreciation system is used to compute the depreciation
preference subject to the alternative minimum tax (using the 150%
declining balance method, switching to straight-line, for most personal
property). (See "- Minimum Tax - Tax Preferences," below.) All gain on a
disposition of tangible personal property is treated as ordinary income
to the extent of ACRS deductions claimed by the taxpayer and deductions
allowed under 179 (expensing) are treated as depreciation deductions
for recapture purposes. As under prior law (unless otherwise provided by
regulations), the full amount of proceeds realized on a disposition of
property from a mass asset account is treated as ordinary income (with
no reduction for basis), however, no reduction is made in the
depreciable basis remaining in the account. Cost recovery deductions
allocable to the Participants in a taxable year may be reduced under
certain circumstances to the extent foreign persons or tax-exempt
entities subscribe to the Partnership.
Section 179 provides an election to expense a portion of the cost of
certain tangible personal property in the year such property is placed
in service. The amount allowable as a deduction in 1997 is $18,000.
However, the deductible amount is reduced dollar-for-dollar by the cost
of qualifying property in excess of $200,000 and the amount expensed
cannot exceed the taxable income derived from the active conduct by the
taxpayer of the trade or business in which the property is used. These
limitations are applied at both the partnership and the partner level.
I.R.C. 179(d)(8). Any excess expensed amount is carried forward. If
this special election to expense is made, the basis of the property used
to compute cost recovery deductions is reduced by the amount expensed
and is subject to recapture if the property is not used predominately in
a trade or business at any time. I.R.C. 179.
Leasehold Costs and Abandonment
The costs of acquiring oil and gas Lease interests, together with the
related cost depletion deduction and any abandonment loss, are allocated
under the Partnership Agreement 100% to Atlas, which will contribute the
Leases to the Partnership as a part of its Capital Contribution.
Tax Basis of Participants' Interests
The adjusted basis for federal income tax purposes of a Participant's
interest in the Partnership will be adjusted (but not below zero) for
any gain or loss to the Participant from a disposition by the
Partnership of an oil or gas property, and will be increased by: (i) his
cash subscription payment and any additional Capital Contributions paid
in cash to the Partnership, (ii) his share of any nonrecourse debt of
the Partnership, (iii) his share of any recourse debt of the
Partnership, (iv) his share of the taxable income of the Partnership;
and (v) his share of tax exempt income of the Partnership. (See
"Partnership Borrowings," below.)
The adjusted basis of a Participant's interest in the Partnership
will be reduced by: (i) his share of Partnership losses; (ii) his share
of Partnership expenditures that are not deductible in computing its
taxable income and are not properly chargeable to capital account; (iii)
his deduction for depletion for any partnership oil and gas property
(but not below zero); and (iv) cash distributions from the Partnership
to him. The reduction in a Participant's share of recourse or
nonrecourse liabilities is considered a cash distribution. Should cash
distributions exceed the tax basis of the Participant's interest in the
Partnership, taxable gain would result to the extent of the excess. (See
"- Distributions From a Partnership," below.)
A Participant's distributive share of Partnership loss is allowable
only to the extent of the adjusted basis of such Participant's interest
in the Partnership at the end of the Partnership's taxable year.
Participants will not be personally liable on any Partnership loans;
however, Investor General Partners will be liable for other obligations
of the Partnership. (See "Risk Factors - Special Risks of the
Partnership - Unlimited Liability of Investor General Partners" in the
Prospectus.)
Distributions From a Partnership
Generally, a cash distribution from a partnership to a partner in
excess of the adjusted basis of such partner's interest in the
partnership immediately before the distribution is treated as gain from
the sale or exchange of his interest in the partnership to the extent of
the excess. I.R.C. 731(a)(1). No loss is recognized by the partners on
these types of distributions. I.R.C. 731(a)(2). No gain or loss is
recognized by the Partnership on these types of distributions. I.R.C.
731(b). If property is distributed by the Partnership to the Managing
General Partner and the Participants, certain basis adjustments may be
made by the Partnership, the Managing General Partner and the
Participants. [Partnership Agreement, 5.04(d).] I.R.C. 732, 733, 734,
and 754. Other distributions of cash, disproportionate distributions of
property, and liquidating distributions may result in taxable gain
or loss. (See "- Disposition of Partnership Interests" and "-
Termination of a Partnership," below.)
Sale of the Properties
Under current law, a noncorporate taxpayer's ordinary income is taxed
at a maximum rate of 39.6% but net capital gains of a noncorporate
taxpayer are taxed at a maximum rate of 28%. The annual capital loss
limitation for noncorporate taxpayers is the amount of capital gains
plus the lesser of $3,000 ($1,500 for married persons filing separate
returns) or the excess of capital losses over capital gains. Long-term
losses (like short-term losses) offset ordinary income on a one-for-one
basis. Section 1231 gain continues to be computed separately from
long-term gain.
Gains and losses from sales of oil and gas properties held for more
than twelve months and not held primarily for sale to customers would
be, except to the extent of depreciation recapture on equipment and
recapture of any intangible drilling and development costs, depletion
deductions and certain 1231 losses, gains and losses described in 1231
of the Code (in general, from sales or exchanges of real or depreciable
property used in a trade or business). A Participant's net 1231 gain
will be treated as a long-term capital gain while a net loss will be an
ordinary deduction. However, ordinary income will result to the extent
the net 1231 gain for any taxable year does not exceed the excess of
the aggregate amount of the net 1231 losses for the five most recent
preceding taxable years over the portion of such losses taken into
account in determining the portion of net 1231 gain to be treated as
ordinary income for such preceding taxable years. I.R.C. 1231(c). Other
gains and losses on sales of oil and gas properties will generally
result in ordinary gains or losses.
Intangible drilling and development costs that are incurred in
connection with an oil and gas property may be recaptured as ordinary
income when the property is disposed of by the Partnership. Generally,
the amount recaptured is the lesser of:
(1) the aggregate amount of expenditures which have been deducted
as intangible drilling and development costs with respect to the
property and which (but for being deducted) would be reflected
in the adjusted basis of the property; or
(2) the excess of (i) the amount realized (in the case of a sale,
exchange or involuntary conversion); or (ii) the fair market
value of the interest (in the case of any other disposition)
over the adjusted basis of the property. I.R.C. 1254(a).
In addition, the deductions for depletion which reduced the adjusted
basis of the property are subject to recapture as ordinary income.
Disposition of Partnership Interests
The sale or exchange of all or part of a Participant's interest in
the Partnership held by him for more than twelve months will generally
result in a recognition of long-term capital gain or loss except to the
extent of ordinary income or loss, if any, from Partnership 751 assets
(which consist of unrealized receivables or substantially appreciated
inventory). I.R.C. 751. In the event the interest is held for twelve
months or less, such gain or loss will generally be short-term gain or
loss. A portion of any gain recognized by a Limited Partner on the sale
or other disposition of his interest in the Partnership will also be
characterized as portfolio income under 469 to the extent the gain is
itself attributable to portfolio income (e.g. interest on investment of
working capital). The recapturable portions of depreciation, depletion
and intangible drilling and development costs constitute unrealized
receivables. A Participant's pro rata share of the Partnership's
nonrecourse liabilities, if any, as of the date of the sale or exchange
must be included in the amount realized. Therefore, the gain recognized
may result in a tax liability greater than the cash proceeds, if any,
from such disposition. A gift of an interest in the Partnership may
result in federal and/or state income tax and gift tax liability of the
donor.
A Participant who sells or exchanges all or part of his interest in
the Partnership is required by the Code to notify the Partnership within
30 days or by January 15 of the following year, if earlier. I.R.C.
6050K. After receiving such notice, the Partnership is required to make
a return with the IRS stating the name and address of the transferor and
the transferee and such other information as may be required by the IRS.
The Partnership must also provide each person whose name is set forth in
the return a written statement showing the information set forth on the
return with respect to such person.
If a partner sells or exchanges his entire interest in a partnership,
the taxable year of the partnership will close with respect to such
partner (but not the remaining partners) on the date of sale or
exchange, with a proration of partnership items for the partnership's
taxable year. If a partner sells less than his entire interest in a
partnership, the partnership year will not terminate with respect to the
selling partner, but his proportionate share of items of income, gain,
loss, deduction and credit will be determined by taking into account his
varying interests in the partnership during the taxable year. Deductions
or credits generally may not be allocated to a partner acquiring an
interest from a selling partner for a period prior to the purchaser's
admission to the partnership. I.R.C. 706(d).
Other dispositions of a Participant's interest, including a
repurchase of the interest by Atlas, may or may not result in
recognition of taxable gain. Interests in different partnerships do not
qualify for tax-free like-kind exchanges. I.R.C. 1031(a)(2)(D).
However, no gain should be recognized by an Investor General Partner
whose interest in the Partnership is converted to a Limited Partner
interest so long as there is no change in his share of the Partnership's
liabilities or 751 assets as a result of the conversion. Rev. Rul.
84-52, 1984-1 C.B. 157. No disposition of an interest in the Partnership
(including repurchase of the interest by Atlas) should be made by any
Participant prior to consultation with his tax advisor.
Minimum Tax - Tax Preferences
For taxpayers other than integrated oil companies (see "- Intangible
Drilling and Development Costs"), the 1992 National Energy Bill repealed
(1) the preference for excess intangible drilling and development costs
and (2) the excess percentage depletion preference for oil and gas. The
repeal of the excess intangible drilling and development costs
preference, however, may not result in more than a 40% reduction in the
amount of the taxpayer's alternative minimum taxable income computed as
if the excess intangible drilling and development costs preference had
not been repealed. These rules are summarized below.
The alternative minimum tax is intended to insure that no one with
substantial income can avoid tax liability by using deductions and
credits, including the deductions for intangible drilling and
development costs and accelerated depreciation. The alternative minimum
tax rate for individuals is 26% on alternative minimum taxable income up
to $175,000 ($87,500 for married individuals filing separate returns)
and 28% thereafter. Individual tax preferences may include, but are not
limited to: accelerated depreciation, intangible drilling and
development costs, incentive stock options and passive activity losses.
The exemption amount is $45,000 for married couples filing jointly and
surviving spouses, $33,750 for single filers, and $22,500 for married
persons filing separately, estates and trusts. These exemption amounts
are reduced by 25% of the alternative minimum taxable income in excess
of (1) $150,000 for joint returns and surviving spouses; (2) $75,000 for
estates, trusts and married persons filing separately, and (3) $112,500
for single taxpayers. Married individuals filing separately must
increase alternative minimum taxable income by the lesser of: (i) 25% of
the excess of alternative minimum taxable income over $165,000; or (ii)
$22,500. Regular tax personal exemptions are not available for purposes
of the alternative minimum tax.
The only itemized deductions allowed for minimum tax purposes are
those for casualty and theft losses, gambling losses to the extent of
gambling gains, charitable deductions, medical deductions (to the extent
in excess of 10% of adjusted gross income), interest expenses
(restricted to qualified housing interest as defined in 56(e) of the
Code and investment interest expense not exceeding net investment
income), and certain estate taxes. The net operating loss for
alternative minimum tax purposes generally is the same as for regular
tax purposes, except: (i) current year tax preference items are added
back to taxable income, and (ii) individuals may use only those itemized
deductions (as modified under 172(d)) allowable in computing
alternative minimum taxable income. Code sections suspending losses,
such as 465 and 704(d), are recomputed for minimum tax purposes and
the amount of the deductions suspended or recaptured may differ for
regular and minimum tax purposes.
Under the prior rules, the amount of intangible drilling and
development costs which is not deductible for alternative minimum tax
purposes is the excess of the "excess intangible drilling costs" over
65% of net income from oil and gas properties. Net oil and gas income is
determined for this purpose without subtracting excess intangible
drilling and development costs. Excess intangible drilling and
development costs is the regular intangible drilling and development
costs deduction minus the amount that would have been deducted under 120
month straight-line amortization, or (at the taxpayer's election) under
the cost depletion method. There is no preference for costs of
nonproductive wells and the preference for intangible drilling and
development costs for productive wells is computed separately for each
property. Taxpayers can elect to amortize the year's intangible drilling
and development costs for productive wells ratably over a 60 month
period for all tax purposes and then such costs are not treated as an
item of tax preference. The passive loss disallowance is determined
after all preferences ad adjustments have been computed, so the
suspended loss amount may be different for minimum and regular tax
purposes. I.R.C. 58(b).
The likelihood of a Participant incurring, or increasing, any minimum
tax liability by virtue of an investment in the Partnership, and the
impact of such liability on his personal tax situation, must be
determined on an individual basis, and requires consultation by a
prospective Participant with his personal tax advisor.
Limitations on Deduction of Investment Interest
Investment interest is deductible by a noncorporate taxpayer only to
the extent of net investment income each year (with an indefinite
carryforward of disallowed investment interest). I.R.C. 163. Interest
subject to the limitation generally includes all interest (except
consumer interest and qualified residence interest) on debt not incurred
in a person's active trade or business, provided the activity is not a
"passive activity" under the passive loss rule. Accordingly, an Investor
General Partner's allocable share of any interest expense incurred by
the Partnership, will be subject to the investment interest limitation.
In addition, an Investor General Partner's income and losses (including
intangible drilling and development costs) from the Partnership will be
considered investment income and losses for purposes of this limitation.
Losses allocable to an Investor General Partner will reduce his net
investment income and may affect the deductibility of his investment
interest expense, if any.
Net investment income is the excess of investment income over
investment expenses. Investment income includes: gross income from
interest, dividends, rents, and royalties; portfolio income under the
passive activity rules (which includes working capital investment income
and possibly royalty income of the Partnership, if any, in the case of
Limited Partners); and income from a trade or business in which the
taxpayer does not materially participate if the activity is not a
"passive activity" under the passive loss rule (which includes the
Partnership, at least prior to the conversion of Investor General
Partner Units to Limited Partner interests, in the case of Investor
General Partners). Gain from the disposition of investment property
generally is not included unless the taxpayer elects to reduce the
amount of net capital gain that qualifies for the 28% ceiling.
Investment expenses include deductions (other than interest) that are
directly connected with the production of net investment income
(including actual depreciation or depletion deductions allowable). No
item of income or expense subject to the passive activity loss rules of
469 of the Code is treated as investment income or investment expense.
In determining deductible investment expenses, investment expenses
are subject to a rule limiting deductions for miscellaneous expenses to
those exceeding 2% of adjusted gross income, however, expenses that are
not investment expenses are intended to be disallowed before any
investment expenses are disallowed.
Allocations
The Partnership Agreement allocates to each Partner his share of the
income, gains, credits and deductions (including the deductions for
intangible drilling and development costs and depreciation) generated by the
Partnership. Allocations of certain items are made in ratios that are
different than allocations of other items. (See "Participation in Costs
and Revenues" in the Prospectus.) The Capital Accounts of the Partners
are adjusted to reflect such allocations and the Capital Accounts, as
adjusted, will be given effect in distributions made to the Partners upon
liquidation of the Partnership or any Partner's interest in the
Partnership. Generally, the basis of oil and gas properties owned by the
Partnership for computation of cost depletion and gain or loss on
disposition will be allocated and reallocated when necessary in the
ratio in which the expenditure giving rise to the tax basis of each
property was charged as of the end of the year. [Partnership Agreement,
5.03(b).]
Special allocations (those made in a manner that is disproportionate to
the respective interests of the partners in a partnership), among
partners of any item of partnership income, gain, loss, deduction or
credit will not be given effect unless the special allocation has
"substantial economic effect." I.R.C. 704(b). An allocation generally
will have economic effect if throughout the term of the partnership:
(1) the partners' capital accounts are maintained in accordance
with rules set forth in the regulations (generally, tax
accounting principles);
(2) liquidation proceeds are distributed in accordance with the
partners' capital accounts; and
(3) any partner with a deficit balance in his capital account
following the liquidation of his interest in the partnership is
required to restore the amount of the deficit for distribution to
partners with positive capital account balances or to be paid to
creditors.
Generally, a Participant's Capital Account is increased by the amount of
money he contributes to the Partnership and allocations to him of income and
gain, and decreased by the value of property or cash distributed to him
and allocations to him of loss and deductions. The regulations also require
that there must be a reasonable possibility that the allocation will affect
substantially the dollar amounts to be received by the partners from the
partnership, independent of tax consequences.
Although Participants are not required to restore deficit balances in
their Capital Accounts beyond the amount of their agreed Capital
Contributions, an allocation which is not attributable to nonrecourse
debt will be considered to have economic effect to the extent it does not
cause or increase a deficit balance in a Participant's Capital Account,
if requirements (1) and (2) described above are met and the partnership
agreement provides that a partner who unexpectedly incurs a deficit
balance in his Capital Account because of certain adjustments, allocations,
or distributions will be allocated income and gain sufficient to
eliminate such deficit balance as quickly as possible. Treas. Reg. 1.704-
l(b)(2)(ii)(d). (See 5.03(h) of the Partnership Agreement.)
In the event of a sale or transfer of a Partnership Unit or the
admission of an additional Participant, Partnership income, gain, loss,
deductions and credits generally will be allocated among the Partners on a
daily basis according to their varying interests in the Partnership
during the taxable year. In addition, in the discretion of the Managing
General Partner Partnership property may be revalued upon the admission of
additional Participants, or if certain distributions are made to the
Partners, to reflect unrealized income, gain, loss or deduction inherent in
the Partnership's property for purposes of adjusting the Partners' Capital
Accounts. It should be noted that a reduction in a Participant's
interest in the Partnership upon the admission of additional
Participants could be viewed by the IRS as a deemed sale or exchange by
the Participant of his share of "751 assets" under 751 of the Code,
which provides that to the extent a partner receives partnership
property, including money, in exchange for all or part of his interest in
the partnership's unrealized receivables, which includes any intangible
drilling and development costs, depletion and cost recovery deductions
recapture, and inventory items ("751 assets"), the transaction will be
considered a sale or exchange of the property between the partner and
the partnership. In Rev. Rul. 84-102, 1984-2 C.B. 119, the IRS ruled that
upon the admission of a new partner to an existing partnership having both
unrealized receivables and liabilities outstanding, the existing partners
were considered to have received distributions to which 751(b) applies
and were taxable on the gain resulting from such deemed sale.
It should also be noted that each Partner's share of Partnership
items of income, gain, loss, deduction and credit must be taken into
account whether or not there is any distributable cash. A Participant's
share of Partnership revenues applied to the repayment of loans or the
reserve for plugging wells will be included in his gross income in a
manner analogous to an actual distribution of the income to him. Thus, a
Participant may have taxable income from the Partnership for a
particular year in excess of any cash distributions from the Partnership to
him with respect to that year. To the extent the Partnership has cash
available for distribution, however, it is Atlas' policy that
Partnership distributions will not be less than the Participants'
estimated income tax liability with respect to Partnership income.
No assurance can be given that, on audit, the IRS will not take the
position that a portion of the deductions allocable to the Participants is
not allowable to them. If such a position is taken, there can be no
assurance that any resulting deficiency will not ultimately be
sustained. However, assuming the effect of the special allocations set
forth in the Partnership Agreement is substantial in light of a
Participant's tax attributes that are unrelated to the Partnership, in the
opinion of Special Counsel it is more likely than not that such
allocations will have "substantial economic effect" and will govern each
Participant's distributive share of such items to the extent such
allocations do not cause or increase deficit balances in the
Participants' Capital Accounts.
If any allocation under the Partnership Agreement is not recognized
for federal income tax purposes, each Participant's distributive share of
the items subject to such allocation generally will be determined in
accordance with his interest in the Partnership, determined by
considering relevant facts and circumstances. To the extent such
deductions as allocated by the Partnership Agreement, exceed deductions
which would be allowed pursuant to such a reallocation, Participants may
incur a greater tax burden.
"At Risk" Limitation For Losses
Subject to the limitations on "passive losses" generated by the
Partnership in the case of Limited Partners and a Participant's basis in the
Partnership, each Participant may use his share of the Partnership's losses
to offset income from other sources. (See "- Limitations on Passive
Activities" and "- Tax Basis of Participants' Interests," above.)
However, any taxpayer (other than a corporation which is neither an S
corporation nor a corporation in which five or fewer individuals own more
than 50% of the stock) who sustains a loss in connection with his oil and
gas activities may deduct such loss only to the extent of the amount he
has "at risk" in such activities at the end of a taxable
year. In determining whether five or fewer individuals own 50% or more of
the stock of a corporation, the attribution rules of 544 apply. The "at
risk" limitation applies to each activity engaged in and not on an
aggregate basis for all activities. The amount "at risk" is limited to the
amount of money and the adjusted basis of other property the
taxpayer has contributed to the activity, and any amount he has borrowed
with respect thereto for which he is personally liable or with respect to
which he has pledged property other than property used in the
activity; limited, however, to the net fair market value of his
interest in such pledged property. I.R.C. 465(b)(1) and (2). However,
amounts borrowed will not be considered "at risk" if such amounts are
borrowed from any person who has an interest (other than as a creditor) in
such activity or from a related person to a person (other than the
taxpayer) having such an interest.
"Loss" is defined as being the excess of allowable deductions for a
taxable year from an activity over the amount of income actually
received or accrued by the taxpayer during such year from the activity. The
amount the taxpayer has "at risk" may not include the amount of any
loss that the taxpayer is protected against through nonrecourse loans,
guarantees, stop loss agreements, or other similar arrangements. The
amount of any such loss that is disallowed in any taxable year will be
carried over to the first succeeding taxable year, to the extent a
Participant is "at risk." Further, a taxpayer's "at risk" amount in
subsequent taxable years with respect to the activity involved will be
reduced by that portion of the loss which is allowable as a deduction.
Participants' Agreed Subscriptions are funded by a payment of cash
(usually "at risk"). Since income, gains, losses, and distributions of the
Partnership affect the amount considered to be "at risk," the extent to
which a Participant is "at risk" must be determined annually.
Further, conversion from recourse to nonrecourse liability would reduce the
amount "at risk" and could result in taxable income to the
Participant. Previously allowed losses must be recaptured (included in
gross income) when the "at risk" amount is reduced below zero. However, the
amount recaptured is limited by the amount the taxpayer's "at risk"
amount is reduced below zero, with special computations to reflect
previously recaptured losses. The amount included in income under this
recapture provision may be deducted in the first succeeding taxable year to
the extent of any increase in the amount which the Participant has "at
risk."
Partnership Borrowings
Under the Partnership Agreement, the Managing General Partner and its
Affiliates may make loans to the Partnership. The use of Partnership
revenues taxable to Participants to repay Partnership borrowing will
create income tax liability for such Participants in excess of cash
distributions to them, since repayments of principal are not deductible for
federal income tax purposes, and deductions for payment of interest
will be subject to the "investment interest" and "passive loss"
limitations previously discussed. In addition, interest paid (or imputed at
the applicable Federal rate) on such loans will not be deductible unless
such loans are bona fide loans that will not be treated as Capital
Contributions. In Revenue Ruling 72-135, 1972-1 C.B. 200, the IRS ruled
that a nonrecourse loan from a general partner to a limited
partner or to a partnership engaged in oil and gas exploration
represented a capital contribution by the general partner rather than a
loan. Whether a "loan" to the Partnership represents in substance, debt or
equity is a question of fact to be determined from all the
surrounding facts and circumstances. (See Kingbay v. Commissioner, 46
T.C. 147 (1966); Hambuechen v. Commissioner, 43 T.C. 90 (1964).)
Partnership Organization and Syndication Fees
Expenses connected with the issuance and sale of interests in a
partnership (i.e., promotional expense, selling expense, commissions,
professional fees and printing costs) are not deductible. Further,
except for certain expenses, amounts incurred to organize a partnership may
not be claimed as deductions under the partnership provisions of the Code.
However, expenses incident to the creation of a partnership which are
chargeable to capital account and which, if expended in connection with
the creation of a partnership having an ascertainable life, would be
amortized over that period of time, may be deducted and amortized over a
period of not less than 60 months. Such amortizable organization expenses
are charged 100% to the Managing General Partner as part of the
Partnership's Organization and Offering Costs and any related deductions
will be allocated to the Managing General Partner.
Tax Elections
The Code permits partnerships to elect to adjust the basis of
partnership property on the transfer of an interest in a partnership by
sale or exchange or on the death of a partner, and on the distribution of
property by the partnership to a partner (the 754 election). The general
effect of such an election is that transferees of the
partnership interests are treated, for purposes of depreciation and
gain, as though they had acquired a direct interest in the partnership
assets and the partnership is treated for such purposes, upon certain
distributions to partners, as though it had newly acquired an interest in
the partnership assets and therefore acquired a new cost basis for such
assets. Any such election, once made, may not be revoked without the
consent of the IRS. The Partnership Agreement, 5.04(d), provides that
the Partnership may make the 754 election. The Partnership may also
make various elections for federal tax reporting purposes which could
result in various items of income, gain, loss, deduction and credit
being treated differently for tax purposes than for accounting purposes.
Code 195 permits taxpayers to elect to capitalize and amortize
"start-up expenditures" over a 60-month period. Such items include
amounts: (1) paid or incurred in connection with: (i) investigating the
creation or acquisition of an active trade or business, (ii) creating an
active trade or business, or (iii) any activity engaged in for profit and
for the production of income before the day on which the active trade
or business begins, in anticipation of such activity becoming an active
trade or business; and (2) which would be allowed as a deduction if paid
or incurred in connection with the expansion of an existing business.
Start-up expenditures do not include amounts paid or incurred in
connection with the sale of partnership interests. If it is
ultimately determined that any of the Partnership's expenses constituted
start-up expenditures and not deductible expenses under 162, the
Partnership's deductions would be reduced.
Disallowance of Deductions Under Section 183 of the Code
Under 183 of the Code, a Participant's ability to deduct his share of
the Partnership's losses on his federal income tax return could be lost
if the Partnership lacks the appropriate profit motive as
determined from an examination of all facts and circumstances at the
time. Section 183 creates a presumption that an activity is engaged in for
profit, if, in any three of five consecutive taxable years, the gross
income derived from such activity exceeds the deductions
attributable to such activity. Thus, if the Partnership fails to show a
profit in at least three out of five consecutive years, this presumption
will not be available. In that instance, the possibility that the IRS
could successfully challenge the deductions claimed by a Participant
would be substantially increased.
The fact that the possibility of ultimately obtaining profits is
uncertain, standing alone, does not appear to be sufficient grounds for
the denial of losses under 183. (See Treas. Reg. 1.183-2(c), Example
(5).) Based on Atlas' representation that the Partnership will be
conducted as described in the Prospectus, in the opinion of Special
Counsel it is more likely than not that the Partnership will possess the
requisite profit motive.
Termination of a Partnership
Pursuant to 708(b) of the Code, a partnership will be considered as
terminated for federal income tax purposes if within a twelve month
period there is a sale or exchange of 50% or more of the total interest in
partnership capital and profits. The closing of the partnership year may
result in more than twelve months' income or loss of the partnership being
allocated to certain partners for the year of termination (i.e., in the
case of partners using fiscal years other than the calendar year). Under
731 of the Code, a partner will realize taxable gain on a termination of
the partnership to the extent that money regarded as distributed to him
exceeds the adjusted basis of his partnership interest. The conversion
of Investor General Partner Units to Limited Partner interests will not
result in a termination of the Partnership under 708 of the Code. Rev.
Rul. 84-52, 1984-1 C.B. 157.
Lack of Registration as a Tax Shelter
Section 6111 of the Code generally requires an organizer of a "tax
shelter" to register the tax shelter with the Secretary of the Treasury, and
to obtain an identification number which must be included on the tax returns
of investors in such a tax shelter. For purposes of these provisions,
a "tax shelter" is generally defined to include investments with respect to
which any person could reasonably infer that the ratio that (1) the
aggregate amount of the potentially allowable deductions and 350% of the
potentially allowable credits with respect to the investment during the
first five years of the investment bears to (2) the amount of money and
the adjusted basis of property contributed to the investment exceeds 2 to
1. Temporary Regulations promulgated by the IRS provide that the
aggregate amount of gross deductions must be considered and determined
without reduction for gross income derived, or to be derived, from the
investment.
Atlas does not believe that the Partnership will have a tax shelter
ratio greater than 2 to 1. Also, because the purpose of the Partnership is
to locate, produce and market natural gas on an economic basis, Atlas does
not believe that the Partnership will be a "potentially abusive tax
shelter." Accordingly, Atlas does not intend to cause the Partnership to
register with the IRS as a tax shelter.
If it is subsequently determined that the Partnership was required to
be registered with the IRS as a tax shelter, Atlas would be subject to
certain penalties, including a penalty of 1% of the aggregate amount
invested in the Units of the Partnership for failing to register and
$100 for each failure to furnish a Participant a tax shelter
registration number, and each Participant would be liable for a $250
penalty for failure to include the tax shelter registration number on his
tax return, unless such failure was due to reasonable cause. A
Participant also would be liable for a penalty of $100 for failing to
furnish the tax shelter registration number to any transferee of his
interest in the Partnership. However, based on the representations of the
Managing General Partner, Special Counsel has expressed the opinion that
the Partnership, more likely than not, is not required to register with the
IRS as a tax shelter.
Issuance of a registration number does not indicate that an
investment or the claimed tax benefits have been reviewed, examined, or
approved by the IRS.
Investor Lists
Section 6112 of the Code requires that any person who organizes a tax
shelter required to be registered with the IRS or who sells any interest in
such a shelter must maintain a list identifying each person who was sold
an interest in the shelter and setting forth other required
information. For the reasons described above, Atlas does not believe the
Partnership is subject to the requirements of 6112 If this
determination is wrong, 6708 of the Code provides for a penalty of $50 for
each person with respect to whom there is a failure to meet any
requirements of 6112, unless the failure is due to reasonable cause.
Tax Returns and Audits
In General. The tax treatment of all partnership items is generally
determined at the partnership, rather than the partner, level; and the
partners are generally required to treat partnership items on their
individual returns in a manner which is consistent with the treatment of
such partnership items on the partnership return. I.R.C. 6221 and
6222. Regulations define "partnership items" for this purpose as
including distributive share items that must be allocated among the
partners, such as partnership liabilities, data pertaining to the
computation of the depletion allowance, and guaranteed payments. Treas.
Reg. 301.6231(a)(3)-1.
Generally, the IRS must conduct an administrative determination as to
partnership items at the partnership level before conducting deficiency
proceedings against a partner, and the partners must file a request for an
administrative determination before filing suit for any credit or refund.
The period for assessing tax against a Partner attributable to a partnership
item may be extended as to all partners by agreement between the IRS and
Atlas, which will serve as the Partnership's representative ("Tax Matters
Partner") in all administrative and judicial proceedings conducted at the
partnership level. The Tax Matters Partner generally may enter into a
settlement on behalf of, and binding upon, partners owning less than a 1%
profits interest in partnerships having more than 100 partners. By
executing the Partnership Agreement, each Participant agrees that he will
not form or exercise any right as a member of a notice group and will
not file a statement notifying the IRS that the Tax Matters Partner does
not have binding settlement authority.
In the event of an audit of the return of the Partnership, the Tax
Matters Partner, pursuant to advice of counsel, will take all actions
necessary, in its discretion, to preserve the rights of the
Participants. All expenses of such proceedings undertaken by the Tax
Matters Partner, which might be substantial, will be paid for by the
Partnership. The Tax Matters Partner is not obligated to contest
adjustments made by the IRS.
Tax Returns. The preparation and filing of each Participant's federal,
state and local income tax returns are the responsibility of the
Participant. The Partnership will provide each Participant with the tax
information applicable to his investment in the Partnership necessary to
prepare such returns; however, the treatment of the tax attributes of the
Partnership may vary among Participants. The Managing General Partner,
its Affiliates and Special Counsel assume no responsibility for the tax
consequences of this transaction to a Participant, nor for the disallowance
of any proposed deductions. EACH PARTICIPANT IS URGED TO SEEK QUALIFIED,
PROFESSIONAL ASSISTANCE IN THE PREPARATION OF HIS FEDERAL, STATE AND
LOCAL TAX RETURNS.
Penalties and Interest
In General. Interest (based on the applicable Federal short-term rate
plus 3 percentage points) is charged on underpayments of tax and various
civil and criminal penalties are included in the Code.
Penalty for Negligence or Disregard of Rules or Regulations. If any
portion of an underpayment of tax is attributable to negligence or
disregard of rules or regulations, 20% of such portion is added to the
tax. Negligence is strongly indicated if a partner fails to treat
partnership items on his tax return in a manner that is consistent with the
treatment of such items on the partnership's return or to notify the IRS of
the inconsistency. The term "disregard" includes any careless, reckless or
intentional disregard of rules or regulations. There is no penalty,
however, if the position is adequately disclosed, or the position is
taken with reasonable cause and in good faith, or the position has a
realistic possibility of being sustained on its merits. Treas. Reg. 1.6662-
3.
Valuation Misstatement Penalty. There is an addition to tax of 20% of the
amount of any underpayment of tax of $5,000 or more ($10,000 in the case of
corporations other than S corporations or personal holding companies)
which is attributable to a substantial valuation
misstatement. There is a substantial valuation misstatement if the value or
adjusted basis of any property claimed on a return is 200% or more of the
correct amount; or if the price for any property or services (or for the
use of property) claimed on a return is 200% or more (or 50% or less)
of the correct price. If there is a gross valuation misstatement (400% or
more of the correct value or adjusted basis or the
undervaluation is 25% or less of the correct amount) the penalty is 40%.
I.R.C. 6662(e) and (h).
Substantial Understatement Penalty. There is also an addition to tax of
20% of any underpayment if the difference between the tax required to be
shown on the return over the tax actually shown on the return, exceeds
the greater of 10% of the tax required to be shown on the return, or
$5,000 ($10,000 in the case of corporations other than S corporations or
personal holding companies). I.R.C. 6662(d). The
amount of any understatement generally will be reduced to the extent it is
attributable to the tax treatment of an item supported by substantial
authority, or adequately disclosed on the taxpayer's return. However, in the
case of "tax shelters," the understatement may be reduced only if the tax
treatment of an item attributable to a tax shelter was supported by
substantial authority and the taxpayer reasonably believed that the tax
treatment claimed was more likely than not the proper treatment.
Disclosure of partnership items should be made on the Partnership's
return; however, a taxpayer partner also may make adequate disclosure on his
individual return with respect to pass-through items. Section
6662(d)(2)(C) provides that a "tax shelter" is any entity which has as its
principal purpose the avoidance or evasion of federal income tax. Assuming
the Partnership is conducted as set forth in the Prospectus, in the opinion
of Special Counsel it is more likely than not that the Partnership will
not be characterized as a tax shelter for purposes of the substantial
understatement of income tax penalty.
IRS Anti-Abuse Rule. Under Treas. Reg. 1.701-2, if a principal purpose of
a partnership is to reduce substantially the partners' federal income tax
liability in a manner that is inconsistent with the intent of the
partnership rules of the Code, based on all the facts and circumstances, the
IRS is authorized to remedy the abuse. For illustration purposes, the
following factors may indicate that a partnership is being used in a
prohibited manner: (i) the partners' aggregate federal income tax
liability is substantially less than had the partners owned the
partnership's assets and conducted its activities directly; (ii) the
partners' aggregate federal income tax liability is substantially less
than if purportedly separate transactions are treated as steps in a
single transaction; (iii) one or more partners are needed to achieve the
claimed tax results and have a nominal interest in the partnership or are
substantially protected against risk; (iv) substantially all of the partners
are related to each other; (v) income or gain are allocated to partners
who are not expected to have any federal income tax liability; (vi) the
benefits and burdens of ownership of property nominally contributed
to the partnership are related in substantial part by the
contributing party; and (vii) the benefits and burdens of ownership of
partnership property are in substantial part shifted to the distributee
partners before or after the property is actually distributed to the
distributee partners. Based on the Managing General Partner's
representation that the Partnership will be conducted as described in the
Prospectus, in the opinion of Special Counsel it is more likely than not
that the Partnership will not be subject to the anti-abuse rule set forth in
Treas. Reg. 1.701-2.
State and Local Taxes
The Partnership will operate in states and localities which impose a tax
on its assets or its income, or on each Participant. Deductions which
are available to Participants for federal income tax purposes may not be
available for state or local income tax purposes. A Participant's
distributive share of the net income or net loss of the Partnership
generally will be required to be included in determining his reportable
income for state or local tax purposes in the jurisdiction in which he is
a resident. To the extent that a non-resident Participant pays tax to a
state by virtue of Partnership operations within that state, he may be
entitled to a deduction or credit against tax owed to his state of
residence with respect to the same income. To the extent that the
Partnership operates in certain jurisdictions, state or local estate or
inheritance taxes may be payable upon the death of a Participant in
addition to taxes imposed by his own domicile.
Under Pennsylvania law, the Partnership is required to withhold state
income tax at the rate of 2.8% of Partnership income allocable to
Participants who are not residents of Pennsylvania. This requirement
does not obviate Pennsylvania tax return filing requirements for
Participants who are not residents of Pennsylvania. In the event of
overwithholding, a Pennsylvania income tax return must be filed by
Participants who are not residents of Pennsylvania in order to obtain a
refund. Prospective Participants should consult with their own tax
advisors concerning the possible effect of various state and local taxes on
their personal tax situations.
Severance, Franchise, and Ad Valorem (Real Estate) Taxes
The Partnership may incur various ad valorem or severance taxes
imposed by state or local taxing authorities. Currently, there is no
such tax liability in Mercer County, Pennsylvania.
Social Security Benefits and Self-Employment Tax
A Limited Partner's share of income or loss from the Partnership is
excluded from the definition of "net earnings from self-employment." No
increased benefits under the Social Security Act will be earned by
Limited Partners and if any Limited Partners are currently receiving
Social Security benefits, their shares of Partnership taxable income
will not be taken into account in determining any reduction in benefits
because of "excess earnings." An Investor General Partner's share of
income or loss from the Partnership will constitute "net earnings from
self-employment" for these purposes. I.R.C. 1402(a). For 1997 the
ceiling for social security tax of 12.4% is $65,400 and there is no
ceiling for medicare tax of 2.9%. Self-employed individuals can deduct one-
half of their self-employment tax.
Foreign Partners
The Partnership will be required to withhold and pay to the IRS tax at
the highest rate under the Code applicable to Partnership income
allocable to foreign partners, even if no cash distributions are made to
such partners. A purchaser of a foreign Partner's Units may be required to
withhold a portion of the purchase price and the Managing General Partner
may be required to withhold with respect to taxable
distributions of real property to a foreign Partner. The withholding
requirements described above do not obviate United States tax return
filing requirements for foreign Partners. In the event of
overwithholding, a foreign Partner must file a United States tax return to
obtain a refund.
Estate and Gift Taxation
There is no federal tax on lifetime or testamentary transfers of
property between spouses. The gift tax annual exclusion is $10,000 per
donee. The maximum estate and gift tax rate is 55% (subject to a 5%
surtax on amounts in excess of $10,000,000); and estates of $600,000 or
less generally are not subject to federal estate tax. In the event of the
death of a Participant, the fair market value of his interest as of the
date of death (or as of the alternate valuation date) will be included
in his estate for federal estate tax purposes. The decedent's heirs will,
for federal income tax purposes, take as their basis for the interest the
value as so determined for federal estate tax purposes.
Changes in Law
The Partnership and the Participants could be adversely affected by any
further changes in tax laws that may result through future
Congressional action, Tax Court or other judicial decisions, or
interpretations by the IRS. It is impossible to predict what, if any,
changes in the tax law may become law in the future or even if adopted,
would apply to the Partnership.
IT IS NOT POSSIBLE FOR US TO PREDICT THE EFFECT OF THE TAX LAWS ON
INDIVIDUAL PARTICIPANTS. EACH PARTICIPANT IS URGED TO SEEK, AND SHOULD
DEPEND UPON, THE ADVICE OF HIS OWN TAX ADVISORS WITH RESPECT TO HIS
INVESTMENT IN THE PARTNERSHIP WITH SPECIFIC REFERENCE TO HIS OWN TAX
SITUATION AND POTENTIAL CHANGES IN THE APPLICABLE LAW.
We consent to the use of this opinion letter as an exhibit to the
Registration Statement, and all amendments thereto, and to all
references to this firm in the Prospectus.
Very truly yours,
KUNZMAN & BOLLINGER, INC. Exhibit
10(a)
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
ESCROW AGREEMENT
THIS AGREEMENT, made to be effective as of the _____ day of
_________, 1997, by and between Atlas Resources, Inc., a Pennsylvania
corporation ("Atlas"), Anthem Securities, Inc., a Pennsylvania
corporation ("Anthem"), Bryan Funding, Inc., a Pennsylvania corporation
("Bryan Funding"), collectively Anthem and Bryan Funding are referred to as
the "Dealer-Manager", Atlas-Energy for the Nineties-Public #6 Ltd., a
Pennsylvania limited partnership (the "Partnership") and National City
Bank of Pennsylvania, Pittsburgh, Pennsylvania, as escrow agent (the
"Escrow Agent").
WITNESSETH:
WHEREAS, Atlas, as Managing General Partner, intends to offer
publicly for sale to qualified investors (the "Investors") up to 1,000
limited partnership interests in the Partnership (the "Units"); and
WHEREAS, each Investor will be required to pay his subscription in
full upon subscribing ($10,000 per Unit, however, the Managing General
Partner, in its discretion, may accept one-half Unit [$5,000]
subscriptions, with larger subscriptions permitted in $1,000
increments), by check, draft or money order except that the
broker-dealers and Atlas and its officers and directors may purchase
Units net of the Dealer-Manager Fee, the commissions and accountable due
diligence fees set forth below (the "Subscription Proceeds"); and
WHEREAS, the Managing General Partner and Anthem have executed an
agreement ("Anthem Dealer-Manager Agreement") pursuant to which Anthem
will solicit subscriptions for Units in all states other than Minnesota and
New Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on
a "best efforts" basis for the remaining Units on behalf of the Managing
General Partner and the Partnership and pursuant to which Anthem has
been authorized to select certain members in good standing of the National
Association of Securities Dealers, Inc. ("NASD") to participate in the
offering of the Units ("Selling Agents"); and
WHEREAS, the Managing General Partner and Bryan Funding have
executed an agreement ("Bryan Funding Dealer-Manager Agreement")
pursuant to which Bryan Funding will solicit subscriptions for Units in the
states of Minnesota and New Hampshire on a "best efforts" "all or none"
basis for $1,000,000 and on a "best efforts" basis for the remaining
Units on behalf of the Managing General Partner and the Partnership
and pursuant to which Bryan Funding has been authorized to select certain
members in good standing of the National Association of Securities Dealers,
Inc. ("NASD") to participate in the offering of the Units ("Selling
Agents"); and
WHEREAS, the Anthem Dealer-Manager Agreement and the Bryan Funding
Dealer-Manager Agreement, collectively referred to as the "Dealer
Manager Agreement", provide for compensation to the Dealer-Manager which
includes, but is not limited to, a 2.5% Dealer-Manager Fee, a 7.5% sales
commission, and reimbursement of the Selling Agents' bona fide
accountable due diligence expenses of .5% per Unit to participate in the
offering of the Units, which compensation will be reallowed to the
Selling Agents and wholesalers; and
WHEREAS, under the terms of the Dealer-Manager Agreement the
Subscription Proceeds are required to be held in escrow subject to the
receipt and acceptance by Atlas of the minimum Subscription Proceeds of
$1,000,000, excluding any optional subscription by the Managing General
Partner, its officers, directors and Affiliates; and
WHEREAS, no subscriptions to the Partnership will be accepted after
receipt of the maximum Subscription Proceeds of $8,000,000 (which may be
increased to $10,000,000 in Atlas' discretion) or December 31, 1997,
whichever event occurs first (the "Offering Termination Date"); and
WHEREAS, to facilitate compliance with the terms of the Dealer
Manager Agreement, Atlas and the Dealer-Manager desire to have the
Subscription Proceeds deposited with the Escrow Agent and the Escrow
Agent desires to hold the Subscription Proceeds pursuant to the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
conditions herein contained, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Appointment of Escrow Agent. Atlas, the Partnership and the
Dealer-Manager hereby appoint Escrow Agent as the escrow agent to
receive and to hold the Subscription Proceeds deposited with Escrow
Agent by the Dealer-Manager and the Selling Agents pursuant hereto
and Escrow Agent hereby agrees to serve in such capacity during the
term and based upon the provisions hereof.
2. Deposit of Subscription Proceeds. Pending receipt of the minimum
Subscription Proceeds of $1,000,000, the Dealer-Manager shall
deposit the Subscription Proceeds of each Investor with the Escrow
Agent and shall deliver to the Escrow Agent a copy of the
Subscription Agreement of such Investor. Payment for each
subscription for Units shall be in the form of a check made payable to
"National City Bank of Pennsylvania, Escrow Agent, Atlas Public #6
Ltd." The Escrow Agent shall deliver a receipt to Anthem and Atlas
for each deposit of Subscription Proceeds made pursuant hereto by
Anthem, and to Bryan Funding and Atlas for each deposit of
subscription proceeds made pursuant hereto by Bryan Funding.
3. Investment of Subscription Proceeds. The Subscription Proceeds
shall be deposited in an interest bearing account maintained by the
Escrow Agent entitled "Armada Government Fund." Subscription
Proceeds may be temporarily invested by the Escrow Agent only in
income producing short-term, highly liquid investments secured by the
United States government where there is appropriate safety of
principal, such as U.S. Treasury Bills. The interest earned shall be
added to the Subscription Proceeds and disbursed in accordance with the
provisions of paragraph 4 or 5, as the case may be.
4. Distribution of Subscription Proceeds. If the Escrow Agent (a)
receives written notice from an authorized officer of Atlas that at
least the minimum aggregate subscriptions of $1,000,000 have been
received and accepted by Atlas, and (b) determines that Subscription
Proceeds for at least $1,000,000 as determined by Atlas have cleared the
banking system and are good, the Escrow Agent shall promptly release
and distribute to Atlas such escrowed Subscription Proceeds which have
cleared the banking system and are good plus any interest paid and
investment income earned on such Subscription Proceeds while held
by the Escrow Agent in an escrow account. Any remaining Subscription
Proceeds, plus any interest paid and investment income earned on such
Subscription Proceeds while held by the Escrow Agent in an escrow
account shall be promptly released and distributed to Atlas by the
Escrow Agent as such Subscription Proceeds clear the banking system and
become good.
5. Separate Partnership Account. During the continuation of the
offering after the Partnership is funded with cleared Subscription
Proceeds of at least $1,000,000 and the Escrow Agent receives the notice
described in Paragraph 4 of this Agreement, and prior to the Offering
Termination Date, any additional Subscription Proceeds may be deposited by
the Dealer-Manager directly in a separate Partnership account which shall
not be subject to the terms of this Agreement.
6. Distributions to Subscribers.
(a) In the event that the Partnership will not be funded as
contemplated because less than the minimum aggregate
subscriptions of $1,000,000 have been received and accepted by
Atlas by twelve p.m. (noon), local time, on December 31, 1997, or for
any other reason, Atlas shall so notify the Escrow Agent,
whereupon the Escrow Agent promptly shall distribute to each
Investor a refund check made payable to such Investor in an
amount equal to the Subscription Proceeds of such Investor, plus any
interest paid or investment income earned thereon while held
by the Escrow Agent in an escrow account as calculated by Atlas.
(b) In the event that a subscription for Units submitted by an
Investor is rejected by Atlas for any reason after the
Subscription Proceeds relating to such subscription have been
deposited with the Escrow Agent, then Atlas promptly shall notify
the Escrow Agent of such rejection, and the Escrow Agent shall
promptly distribute to such Investor a refund check made payable
to such Investor in an amount equal to the Subscription Proceeds
of such Investor, plus any interest paid or investment income
earned thereon while held by the Escrow Agent in an escrow
account as calculated by Atlas.
7. Compensation and Expenses of Escrow Agent. Atlas shall be solely
responsible for and shall pay the compensation of the Escrow Agent
for its services hereunder, as provided in Appendix 1 to this
Agreement and made a part hereof, and the charges, expenses
(including any reasonable attorneys' fees), and other out-of-pocket
expenses incurred by the Escrow Agent in connection with the
administration of the provisions of this Agreement. The Escrow Agent
shall have no lien on the Subscription Proceeds deposited in an
escrow account unless and until the Partnership is funded with
cleared Subscription Proceeds of at least $1,000,000 and the Escrow
Agent receives the notice described in Paragraph 4 of this
Agreement, at which time the Escrow Agent shall have, and is hereby
granted, a prior lien upon any property, cash, or assets held
hereunder, with respect to its unpaid compensation and nonreimbursed
expenses, superior to the interests of any other persons or
entities.
8. Duties of Escrow Agent. The Escrow Agent shall not be obligated
to accept any notice, make any delivery, or take any other action
under this Escrow Agreement unless the notice or request or demand
for delivery or other action is in writing and given or made by the
party given the right or charged with the obligation under this
Escrow Agreement to give the notice or to make the request or
demand. In no event shall the Escrow Agent be obligated to accept
any notice, request, or demand from anyone other than Atlas or the
Dealer-Manager.
9. Liability of Escrow Agent. The Escrow Agent shall not be liable
for any damages, or have any obligations other than the duties
prescribed herein in carrying out or executing the purposes and
intent of this Escrow Agreement; provided, however, that nothing
herein contained shall relieve the Escrow Agent from liability
arising out of its own willful misconduct or gross negligence.
Escrow Agent's duties and obligations under this Agreement shall be
entirely administrative and not discretionary. Escrow Agent shall
not be liable to any party hereto or to any third party as a result
of any action or omission taken or made by Escrow Agent in good
faith. The parties to this Agreement will indemnify Escrow Agent,
hold Escrow Agent harmless, and reimburse Escrow Agent from, against
and for, any and all liabilities, costs, fees and expenses
(including reasonable attorney's fees) Escrow Agent may suffer or
incur by reason of its execution and performance of this Agreement.
In the event any legal questions arise concerning Escrow Agent's
duties and obligations hereunder, Escrow Agent may consult with its
counsel and rely without liability upon written opinions given to it
by such counsel.
The Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, authorization, or other paper or
document which the Escrow Agent, in good faith, believes to be
genuine and what it purports to be.
In the event that there shall be any disagreement between any of the
parties to this Agreement, or between them or any of them and any
other person, resulting in adverse claims or demands being made in
connection with this Agreement, or in the event that Escrow Agent,
in good faith, shall be in doubt as to what action it should take
hereunder, Escrow Agent may, at its option, refuse to comply with
any claims or demands on it or refuse to take any other action
hereunder, so long as such disagreement continues or such doubt
exists; and in any such event, Escrow Agent shall not be or become
liable in any way or to any person for its failure or refusal to act
and Escrow Agent shall be entitled to continue to so refrain from
acting until the dispute is resolved by the parties involved.
National City Bank of Pennsylvania is acting solely as Escrow Agent
and is not a party to, nor has it reviewed or approved any agreement
or matter of background related to this Agreement, other than this
Agreement itself, and has assumed, without investigation, the
authority of the individuals executing this Agreement to be so
authorized on behalf of the party or parties involved.
10. Resignation or Removal of Escrow Agent. The Escrow Agent may
resign as such following the giving of thirty days' prior written
notice to the other parties hereto. Similarly, the Escrow Agent may
be removed and replaced following the giving of thirty days' prior
written notice to the Escrow Agent by the other parties hereto. In
either event, the duties of the Escrow Agent shall terminate thirty
days after the date of such notice (or as of such earlier date as
may be mutually agreeable); and the Escrow Agent shall then deliver
the balance of the Subscription Proceeds (and any interest paid or
investment income earned thereon while held by the Escrow Agent in
an escrow account) in its possession to a successor escrow agent as
shall be appointed by the other parties hereto as evidenced by a
written notice filed with the Escrow Agent. If the other parties
hereto are unable to agree upon a successor or shall have failed to
appoint a successor prior to the expiration of thirty days following
the date of the notice of resignation or removal, the then acting
Escrow Agent may petition any court of competent jurisdiction for
the appointment of a successor escrow agent or other appropriate
relief; and any such resulting appointment shall be binding upon all
of the parties hereto. Upon acknowledgment by any successor escrow
agent of the receipt of the then remaining balance of the
Subscription Proceeds (and any interest paid or investment income
earned thereon while held by the Escrow Agent in an escrow account),
the then acting Escrow Agent shall be fully released and relieved of
all duties, responsibilities, and obligations under this Agreement.
11. Termination. This Agreement shall terminate and the Escrow Agent
shall have no further obligation with respect hereto upon the
occurrence of the distribution of all Subscription Proceeds (and any
interest paid or investment income earned thereon while held by the
Escrow Agent in an escrow account) as contemplated hereby or upon
the written consent of all the parties hereto.
12. Notice. Any notices or instructions, or both, to be given
hereunder shall be validly given if set forth in writing and mailed
by certified mail, return receipt requested, as follows:
If to the Escrow Agent:
National City Bank of Pennsylvania
Attention: Mr. Robert Mialki, Vice President
Corporate Trust Department 300
Fourth Avenue
Pittsburgh, Pennsylvania 15278-2331
Phone: (412) 644-8401
Facsimile: (412) 644-7971
If to Atlas:
Atlas Resources, Inc. 311 Rouser
Road
P.O. Box 611
Moon Township, Pennsylvania 15108
Attention: J. R. O'Mara
Phone: (412) 262-2830
Facsimile: (412) 262-2820
If to Anthem:
Anthem Securities, Inc.
311 Rouser Road
P.O. Box 926
Coraopolis, Pennsylvania 15108
Attention: Eric D. Koval
Phone: (412) 262-1680
Facsimile: (412) 262-7430
If to Bryan Funding:
Bryan Funding, Inc.
393 Vanadium Road
Pittsburgh, Pennsylvania 15243
Attention: Richard G. Bryan, Jr.
Phone: (412) 276-9393
Facsimile: (412) 276-9396
Any party may designate any other address to which notices and
instructions shall be sent by notice duly given in accordance herewith.
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
(b) This Agreement is binding upon and shall inure to the
benefit of the undersigned and their respective heirs, successors
and assigns.
(c) This Agreement may be executed in multiple copies, each
executed copy to serve as an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
to be effective as of the day and year first above written.
NATIONAL CITY BANK OF PENNSYLVANIA
ATTEST: As Escrow Agent
By: By:
(Authorized Officer) (Authorized Officer)
ATLAS RESOURCES, INC.
ATTEST: A Pennsylvania corporation
By: By:
Secretary J.R. O'Mara, President
ANTHEM SECURITIES, INC.
ATTEST: A Pennsylvania corporation
By: By: _______________________________________
Secretary Eric D. Koval, President
BRYAN FUNDING, INC.
ATTEST: A Pennsylvania corporation
By: By: _______________________________________
Secretary Richard G. Bryan, Jr., President
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
By: ATLAS RESOURCES, INC.
ATTEST: Managing General Partner
By: By: ______________________________________
Secretary J. R. O'Mara, President
APPENDIX I TO ESCROW AGREEMENT
Compensation for Services of Escrow Agent
Escrow Agent annual fee per year or any part thereof $3,000.00
Exhibit 25
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers
and/or directors of Atlas Resources, Inc., a Pennsylvania corporation
which is about to file with the Securities and Exchange Commission,
under the provisions of the Securities Act of 1933, as amended, a
Registration Statement on Form SB-2 relating to certain securities of
Atlas-Energy for the Nineties-Public #6 Ltd., constitutes and appoints
James R. O'Mara and Bruce M. Wolf, his/her true and lawful attorney-in
fact, with full power of substitution and resubstitution and with full
power to act without another, for him/her and in his/her name, place and
stead, in any and all capacities, to sign such Registration Statement,
and any and all amendments, including post-effective amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission and
all states and other jurisdictions wherein such Registration Statement
and amendments thereto may be filed for securities compliance measures,
granting unto said attorneys-in-fact and agents, and each of them full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he/she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or his/her substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Dated: July ___16____, 1997
Charles T. Koval, Chairman of the Board and a
Director
Dated: July __16_____, 1997
James R. O'Mara, President, Chief Executive
Officer and a Director
Dated: July ___16____, 1997
Bruce M. Wolf, General Counsel, Secretary and a
Director
Dated: July ___16____, 1997
Donald P. Wagner, Vice President of Operations
Dated: July ___16____, 1997
James J. Kritzo, Vice President of the Land
Department
Dated: July ___16____, 1997
Tony C. Banks, Vice President of Finance and
Chief Financial Officer
Dated: July ___16____, 1997
Frank P. Carolas, Vice President of Geology
Dated: July ___16____, 1997
Barbara J. Krasnicki, Vice President of
Administration
Dated: July __16_____, 1997
Joseph R. Sadowski, a Director
Exhibit 25
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #6 LTD.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers
and/or directors of Atlas Resources, Inc., a Pennsylvania corporation
which is about to file with the Securities and Exchange Commission,
under the provisions of the Securities Act of 1933, as amended, a
Registration Statement on Form SB-2 relating to certain securities of
Atlas-Energy for the Nineties-Public #6 Ltd., constitutes and appoints
James R. O'Mara and Bruce M. Wolf, his/her true and lawful attorney-in
fact, with full power of substitution and resubstitution and with full
power to act without another, for him/her and in his/her name, place and
stead, in any and all capacities, to sign such Registration Statement,
and any and all amendments, including post-effective amendments thereto,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission and
all states and other jurisdictions wherein such Registration Statement
and amendments thereto may be filed for securities compliance measures,
granting unto said attorneys-in-fact and agents, and each of them full
power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he/she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or his/her substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Dated: July ____16___, 1997 /s/ Charles T. Koval
Charles T. Koval, Chairman of the Board and a
Director
Dated: July ___16____, 1997 /s/ James R. O'Mara
James R. O'Mara, President, Chief Executive
Officer and a Director
Dated: July ___16____, 1997 /s/ Bruce M. Wolf
Bruce M. Wolf, General Counsel, Secretary and a
Director
Dated: July __16_____, 1997 /s/ Donald P. Wagner
Donald P. Wagner, Vice President of Operations
Dated: July ___16____, 1997 /s/ James J. Kritzo
James J. Kritzo, Vice President of the Land
Department
Dated: July ___16____, 1997 /s/ Tony C. Banks
Tony C. Banks, Vice President of Finance and
Chief Financial Officer
Dated: July __16_____, 1997 /s/ Frank P. Carolas
Frank P. Carolas, Vice President of Geology
Dated: July __16_____, 1997 /s/ Barbara J. Krasnicki
Barbara J. Krasnicki, Vice President of
Administration
Dated: July __16_____, 1997 /s/ Joseph R. Sadowski
Joseph R. Sadowski, a Director