J.Breznai
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As filed with the Securities and Exchange Commission on August 12, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
(Exact name of Registrant as Specified in its Charter)
311 ROUSER ROAD
MOON TOWNSHIP, PENNSYLVANIA 15108
(412) 262-2830
(Address and Telephone Number of
Principal Executive Offices and
Principal Place of Business)
JAMES R. O'MARA, PRESIDENT
ATLAS RESOURCES, INC.
311 ROUSER ROAD, MOON TOWNSHIP, PENNSYLVANIA 15108
(412) 262-2830
(Name, Address and Telephone Number of Agent for Service)
Copies to:
WALLACE W. KUNZMAN, JR., ESQ. JAMES R. O'MARA
KUNZMAN & BOLLINGER, INC. ATLAS RESOURCES, INC.
5100 N. BROOKLINE 311 ROUSER ROAD
SUITE 600 MOON TOWNSHIP, PENNSYLVANIA
OKLAHOMA CITY, OKLAHOMA 73112 15108
Approximate Date of Commencement of Proposed Sale to the Public;
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: X
CALCULATION OF REGISTRATION
Proposed Proposed
Title of Each Dollar Maximum Maximum Amount of
Class of Securities Amount Offering Aggregate Registration
to be Registered to be Price per Offering Price Fee
Registered Unit
Units (1) $8,000,000 $10,000 $8,000,000 $2,758.40
(1) "Units" means the Limited Partner interests and the Investor General
Partner interests offered to Participants in the Partnership.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATES AS MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)
OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
CROSS REFERENCE SHEET
PURSUANT TO RULE 404
Item of Form SB-2
Caption in Prospectus
1. Front of Registration Statement
and Outside Front Cover of
Prospectus
Front Page of Registration
Statement and Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus
Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information and Risk
Factors
Summary of the Offering; Risk
Factors
4. Use of Proceeds
Summary of the Offering;
Capitalization and Source of Funds
and Use of Proceeds
5. Determination of Offering Price
Not Applicable
6. Dilution
Not Applicable
7. Selling Security Holders
Not Applicable
8. Plan of Distribution
Summary of the Offering; Plan of
Distribution
9. Legal Proceedings
Litigation
10. Directors, Executive Officers,
Promoters and Control Persons
Management
11. Security Ownership of Certain
Beneficial Owners and Management
Management
12. Description of Securities
Summary of the Offering; Terms of
the Offering; Summary of
Partnership Agreement
13. Interest of Named Experts and
Counsel
Legal Opinions; Experts
14. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities
Fiduciary Responsibilities of the
Managing General Partner
15. Organization Within Last Five
Years
Management
16. Description of Business
Proposed Activities; Management
17. Management's Discussion and
Analysis or Plan of Operation
Proposed Activities
18. Description of Property
A. Issuers Engaged or to Be Engaged
in Significant Mining Operations
B. Supplementing Financial
Information about Oil and Gas
Producing Activities
Proposed Activities
A. Not Applicable
B. Not Applicable
19. Certain Relationships and
Related Transactions
Compensation; Management;
Conflicts of Interest
20. Market for Common Equity and
Related Stockholder Matters
Not Applicable
21. Executive Compensation
Management
22. Financial Statements
Financial Information Concerning
the Managing General Partner, AEGH
and the Partnership
23. Changes In and Disagreements
With Accountants on Accounting and
Financial Disclosure
Not Applicable
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
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Preliminary Prospectus (Subject to Completion) Dated August 12, 1996
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
$1,000,000 Minimum Aggregate Capital Contributions
General and Limited Partner Interests at $10,000 per Unit
Minimum Purchase: 1 Unit ($10,000)
This Prospectus describes an offering of 700 general and limited partner
interests of $10,000 each in Atlas-Energy for the Nineties-Public #5
Ltd., a limited partnership. See "Summary of the Offering - Terms of the
Offering - Type of Units" for a discussion of the difference between
Investor General Partner Units and Limited Partner Units. Upon
commencement of operations, the Partnership will acquire Leases for
drilling Development Wells thereon, and produce and market natural gas,
if any, derived therefrom. The Partnership is expected to generate
significant tax deductions. (See "Proposed Activities" and "Tax
Aspects".) Investors in the Partnership will be admitted either as
Investor General Partners or Limited Partners depending upon their
election and whether the requisite suitability standards are met. For the
meaning of certain capitalized terms used herein, see "Definitions". The
Partnership, upon commencement of the offering of Units, will not have
any properties or assets. The Managing General Partner of the Partnership
is Atlas Resources, Inc. ("Atlas"), a Pennsylvania corporation. Atlas is
responsible for the acquisition and supervision of the Partnership's
properties and all other activities of the Partnership.
THESE SECURITIES ARE SPECULATIVE AND ARE SUBJECT TO CERTAIN RISKS
INCLUDING:
THE DRILLING AND COMPLETION OPERATIONS TO BE UNDERTAKEN BY THE
PARTNERSHIP FOR THE DEVELOPMENT OF GAS RESERVES INVOLVE THE POSSIBILITY
OF A SUBSTANTIAL OR PARTIAL LOSS OF AN INVESTMENT IN THE PARTNERSHIP
BECAUSE OF WELLS WHICH ARE PRODUCTIVE BUT DO NOT PRODUCE ENOUGH REVENUE
TO RETURN THE INVESTMENT MADE;
THE REVENUES OF THE PARTNERSHIP ARE DIRECTLY RELATED TO THE ABILITY TO
MARKET THE NATURAL GAS AND THE PRICE OF NATURAL GAS WHICH IS CURRENTLY
UNSTABLE AND CANNOT BE PREDICTED AND IF THE PRICE OF GAS DECREASES THEN
THE PARTICIPANT RETURNS WILL DECREASE;
UNLIMITED JOINT AND SEVERAL LIABILITY FOR PARTNERSHIP OBLIGATIONS FOR
THOSE INVESTORS WHO CHOOSE TO INVEST AS INVESTOR GENERAL PARTNERS UNTIL
THEY CONVERT TO LIMITED PARTNER INTERESTS;
LACK OF LIQUIDITY OR A MARKET FOR THE UNITS;
LACK OF CONFLICT OF INTEREST RESOLUTION PROCEDURES, CONSEQUENTLY,
CONFLICTS OF INTEREST BETWEEN THE MANAGING GENERAL PARTNER AND THE
INVESTORS MAY NOT NECESSARILY BE RESOLVED IN THE BEST INTERESTS OF THE
INVESTORS;
TOTAL RELIANCE ON MANAGING GENERAL PARTNER AND ITS AFFILIATES;
AUTHORIZATION OF SUBSTANTIAL FEES TO MANAGING GENERAL PARTNER AND ITS
AFFILIATES;
INVESTORS AND THE MANAGING GENERAL PARTNER WILL SHARE IN COSTS
DISPROPORTIONATELY TO THEIR SHARING OF REVENUES;
POSSIBLE ALLOCATION OF TAXABLE INCOME TO INVESTORS IN EXCESS OF THEIR
CASH DISTRIBUTIONS FROM THE PARTNERSHIP; AND
NO GUARANTY OF CASH DISTRIBUTIONS EVERY QUARTER.
(SEE "RISK FACTORS", PAGE 8.)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS
OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE
SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price to Commissions Proceeds to Net Proceeds
Public and Partnership for
Wholesaling (4) Drilling Costs(5)
Fees(3)
Per Unit (1) 10,000$ 1,050$ 10,000$ 10,000
Minimum (2)$1,000,000 $105,000 $1,000,000 $1,000,000
Maximum (2)$7,000,000 $735,000 $7,000,000 $7,000,000
Potential Maximum (2)
$8,000,000 $840,000 $8,000,000 $8,000,000
(1) The minimum required purchase is one (1) Unit or $10,000; however,
the Managing General Partner, in its discretion, may accept one-half Unit
($5,000) subscriptions. (See "Terms of the Offering - Suitability
Standards".)
(2) The subscription period will terminate on or before December 31, 1996
("Offering Termination Date"). The maximum amount of subscriptions to be
accepted from Participants will be $7,000,000 (700 Units), and the
minimum amount of subscriptions will be $1,000,000 (100 Units). However,
if subscriptions for all 700 Units being offered are obtained, the
Managing General Partner, in its sole discretion, may offer not more than
100 additional Units and increase the maximum aggregate subscriptions
with which the Partnership may be funded to not more than 800 Units
($8,000,000). The Managing General Partner may buy up to 10% of the
Units, which will not be applied towards the minimum Partnership
Subscription required for the Partnership to begin operations. The
subscription proceeds will be deposited in an interest bearing escrow
account at National City Bank of Pennsylvania prior to the receipt of the
minimum Partnership Subscription, after which the funds will be paid
directly to the Partnership account and will continue to earn interest
until the Offering Termination Date. The Partnership will begin all
activities, including drilling, after the Offering Termination Date. If
subscriptions for $1,000,000 are not received by December 31, 1996, the
sums deposited in the escrow account will be returned to the subscriber
with interest thereon. Checks for the full subscription amount should be
made payable to "National City Bank, Escrow Agent, Atlas Public #5 Ltd."
and sent, together with a copy of the executed subscription, to National
City Bank of Pennsylvania., Corporate Trust Department, 300 Fourth
Avenue, Pittsburgh, Pennsylvania 15278-2331. (See "Terms of the Offering
- - Partnership Closing and Escrow".)
(3) The Units will be offered by registered broker-dealers which are
members of the National Association of Securities Dealers, Inc. ("NASD")
on a best efforts basis. (Best efforts means that the broker-dealers will
not guarantee the sale of a certain amount of Units.) The broker-dealer
will be paid cash Sales Commissions of 7.5% of the Agreed Subscription
and will be entitled to reimbursement of its bona fide accountable due
diligence expenses incurred in discharging its due diligence obligations
of .5% of the Units sold by it. Wholesalers will receive 2.5% of Agreed
Subscriptions obtained through such wholesalers' efforts. (See "Plan of
Distribution".) All Sales Commissions, due diligence reimbursements and
wholesalers' fees will be paid by the Managing General Partner and will
not be paid with subscription proceeds. (See "Participation in Costs and
Revenues".)
(4) The Managing General Partner will pay all Organization Costs
associated with the issuance of the Units, which will not exceed 4.5% of
Agreed Subscriptions ($450 per Unit). (See "Participation in Costs and
Revenues".)
(5) After the payment of Organization and Offering Costs by the Managing
General Partner, the Partnership will utilize 100% of the Partnership
Subscription to drill and complete Development Wells as described herein.
(See "Proposed Activities.)
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(iii)
Summary of the Offering 1
The Partnership 1
Investment Objectives 1
Investment Features 1
Terms of the Offering 2
Reports 2
No Additional Assessments 2
Suitability Standards - Long Term Investment 2
Tax Status 2
Partnership Agreement 2
Application of Proceeds 3
Participation in Costs and Revenues 3
Prior Activities 4
Risk Factors 4
Actions to be Taken by Managing General Partner to Reduce Risks of
Additional Payments by Investor General Partners 5
Compensation to the Managing General Partner, the Operator and their
Affiliates 6
Conflicts of Interest 7
Distribution 7
Risk Factors 8
Special Risks of the Partnership 8
Speculative Nature of Investment 8
Unlimited Liability of Investor
General Partners 8
Illiquid Investment and Restrictions on
Transferability of Participants' Interests 8
Total Reliance upon the Managing General
Partner 9
Management Obligations of Managing General Partner Not Exclusive 9
Managing General Partner Liquid Net Worth Is
Not Guaranteed 9
Diversification Depends Upon Subscription
Proceeds 9
Greater Risks Borne by Participants 9
Compensation and Fees to the Managing General Partner Regardless of
Success of the
Activities 9
Dry Hole Risk in Development Drilling 9
Risk of Unproductive Wells in Development
Drilling 9
Risks Regarding Marketing of Gas 9
Possible Delays in Production and Shut-In Wells 10
Unspecified Location of a Portion
of the Prospects 10
No Guarantee of Data Regarding Currently
Proposed Prospects 10
Atlas' Subordination is not a Guarantee 10
Borrowings by the Managing General Partner
Could Reduce Funds Available for
Its Subordination Obligation 10
Possibility of Reduction or Unavailability
of Insurance 11
Possible Nonperformance by Subcontractors 11
Risk of Prepayment to Atlas 11
Possible Leasehold Defects 11
Partnership Borrowings May Reduce or Delay Distributions 11
Atlas Will Receive Benefit from Transfer
of Leases 11
Other Circumstances Under Which Distributions May Be Reduced or Delayed
11
Conflicts of Interest 12
Risk Regarding Participation with
Third Parties 12
Dissolution of the Partnership or Withdrawal or Removal of the Managing
General Partner May Have Adverse Effects 12
Indemnification and Exoneration of the
Managing General Partner Would Reduce Distributions 12
Limited Partner Liability for Repayment of
Certain Distributions 12
Possibility of Unauthorized Acts of Investor
General Partners 12
Risks That Repurchase Obligation May Not Be Funded and Repurchase Price
May Not
Reflect Full Value 13
Possible Participation in Roll-Up 13
General Risks of the Oil and Gas Business 13
Speculative Nature of Gas Business 13
Risks of Decrease in the Price of Gas 13
Drilling Hazards May Be Encountered 13
Competition in Marketing Natural Gas
Production 13
Risk of New Governmental Regulations 14
Potential Liability for Pollution; Environmental Matters 14
Uncertainty of Costs 14
Tax Risks 14
Tax Consequences May Vary Depending on Individual Circumstances 14
Risk of Changes in the Law 14
No Advance Ruling from the IRS on Tax Consequences 14
Possible Taxes in Excess of Cash Distributions 14
Partnership Allocations Are Subject to Challenge
by the IRS in the Event of an Audit 15
1996 Tax Deductions Are Subject to Challenge
by the IRS in the Event of an Audit 15
Possible Alternative Minimum Tax Liability 15
Investment Interest Deductions May Be
Limited 15
IRAs and Other Qualified Plans Will Receive Unrelated Business Taxable
Income 15
Lack of Tax Shelter Registration 15
State and Local Taxes May Apply 15
Capitalization and Source of Funds and Use of Proceeds 15
In General 15
Source of Funds 16
Use of Proceeds 16
Subsequent Source of Funds and Borrowings 17
Compensation 17
Oil and Gas Revenues 17
Lease Costs 18
Administrative Costs 18
Drilling Contracts 18
Per Well Charges 18
Transportation and Marketing Fees 19
Other Compensation 19
Estimate of Administrative Costs and Direct Costs to Be
Borne by the Partnership 19
Terms of the Offering 19
Subscription to the Partnership 19
Payment of Subscriptions 20
Partnership Closing and Escrow 20
Offering Period 20
Acceptance of Subscriptions 20
Drilling Period 20
Interest of Participants in the Partnership 21
Qualification of the Partnership 21
Suitability Standards 21
Subscriptions by IRAs, Keogh Plans and Other
Qualified Plans 22
Subscription by Managing General Partner 23
Conflicts of Interest 23
In General 23
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(iv)
Fiduciary Responsibility of the Managing General
Partner 23
Transactions with Atlas and its Affiliates 23
Conflict Regarding the Drilling and Operating
Agreement 24
Conflicts Regarding Sharing of Costs and Revenues 24
Tax Matters Partner 24
Other Activities of the Managing General Partner,
the Operator and their Affiliates 24
Conflicts Involving the Acquisition of Leases 25
Conflicts Between Participants 27
Lack of Independent Underwriter and Due
Diligence Investigation 27
Conflicts Concerning Legal Counsel 27
Conflicts Regarding Repurchase Obligation 27
Other Conflicts 27
Procedures to Reduce Conflicts of Interest 27
Policy Regarding Roll-Ups 29
Certain Transactions 29
Fiduciary Responsibility of the Managing General
Partner 30
General 30
Limitations on Managing General Partner Liability
as Fiduciary 30
Limitations on Managing General Partner
Indemnification 30
Prior Activities 31
Management 38
Managing General Partner and Operator 38
Officers, Directors and Key Personnel 39
Remuneration 41
Security Ownership of Certain Beneficial Owners
and Managers 42
Transactions with Management and Affiliates 43
Investment Objectives 43
Proposed Activities 44
In General 44
Intended Areas of Operations 44
Acquisition of Leases 45
Title to Properties 46
Formation of the Partnership and Powers of the
Managing General Partner 46
Drilling and Completion Activities; Operation of Producing Wells 46
Sale of Oil and Gas Production 48
Interests of Parties 49
Insurance 49
Use of Consultants and Subcontractors 50
Information Regarding Currently Proposed
Prospects 50
Competition, Markets and Regulation 75
Competition 75
Marketing 75
State Regulations 75
Environmental Regulation 75
Crude Oil Regulation 76
Federal Gas Regulation 76
Proposed Regulation 76
Participation in Costs and Revenues 77
In General 77
Costs 77
Revenues 77
Subordination of Portion of Managing General
Partner's Net Revenue Share 78
Allocation and Adjustment Among Participants 80
Distributions 80
Tax Aspects 80
Summary of Tax Opinion 80
In General 82
Partnership Taxation 83
Partnership Classification 83
Limitations on Passive Activities 83
Taxable Year 84
1996 Expenditures 84
Availability of Certain Deductions 84
Intangible Drilling and Development Costs 85
Drilling Contracts 85
Depletion Allowance 86
Depreciation - Accelerated Cost Recovery System 87
Leasehold Costs and Abandonment 87
Tax Basis of Participants' Interests 87
Distributions from a Partnership 87
Sale of the Properties 87
Disposition of Partnership Interests 87
Minimum Tax - Tax Preferences 88
Limitations on Deduction of Investment Interest 88
Allocations 88
"At Risk" Limitation for Losses 89
Partnership Organization and Syndication Fees 89
Tax Elections 89
Disallowance of Deductions under Section 183
of the Code 90
Termination of a Partnership 90
Lack of Registration as a Tax Shelter 90
Tax Returns and Audits 90
Penalties and Interest 91
State and Local Taxes 92
Severance, Franchise, and Ad Valorem (Real
Estate) Taxes 92
Tax Consequences to Qualified Plans and IRAs 92
Social Security Benefits and Self-Employment Tax 92
Foreign Partners 92
Estate and Gift Taxation 92
Changes in Law 92
Definitions 93
Summary of Partnership Agreement 98
Responsibility of Managing General Partner 98
Liabilities of General Partners, Including Investor
General Partners 98
Liability of Limited Partners 99
Amendments 99
Notice 99
Voting Rights 99
Access to Records 100
Withdrawal of Managing General Partner 100
Removal of Operator 100
Term and Dissolution 100
Summary of Drilling and Operating Agreement 100
Reports to Investors 101
Repurchase Obligation 101
Transferability of Units 103
Plan of Distribution 104
Sales Material 104
Legal Opinions 104
Experts 104
Litigation 105
Additional Information 105
Financial Information Concerning the Managing General Partner, AEGH and
the Partnership 105
Exhibits
Exhibit
(A)
Amended and
Restated
Certificate and
Agreement of
Limited
Partnership
Exhibit
(I-A)
Managing General
Partner
Signature Page
Exhibit
(I-B)
Subscription
Agreement
Exhibit
(II)
Drilling and
Operating
Agreement
Exhibit
(B)
Special
Suitability
Requirements
and Disclosures
to Investors
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(Page 1)
SUMMARY OF THE OFFERING
This summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Prospective investors
are directed to "Definitions," which defines the capitalized terms used
throughout this Prospectus.
THE PARTNERSHIP
Atlas-Energy for the Nineties-Public #5 Ltd. (the "Partnership"), is a
Pennsylvania limited partnership which includes Atlas Resources, Inc.
("Atlas"), of Pittsburgh, Pennsylvania, as Managing General Partner and
Operator, and subscribers to Units as either Limited Partners or Investor
General Partners. The Partnership will be funded to drill wells which are
located primarily in Mercer County, Pennsylvania, although the Managing
General Partner has reserved the right to use up to 15% of the
Partnership Subscription to drill wells in other areas of the Appalachian
Basin. Atlas anticipates that all of the Partnership's wells will be
classified as gas wells which may produce a small amount of oil. The
majority, if not all, of the wells drilled by the Partnership will be
Development Wells which will test the Clinton/Medina geological formation
("Clinton/Medina"). For a description of the Prospects which are
currently proposed see "Proposed Activities - Information Regarding
Currently Proposed Prospects". Atlas and its Affiliates will act as
general drilling contractor and operator for all the wells. (See
"Proposed Activities".)
INVESTMENT OBJECTIVES
The Partnership's principal investment objectives are to invest the
Partnership Subscription in natural gas Development Wells which will:
(1) Provide quarterly cash distributions until the wells are depleted,
(historically 20+ years) with a preferred annual cash flow of 10% during
the first five years based on the original subscription amount. (See
"Risk Factors - Special Risks of the Partnership- Risk of Unproductive
Wells in Development Drilling," "Prior Activities" and "Participation in
Costs and Revenues - Subordination of Portion of Managing General
Partner's Net Revenue Share".)
(2) Obtain tax deductions in 1996 from intangible drilling and
development costs to offset a portion of the Participants' taxable income
(subject to the passive activity rules in the case of Limited Partners).
One Unit will produce a 1996 tax deduction of $8,000 against ordinary
income for Investor General Partners and against passive income for
Limited Partners. For an investor in either the 39.6% or 36% tax bracket,
one Unit will save $3,168 or $2,880 respectively in federal taxes this
year. Most states also allow this type of a deduction against the state
income tax.
(3) Offset a portion of any taxable income generated by the Partnership
with tax deductions from percentage depletion, presently 20% (estimated
to be 22% on net revenue). Atlas estimates that this feature should
reduce an investor's effective tax rate from 39.6% to 31.7% (i.e., 80% of
39.6%) on Partnership net revenues.
(4) Obtain tax deductions of the remaining 20% of the initial investment
from 1997 through 2004. The investor will receive an additional $2,000
tax deduction per Unit generated through the remaining depreciation over
a seven-year cost recovery period of the Partnership's equipment costs
for the wells.
ATTAINMENT OF THE PARTNERSHIP'S INVESTMENT OBJECTIVES WILL DEPEND ON MANY
FACTORS, INCLUDING THE ABILITY OF THE MANAGING GENERAL PARTNER TO SELECT
SUITABLE PROSPECTS WHICH WILL BE PRODUCTIVE AND PRODUCE ENOUGH REVENUE TO
RETURN THE INVESTMENT MADE. THE SUCCESS OF THE PARTNERSHIP DEPENDS LARGELY ON
FUTURE ECONOMIC CONDITIONS, ESPECIALLY THE FUTURE PRICE OF NATURAL GAS WHICH
IS VOLATILE.
THERE CAN BE NO GUARANTEE THAT THE FOREGOING OBJECTIVES WILL BE ATTAINED.
INVESTMENT FEATURES
PREFERRED 10% CASH RETURN (CUMULATIVE 5 YEARS). The Partnership is structured
to provide preferred cash distributions to the Participants equal to a
minimum of 10% of their Agreed Subscription in each of the first five
twelve-month periods of Partnership operations. To help insure the
Participants achieve this investment feature, Atlas will subordinate a
part of its Partnership revenues in an amount up to 10% of the
Partnership Net Production Revenues. (Partnership Net Production Revenues
is gross revenues after deduction of the related Operating Costs, Direct
Costs, Administrative Costs and all other Partnership costs not
specifically allocated.) This feature allows the investors to receive a
greater percentage of cash distributions if the Partnership does not
provide the 10% return to Participants as described above. (See "Risk
Factors - Special Risks of the Partnership - Borrowings by the Managing
General Partner Could Reduce Funds Available for Its Subordination
Obligation" and "Participation in Costs and Revenues - Subordination of
Portion of Managing General Partner's Net Revenue Share".)
REPURCHASE OBLIGATION. Beginning in 2000, the Participants may present
their interests for repurchase by the Managing General Partner.
Repurchase of Units is subject to certain conditions, including the
financial ability of the Managing General Partner to
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(Page 2)
purchase the Units.
(See "Risk Factors - Special Risks of the Partnership - Risk That
Repurchase Obligation May Not Be Funded and Repurchase Price May Not
Reflect Full Value" and "Repurchase Obligation".)
INVESTOR INTEREST FEATURE. A Participant will receive interest on his
Agreed Subscription up until the time of the Offering Termination Date.
The interest will be paid to Participants approximately six weeks after
the Offering Termination Date.
TERMS OF THE OFFERING
IN GENERAL. Units of Participation ("Units") are offered at $10,000 per
Unit. The minimum subscription is one Unit; however, the Managing General
Partner, in its discretion, may accept one-half Unit ($5,000)
subscriptions. Larger subscriptions will be accepted in $1,000
increments. Agreed Subscriptions are payable 100% in cash at the time of
subscribing. The maximum amount of subscriptions to be accepted from
Participants will be $7,000,000 (700 Units), and the minimum amount of
subscriptions will be $1,000,000 (100 Units). However, if subscriptions
for all 700 Units being offered are obtained, the Managing General
Partner, in its sole discretion, may offer not more than 100 additional
Units and increase the maximum aggregate subscriptions with which the
Partnership may be funded to not more than 800 Units ($8,000,000). If
the minimum Partnership Subscription is not received on or before
December 31, 1996, subscriptions will be refunded in full with interest
earned thereon. The Managing General Partner may buy up to 10% of the
Units, which will not be applied towards the minimum Partnership
Subscription required for the Partnership to begin operations. For a full
discussion of the various terms of the offering, see "Terms of the
Offering".
ESCROW ACCOUNT. The subscription proceeds will be deposited in an
interest bearing escrow account at National City Bank of Pennsylvania,
Pittsburgh, Pennsylvania until the receipt of the minimum Partnership
Subscription after which the funds will be paid directly to the
Partnership account and will continue to earn interest until the Offering
Termination Date. The Partnership will not begin its activities,
including drilling, until after the Offering Termination Date. (See
"Terms of the Offering - Partnership Closing and Escrow".)
TYPE OF UNITS. Participants may purchase Limited Partner Units or Investor
General Partner Units. Although costs, revenues and cash distributions
allocable to the Participants are shared pro rata based upon the amount
of their Agreed Subscriptions, there are material differences in the
federal income tax effects and liability associated with these different
types of Units in the Partnership. Investor General Partners will have
unlimited joint and several liability regarding Partnership activities,
but their use of Partnership losses will not be subject to the passive
activity limitations. Limited Partners will have limited liability, but
their use of Partnership losses generally will be limited to net passive
income from "passive" trade or business activities, which generally
includes the Partnership and other limited partnership investments. (See
"- Actions to be Taken by Managing General Partner to Reduce Risks of
Additional Payments by Investor General Partners," below, "Risk Factors
- - Special Risks of the Partnership- Unlimited Liability of Investor
General Partners," "Tax Aspects - Limitations on Passive Activities," and
"Summary of Partnership Agreement".)
REPORTS
A status report detailing the progress of drilling activities will be
furnished to each Participant. In addition, each Participant will be
provided within 120 days after the end of each calendar year audited
financial statements showing the income, expenses, assets and liabilities
of the Partnership at the end of its fiscal year prepared in accordance
with generally accepted accounting principles. Tax information with
respect to the Partnership's operations for each calendar year will be
furnished to each Participant by March 15 of the following year. (See
"Reports to Investors".)
NO ADDITIONAL ASSESSMENTS
The Units are not subject to assessment. (See "Capitalization and Source
of Funds and Use of Proceeds". )
SUITABILITY STANDARDS - LONG TERM INVESTMENT
The Managing General Partner has instituted strict suitability standards
for investment in the Partnership. The high degree of investment risk
together with the restrictions on the sale of Units, lack of a market for
the Units, and the tax consequences of the sale of Units make investment
in the Partnership suitable only for persons who are able to hold their
Units on a long-term investment basis. (See "Terms of the Offering -
Suitability Standards".)
TAX STATUS
The Managing General Partner has received an opinion of counsel from
Kunzman & Bollinger, Inc., Oklahoma City, Oklahoma, that the Partnership
will be classified as a partnership for federal income tax purposes and
the Managing General Partner intends to rely upon such opinion. The
opinion of counsel is not binding on the IRS and is based upon various
factual assumptions and current law. (See "Risk Factors - Tax Risks - No
Advance Ruling from the IRS on Tax Consequences".)
PARTNERSHIP AGREEMENT
The Partnership is a Pennsylvania limited partnership and will be
governed by the Partnership Agreement, the form of which is included as
Exhibit (A) to this Prospectus, as well as the provisions of the
Pennsylvania Revised Uniform Limited Partnership Act.
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(Page 3)
Among other matters, the Partnership Agreement provides for the distribution f
revenues and the allocation of costs, revenues, expenses, income, gain,
deductions and credits to and among the Partners. The Partnership
Agreement also provides for Partnership reporting and the conduct of
Partnership business and operations. The Participants have certain
rights, exercisable with limited exception by majority vote, relating to
their ownership of a Unit in the Partnership including the right to:
call a meeting of the Partners; remove the Managing General Partner and
elect a new Managing General Partner; elect a new Managing General
Partner if the Managing General Partner elects to withdraw from the
Partnership; remove the Operator and elect a new Operator; amend the
Partnership Agreement; dissolve and wind up the Partnership; approve or
disapprove any sale of all or substantially all of the assets of the
Partnership; and cancel any contract for services with the Managing
General Partner, the Operator or their Affiliates except services
described in this Prospectus without penalty upon sixty days' notice.
These and other rights are more particularly described in Section 4.03(c)
and its subsections of the Partnership Agreement and are subject to
certain limitations as set forth therein.
APPLICATION OF PROCEEDS
The Partnership Subscription will be expended by the Partnership for the
purposes and in the percentages shown below assuming the minimum number
of Units is sold.
EXPENDITURE OF THE PARTNERSHIP SUBSCRIPTION
. MINIMUM PARTNERSHIP
SUBSCRIPTION ($1,000,000)..PERCENTAGE
Organization and Offering Costs -0- -0-
Lease Acquisition Costs -0- -0-
Intangible Drilling Costs 800,000 80%
Tangible Costs 200,000 20%
TOTAL $1,000,000 100%
For a more complete discussion of how the Partnership will apply the
proceeds of this offering, see "Capitalization and Source of Funds and
Use of Proceeds".
PARTICIPATION IN COSTS AND REVENUES
The following table sets forth the participation in costs and revenues of
the Partnership between the Managing General Partner and the
Participants. (See "Definitions" and "Participation in Costs and
Revenues".)
MANAGING
GENERAL
PARTNER..PARTICIPANTS
PARTNERSHIP COSTS...
Organization and Offering Costs (1) 100% 0%
Lease Costs 100% 0%
Intangible Drilling Costs 0% 100%
Tangible Costs 14% 86%
Operating Costs, Administrative Costs,
Direct Costs and All Other Costs (2) . . 25% 75%
PARTNERSHIP REVENUES.
Equipment Proceeds (3) (3)
All other Revenues including Production Revenues 25% 75%
(1) The Managing General Partner's payment of Organization and Offering
costs in an amount up to 15% of the Partnership Subscription will be
credited towards its required Capital Contribution. Although
Organization and Offering Costs in excess of 15% of the Partnership
Subscription also will be paid by the Managing General Partner, such
payments will be without recourse to the Partnership and the Managing
General Partner will not be credited with such amounts towards its
required Capital Contribution.
(2) In the event Atlas has to subordinate its Partnership revenues in an
amount up to 10% of Net Production Revenues of the Partnership, Operating
Costs, Direct Costs, Administrative Costs and all other Partnership costs
not specifically allocated will be charged to the parties in the same
ratio as the related production revenues are being credited. (See "-
Investment Features - Preferred 10% Cash Return (cumulative 5 years),"
above and "Risk Factors - Special Risks of the Partnership - Borrowings
by the Managing General Partner Could Reduce Funds Available for Its
Subordination Obligation".)
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(Page 3)
(3) Proceeds from the sale or other disposition of equipment will be
credited to the parties charged with the costs of such equipment in the
ratio in which such costs were charged.
PRIOR ACTIVITIES
Atlas has previously sponsored four public and nineteen private drilling
programs formed since 1985 to conduct natural gas drilling and
development activities in Pennsylvania and Ohio. Atlas has drilled
approximately 1,500 wells over the 23 year period from 1972 to 1995 and
during this time it has completed approximately 97% of the wells. In the
current area of primary interest in Mercer County, Pennsylvania, Atlas
has completed 99% of more than approximately 640 wells drilled. (See
"Prior Activities" and "Proposed Activities - Information Regarding
Currently Proposed Prospects".)
RISK FACTORS
This offering involves numerous risks, including the risks of oil and gas
drilling, the risks associated with investments in oil and gas drilling
programs, and tax risks. (See "Risk Factors".) Each prospective investor
should carefully consider a number of significant risk factors inherent
in and affecting the business of the Partnership and this offering,
including the following.
RISKS PERTAINING TO OIL AND GAS INVESTMENTS:
The drilling and completion operations to be undertaken by the
Partnership for the development of gas reserves involve the possibility
of a substantial or partial loss of an investment in the Partnership
because of wells which are productive but do not produce enough revenue
to return the investment made and/or from time to time Dry Holes.
The revenues of the Partnership are directly related to the ability to
market the natural gas and the price of natural gas which is currently
unstable and cannot be predicted. If gas prices decrease then investor
returns will decrease.
Oil and gas operations in the United States are subject to extensive
government regulation. Future pollution and environmental laws could have
an adverse effect on the Partnership.
SPECIAL RISKS OF THE PARTNERSHIP:
The Managing General Partner will have the exclusive management and
control of all aspects of the business of the Partnership.
Prior to the conversion of Investor General Partners to Limited Partners,
Investor General Partners will have unlimited joint and several liability
for all obligations and liabilities to creditors and claimants arising
from the conduct of Partnership operations and if such liabilities exceed
the Partnership's assets and insurance and the assets of the Managing
General Partner and AEG Holdings, Inc. ("AEGH") (which have agreed to
indemnify the Investor General Partners), the Investor General Partners
could incur liability in excess of their Agreed Subscriptions.
Lack of liquidity or a market for the Units, necessitating a long-term
investment commitment.
Lack of asset diversification and concentration of investment risk should
less than the maximum Partnership Subscription be raised and thus fewer
wells drilled.
Certain conflicts of interest between the Managing General Partner and
the Partnership and lack of procedures to resolve such conflicts.
Atlas and its Affiliates can be expected to profit from the Partnership
even though it is possible that Partnership activities could result in
little or no profit, or a loss, to Participants.
Investors and the Managing General Partner will share in costs
disproportionately to their sharing of revenues.
Atlas intends that the Partnership will drill the currently proposed
Prospects described in "Proposed Activities - Information Regarding
Currently Proposed Prospects"; however, if there are adverse events with
respect to any of the currently proposed Prospects, Atlas has the right
acting as a prudent operator to substitute the Partnership's Prospects.
Also, up to 15% of the Partnership Subscription may be used to drill
Prospects which are not described in "Proposed Activities - Information
Regarding Currently Proposed Prospects".
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(Page 5)
Although Atlas has pledged to subordinate a portion of its Partnership
Net Production Revenues, the subordination is not a guarantee by Atlas.
If the wells produce gas in small amounts and/or the price of gas
decreases, then even with subordination the cash flow to the Participants
may be very small and they may not receive a return of their entire
investment.
Quarterly cash distributions to investors may be deferred to the extent
revenues are used for Partnership operations or reserves or if production
is reduced because of decreases in the price of gas.
Subject to certain conditions, beginning in 2000 the Participants may
present their interests for purchase by the Managing General Partner.
There is a risk that the Managing General Partner, or its Affiliates,
will not have the necessary cash flow or be able to arrange financing for
such purposes on terms which are reasonable as determined by the Managing
General Partner, and in such event the Managing General Partner is able
to suspend its repurchase obligation.
TAX RISKS:
There is no guarantee that if the Partnership is audited the IRS will not
challenge the deductions claimed by the Partnership.
Alternative minimum taxable income of "independent producers," which
includes most investors, cannot be reduced by more than 40% in the 1996
tax year by reason of the repeal of the preference item for intangible
drilling and development costs.
The proper application of many provisions of the IRS regulations
governing partnership allocations is currently unclear. Should the IRS
successfully challenge the allocation provisions contained in the
Partnership Agreement, Participants could incur a greater tax liability.
However, assuming the effect of the allocations set forth in the
Partnership Agreement is substantial in light of a Participant's tax
attributes that are unrelated to the Partnership, in Special Counsel's
opinion it is more likely than not that such allocations will govern each
Participant's distributive share to the extent they do not cause or
increase deficit balances in the Participants' Capital Accounts.
ACTIONS TO BE TAKEN BY MANAGING GENERAL PARTNER TO REDUCE RISKS OF ADDITIONAL
PAYMENTS BY INVESTOR GENERAL PARTNERS
The Managing General Partner will attempt to conduct the operations of
the Partnership in a manner designed to reduce the risk that an Investor
General Partner could be required to make additional payments to the
Partnership. The actions to be taken by the Managing General Partner
include:
1. INSURANCE. Twenty million dollars of liability coverage during
drilling operations and eleven million dollars thereafter as set forth in
"Proposed Activities - Insurance."
2. CONVERSION OF INVESTOR GENERAL PARTNER UNITS TO LIMITED PARTNER INTERESTS.
Pursuant to the Partnership Agreement, Investor General Partner Units in
the Partnership 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 late summer of 1997. Once
conversion has taken place, Investor General Partners will continue to
have the responsibilities of general partners with respect to Partnership
tort, contract and environmental liabilities and obligations incurred
prior to the effective date of the conversion. However, such Investor
General Partners will have the lesser liability of limited partners under
Pennsylvania law with respect to obligations and liabilities arising
after the conversion. Nevertheless, an Investor General Partner might
become liable for obligations in excess of his Agreed Subscription to the
Partnership during the time when the Partnership is engaged in drilling
activities and for environmental claims that arose during drilling
activities but were not discovered until after conversion.
3. NONRECOURSE DEBT. Under the Partnership Agreement the Partnership will
be permitted to borrow funds only from Atlas or its Affiliates and Atlas
and its Affiliates will not have recourse against the non-Partnership
assets of the individual Investor General Partners. Accordingly, no
Investor General Partner could be required to contribute funds to the
Partnership in the case of a default under such loan arrangement. Because
the Participants do not bear the risk of repaying these borrowings with
non-Partnership assets, the borrowings will not increase the extent to
which Participants are allowed to deduct their individual shares of
Partnership losses. (See "Tax Aspects - Tax Basis of Participants'
Interests" and "- `At Risk' Limitation For Losses".) Any such borrowings
will be repaid from Partnership revenues. The amount that may be borrowed
at any one time may not exceed an amount equal to 5% of the Partnership
Subscription. To further protect the Investor General Partners, during
producing operations all third party goods and services will be acquired
by Atlas and its Affiliates and the Partnership will then acquire such
goods and services from Atlas and its Affiliates at their Cost.
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(Page 6)
4. INDEMNIFICATION. Atlas and AEGH will indemnify each Investor General
Partner from any liability incurred in connection with the Partnership
which is in excess of such Investor General Partner's interest in the
undistributed net assets of the Partnership and insurance proceeds, if
any. Upon such indemnification by Atlas and/or AEGH, each Investor
General Partner who has been indemnified is deemed to have transferred
and subrogated his rights for contribution from or against any other
Investor General Partner to Atlas and/or AEGH. Atlas' and AEGH's
indemnification obligation, however, will not eliminate an Investor
General Partner's potential liability in the event that insurance is not
sufficient or available to cover a liability and Atlas' and AEGH's assets
are insufficient to satisfy their indemnification obligation. There can
be no assurance that Atlas' and AEGH's assets, including their liquid
assets, will be sufficient to satisfy their indemnification obligation.
(See "Risk Factors - Special Risks of the Partnership - Managing General
Partner Liquid Net Worth Is Not Guaranteed" and "Financial Information
Concerning the Managing General Partner, AEGH and the Partnership".)
COMPENSATION TO THE MANAGING GENERAL PARTNER, THE OPERATOR AND THEIR
AFFILIATES
The following is a tabular presentation of the items of compensation and
reimbursement to be received by Atlas and its Affiliates from the
Partnership which are discussed more fully in "Compensation."
FORM OF COMPENSATION AND/OR REIMBURSEMENT AMOUNT
Partnership Interest
25% of the oil and gas revenues of
the Partnership in return for
paying Organization and Offering
Costs equal to 15% of
the Partnership
Subscription, 14% of Tangible Costs
and contributing all Prospects
the Partnership at Cost, or fair
market value if Cost is materially
more than fair market value.(1)
Contract drilling rates
Competitive industry rates.
Atlas anticipates that it will
have a profit of approximately 11%
to 15% per well if the well
is drilled to a depth of
6,150 feet.(1)
Operator's Per-Well Charges
Competitive industry rates,
currently $275 per well per month.
(See "Proposed Activities- Drilling
and Completion Activities;
Operation of Producing Wells".) (1)
Direct Costs Reimbursement at Cost.(1)
Administrative Costs
Unaccountable, fixed payment
reimbursement of Managing General
Partner's administrative overhead
which the Managing General Partner
has set at $75 per well per month.
Transportation and Marketing Fee Competitive industry rate of
29 per MCF. (1)
- ----------------------------------------------
(1) Cannot be quantified at the present time.
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(Page 7)
The following organizational chart shows the relationship between Atlas
Resources, Inc., the Managing General Partner, and its Affiliates. (See
"Management".)
<TABLE>
<CAPTION>
Organizational Diagram
AEG HOLDINGS,INC.
:
AIC, INC
:
.........................................................................................
: : : : : : :
ATLAS MERCER GAS PENNSYLVANIA ATLAS ENERGY TRANSATCO ATLAS GAS ATLAS ENERGY
RESOURCES GATHERING INDUSTRIAL CORPORATION INC.,WHICH MARKETING GROUP, INC.
(MANAGING INC., (GAS ENERGY,INC. (DRILLER AND OWNS 50% OF INC. (DRILLER AND
GENERAL GATHERING ("PIE") OPERATOR IN TOPICO (MARKETS OPERATOR IN
PARTNER, COMPANY) (SELLS GAS TO WV AND (OPERATES NATURAL OHIO
DRILLER PENNSYLVANIA MANAGING PIPELINE GAS)
AND OPERATOR) INDUSTRY) GENERAL IN OHIO
: :
: :
ARD AED
INVESTMENTS, INC. INVESTMENTS, INC.
<C> <C> <C> <C> <C> <C> <C>
1 2 3 4 5 6 6
</TABLE>
CONFLICTS OF INTEREST
The Managing General Partner has a fiduciary duty to exercise good faith
and to deal fairly with the Participants in handling the affairs of the
Partnership. Nevertheless, there are various conflicts of interest
between the Managing General Partner and the Participants with respect to
the Partnership. Conflicts of interest are inherent in oil and gas
drilling programs involving non-industry participants because the
transactions are entered into without arms' length negotiation. Other
than certain guidelines set forth in "Conflicts of Interest", the
Managing General Partner has no established procedures to resolve a
conflict of interest. Consequently, conflicts of interest between the
Managing General Partner and the Participants may not necessarily be
resolved in the best interests of the Participants. Under Section 4.05(a)
of the Partnership Agreement, the Managing General Partner, the Operator
and their Affiliates have no liability to the Participants for any action
or inaction on their part which they determined was in the best interest
of the Partnership, provided that such course of conduct did not
constitute negligence or misconduct of the Managing General Partner, the
Operator or their Affiliates. (See "Conflicts of Interest".)
DISTRIBUTION
The Units will be offered by registered broker-dealers which are members
of the National Association of Securities Dealers, Inc. ("NASD") on a
best efforts basis. (Best efforts means that the broker-dealers will not
guarantee the sale of a certain amount of Units.) The broker-dealers will
be paid cash Sales Commissions of 7.5% of the Agreed Subscription and
will be entitled to reimbursement of their bona fide accountable due
diligence expenses incurred in discharging their due diligence
obligations of .5% of the Units sold by them. Atlas has engaged three
wholesalers who will receive 2.5% of Agreed Subscriptions obtained
through such wholesalers' efforts. All Sales Commissions, due diligence
reimbursements and wholesaling fees will be paid by the Managing General
Partner and will not be paid with subscription proceeds. Upon receipt of
the required minimum Partnership Subscription and after the checks have
cleared, Sales Commissions, due diligence reimbursements and wholesaling
fees will be paid by the Managing General Partner to the broker-dealers
every two weeks until the Offering Termination Date. (See "Terms of the
Offering - Partnership Closing and Escrow," "Participation in Costs and
Revenues" and "Plan of Distribution".)
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(Page 8)
THE FOREGOING SUMMARY OF CERTAIN PROVISIONS OF THE PROSPECTUS DOES NOT
PURPORT TO BE A COMPLETE DESCRIPTION OF THE TERMS AND CONSEQUENCES OF AN
INVESTMENT IN THE PARTNERSHIP. PROSPECTIVE INVESTORS AND THEIR ADVISERS SHOULD
CAREFULLY READ THE ENTIRE PROSPECTUS AND ALL ATTACHED EXHIBITS BEFORE MAKING
AN INVESTMENT IN THE PARTNERSHIP.
RISK FACTORS
An investment in the Partnership involves a high degree of risk and is
suitable only for investors of substantial financial means who have no
need of liquidity in their investment.
SPECIAL RISKS OF THE PARTNERSHIP
SPECULATIVE NATURE OF INVESTMENT.
Exploration for gas is an inherently speculative activity. There is
always the risk that drilling activity may result in wells which do not
produce gas in sufficient quantities to return the investment made and
from time to time Dry Holes. There is a substantial risk that the price
of gas will be volatile and may decrease. There can be no guarantee that
the Participants will recover all of their investment or that their
investment will be profitable. (See "Proposed Activities - Intended Areas
of Operations".)
UNLIMITED LIABILITY OF INVESTOR GENERAL PARTNERS.
Under Pennsylvania law, each Investor General Partner will have
unlimited joint and several liability with respect to the activities of
the Partnership which could result in an Investor General Partner being
required to make payments, in addition to his original investment, in
amounts which are impossible to determine because of their uncertain
nature with respect to the development and operation of the wells. Also,
the Partnership may own less than 100% of the Working Interest in the
Prospects and in that event each Investor General Partner may have joint
and several liability with the other third party owners of the Working
Interest. Although under the terms of the Partnership Agreement the
Investor General Partners agree to be responsible for and pay their
respective proportionate shares of such obligations and liabilities, such
agreement does not legally negate each Investor General Partner's joint
and several liability for such obligations and liabilities as among
themselves if an Investor General Partner does not pay his respective
proportionate share of such obligations and liabilities and/or in the
event that a court holds the Investor General Partners and the other
third party owners of the Working Interest to be jointly and severally
liable. (See "Summary of the Offering - Actions to be Taken by Managing
General Partner to Reduce Risks of Additional Payments by Investor
General Partners", "- General Risks of the Oil and Gas Business -
Drilling Hazards May Be Encountered," "- General Risks of the Oil and Gas
Business - Potential Liability for Pollution; Environmental Matters," and
"Summary of Partnership Agreement - Liabilities of General Partners,
Including Investor General Partners".)
In addition to the other actions summarized in this Prospectus which will
be taken by Atlas to reduce the risk of additional payments by the
Investor General Partners, Atlas and AEGH have agreed to indemnify each
Investor General Partner from any liability incurred in connection with
the Partnership which is in excess of such Investor General Partner's
share of Partnership assets. There can be no assurance that Atlas' and
AEGH's assets, including their liquid assets, will be sufficient to
satisfy their indemnification obligation. This risk is increased because
Atlas and AEGH have made and will make similar financial commitments in
other drilling programs. The Partnership will also have the benefit of
general and excess liability insurance of $20,000,000 during drilling
operations and, thereafter, $11,000,000, per occurrence and in the
aggregate. Nevertheless, the Investor General Partners may become subject
to tort or contract liability in excess of the amounts insured under such
policies and also may be subject to liability for pollution, abuses of
the environment and other damages against which the Managing General
Partner cannot insure because coverage is not available or against which
it may elect not to insure because of high premium costs or other
reasons.
If the insurance proceeds, Partnership assets, and Atlas' and AEGH's
indemnification of the Investor General Partners were not sufficient to
satisfy such liability an Investor General Partner's personal assets
could be required to be used to satisfy such liability.
ILLIQUID INVESTMENT AND RESTRICTIONS ON TRANSFERABILITY OF PARTICIPANTS'
INTERESTS.
Participants in the Partnership must assume the risks of an illiquid
investment. Participants' interests are not marketable; and the
transferability of Participants' interests is limited, both by express
provision of the Partnership Agreement and the provisions of state and
federal securities laws. Such interests cannot be readily liquidated by a
Participant in the event of an emergency, and any such sale would create
adverse tax and economic consequences for the selling Participant. (See
"Repurchase Obligation" and "Transferability of Units".)
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(Page 9)
TOTAL RELIANCE UPON THE MANAGING GENERAL PARTNER.
The Managing General Partner will have the exclusive right to control
the affairs and business of the Partnership. No prospective investor
should purchase any Units in the Partnership unless he is willing to
entrust all aspects of management of the Partnership to Atlas. (See
"Conflicts of Interest" and "Summary of Partnership Agreement".)
MANAGEMENT OBLIGATIONS OF MANAGING GENERAL PARTNER NOT EXCLUSIVE.
Atlas must devote that amount of time to the Partnership's affairs as it
determines reasonably necessary. Atlas and its Affiliates will be engaged
in other oil and gas activities and other unrelated business ventures for
their own account or for the account of others during the term of the
Partnership. (See "Conflicts of Interest - Other Activities of the
Managing General Partner, the Operator and their Affiliates".)
MANAGING GENERAL PARTNER LIQUID NET WORTH IS NOT GUARANTEED.
Atlas, as Managing General Partner, is primarily responsible for the
conduct of the Partnership's affairs. A significant adverse financial
reversal for Atlas could adversely affect the Partnership and the value
of the Units therein. The net worth of Atlas and AEGH is largely based on
the estimated value of producing gas properties that they hold, and is
not readily available in cash absent borrowings or a sale of the
properties. Also, gas prices are volatile and if gas prices decrease,
this will have a direct adverse effect on the estimated value of such
properties and, therefore, on the net worth of Atlas and AEGH. There is
no assurance that Atlas and AEGH will have the necessary net worth,
currently or in the future, to meet their indemnification obligation to
the Investor General Partners or with respect to Atlas its other
financial commitments under the Partnership Agreement. These risks are
increased because Atlas and AEGH have made and will make similar
financial commitments in other programs. (See "Financial Information
Concerning the Managing General Partner, AEGH and the Partnership".)
DIVERSIFICATION DEPENDS UPON SUBSCRIPTION PROCEEDS.
The fewer the number of Units purchased the fewer the number of wells
which the Partnership will participate in developing which will limit the
ability to spread the risks of drilling. Conversely, as the Partnership
size increases the number of wells will increase, thereby increasing the
diversification of the Partnership. If the Managing General Partner,
however, is unable to secure sufficient attractive Prospects for a larger
Partnership, it is possible that the average quality of the wells drilled
could decline. In addition, greater demands will be placed on the
management capabilities of the Managing General Partner in a large
Partnership. (See "Proposed Activities - In General".)
GREATER RISKS BORNE BY PARTICIPANTS.
Under the cost and revenue sharing provisions of the Partnership
Agreement, the Participants and the Managing General Partner will share
in costs disproportionately to their sharing of revenues. (See
"Participation in Costs and Revenues".)
COMPENSATION AND FEES TO THE MANAGING GENERAL PARTNER REGARDLESS OF SUCCESS
OF THE ACTIVITIES.
Atlas and its Affiliates can be expected to profit from the Partnership
even though Partnership activities result in little or no profit, or a
loss to Participants. (See "Compensation".)
DRY HOLE RISK IN DEVELOPMENT DRILLING.
Although the Dry Hole risk associated with Development Wells in the
Appalachian Basin is greatly reduced, there can be no assurance that
there will not be some Dry Holes. (See "Prior Activities".)
RISK OF UNPRODUCTIVE WELLS IN DEVELOPMENT DRILLING.
Completion of a Development Well in the Clinton/Medina geological
formation in Pennsylvania or Ohio, in the Benson or Weir Sandstone
geological formation in West Virginia or any other Development Well
drilled by the Partnership in the Appalachian Basin should not be equated
with commercial success. These geologic formations are characterized by
low permeability (ability of hydrocarbon-bearing rock to allow the flow
of oil and gas), low porosity (capacity of rock to hold oil and gas) and
other geological characteristics which may reduce the profit potential of
a well completed to such geologic formations. A well drilled to such
geologic formations may be completed and productive but not produce
enough revenue to return the investment made, even if tax consequences
are considered. With respect to Atlas' prior partnerships since 1985,
twenty-two of the twenty-three partnerships have not yet returned to the
investor 100% of his capital contributions without taking tax savings
into account; however, all of the partnerships are continuing to make
cash distributions and eighteen of the partnerships were formed in 1990
or subsequent years. (See "- General Risks of the Oil and Gas Business -
Speculative Nature of Gas Business," "Prior Activities" and "Proposed
Activities".)
RISKS REGARDING MARKETING OF GAS.
Atlas estimates that a portion of the Partnership's gas production in
Mercer County will be transported through Atlas' and its Affiliates' own
pipeline system and sold directly to industrial end-users in the area
where the wells will be drilled. The remainder of the Partnership's gas
will be transported through Atlas' and its Affiliates' pipelines to the
interconnection points maintained with Tennessee Gas Transmission Co.,
National Fuel Supply Corporation, National Fuel Gas Distribution Company,
East Ohio Natural Gas Company and Peoples Natural Gas Company. Atlas
markets portions of the gas through long term contracts, short term
contracts and monthly spot market sales. There is no assurance of the
price at which the Partnership's gas will be sold, and generally, the
revenues received by the Partnership will be less the farther the gas is
transported because of the
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(Page 10)
increased transportation costs. (See "-
General Risks of the Oil and Gas Business - Risk of Decrease in the Price
of Gas," "Proposed Activities - Sale of Oil and Gas Production" and
"Competition, Markets and Regulation - Marketing".)
The sale to industrial end-users also can raise risks relating to the
credit worthiness of the industrial end-user. In the event that the
industrial end-user does not pay, or delays payment, the Partnership may
not be paid or may experience delays in receiving payment for natural gas
that has already been delivered. For example, after Sharon Steel
Corporation ("Sharon") filed Chapter 11 bankruptcy in 1987, it continued
to purchase most of Atlas' and its Affiliates' natural gas production in
the Mercer County field until it filed a second Chapter 11 bankruptcy in
1992. At that time, Atlas and various programs where Atlas is either the
Managing General Partner and/or operator lost approximately $2,400,000,
for approximately 77 days of gas sales, of which approximately $600,000
was owed to Atlas and the balance was owed to the various programs. (See
"- General Risk of the Oil and Gas Business - Competition in Marketing
Natural Gas Production," "Proposed Activities - Sale of Oil and Gas
Production," "Competition, Markets and Regulation - Marketing" and
"Financial Information Concerning the Managing General Partner, AEGH and
the Partnership".)
Also, there can be no assurance that the terms of a gas supply agreement
with an end-user will continue to be favorable over the life of the
wells. Most gas supply agreements provide that prices may be adjusted
upward or downward from time to time in accordance with market
conditions. Also, when the gas supply agreements expire the industrial
end-users may negotiate lower pricing terms. (See "Proposed Activities -
Sale of Oil and Gas Production" and "Competition, Markets and
Registration - Marketing".)
POSSIBLE DELAYS IN PRODUCTION AND SHUT-IN WELLS.
Production from wells may be reduced or Shut-In due to marketing demands
which tend to be seasonal. There is no assurance that Atlas will not have
to curtail production in 1997 or subsequent years awaiting a better price
for the gas. Production from wells drilled in certain areas may also be
delayed for up to several months until construction of the necessary
pipelines and production facilities is completed. (See "Proposed
Activities - Sale of Oil and Gas Production" and "Competition, Markets
and Regulation - Marketing".)
UNSPECIFIED LOCATION OF A PORTION OF THE PROSPECTS.
Atlas intends that the Partnership will be assigned 100% of the Working
Interest and will drill the currently proposed Prospects described in
"Proposed Activities - Information Regarding Currently Proposed
Prospects" which represent approximately 85% of the potential $8,000,000
maximum Partnership Subscription assuming 100% of the Working Interest is
acquired by the Partnership and the Managing General Partner elects to
increase the size of the offering to $8,000,000. The currently proposed
Prospects are all situated in Mercer County, Pennsylvania. However, the
Managing General Partner has reserved the right to use up to 15% of the
Partnership Subscription to drill additional Prospects in other areas of
the Appalachian Basin which are not described in "Proposed Activities -
Information Regarding Currently Proposed Prospects". The Partnership
also may acquire Working Interests in additional Prospects which are not
described in "Proposed Activities - Information Regarding Currently
Proposed Prospects" in the event the Partnership acquires less than 100%
of the Working Interest in one or more Prospects. In addition, Atlas has
the right to delete any Prospect which it deems to be inappropriate for
the Partnership because of adverse events or for which insufficient funds
are available, and it may substitute or adjust the Partnership's interest
in the Prospects as it deems necessary to meet the objectives of the
Partnership. A prospective Participant has no information regarding any
additional and/or substitutional Leases. The Partnership does not have
the right of first refusal in the selection of Leases from the inventory
of the Managing General Partner and its Affiliates, and they may sell
their Leases to other programs, companies, joint ventures or other
persons at any time. (See "- Total Reliance upon the Managing General
Partner," above, and "Proposed Activities - Acquisition of Leases" and
"Proposed Activities - Information Regarding Currently Proposed
Prospects".)
NO GUARANTEE OF DATA REGARDING CURRENTLY PROPOSED PROSPECTS.
The data included in "Proposed Activities - Information Regarding
Currently Proposed Prospects" has been prepared by Atlas from sources
deemed reliable by it; however, Atlas cannot guarantee that the data
reflects all of the wells drilled in the area or that the amount of gas
production in the area is accurate in all cases. As to certain of the
Prospects the production information is incomplete because the wells are
being operated by third parties and the information is unavailable to
Atlas. Also, some of the wells have only been producing for a short
period of time or are not yet completed or online. (See "Proposed
Activities - Information Regarding Currently Proposed Prospects".)
ATLAS' SUBORDINATION IS NOT A GUARANTEE.
Atlas has agreed to subordinate a portion of its share of Partnership
Net Production Revenues generated from the sale of gas in the
Partnership. If the wells, however, produce gas in small amounts, and/or
the price of gas decreases, then even with subordination the cash flow to
the Participants may be very small and they may not receive a return of
their entire investment. (See "- Borrowings by the Managing General
Partner Could Reduce Funds Available for Its Subordination Obligation"
and "Participation in Costs and Revenues - Subordination of Portion of
Managing General Partner's Net Revenue Share".)
BORROWINGS BY THE MANAGING GENERAL PARTNER COULD REDUCE FUNDS AVAILABLE
FOR ITS SUBORDINATION OBLIGATION.
It is anticipated that the Managing General Partner will pledge, for its
own corporate purposes, either its Partnership interest and/or an
undivided
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interest in the assets of the Partnership equal to its interest
in the revenues of the Partnership. Such a pledge, in the event of a
default to the lender, would reduce the Partnership Net Production
Revenues of Atlas available for Atlas' subordination obligation. Also,
the Managing General Partner is not obligated to attempt or arrange for
or secure any similar financing for any Participants for their own
account. (See "Conflicts of Interest - Other Conflicts" and "Summary of
Partnership Agreement".)
POSSIBILITY OF REDUCTION OR UNAVAILABILITY OF INSURANCE.
It is possible that some or all of the insurance coverage which the
Partnership has available may become unavailable or prohibitively
expensive. In such case, Investor General Partners who elected to remain
Investor General Partners after notice that the insurance is being
reduced could be exposed to additional financial risk, and all
Participants could be subject to greater risk of loss of their
investment. (See "- General Risks of the Oil and Gas Business - Drilling
Hazards May Be Encountered," "Proposed Activities - Insurance" and "Tax
Aspects - Limitations on Passive Activities".)
POSSIBLE NONPERFORMANCE BY SUBCONTRACTORS.
Atlas, as Operator and general drilling contractor, will subcontract
some of the services to subcontractors. There is a risk that if such
subcontractors fail to timely pay for materials or services on the wells
the Partnership could incur excess costs. To reduce this risk Atlas will
use only subcontractors that have previously performed similar activities
for Atlas in a satisfactory manner, will endeavor to ascertain the
financial condition of the subcontractors and attempt to secure lien
releases from the various subcontractors. (See - "Unlimited Liability of
Investor General Partners," above and "Proposed Activities - Drilling and
Completion Activities; Operation of Producing Wells".)
RISK OF PREPAYMENT TO ATLAS.
Advance payments by the Partnership to the Managing General Partner and
its Affiliates are prohibited, except where advance payments are required
to secure tax benefits of prepaid drilling costs and for a business
purpose. Because it is anticipated the Partnership will be required to
pay the entire contract price for the Partnership Wells immediately
because of tax reasons, such funds could be subject to claims of
creditors of such Operator. Although the Partnership is not required to
prepay completion costs of a well before a decision is made to complete
the well, it is anticipated that all wells will be required to be
completed before an evaluation can be made as to their potential
productivity. (See "Financial Information Concerning the Managing General
Partner, AEGH and the Partnership".)
POSSIBLE LEASEHOLD DEFECTS.
The Working Interests in the Leases to be assigned to the Partnership by
Atlas or third parties will be assigned without title insurance and there
is a risk of title failure. (See "Proposed Activities - Title to
Properties".)
PARTNERSHIP BORROWINGS MAY REDUCE OR DELAY DISTRIBUTIONS.
Although it is not anticipated that the Partnership will borrow any
funds, the Managing General Partner is authorized to increase the working
capital of the Partnership by making advances to the Partnership.
Borrowings by the Partnership can result in delayed or reduced cash
distributions while the loan is being repaid. (See "Capitalization and
Source of Funds and Use of Proceeds" and "- Tax Risks - Possible Taxes in
Excess of Cash Distributions," below.)
ATLAS WILL RECEIVE BENEFIT FROM TRANSFER OF LEASES.
The Managing General Partner will contribute sufficient undeveloped
Leases to the Partnership to drill the Partnership's wells at the Cost of
such Leases, or fair market value if Cost is materially more than fair
market value. The Cost of the Leases will include a portion of the
Managing General Partner's reasonable, necessary and actual expenses for
geological, geophysical, engineering, interest expense, legal, and other
like services allocated to the Partnership's Leases determined using
industry guidelines. The Managing General Partner will receive a benefit
from these transactions. In addition, such contributions could create
conflicts of interest for the Managing General Partner. Wells will be
drilled by the Partnership to test the Clinton /Medina geologic
formation, a blanket geological formation prevalent in Ohio and
Pennsylvania. A Prospect will be deemed to consist of the drilling or
spacing unit on which such well will be drilled if the Clinton/Medina
geological formation to which such well will be drilled contains Proved
Reserves and the drilling or spacing unit protects against drainage. The
development of wells on such acreage may provide Atlas with offset sites
by allowing it to ascertain at the Partnership's expense the value of
adjacent acreage in which the Partnership would not have any right to
participate in developing. (See "Conflicts of Interest - Conflicts
Involving Acquisition of Leases," "Conflicts of Interest - Other
Activities of the Managing General Partner, the Operator and their
Affiliates" and "Proposed Activities".)
OTHER CIRCUMSTANCES UNDER WHICH DISTRIBUTIONS MAY BE REDUCED OR DELAYED.
Although the Managing General Partner intends to distribute the cash
quarterly, distributions may be deferred to the extent revenues are used
for cost overruns, costs related to completing and Fracturing some of the
wells in a third zone or remedial work to improve a well's producing
capability or in the event a productive gas well is Shut-In for an
indeterminate time awaiting an acceptable market for such production. In
addition, the Operator pursuant to the Drilling and Operating Agreement
has reserved the right at any time after three years from the date a
Partnership Well has been placed into production to withhold revenues of
the well of up to $200 per month to establish a reserve for the estimated
costs of eventually plugging and abandoning the well, although
historically Atlas has never done so after only three years. There can be
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no assurance that cash distributions will be regularly paid or that they
will exceed the amount of the taxes payable by a Participant with respect
to his investment in the Units. (See "- Tax Risks - Possible Taxes in
Excess of Cash Distributions".)
CONFLICTS OF INTEREST.
There are conflicts of interest between the Managing General Partner and
its Affiliates and the Partnership including, but not limited to, the
compensation paid by the Partnership to Atlas and the terms of the
offering have been determined solely by Atlas; Atlas may have conflicts
of interest in allocating management time, services and other functions
among the Partnership and its other oil and gas programs; and conflicts
of interest may arise concerning which Leases Atlas will assign to the
Partnership for drilling, and which Leases Atlas will assign to its other
drilling programs. Other than certain guidelines set forth in "Conflicts
of Interest", the Managing General Partner has no established procedures
to resolve a conflict of interest. (See "Conflicts of Interest".)
RISK REGARDING PARTICIPATION WITH THIRD PARTIES.
It is anticipated that the Partnership will own 100% of the Working
Interest in the wells, however, the Partnership has reserved the right to
take as little as 25% of the Working Interest. Therefore, it is possible
that other Working Interest owners will participate with the Partnership
to drill some of the wells. Additional financial risks are inherent in
any operation where the cost of drilling, equipping, completing and
operating wells is shared by more than one person. In the event the
Partnership pays its share of such costs, but another Working Interest
owner does not, the Partnership may have to pay the costs of such
defaulting party. (See "-Unlimited Liability of Investor General
Partners," above, and "Proposed Activities".)
DISSOLUTION OF THE PARTNERSHIP OR WITHDRAWAL OR REMOVAL OF THE MANAGING
GENERAL PARTNER MAY HAVE ADVERSE EFFECTS.
If Atlas would withdraw or be removed as Managing General Partner of the
Partnership and the Participants failed to elect to continue the
Partnership and to designate a substituted Managing General Partner of
the Partnership, the Partnership would terminate and dissolve and adverse
tax and other consequences could result.
If the Partnership was dissolved the Participants may receive a
distribution of direct property interests. As joint interest owners,
Limited Partners would have joint and several liability for the
obligations or liabilities arising out of joint owner operations and
might find it desirable to obtain insurance protection or dispose of the
property interests, which may be difficult. To reduce this risk the
Managing General Partner will attempt upon liquidation and dissolution to
use its best efforts to sell the Partnership's properties or to cause
some type of entity which would preserve the limited liability of the
former Limited Partners, such as a liquidating trust, to be established
to hold the Partnership's properties. However, even if the properties
were transferred to a liquidating trust upon dissolution of the
Partnership, it might be difficult for the liquidating trust to deal with
such assets and realize their full value. For example, to replace the
management provided by the Managing General Partner, the trustee of the
liquidating trust would need the services of professional operators.
Further, after dissolution and the completion of payments to third party
creditors, the Managing General Partner has priority in liquidation for
any claims of indebtedness before the Participants. Such distributions
may also have adverse income tax consequences to the Participants. (See
"- Unlimited Liability of Investor General Partners," above, and "Tax
Aspects - Disposition of Partnership Interests".)
INDEMNIFICATION AND EXONERATION OF THE MANAGING GENERAL PARTNER WOULD
REDUCE DISTRIBUTIONS.
Under the Partnership Agreement the Managing General Partner and its
Affiliates may be indemnified by the Partnership for certain liabilities
incurred in connection with the activities of the Partnership. Also,
under the Drilling and Operating Agreement the Operator may be
indemnified by the Partnership in connection with certain activities. Use
of Partnership capital or assets for such indemnification would reduce
amounts available for Partnership operations or for distribution to
Participants. (See "Fiduciary Responsibility of the Managing General
Partner".)
LIMITED PARTNER LIABILITY FOR REPAYMENT OF CERTAIN DISTRIBUTIONS.
Under the Pennsylvania Revised Uniform Limited Partnership Act (the
"Partnership Act"), the liability of the Limited Partners for the losses,
debts and obligations of the Partnership will generally be limited to
their Agreed Subscription and their allocable share of any undistributed
net profits. However, under the Partnership Act the Limited Partners may,
under certain circumstances, be required to repay to the Partnership
amounts previously distributed to them by the Partnership, with interest
thereon, if the Partnership does not have sufficient other assets to
satisfy the claims of creditors. Also, a Limited Partner will be liable
for the obligations of the Partnership if he takes part in the control of
the business of the Partnership. (See "Summary of Partnership Agreement -
Liability of Limited Partners".)
POSSIBILITY OF UNAUTHORIZED ACTS OF INVESTOR GENERAL PARTNERS.
Under the Partnership Act a general partner may bind the partnership by
his action, unless the partner in fact has no authority to act for the
partnership and the person with whom he is dealing has knowledge of the
fact he has no such authority. Under the Partnership Act, knowledge may
be actual knowledge of the lack of authority or knowledge of other facts
which in the circumstances would show bad faith. Although there is a risk
that an Investor General Partner might bind the Partnership by his acts,
Atlas believes it will have such exclusive control over the conduct of
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the business of the Partnership that it is unlikely a third party, in the
absence of bad faith, would deal with an Investor General Partner as to
the Partnership's business.
RISKS THAT REPURCHASE OBLIGATION MAY NOT BE FUNDED AND REPURCHASE PRICE MAY
NOT REFLECT FULL VALUE.
Subject to certain conditions, beginning in 2000 the Participants may
present their interests for purchase by the Managing General Partner. The
Managing General Partner anticipates purchasing such interests primarily
through cash flow and secondarily through corporate borrowings secured by
the interests purchased. There is a risk that the Managing General
Partner, or its Affiliates, will not have the necessary cash flow or be
able to arrange financing for such purposes on terms which are reasonable
as determined by the Managing General Partner in its sole discretion, and
in such event the Managing General Partner is able to suspend its
repurchase obligation. In addition, the Managing General Partner has and
will incur similar presentment obligations in connection with other oil
and gas programs which it or its Affiliates may sponsor. Because of the
difficulty in accurately estimating oil and gas reserves, the purchase
price may not reflect the full value of the Partnership property to which
it relates. Such estimates are merely appraisals of value and may not
correspond to realizable value. There can be no assurance that the
purchase price paid for the interest and any revenues received by the
Participant prior to the repurchase will be equal to the original price
paid for such interests. Conversely, a Participant might realize a
greater return if he retains the Units, which the Participant may elect,
rather than sells the Units as provided herein. (See "Conflicts of
Interest - Conflicts Regarding Repurchase Obligation" and "Repurchase
Obligation".)
POSSIBLE PARTICIPATION IN ROLL-UP
. There is no assurance that at some indeterminate time in the future the
Partnership will not become involved in a "Roll-Up" transaction. In
that event, there could be changes in the rights, preferences, and
privileges of the Participants in the Partnership; such as increasing the
compensation of the Managing General Partner, amending the voting rights
of the Participants, listing the Units on a national securities exchange
or on NASDAQ, changing the fundamental investment objectives of the
Partnership, or materially altering the duration of the Partnership.
However, any Participant who votes "no" on a Roll-Up proposal will be
offered a choice of (a) accepting the securities of the Roll-Up Entity
offered in the proposed Roll-Up; (b) remaining a Participant in the
Partnership and preserving his interests in the Partnership on the same
terms and conditions as existed previously; or (c) receiving cash in an
amount equal to his pro-rata share of the appraised value of the
Partnership's net assets. (See "Conflicts of Interest - Policy Regarding
Roll-Ups" .)
GENERAL RISKS OF THE OIL AND GAS BUSINESS
SPECULATIVE NATURE OF GAS BUSINESS.
Gas exploration is an inherently speculative activity. The Managing
General Partner cannot predict the amount of gas recoverable from any
Prospect, the time it will take to recover the gas or the price at which
the gas will be marketed. Because of the risk involved, there can be no
guarantee that the Participants will recover all of their investment or
that their investment will be profitable. (See "Proposed Activities -
Intended Areas of Operations".)
RISKS OF DECREASE IN THE PRICE OF GAS.
The price at which the gas can be sold will depend on factors largely
beyond the control of the Partnership. For example, during most of the
1980's and 1990's oil and gas prices have been unstable. If there is a
significant reduction in the price of gas, it will have a material
adverse impact on the net revenues which the Partnership will derive from
the production of its wells, possibly even precluding or limiting
distributions to the Participants. There is a substantial risk that the
price of gas will continue to be volatile and may decrease. (See
"Proposed Activities - Sale of Oil and Gas Production" and "Competition,
Markets and Regulation - Marketing".)
DRILLING HAZARDS MAY BE ENCOUNTERED.
There are numerous natural hazards involved in the drilling of wells
including unexpected or unusual formations, pressures and blowouts that
may result in possible damage to property and third parties including
surface damage, bodily injury, damage to and loss of equipment, reservoir
damage and loss of reserves. The Partnership may also be subject to
liability for pollution such as accidental leakages, abuses of the
environment and other similar damages incurred during drilling. Although
the Partnership will maintain insurance coverage in the amounts the
Managing General Partner deems appropriate, it is possible that insurance
coverage may be insufficient. Uninsured liabilities would reduce the
funds available to the Partnership, may result in the loss of Partnership
properties and may create liability for Investor General Partners. (See
"Proposed Activities - Insurance".)
COMPETITION IN MARKETING NATURAL GAS PRODUCTION.
There is competition for the most desirable Leases, and the Partnership
will encounter intense competition in the sale of its gas production. The
quantities of gas to be delivered by the Partnership may also be affected
by factors beyond its control, such as the inability of the wells to
deliver gas at pipeline quality and pressure, premature exhaustion of
reserves, changes in governmental regulations affecting allowable
production and priority allocations and price limitations imposed by
federal and state regulatory agencies. (See "Proposed Activities - Sale
of Oil and Gas Production" and "Competition, Markets and Regulation".)
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RISK OF NEW GOVERNMENTAL REGULATIONS.
Oil and gas operations in the United States, including lease
acquisitions and other energy-related activities, are subject to
extensive government regulation and to interruption or termination by
governmental authorities on account of ecological and other
considerations. Proposals concerning regulation and taxation of the oil
and gas industry are constantly before Congress. It is impossible to
predict which proposals, if any, will be enacted into law and, if
enacted, the exact effect they might have on the Partnership. (See
"Competition, Markets and Regulation".)
POTENTIAL LIABILITY FOR POLLUTION; ENVIRONMENTAL MATTERS.
The Partnership may be subject to liability for pollution and other
damages due to hazards which cannot be insured against or will not be
insured against due to prohibitive premium costs or for other reasons. In
this regard the Investor General Partners might become liable for
obligations in excess of their Agreed Subscriptions for environmental
claims that arose during drilling activities, but were not discovered
until after the Investor General Partners converted to Limited Partner
status. Environmental regulatory matters also could increase
substantially the cost of doing business, and may cause delays in
producing natural gas from the Partnership's wells or require the
modification of operations in certain areas. (See "Competition, Markets
and Regulation".)
UNCERTAINTY OF COSTS.
There is no assurance that over the life of the Partnership there will
not be fluctuating or even increasing costs in doing business. This would
directly affect the Managing General Partner's ability to operate the
Partnership's wells and property at acceptable price levels. (See
"Competition, Markets and Regulation - Competition".)
TAX RISKS
TAX CONSEQUENCES MAY VARY DEPENDING ON INDIVIDUAL CIRCUMSTANCES.
There are various risks associated with the federal income tax aspects
of an investment in the Partnership. Each potential investor is urged to
consult his own tax advisor concerning the effects of federal income tax
law and regulations and interpretations thereof, on his own tax
situation. (See "Tax Aspects".)
RISK OF CHANGES IN THE LAW.
The Partnership and the Participants could be adversely affected by
changes in the tax laws that may result through future Congressional
action, Tax Court or other judicial decisions, or interpretations by the
IRS. (See "Tax Aspects".)
NO ADVANCE RULING FROM THE IRS ON TAX CONSEQUENCES.
The Managing General Partner has received an opinion of counsel that,
more likely than not, the Partnership will be classified as a partnership
for federal income tax purposes and not as a corporation or a publicly
traded partnership. The opinion of counsel is not binding on the IRS and
is based upon certain factual assumptions which may or may not prove to
be true. The Partnership does not meet all of the procedural tests of the
IRS for obtaining an advance ruling on partnership classification and no
advance ruling on this or any other tax consequence of an investment in
the Partnership will be requested. There can be no assurance that the
Partnership will not at some later date be found to be an association
taxable as a corporation in which event Participants would be prevented
from reporting on their tax returns their distributive shares of
Partnership income and loss, Partnership income would be subject to tax
at the partnership level at corporate tax rates and distributions to
Participants could be treated as dividends subject to tax at the
Participant level. (See "Tax Aspects - Partnership Classification".)
Nevertheless, Special Counsel's tax opinion includes its opinion that the
significant tax benefits of the Partnership, in the aggregate, more
likely than not will be realized as contemplated by this Prospectus. (See
"Tax Aspects - Summary of Tax Opinion".)
POSSIBLE TAXES IN EXCESS OF CASH DISTRIBUTIONS.
A Participant's share of Partnership revenues applied to principal on
any Partnership loans from Atlas will be included in his taxable income.
Although Partnership income may be offset in part by depletion or other
deductions, interest on Partnership borrowings will be subject to certain
restrictions on the deduction of "investment interest" and the limitation
on passive activity losses in the case of Limited Partners and no
deductions will be allowed for repayments of principal. Thus, a
Participant may become subject to income tax liability in excess of cash
actually received from the Partnership. 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. (See
"Tax Aspects - Limitations on Passive Activities," "- Limitations on
Deduction of Investment Interest," and "- Allocations".)
Under the Partnership Agreement, taxable income or gain may be allocated
to the Participants in the event there are deficits in the Participants'
Capital Accounts even though such Participants are not allocated a
corresponding amount of Partnership revenues. Also, there may be tax
liability in excess of cash distributions to the Participants because
Partnership production revenues are retained by the Operator beginning
three years after the wells are placed in production to establish a
reserve for the estimated costs of eventually plugging and abandoning
Partnership Wells, although historically Atlas has never done this after
only three years. In addition, the taxable disposition of Partnership
property or a Participant's interest in the Partnership may result in
income tax liability in excess of cash distributions. (See "Tax Aspects -
Sale of the Properties" and "- Disposition of Partnership Interests".)
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PARTNERSHIP ALLOCATIONS ARE SUBJECT TO CHALLENGE BY THE IRS IN THE EVENT OF AN
AUDIT. The allocations of Partnership costs, revenues and related tax
items between the Managing General Partner and the Participants are
subject to Treasury Regulations and the proper application of many
provisions of the regulations is currently unclear. Should the IRS
successfully challenge the allocation provisions contained in the
Partnership Agreement, Participants could incur a greater tax liability.
However, assuming the effect of the allocations set forth in the
Partnership Agreement is substantial in light of a Participant's tax
attributes that are unrelated to the Partnership, in Special Counsel's
opinion it is more likely than not that such allocations will govern each
Participant's distributive share to the extent they do not cause or
increase deficit balances in the Participants' Capital Accounts. (See
"Tax Aspects - Allocations".)
1996 TAX DEDUCTIONS ARE SUBJECT TO CHALLENGE BY THE IRS
IN THE EVENT OF AN AUDIT.
The Managing General Partner anticipates that all of the Partnership
Subscription will be expended in 1996, and that the Participants'
allocable share of income and deductions generated thereby will be
reflected on the Participants' tax returns for that period. Any net loss
of the Partnership allocable to a Limited Partner (but not an Investor
General Partner) generally will be subject to the "passive activity" loss
limitation rules under the Tax Reform Act of 1986. In addition, there is
no guarantee that if the Partnership is audited the IRS will not
challenge the deductions claimed by the Partnership. The time for
assessment of tax resulting from adjustments to the Partnership's
information tax returns may extend beyond the time for other assessments.
(See "Tax Aspects - Limitations on Passive Activities," "- 1996
Expenditures," "- Availability of Certain Deductions" and "- Intangible
Drilling and Development Costs".) Depending primarily on when the
Partnership Subscription is received, it is anticipated that the
Partnership will prepay in 1996 most, if not all, of its Intangible
Drilling Costs for wells the drilling of which will be commenced in 1997.
The deductibility in 1996 of such advance payments cannot be guaranteed.
(See "Tax Aspects - Drilling Contracts".)
POSSIBLE ALTERNATIVE MINIMUM TAX LIABILITY.
Alternative minimum taxable income of "independent producers," which
includes most investors, cannot be reduced by more than 40% in the 1996
tax year by reason of the repeal of the preference item for intangible
drilling and development costs. (See "Tax Aspects - Minimum Tax - Tax
Preferences".)
INVESTMENT INTEREST DEDUCTIONS MAY BE LIMITED.
Interest paid to acquire or carry investment assets is deductible only
to the extent of net investment income. Because investment income
includes income from activities, such as the Partnership in the case of
Investor General Partners, which are not passive activities and in which
the taxpayer does not materially participate, losses from the Partnership
will reduce an Investor General Partner's investment income and may
adversely affect the deductibility of the Investor General Partner's
investment interest expense, if any. (See "Tax Aspects - Limitations on
Deduction of Investment Interest".)
IRAS AND OTHER QUALIFIED PLANS WILL RECEIVE UNRELATED BUSINESS TAXABLE INCOME.
Generally, a qualified retirement plan or an IRA is exempt from federal
income tax. However, "unrelated business taxable income" received by a
qualified plan or an IRA may, under some circumstances, be subject to
federal income taxation. It is anticipated that all of the income of the
Partnership will be unrelated business taxable income, which may result
in federal income tax being imposed upon income derived by a qualified
plan or an IRA from an interest in the Partnership. (See "Tax Aspects -
Tax Consequences to Qualified Plans and IRAs" ).
LACK OF TAX SHELTER REGISTRATION.
Atlas believes that the Partnership will not be a tax shelter required
to register with the IRS and does not intend to cause the Partnership to
register as such with the IRS. If it is subsequently determined that the
Partnership was required to be registered with the IRS as a tax shelter,
each Participant would be liable for a $250 penalty for failure to
include the tax registration number of the Partnership on his tax return,
unless such failure was due to reasonable cause. 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 be registered with the IRS as a tax shelter. (See "Tax
Aspects - Lack of Registration as a Tax Shelter".)
STATE AND LOCAL TAXES MAY APPLY.
A Participant may incur tax liability with respect to Partnership income
in the state and locality in which he resides as well as the states and
localities where the Partnership's Development Wells are situated.
Participants should consult with their own tax advisors concerning the
state and local tax consequences of an investment in the Partnership.
(See "Tax Aspects - State and Local Taxes.)
CAPITALIZATION AND SOURCE OF FUNDS AND USE OF PROCEEDS
IN GENERAL
The Units will not be subject to Assessments. The drilling of the wells
is expected to be funded entirely through the Partnership Subscription
and the Capital Contributions of the Managing General Partner. In the
event the Partnership requires additional funds
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as a result of cost
overruns in the drilling or completion of wells, which the Managing
General Partner does not anticipate, other than completing and Fracturing
some of the wells in a third zone, or additional development or remedial
work is subsequently required for a well, then such funds may be provided
by borrowings as discussed below in "- Subsequent Source of Funds and
Borrowings" or by the retention of Partnership revenues. The Managing
General Partner does not anticipate, however, that any borrowings will be
required prior to any availability of revenues from production.
SOURCE OF FUNDS
Upon completion of the offering, the Capital Contributions to the
Partnership of the Participants will range from $1,000,000 to $7,000,000
unless Atlas in its sole discretion offers not more than 100 additional
Units and increases the Participants' Capital Contributions to the
Partnership to not more than $8,000,000. The Capital Contributions of
the Managing General Partner will range from $198,725 if the Capital
Contributions of the Participants are $1,000,000, to $1,390,970 if the
Capital Contributions of the Participants are $7,000,000, to $1,589,695
if the Capital Contributions of the Participants are $8,000,000. See the
"- Managing General Partner Capital" table below for a breakout of the
costs paid by the Managing General Partner. Therefore, the total amount
of Capital Contributions available to the Partnership from the
Participants and the Managing General Partner will range from $1,198,725
if 100 Units are sold, to $8,390,970 if 700 Units are sold, to
$9,589,695 if 800 Units are sold.
USE OF PROCEEDS
The following tables present information respecting the financing of the
Partnership in three different circumstances: (1) if 800 Units
($8,000,000) are sold, (2) if 700 Units ($7,000,000) are sold, and (3) if
the minimum 100 Units ($1,000,000) are sold. Substantially all of the
Partnership Subscription available to the Partnership will be disbursed
for the following purposes and in the following manner:
<TABLE>
<CAPTION>
PARTICIPANT CAPITAL
ENTITY RECEIVING
PAYMENT NATURE OF PAYMENT 800 UNITS SOLD .% (1) 700 UNITS SOLD .% (1) 100 UNITS SOLD .% (1)
<S> <C> <C> <C> <C> <C> <C>
Total Participant Capital $8,000,000 100% $7,000,000 100% $1,000,000 100%
LESS: Public Offering Expenses..
Broker-Dealers Sales Commissions,
reimbursement for
bona fide accountable
due diligence expenses
and wholesaling fees
(2) - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Various Organization Costs (2) - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
AMOUNT AVAILABLE FOR INVESTMENT:..
.
The Managing
General Partner Capital available for $8,000,000 100% $7,000,000 100% $1,000,000 100%
drilling and completing
wells
The Managing
General Partner Leases (3) - 0 - 0 0 0 0 0
<FN>
1) The percentage is based upon total Participants' Agreed Subscriptions and excludes the Managing General
Partner's Capital Contribution.
(2) Organization and Offering Costs will be paid by the Managing General Partner. However, the Managing
General Partner will not be credited with the payment of Organization and Offering Costs in excess of 15% of
the Partnership Subscription towards its required Capital Contribution of 15%.
(3) Instead of making a contribution in cash for Leases, the Prospects will be contributed to the Partnership
in kind by the Managing General Partner at its Cost of $3,600 per Prospect or fair market value if Cost is
materially more than fair market value. The Managing General Partner will contribute approximately 4.49
Prospects if 100 Units are sold, 31.42 Prospects if 700 Units are sold, and 35.91 Prospects if 800 Units are
sold.
</FN>
</TABLE>
- ----------
(Page 17)
<TABLE>
<CAPTION>
MANAGING GENERAL PARTNER CAPITAL
ENTITY RECEIVING
PAYMENT NATURE OF PAYMENT 800 UNITS SOLD. % (1) 700 UNITS SOLD .% (1) 100 UNITS SOLD. % (1)
<S> <C> <C> <C> <C> <C> <C>
Total Participant Capital $1,589,695 100% $1,390,970 100% $198,725 100%
LESS: Public Offering Expenses..
Broker-Dealers Sales Commissions,
reimbursement for
bona fide accountable
due diligence expenses
and wholesaling fees
(2) $840,000 53% $735,000 53% $105,000 53%
Various Organization Costs (2) $360,000 23% $315,000 23% $45,000 23%
AMOUNT AVAILABLE FOR INVESTMENT:..
The Managing
General Partner Capital available for $260,419 16% $227,858 16% $32,561 8%
drilling and completing
wells
The Managing
General Partner Leases (3) $129,276 8% $113,112 8% $16,164 8%
<FN>
1) The percentage is based upon the Managing General Partner's Capital Contribution and excludes the
Participants' Agreed Subscriptions.
(2) Organization and Offering Costs will be paid by the Managing General Partner. However, the Managing
General Partner will not be credited with the payment of Organization and Offering Costs in excess of 15% of
the Partnership Subscription towards its required Capital Contribution of 15%.
(3) Instead of making a contribution in cash for Leases, the Prospects will be contributed to the Partnership
in kind by the Managing General Partner at its Cost of $3,600 per Prospect or fair market value if Cost is
materially more than fair market value. The Managing General Partner will contribute approximately 4.49
Prospects if 100 Units are sold, 31.42 Prospects if 700 Units are sold, and 35.91 Prospects if 800 Units are
sold.
</FN>
</TABLE>
SUBSEQUENT SOURCE OF FUNDS AND BORROWINGS
As indicated above, it is anticipated that substantially all of the
Partnership's initial capital will be committed or expended following the
offering. Any additional funds which may subsequently be required will be
withheld from production from Partnership Wells or borrowings by the
Partnership from Atlas or its Affiliates, although Atlas is not
contractually committed to make such a loan. There will be no borrowings
from third parties. The amount that may be borrowed by the Partnership
from Atlas and its Affiliates may not at any time exceed 5% of the
Partnership Subscription and must be without recourse to the
Participants. The Partnership's repayment of any such borrowings would be
from Partnership production revenues and would reduce or delay cash
distributions to the Participants. See "Conflicts of Interest -
Procedures to Reduce Conflicts of Interest," paragraph (9), for the terms
of any loan with Atlas.
COMPENSATION
A narrative presentation of the items of compensation paid to the
Managing General Partner and its Affiliates from the Partnership is set
forth below. Following the narrative presentation is a tabular
presentation of the estimated Administrative Costs and Direct Costs to be
borne by the Partnership.
OIL AND GAS REVENUES.
The Managing General Partner will be allocated 25% of the oil and gas
revenues of the Partnership in return for paying Organization and
Offering Costs equal to 15% of the Partnership Subscription, 14% of
Tangible Costs and contributing all Leases to the Partnership at Cost, or
fair market value if Cost is materially more than fair market value. (See
"Participation in Costs and Revenues.)
- ---------------------------------------------------------------------------
(Page 18)
LEASE COSTS.
The Managing General Partner will contribute sufficient undeveloped
Leases to the Partnership to drill the Partnership's wells at the Cost of
such Leases, or fair market value if Cost is materially more than fair
market value. The Cost of the Leases will include a portion of the
Managing General Partner's reasonable, necessary and actual expenses for
geological, geophysical, engineering, interest expense, legal, and other
like services allocated to the Partnership's Leases determined using
industry guidelines which are set forth in "Proposed Activities -
Acquisition of Leases". The Managing General Partner will not retain any
Overriding Royalty for itself from such Leases. Assuming the Partnership
acquires 100% of the Working Interest in 4.49 Prospects if the minimum
Partnership Subscription is received, 31.42 Prospects if the maximum
Partnership Subscription is received, and 35.91 Prospects if the Managing
General Partner increases the size of the offering to $8,000,000, it is
estimated that Atlas' credit for Lease costs at $3,600 per Prospect will
range from $16,164, to $113,112, to $129,276, respectively. (See
"Proposed Activities - Acquisition of Leases".)
The Managing General Partner will receive a benefit from these
transactions. In addition, such contributions could create conflicts of
interest for the Managing General Partner. The majority, if not all, of
the wells will be drilled by the Partnership to test the Clinton/Medina
geologic formation, a blanket geological formation prevalent in Ohio and
Pennsylvania. A Prospect will be deemed to consist of the drilling or
spacing unit on which such well will be drilled if the Clinton/Medina
geological formation to which such well will be drilled contains Proved
Reserves and the drilling or spacing unit protects against drainage. The
development of wells on such acreage may provide Atlas with offset sites
by allowing it to ascertain at the Partnership's expense the value of
adjacent acreage in which the Partnership would not have any right to
participate in developing. (See "Conflicts of Interest- Conflicts
Involving Acquisition of Leases," "Conflicts of Interest - Other
Activities of the Managing General Partner, the Operator and their
Affiliates" and "Proposed Activities".)
ADMINISTRATIVE COSTS.
The Managing General Partner and its Affiliates will receive an
unaccountable, fixed payment reimbursement for their Administrative Costs
determined by the Managing General Partner to be an amount equal to $75
per well per month, which will be proportionately reduced to the extent
the Partnership acquires less than 100% of the Working Interest in the
well. The unaccountable, fixed payment reimbursement of $75 per well per
month shall not be increased in amount during the term of the
Partnership. Further, Atlas, as Managing General Partner, shall not be
reimbursed for any additional Partnership Administrative Costs and the
unaccountable, fixed payment reimbursement of $75 per well per month
shall be the entire payment to reimburse Atlas for the Partnership's
Administrative Costs. Finally, Atlas, as Managing General Partner, shall
not receive the unaccountable, fixed payment reimbursement of $75 per
well per month for plugged or abandoned wells. See "- Estimate of
Administrative Costs and Direct Costs to Be Borne by the Partnership" for
an estimate of those costs in the first twelve months.
DRILLING CONTRACTS.
The Partnership will enter into a drilling contract with Atlas to drill
and complete the Partnership Wells. For each well completed and placed
into production, the Partnership will pay Atlas an amount equal to $37.39
per foot to the depth of the well at its deepest penetration. For each
well which the Partnership elects not to complete, the Partnership will
pay Atlas an amount equal to $20.60 per foot to the depth of the well.
The amount of compensation which Atlas could earn as a result of these
arrangements is dependent upon many factors, including the actual cost of
the wells and the number of wells drilled. Atlas anticipates that it will
have reimbursement of general and administrative overhead of $3,600 per
well and a profit of approximately 11% ($24,900) to 15% ($33,960) per
well for a well drilled to a depth of 6,150 feet. Assuming the
Partnership acquires 100% of the Working Interest in 4.49 Prospects if
the minimum Partnership Subscription is received, 31.42 Prospects if the
maximum Partnership Subscription is received and 35.91 Prospects if the
Managing General Partner increases the size of the offering to $8,000,000
and all of the wells are drilled to 6,150 feet and completed, it is
estimated that Atlas' general and administrative reimbursement and profit
will range from $127,965 to $168,645 for all of the wells if the minimum
Partnership Subscription is received, $782,358 to $1,067,023 if the
maximum Partnership Subscription is received, and $1,023,435 to
$1,348,780 if the Managing General Partner increases the size of the
offering to $8,000,000. The footage contract will cover all costs other
than the cost of a pumping unit for an oil well, which is not
anticipated, and the cost of a third completion and Frac. Such costs will
be charged at cost plus 10% if provided by third parties and at
competitive rates in the area if provided by Atlas or its Affiliates. The
cost of the well will be proportionately reduced to the extent the
Partnership acquires less than 100% of the Working Interest. (See the
Drilling and Operating Agreement, Exhibit (II) to the Partnership
Agreement.)
PER WELL CHARGES.
When the wells have commenced production Atlas, as Operator, will be
reimbursed at actual cost for all direct expenses incurred on behalf of
the Partnership and will receive well supervision fees for operating and
maintaining the wells during producing operations in the amount of $275
per well per month subject to an annual adjustment for inflation.
Assuming the Partnership acquires 100% of the Working Interest in 4.49
Prospects if the minimum Partnership Subscription is received, 31.42
Prospects if the maximum Partnership Subscription is received, and 35.91
Prospects if the Managing General Partner increases the size of the
offering to $8,000,000, and all of the wells are drilled and completed,
it is estimated that these costs will range from $14,817 if the minimum
Partnership Subscription is received, to $103,686 if the maximum
Partnership Subscription is received, to $118,503 if the
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(Page 19)
Managing General Partner increases the size of the offering to $8,000,000, for
Partnership's first twelve months of operations. The well supervision
fees will be proportionately reduced to the extent the Partnership
acquires less than 100% of the Working Interest in the well.
TRANSPORTATION AND MARKETING FEES.
Mercer Gas Gathering, Inc., an Affiliate of Atlas, will deliver natural
gas produced by the Partnership to either industrial end-users in the
area or interstate pipeline systems and local distribution companies.
Atlas Gas Marketing, Inc., an Affiliate of Atlas, will provide marketing
services to the Partnership. The Partnership will pay a combined
transportation and marketing charge at a competitive rate, which is
currently 29 cents per MCF. (See "Management".)
OTHER COMPENSATION.
Atlas or an Affiliate will be reimbursed by the Partnership for any loan
Atlas or an Affiliate may make to or on behalf of the Partnership and
will have the right to charge a competitive rate of interest on any such
loan. If Atlas provides equipment, supplies and other services to the
Partnership it may do so at competitive industry rates. (See "Conflicts
of Interest".)
ESTIMATE OF ADMINISTRATIVE COSTS AND
DIRECT COSTS TO BE BORNE BY THE PARTNERSHIP
The Managing General Partner estimates that the unaccountable, fixed
payment reimbursement for Administrative Costs allocable to the
Partnership's first twelve months of operation will not exceed
approximately $4,041 if the minimum Partnership Subscription is received
(4.49 wells at $75 per well per month), approximately $28,278 if the
maximum Partnership Subscription is received (31.42 wells at $75 per well
per month), and approximately $32,319 if the Managing General Partner
increases the size of the offering to $8,000,000 (35.91 wells at $75 per
well per month). Administrative Costs are all customary and routine
expenses incurred for the conduct of Partnership administration,
including: legal, finance, accounting, secretarial, travel, office rent,
telephone, data processing and other items of a similar nature. No
Administrative Costs charged will be duplicated under any other category
of expense or cost.
Minimum Maximum If Managing General
Partnership Partnership Partner Increases
Subscription Subscription Offering
($1,000,000) ($7,000,000) ($8,000,000)
Unaccountable,
fixed payment
reimbursement
for
Administrative
Costs $4,041 $28,278 $32,319
Direct Costs will be billed directly to and paid by the Partnership to
the extent practicable. The anticipated Direct Costs set forth below may
vary from the estimates shown for numerous reasons which cannot
accurately be predicted, such as the number of Participants, the number
of wells drilled, the Partnership's degree of success in its activities,
the extent of any production problems, inflation and various other
factors involving the administration of the Partnership.
Minimum Maximum If Managing General
Partnership Partnership Partner Increases
Subscription Subscription Offering
($1,000,000) ($7,000,000) ($8,000,000)
DIRECT COSTS
External Legal $ 6,000 $ 6,000 $6,000
Audit Fees 2,500 6,000 6,000
Independent
Engineering
Reports 1,500 3,000 3,000
TOTAL $10,000 $15,000 $15,000
TERMS OF THE OFFERING
The Partnership will offer a minimum of 100 Units and a maximum of 700
Units. However, if subscriptions for all 700 Units being offered are
obtained, the Managing General Partner, in its sole discretion, may offer
not more than 100 additional Units and increase the maximum aggregate
subscriptions with which the Partnership may be funded to not more than
800 Units ($8,000,000). Units in the Partnership are offered at a
subscription price of $10,000 per Unit. The minimum subscription per
investor is one Unit; however,
- --------------------------------------------------------------------------
(Page 20)
the Managing General Partner, in its
discretion, may accept one-half Unit ($5,000) subscriptions. Larger
Agreed Subscriptions will be accepted in $1,000 increments. The Managing
General Partner will have exclusive management authority for the
Partnership. Subscribers who purchase Units as Investor General Partners
or as Limited Partners will serve as Participants of the Partnership.
Agreed Subscriptions are payable 100% in cash at the time of subscribing.
PARTNERSHIP CLOSING AND ESCROW
Subject to the receipt of the minimum Partnership Subscription of
$1,000,000, the Managing General Partner may close the offering period on
or before December 31, 1996 (the "Offering Termination Date"). The
Partnership will not commence drilling operations until after the
Offering Termination Date. No subscriptions to the Partnership will be
accepted after receipt of the maximum Partnership Subscription (including
the additional 100 Units which may be offered) or the Offering
Termination Date, whichever event occurs first. If subscriptions for
$1,000,000 are not received by December 31, 1996, the sums deposited in
the escrow account will be returned to the subscribers with interest
thereon. The Managing General Partner may buy up to 10% of the Units,
which will not be applied towards the minimum Partnership Subscription
required for the Partnership to begin operations. (See "Conflicts of
Interest - Conflicts Between Participants.")
Subscription payments will be held in a separate interest bearing escrow
account at National City Bank of Pennsylvania pending the receipt of the
minimum Partnership Subscription, after which the Partnership funds and
additional subscription payments will be paid directly to the Partnership
account and will continue to earn interest until the Offering Termination
Date. Any interest earned on Agreed Subscriptions prior to the Offering
Termination Date will be credited to the accounts of the respective
subscribers and paid approximately six weeks after the Offering
Termination Date. Subscriptions will not be commingled with the funds of
the Managing General Partner or its Affiliates nor shall subscriptions be
subject to the claims of their creditors.
Subscription proceeds will be invested during the escrow period only in
institutional investments comprised of or secured by securities of the
United States government. The funds in the Partnership account, pending
their use for Partnership operations, may be temporarily invested in
income producing short-term, highly liquid investments, where there is
appropriate safety of principal, such as U.S. Treasury Bills. In the
event that the Managing General Partner determines that the Partnership
may be deemed an investment company under the Investment Company Act of
1940, such investment activity will cease.
OFFERING PERIOD
The offering period will commence on the date of this Prospectus and will
terminate on a date to be determined by the Managing General Partner, in
its sole discretion. In no event, however, will the offering period
extend beyond the earlier of December 31, 1996, or the receipt of
Partnership subscriptions for $8,000,000.
ACCEPTANCE OF SUBSCRIPTIONS
The execution of the Subscription Agreement by a subscriber constitutes a
binding offer to buy Units in the Partnership and an agreement to hold
the offer open until the Agreed Subscription is accepted or rejected by
the Managing General Partner. Once an investor subscribes he will not
have any revocation rights. The Managing General Partner has the
discretion to refuse to accept any Agreed Subscription without liability
to the subscriber. Agreed Subscriptions will be accepted or rejected by
the Partnership within thirty days of their receipt; if rejected, all
funds will be returned to the subscriber immediately. The subscriber must
be admitted as a Partner in the Partnership within 150 days after the
date on which the Subscription Agreement is received by the escrow agent.
Upon the original sale of Units, the Participants will be admitted as
Partners not later than fifteen days after the release from escrow of
Participants' funds to the Partnership, and thereafter Participants will
be admitted into the Partnership not later than the last day of the
calendar month in which their Agreed Subscriptions were accepted by the
Partnership.
The execution of the Subscription Agreement and its acceptance by the
Managing General Partner also constitutes the execution of the
Partnership Agreement and an agreement to be bound by the terms thereof
as a Participant, including the granting of a special power of attorney
to the Managing General Partner appointing it as the Participant's lawful
representative and attorney in-fact to make, execute, sign, swear to and
file an Amended Certificate of Limited Partnership from time to time,
governmental reports and certifications, and other matters. (See the
Partnership Agreement, Exhibit (A) to this Prospectus.)
DRILLING PERIOD
Although it is anticipated that the Partnership will spend the entire
Partnership Subscription soon after the Offering Termination Date, the
Partnership will have a period of one year from the termination of the
offering period to use or commit funds to drilling activities. If, within
such one year period, the Partnership has not used, or committed for use,
as evidenced by a written agreement, the net
- --------------------------------------------------------------------------
(Page 21)
subscription proceeds, then
the Managing General Partner will cause the remainder of such net
subscription proceeds, except for necessary operating capital and amounts
reserved for identified activities, to be distributed pro rata to the
Participants in the ratio of their Agreed Subscriptions as a return of
capital and the Managing General Partner will reimburse the Participants
for selling or other offering expenses allocable to the return of
capital.
INTEREST OF PARTICIPANTS IN THE PARTNERSHIP
See "Participation in Costs and Revenues - Allocation and Adjustment
among Participants" regarding the Participants' share of revenues, gains,
costs, credits, expenses, losses and other charges and liabilities.
QUALIFICATION OF THE PARTNERSHIP
The Managing General Partner has elected for the Partnership to be
governed by the partnership laws of Pennsylvania and has filed the
Certificate of Limited Partnership. The Managing General Partner will
take all other actions necessary to qualify the Partnership to do
business as a limited partnership or cause the limited partnership status
of the Partnership to be recognized in other jurisdictions.
SUITABILITY STANDARDS
IN GENERAL. It is the obligation of persons selling Units to make every
reasonable effort to assure that the Units are suitable for investors,
based on the investor's investment objectives and financial situation,
regardless of the investor's income or net worth. The Managing General
Partner shall maintain for a period of at least six years a record of
each investor's suitability.
Units will be sold only to an investor who has a minimum net worth of
$225,000 or a minimum net worth of $60,000 and had during the last tax
year or estimates that he will have during the current tax year "taxable
income" as defined in Section 63 of the Code of at least $60,000 without
regard to an investment in Units. Net worth will be determined exclusive
of home, home furnishings and automobiles.
Additional suitability requirements are applicable to residents of
certain states where the offer and sale of Units are being made as set
forth below. California residents generally may not transfer Units
without the consent of the California Commissioner of Corporations. The
Commissioner of Securities of Missouri classifies the Units as being
ineligible for any transactional exemption under the Missouri Uniform
Securities Act (Section 409.402(b), RSMo. 1969). Therefore, unless the
Units are again registered, the offer for sale or resale of Units by a
Participant in the State of Missouri may be subject to the sanctions of
the act.
PURCHASERS OF LIMITED PARTNER UNITS.
A resident of California must (i) have a net worth of not less than
$250,000 (exclusive of home, furnishings, and automobiles) and expect to
have gross income in the current tax year of $65,000 or more, or (ii)
have a net worth of not less than $500,000 (exclusive of home,
furnishings, and automobiles), or (iii) have a net worth of not less than
$1,000,000, or (iv) expect to have gross income in the current tax year
of not less than $200,000.
A Michigan or North Carolina resident must have either: (i) a net worth
of not less than $225,000 (exclusive of home, furnishings, and
automobiles), or (ii) a net worth of not less than $60,000 (exclusive of
home, furnishings, and automobiles) and estimated current tax year
taxable income as defined in Section 63 of the Internal Revenue Code of
1986 of $60,000 or more without regard to an investment in the
Partnership. In addition, a resident of Michigan or Ohio shall not make
an investment in the Partnership in excess of 10% of his net worth
(exclusive of home, furnishings and automobiles).
PURCHASERS OF INVESTOR GENERAL PARTNER UNITS.
A resident of Alabama, Maine, Massachusetts, Minnesota, Mississippi, New
Mexico, North Carolina, Pennsylvania, Tennessee, Texas, or Washington
must represent that he (i) has an individual or joint net worth with his
or her spouse of $225,000 or more, without regard to the investment in
the Partnership (exclusive of home, furnishings, and automobiles), and a
combined gross income of $100,000 or more for the current year and for
the two previous years; or (ii) has an individual or joint net worth with
his or her spouse in excess of $1,000,000, inclusive of home, home
furnishings and automobiles; or (iii) has an individual or joint net
worth with his or her spouse in excess of $500,000, exclusive of home,
- --------------------------------------------------------------------------
(Page 22)
home furnishings, and automobiles; or (iv) has a combined "gross income"
as defined in Code Section 61 in excess of $200,000 in the current year
and the two previous years.
A resident of Arizona, Indiana, Iowa, Kentucky, Michigan, Missouri, Ohio,
Oklahoma, South Dakota, or Vermont must represent that he (i) has an
individual or joint net worth with his or her spouse of $225,000 or more,
without regard to the investment in the Partnership (exclusive of home,
furnishings, and automobiles), and a combined "taxable income" of $60,000
or more for the previous year and expects to have a combined "taxable
income" of $60,000 or more for the current year and for the succeeding
year; or (ii) has an individual or joint net worth with his or her spouse
in excess of $1,000,000, inclusive of home, home furnishings and
automobiles; or (iii) has an individual or joint net worth with his or
her spouse in excess of $500,000, exclusive of home, home furnishings,
and automobiles; or (iv) has a combined "gross income" as defined in Code
Section 61 in excess of $200,000 in the current year and the two previous
years. In addition, a resident of Michigan or Ohio shall not make an
investment in the Partnership in excess of 10% of his net worth
(exclusive of home, furnishings and automobiles).
A resident of New Hampshire must represent that he has a minimum of
$400,000 net worth (exclusive of home, home furnishings, and automobiles)
or $200,000 net worth (exclusive of home, home furnishings, and
automobiles) and $75,000 in annual taxable income. A resident of
California must represent that he (i) has a net worth of not less than
$250,000 (exclusive of home, furnishings, and automobiles) and expects to
have gross income in the current tax year of $120,000 or more, or (ii)
has a net worth of not less than $500,000 (exclusive of home,
furnishings, and automobiles), or (iii) has a net worth of not less than
$1,000,000 or (iv) expects to have gross income in the current tax year
of not less than $200,000.
MISCELLANEOUS.
In the case of sales to fiduciary accounts, all of the suitability
standards set forth above and for the appropriate state shall be met by
the beneficiary, the fiduciary account, or by the donor or grantor who
directly or indirectly supplies the funds to purchase the Partnership
interests if the donor or grantor is the fiduciary. Investors are
required to execute their own Subscription Agreements. The Managing
General Partner will not accept any Subscription Agreement that has been
executed by someone other than the investor, unless such person has been
given the legal power of attorney to sign on the investor's behalf and
the investor meets all of the conditions herein. The Managing General
Partner may not complete a sale of Units to an investor until at least
five business days after the date the investor receives a final
prospectus. In addition, the Managing General Partner will send each
investor a confirmation of purchase.
Transferees of Units seeking to become substituted Partners must meet the
requirements imposed by the Partnership Agreement. (See "Transferability
of Units".)
SUBSCRIPTIONS BY IRAS, KEOGH PLANS AND OTHER QUALIFIED PLANS
Before investing in the Partnership, trustees and other fiduciaries of
IRAs, Keogh Plans and qualified retirement plans should carefully
consider whether such an investment is consistent with their fiduciary
responsibilities. Trustees and other fiduciaries of qualified retirement
plans, IRAs that are set up as part of a plan sponsored and maintained by
an employer, and Keogh Plans under which employees, in addition to
self-employed individuals, are participants, are governed by the
fiduciary responsibility provisions of Title I of the Employee Retirement
Income Security Act of 1974 ("ERISA"). In addition, .4975 of the Code
imposes an excise tax with respect to certain prohibited transactions
involving the assets of any qualified retirement plan, IRA or Keogh Plan.
An investment in the Partnership by a plan covered by ERISA must be made
in accordance with the general obligation of fiduciaries under ERISA to
discharge their duties (i) for the exclusive purpose of providing
benefits to participants and their beneficiaries; (ii) with the same
standard of care that would be exercised by a prudent man acting under
similar circumstances, (iii) in such a manner as to diversify the
investments of the plan, unless it is clearly prudent not to do so; and
(iv) in accordance with the documents establishing the plan. Depending
upon particular circumstances involved, a fiduciary's decision to cause a
plan covered by ERISA to invest in the Partnership could be viewed as
inconsistent with one or more of these criteria, and therefore as a
violation of the fiduciary's duty. However, in the case of a plan which
provides for individual accounts (for example, an IRA or self-directed
Keogh Plan) and which permits a participant or beneficiary to exercise
independent control over the assets in his individual account, the plan's
fiduciary will not be liable for any investment loss or for any breach
that results from such exercise of control by the participant or
beneficiary.
Regulations issued by the Department of Labor provide that when a plan
covered by ERISA or by .4975 of the Code (e.g. an IRA) makes an
investment in an equity interest of an entity that is neither a publicly
offered security nor a security issued by an investment company
registered under the Investment Company Act of 1940, the underlying
assets of the entity in which the investment is made could be treated as
assets of the investing plan ("plan assets"). An investment in the
Partnership may not be considered to be an investment in a publicly
offered security and the Partnership will not be registered under the
Investment Company Act of 1940. Therefore, unless an exemption applies
(see below), investments in the Partnership may result in the
Partnership's assets being classified as plan assets.
Classification of the assets of the Partnership as "plan assets" could
adversely affect both the plan fiduciary and the Managing General
Partner. The term "fiduciary" is defined generally to include any person
who exercises any authority or control over the management or disposition
of plan assets; thus, classification of Partnership assets as plan assets
could make the Managing General Partner a "fiduciary" of an investing
plan. Violation of fiduciary duties by the Managing General Partner could
result in liability not only for the Managing General Partner but for the
trustee or other fiduciary of an investing plan, who under certain
circumstances could be held liable for breaches of fiduciary standards by
his co-fiduciaries.
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(Page 23)
In addition, if assets of the Partnership are classified as "plan
assets," certain transactions that the Partnership might enter into in
the ordinary course of its business and operations might constitute
"prohibited transactions" under ERISA and the Code. A prohibited
transaction, in addition to imposing potential personal liability upon
trustees and other fiduciaries of plans subject to Title 1 of ERISA may
also result in the imposition of an excise tax under the Code or a
penalty under ERISA upon the disqualified person or party in interest
with respect to the qualified retirement plan, IRA, or Keogh Plan. If the
disqualified person who engages in the transaction is the individual on
behalf of whom the IRA is maintained (or his beneficiary), the IRA may
lose its tax-exempt status and its assets may be deemed to have been
distributed to such individual in a taxable distribution (and no excise
tax will be imposed) on account of the prohibited transaction.
The Managing General Partner expects that the Partnership will be able to
utilize an exemption in the regulations which provides that the
underlying assets of an entity in which a plan invests will not be
classified as plan assets if equity participation in the entity by
benefit plan investors is not significant (i.e., 25% or more).
Subscriptions to the Partnership by benefit plan investors (as that term
is defined in the regulations) are restricted to less than 25% of the
Partnership Units. Therefore, the assets of the Partnership should not be
treated as plan assets under the regulations. (See "Risk Factors - Tax
Risks - IRAs and Other Qualified Plans Will Receive Unrelated Business
Taxable Income").
SUBSCRIPTION BY MANAGING GENERAL PARTNER
Atlas will serve as Managing General Partner of the Partnership and is
required to make certain contributions to the Partnership. The Managing
General Partner may also subscribe for additional Units in the
Partnership on the same basis as Limited Partners or Investor General
Partners, except that the Managing General Partner is not required to pay
Sales Commissions, due diligence reimbursements or wholesaling fees.
Also, the Managing General Partner may buy up to 10% of the Units, which
will not be applied towards the minimum Partnership Subscription required
for the Partnership to begin operations. Subject to the foregoing, any
subscription by the Managing General Partner or its Affiliates will
dilute the voting rights of the Participants. However, the Managing
General Partner and its Affiliates are prohibited from voting with
respect to certain matters. (See "Summary of Partnership Agreement -
Voting Rights.")
CONFLICTS OF INTEREST
IN GENERAL
Conflicts of interest are inherent in oil and gas drilling programs
involving non-industry participants because transactions are entered into
without arms' length negotiation. The interests of the Participants and
those of Atlas and its Affiliates may be inconsistent in some respects or
in certain instances. The following discussion describes certain possible
conflicts of interest that may arise for Atlas and its Affiliates in the
course of the Partnership and certain limitations which are designed to
reduce, but which will not eliminate, the conflicts. It should be noted,
however, that the following discussion is not intended to be all
inclusive and that other transactions or dealings may arise in the future
that could result in conflicts of interest for Atlas and its Affiliates.
(See "Fiduciary Responsibility of the Managing General Partner".)
FIDUCIARY RESPONSIBILITY OF THE MANAGING GENERAL PARTNER
The Managing General Partner is accountable to the Partnership as a
fiduciary and consequently has a duty to exercise good faith and to deal
fairly with the Participants in handling the affairs of the Partnership.
While the Managing General Partner will endeavor to avoid conflicts of
interest to the extent possible, such conflicts nevertheless may occur
and, in such event, the actions of the Managing General Partner may not
be most advantageous to the Partnership. Because Atlas makes a
significant contribution on each well, this conflict of interest will be
reduced. Nevertheless, in the event the Managing General Partner should
breach its fiduciary responsibilities, a Participant would be entitled to
an accounting and to recover any economic losses caused by such breach.
(See "Fiduciary Responsibility of the Managing General Partner".)
TRANSACTIONS WITH ATLAS AND ITS AFFILIATES
Although Atlas and its Affiliates believe that the items of compensation
and reimbursement that it and its Affiliates will receive in connection
with the Partnership are reasonable, the items of compensation have been
determined solely by Atlas and are not the result of any negotiation or
agreement between Atlas and any person dealing at arms' length and having
no affiliation between them. Atlas will be entitled to receive items of
compensation and reimbursement in connection with the Partnership even
though it is possible that the Partnership's activities could result in
little or no profit, or a loss to Participants. Although such fees must
be competitive with the prices of other unaffiliated persons in the same
geographic area engaged in similar businesses, the entity or person
providing the services or equipment can be expected to profit from such
transactions. It may be to the best interests of Atlas to first enter
into contracts with itself and its Affiliates and second with
nonaffiliated parties even though the contract terms, or skill and
experience, offered by the nonaffiliated parties to the Partnership may
be comparable to that available from Atlas and its Affiliates.
- --------------------------------------------------------------------------
(Page 24)
The Managing General Partner and any Affiliate will not render to the
Partnership any oil field, equipage or other services nor sell or lease
to the Partnership any equipment or related supplies unless such person
is engaged, independently of the Partnership and as an ordinary and
ongoing business, in the business of rendering such services or selling
or leasing such equipment and supplies to a substantial extent to other
persons in the oil and gas industry in addition to the partnerships in
which the Managing General Partner or an Affiliate has an interest; and
the compensation, price or rental therefor will be competitive with the
compensation, price or rental of other persons in the area engaged in the
business of rendering comparable services or selling or leasing
comparable equipment and supplies which could reasonably be made
available to the Partnership. If such person is not engaged in such a
business then such compensation, price or rental will be the Cost of such
services, equipment or supplies to such person or the competitive rate
which could be obtained in the area, whichever is less. Any services not
otherwise described in this Prospectus for which the Managing General
Partner or any of its Affiliates are to be compensated will be embodied
in a written contract which precisely describes the services to be
rendered and the compensation to be paid. Such contracts are cancelable
without penalty upon sixty days written notice by Participants whose
Agreed Subscriptions equal a majority of the Partnership Subscription.
CONFLICT REGARDING THE DRILLING AND OPERATING AGREEMENT
It is anticipated that all of the wells developed by the Partnership will
be drilled and operated pursuant to the Drilling and Operating Agreement.
As the Managing General Partner of the Partnership, Atlas will be
required to monitor and enforce, on behalf of the Partnership, its own
compliance with the provisions of the Drilling and Operating Agreement,
which creates a continuing conflict of interest. (See "Proposed
Activities".)
CONFLICTS REGARDING SHARING OF COSTS AND REVENUES
The share of revenues that Atlas will receive pursuant to the Partnership
Agreement will be "Carried" in that Atlas will contribute total Capital
Contributions to the Partnership in an amount less than the Partnership's
revenues which it will receive. This may create a conflict of interest
between the Managing General Partner and the Participants regarding the
determination of which Leases will be acquired by the Partnership and the
profit potential associated with the Leases.
In addition, the allocation of all of the Intangible Drilling Costs to
the Participants and 14% of the Tangible Costs to Atlas of the wells
developed by the Partnership involves conflicts of interest between the
Participants and Atlas where completion of a marginally productive well
might prove beneficial to the Participants but not to Atlas. At the time
a completion decision is made the Participants will have already paid the
majority of their costs so they will want to complete the well if there
is any opportunity to recoup any of their costs. Conversely, the
Managing General Partner will not have paid any money prior to this time
and it will only want to pay such costs if it is assured of recouping its
money and making a profit. Based upon its past experience, however,
Atlas anticipates that all Partnership Wells will be required to be
completed before a determination can be made as to the well's
productivity. In any event, Atlas will not cause any well to be plugged
and abandoned by the Partnership without a completion attempt having been
made unless Atlas determines that such well should be plugged and
abandoned in accordance with the generally accepted and customary oil and
gas field practices and techniques then prevailing in the geographic area
of the well location.
TAX MATTERS PARTNER
Atlas will be the Partnership's "Tax Matters Partner" and, as such, will
have broad authority to act on behalf of the Partnership and the
Participants in any administrative or judicial proceeding involving the
IRS. The possession of such authority by the Tax Matters Partner may
involve conflicts of interest. (See "Tax Aspects".)
OTHER ACTIVITIES OF THE MANAGING GENERAL PARTNER, THE OPERATOR AND THEIR
AFFILIATES
Atlas will be required to devote to the Partnership such time and
attention as Atlas considers to be necessary or appropriate for the
proper supervision and management of the operations and activities of the
Partnership. Atlas has sponsored and continues to manage other oil and
gas programs (see "Prior Activities"), and Atlas expects to organize and
manage additional oil and gas programs, which may be concurrent. In
addition, Atlas and its Affiliates will be free to engage in other oil
and gas related business activities, either for their own account or on
behalf of other programs, partnerships, joint ventures, corporations or
other entities in which they have an interest. They may, therefore, be
expected to have conflicts of interest in allocating management time,
services and other functions among the Partnership and such other oil and
gas programs, partnerships and ventures.
Subject to its fiduciary duties, Atlas will not be restricted in any
manner from participating in other businesses or activities, despite the
fact that such other businesses or activities may be competitive with the
operations and activities of the Partnership and may operate in the same
areas as the Partnership. Notwithstanding, the Managing General Partner
and its Affiliates may pursue business opportunities that are consistent
with the Partnership's investment objectives for their own account only
after they have determined that such opportunity either cannot be pursued
by the Partnership because of insufficient funds or because it is not
appropriate for the Partnership under the existing circumstances.
- --------------------------------------------------------------------------
(Page 25)
CONFLICTS INVOLVING THE ACQUISITION OF LEASES
Atlas will select, in its sole discretion, the Prospects to be developed
by the Partnership. Conflicts of interest may arise concerning which
Prospects Atlas will assign to the Partnership and which Atlas will
assign to other drilling programs to be organized by Atlas or where Atlas
serves as driller/operator. It may prove to Atlas' or its Affiliates'
advantage to have the Partnership bear the costs and risks of drilling a
particular Prospect rather than another partnership. These potential
conflicts of interest will be increased to some extent by the fact that
Atlas expects to be organizing and allocating Prospects to more than one
drilling program at a time. There can be no assurance that the activities
of the Partnership and those of other drilling programs to be organized
by Atlas will not conflict.
To reduce this conflict of interest the Managing General Partner will not
drill for its own account and generally takes a similar interest in other
partnerships where it serves as Managing General Partner and/or
driller/operator.
In Pennsylvania and Ohio the assignments of the Leases will be limited to
a depth of from the surface through the Clinton/Medina geological feature
to the top of the Queenston formation, and Atlas will retain the drilling
rights below the Clinton/Medina geological formation. Although the
retention of the deep drilling rights may create a conflict of interest
between the Partnership and Atlas, Atlas believes that the Partnership's
drilling to the Clinton/Medina geological formation will not provide any
geologic information that would prove up or assist in evaluating drilling
to formations deeper than the Clinton/Medina geological formation.
Further, the amount of the credit Atlas receives for the Partnership
Leases does not include any value allocable to the deep drilling rights
retained by Atlas.
No procedures, other than the guidelines set forth below, have been
established by the Managing General Partner to handle or to resolve any
of the conflicts which may arise in this or another context; however, the
Managing General Partner owes a fiduciary duty to the Participants in the
operation and management of the Partnership and is restricted from
engaging in certain transactions with Affiliates and others under the
terms of the Partnership Agreement. The Managing General Partner, its
Affiliates and the Partnership will abide by the guidelines set forth
below.
(1) FAIR AND REASONABLE. Neither the Managing General Partner nor any
Affiliate will sell, transfer, or convey any property to or purchase any
property from the Partnership, directly or indirectly, except pursuant to
transactions that are fair and reasonable, nor take any action with
respect to the assets or property of the Partnership which does not
primarily benefit the Partnership.
(2) TRANSFERS AT COST. The Leases acquired from the Managing General
Partner or its Affiliates must be contributed to the Partnership at the
Cost of such Lease, unless the Managing General Partner shall have cause
to believe that Cost is materially more than the fair market value of
such property, in which case the credit for such contribution will be
made for a price not in excess of its fair market value. A determination
of fair market value must be supported by an appraisal from an
Independent Expert. Such opinion and any associated supporting
information must be maintained in the Partnership's records for at least
six years.
(3) LIMITATIONS ON ACTIVITIES OF THE MANAGING GENERAL PARTNER AND ITS
AFFILIATES ON LEASES ACQUIRED BY THE PARTNERSHIP. During a period of five
years from the Offering Termination Date of the Partnership, if the
Managing General Partner or any of its Affiliates, excluding another
Program in which the interest of the Managing General Partner or its
Affiliates is substantially similar to or less than their interest in the
Partnership, proposes to acquire an interest from an unaffiliated person,
in a Prospect in which the Partnership possesses an interest or in a
Prospect in which the Partnership's interest has been terminated without
compensation within one year preceding such proposed acquisition, the
following conditions shall apply
(a) if the Managing General Partner or the Affiliate, excluding another
Program in which the interest of the Managing General Partner or its
Affiliates is substantially similar to or less than their interest in the
Partnership, does not currently own property in the Prospect separately
from the Partnership, then neither the Managing General Partner nor the
Affiliate shall be permitted to purchase an interest in the Prospect; and
(b) if the Managing General Partner or the Affiliate, excluding another
Program in which the interest of the Managing General Partner or its
Affiliates is substantially similar to or less than their interest in the
Partnership, currently own a proportionate interest in the Prospect
separately from the Partnership, then the interest to be acquired shall
be divided between the Partnership and the Managing General Partner or
the Affiliate in the same proportion as is the other property in the
Prospect; provided, however, if cash or financing is not available to the
Partnership to enable it to consummate a purchase of the additional
interest to which it is entitled, then neither the Managing General
Partner nor the Affiliate shall be permitted to purchase any additional
interest in the Prospect.
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(Page 26)
(4) TRANSFER OF LESS THAN THE MANAGING GENERAL PARTNER'S AND ITS AFFILIATE'S
ENTIRE INTEREST.
A sale, transfer or a conveyance to the Partnership of less than all of
the ownership of the Managing General Partner or an Affiliate, excluding
another Program in which the interest of the Managing General Partner or
its Affiliates is substantially similar to or less than their interest in
the Partnership, in any Prospect will not be made unless the interest
retained by the Managing General Partner or the Affiliate is a
proportionate Working Interest, the respective obligations of the
Managing General Partner or its Affiliates and the Partnership are
substantially the same after the sale of the interest by the Managing
General Partner or its Affiliates, and the Managing General Partner's
interest in revenues does not exceed the amount proportionate to its
retained Working Interest. Neither the Managing General Partner nor any
Affiliate will retain any Overriding Royalty Interests or other burdens
on an interest sold by it to the Partnership. With respect to its
retained interest the Managing General Partner will not Farmout a Lease
for the primary purpose of avoiding payment of its costs relating to
drilling the Lease. This paragraph does not prevent the Managing General
Partner or its Affiliates from subsequently dealing with their retained
interest as they may choose with unaffiliated parties or Affiliated
partnerships.
(5) EQUAL PROPORTIONATE INTEREST.
If the Managing General Partner or an Affiliate, excluding another
Program in which the interest of the Managing General Partner or its
Affiliates is substantially similar to or less than their interest in the
Partnership, sells, transfers or conveys any oil, gas or other mineral
interests or property to the Partnership, it must, at the same time, sell
to the Partnership an equal proportionate interest in all its other
property in the same Prospect. Notwithstanding, a Prospect shall be
deemed to consist of the drilling or spacing unit on which such well will
be drilled by the Partnership if the geological feature to which such
well will be drilled contains Proved Reserves and the drilling or spacing
unit protects against drainage. With respect to an oil and gas Prospect
located in Ohio and Pennsylvania on which a well will be drilled by the
Partnership to test the Clinton/Medina geologic formation a Prospect
shall be deemed to consist of the drilling and spacing unit if it meets
the test in the preceding sentence. It is anticipated that most, if not
all, of the Prospects which will be developed by the Partnership will
develop the Clinton/Medina geologic formation. The development of wells
on such acreage may provide the Managing General Partner with offset
sites by allowing it to ascertain at the Partnership's expense the value
of adjacent acreage in which the Partnership would not have any right to
participate in developing. See the Production Map in "Proposed Activities
- - Information Regarding Currently Proposed Prospects" for the acreage
owned by the Managing General Partner in the area surrounding the
currently proposed Prospects. To reduce this conflict of interest neither
the Managing General Partner nor its Affiliates may drill any well within
1,650 feet of an existing Partnership Well in the Clinton/Medina
formation in Pennsylvania, or within 1,100 feet of an existing
Partnership Well in Ohio, within five years of the drilling of the
Partnership Well. In the event the Partnership abandons its interest in a
well, this restriction will continue for one year following the
abandonment.
(6) SUBSEQUENTLY ENLARGING PROSPECT.
If the area constituting the Partnership's Prospect is subsequently
enlarged to encompass any area wherein the Managing General Partner or an
Affiliate, excluding another Program in which the interest of the
Managing General Partner or its Affiliates is substantially similar to or
less than their interest in the Partnership, owns a separate property
interest, such separate property interest or a portion thereof shall be
sold, transferred or conveyed to the Partnership in accordance with
Sections 2, 4 and 5, above, if the activities of the Partnership were
material in establishing the existence of Proved Undeveloped Reserves
which are attributable to such separate property interest.
Notwithstanding, Prospects in the Clinton/Medina geological formation
will not be enlarged or contracted if the Prospect was limited to the
drilling or spacing unit because the well was being drilled to Proved
Reserves in the Clinton/Medina geological formation and the drilling or
spacing unit protected against drainage.
(7) TRANSFER OF LEASES TO THE MANAGING GENERAL PARTNER.
The Managing General Partner and its Affiliates will not purchase any
producing or non-producing oil and gas properties from the Partnership.
(8) TRANSFER OF LEASES BETWEEN AFFILIATED LIMITED PARTNERSHIPS.
The Partnership shall not purchase properties from or sell properties to
any other Affiliated partnership. This prohibition, however, shall not
apply to joint ventures among such Affiliated partnerships, provided that
the respective obligations and revenue sharing of all parties to the
transaction are substantially the same and the compensation arrangement
or any other interest or right of either the Managing General Partner or
its Affiliates is the same in each Affiliated partnership, or, if
different, the aggregate compensation of the Managing General Partner or
the Affiliate is reduced to reflect the lower compensation arrangement.
(9) NO FARMOUTS. The Partnership shall not farmout its Leases.
(10) LEASES ONLY FOR STATED PURPOSE OF THE PARTNERSHIP. The Partnership shall
acquire only Leases reasonably expected to meet the stated purposes of
the Partnership. No Leases shall be acquired for the purpose of a
subsequent sale unless the acquisition
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(Page 27)
is made after a well has been
drilled to a depth sufficient to indicate that such an acquisition would
be in the Partnership's best interest.
CONFLICTS BETWEEN PARTICIPANTS
To the extent that Atlas and its Affiliates purchase Units as
Participants the voting power of all Participants will be diluted and
there may be a conflict with respect to certain matters. The Managing
General Partner may buy up to 10% of the Units, which will not be applied
towards the minimum Partnership Subscription required for the Partnership
to begin operations. (See "Summary of Partnership Agreement - Voting
Rights".)
LACK OF INDEPENDENT UNDERWRITER AND DUE DILIGENCE INVESTIGATION
The terms of this offering, the Partnership Agreement and the Drilling
and Operating Agreement were determined by the Managing General Partner
without arms' length negotiations. Prospective Participants have not been
separately represented by legal counsel, which might include the
negotiation of certain more favorable terms in the Partnership Agreement
and the Drilling and Operating Agreement on behalf of prospective
Participants. Although the soliciting broker-dealers will receive a .5%
reimbursement of their bona fide accountable due diligence expenses for
certain due diligence investigations conducted by such broker-dealers,
there was not an extensive in-depth "due diligence" investigation of the
existing and proposed business activities of the Partnership and the
Managing General Partner which would be provided by independent
underwriters. (See "Plan of Distribution".)
CONFLICTS CONCERNING LEGAL COUNSEL
It is anticipated that legal counsel to Atlas will also serve as legal
counsel to the Partnership and that such dual representation will
continue in the future. However, should a future dispute arise between
the Participants and Atlas, Atlas will cause the Participants to retain
separate counsel for such matters.
CONFLICTS REGARDING REPURCHASE OBLIGATION
The Participants' right to present their Units to Atlas for repurchase
creates a conflict of interest between the Participants and the Managing
General Partner in the suspension of the repurchase obligation and in
arriving at the amount which will be paid by the Managing General Partner
for the Participants' interests. The Managing General Partner may
suspend its repurchase obligation if it does not have the necessary cash
flow or it cannot borrow the funds on terms which the Managing General
Partner deems reasonable, which is a subjective determination. The
Managing General Partner will also determine the repurchase price based
upon a reserve report prepared by the Partnership and reviewed by an
Independent Expert chosen by the Managing General Partner. Furthermore,
the formula for arriving at the repurchase price has some subjective
determinations within the control of the Managing General Partner. (See
"Repurchase Obligation".)
OTHER CONFLICTS
A conflict of interest is created with the Participants by the Managing
General Partner's right to hypothecate its interest or withdraw an
interest in the Partnership Wells with respect to the Managing General
Partner's subordination obligation. A further conflict of interest is
created by the Managing General Partner's right to determine the order of
priority and the construction of pipelines which may be required in order
to connect certain Prospects into the Atlas transmission network. (See
"Risk Factors - Special Risks of the Partnership - Borrowings by the
Managing General Partner Could Reduce Funds Available for Its
Subordination Obligation" and "Summary of Partnership Agreement -
Withdrawal of Managing General Partner".)
PROCEDURES TO REDUCE CONFLICTS OF INTEREST
The Managing General Partner and its Affiliates have adopted the
following procedures and conditions to reduce some of the conflicts of
interest inherent in oil and gas drilling programs and to assure that
transactions between the Managing General Partner or its Affiliates, on
the one hand, and the Partnership, on the other hand, are fair and
reasonable. The Managing General Partner has no other conflict of
interest resolution procedures. Consequently, conflicts of interest
between the Managing General Partner and the Participants may not
necessarily be resolved in the best interests of the Participants.
(1) NO COMMINGLING. The funds of the Partnership will be kept in
separate accounts and will not be commingled with the funds of the
Managing General Partner, any Affiliate or any other entity.
(2) NO COMPENSATING BALANCES. Neither the Managing General Partner nor
any Affiliate will use the Partnership's funds as compensating balances
for its own benefit.
(3) FUTURE PRODUCTION. Neither the Managing General Partner nor any
Affiliate will commit the future production of a well developed by the
Partnership exclusively for its own benefit.
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(Page 28)
(4) MARKETING ARRANGEMENTS. All benefits from marketing arrangements or
other relationships affecting property of the Managing General Partner or
its Affiliates and the Partnership will be fairly and equitably
apportioned according to the respective interests of each in such
property. The Managing General Partner shall treat all wells in a
geographic area equally concerning to whom and at what price the
Partnership's gas will be sold and to whom and at what price the gas of
other oil and gas Programs which the Managing General Partner has
sponsored or will sponsor will be sold. The Managing General Partner
calculates a weighted average selling price for all of the gas sold in a
geographic area by taking all money received from the sale of all of the
gas sold to its customers in a geographic area and dividing by the volume
of all gas sold from the wells in that geographic area. Notwithstanding,
the Managing General Partner and its Affiliates are parties to, and
contract for, the sale of natural gas with industrial end-users and will
continue to enter into such contracts on their own behalf, and the
Partnership will not be a party to such contracts. The Managing General
Partner and its Affiliates also have a substantial interest in certain
pipeline facilities and compression facilities which access interstate
pipeline systems, which it is anticipated will be used to transport the
Partnership's gas production as well as Affiliated partnership and
third-party gas production, and the Partnership will not receive any
interest in the Managing General Partner's and its Affiliates' pipeline
or gathering system or compression facilities. (See "Proposed Activities
- - Sale of Oil and Gas Production - In General".)
(5) ADVANCE PAYMENTS. Advance payments by the Partnership to the Managing
General Partner and its Affiliates are prohibited, except where advance
payments are required to secure tax benefits of prepaid drilling costs
and for a business purpose. These payments, if any, shall not include
nonrefundable payments for completion costs prior to the time that a
decision is made that the well or wells warrant a completion attempt.
(6) NO PROFIT IN CONTRAVENTION OF FIDUCIARY DUTY. The Managing General
Partner will not profit by drilling in contravention of its fiduciary
obligation to the Participants.
(7) DISCLOSURE. Any agreement or arrangement which binds the Partnership
must be fully disclosed in the Prospectus.
(8) LOANS FROM THE PARTNERSHIP. The Partnership will not loan money to the
Managing General Partner or any Affiliate.
(9) LOANS TO THE PARTNERSHIP. Neither the Managing General Partner nor any
Affiliate will loan money to the Partnership where the interest to be
charged exceeds the Managing General Partner's or the Affiliate's
interest cost or where the interest to be charged exceeds that which
would be charged to the Partnership (without reference to the Managing
General Partner's or the Affiliate's financial abilities or guarantees)
by unrelated lenders, on comparable loans for the same purpose, and
neither the Managing General Partner nor any Affiliate will receive
points or other financing charges or fees, regardless of the amount,
although the actual amount of such charges incurred from third-party
lenders may be reimbursed to the Managing General Partner or the
Affiliate.
(10) NO REBATES. No rebates or give-ups may be received by the Managing
General Partner or any Affiliate nor may the Managing General Partner or
any Affiliate participate in any reciprocal business arrangements which
would circumvent these guidelines.
( 11 ) SALE OF ASSETS. The sale of all or substantially all of the assets
of the Partnership (including without limitation, Leases, wells,
equipment and production) can only be made with the consent of
Participants whose Agreed Subscriptions equal a majority of the
Partnership Subscription.
(12) PARTICIPATION IN OTHER PARTNERSHIPS. If the Partnership participates in
other partnerships or joint ventures (multi-tier arrangements), the terms
of any such arrangements shall not result in the circumvention of any of
the requirements or prohibitions contained in the Partnership Agreement,
including the following: (i) there will be no duplication or increase in
organization and offering expenses, the Managing General Partner's
compensation, Partnership expenses or other fees and costs; (ii) there
will be no substantive alteration in the fiduciary and contractual
relationship between the Managing General Partner and the Participants;
and (iii) there will be no diminishment in the voting rights of the
Participants.
(13) INVESTMENTS. Partnership funds may not be invested in the
securities of another person except in the following instances:
investments in Working Interests or undivided Lease interests made in the
ordinary course of the Partnership's business; temporary investments in
income producing short-term highly liquid investments, where there is
appropriate safety of principal, such as U.S. Treasury Bills; multi-tier
arrangements meeting the requirements of (12) above; investments
involving less than 5% of the Partnership Subscription which are a
necessary and incidental part of a property acquisition transaction; and
investments in entities established solely to limit the Partnership's
liabilities associated with the ownership or operation of property or
equipment, provided, in such instances duplicative fees and expenses
shall be prohibited.
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(Page 29)
POLICY REGARDING ROLL-UPS
It is possible at some indeterminate time in the future that the
Partnership will become involved in a "Roll-Up". The complete definition
of "Roll-Up" is set forth in "Definitions." In general, a Roll-Up means a
transaction involving the acquisition, merger, conversion, or
consolidation of the Partnership with or into another partnership,
corporation or other entity (the "Roll-Up Entity") and the issuance of
securities by the Roll-Up Entity to Participants. A Roll-Up will also
include any change in the rights, preferences, and privileges of the
Participants in the Partnership; such changes could include increasing
the compensation of the Managing General Partner, amending the voting
rights of the Participants, listing the Units on a national securities
exchange or on NASDAQ, changing the fundamental investment objectives of
the Partnership, or materially altering the duration of the Partnership.
The Partnership Agreement provides various policies in the event that a
Roll-Up should occur in the future. These policies include: (i) an
appraisal of all Partnership assets will be from a competent Independent
Expert, and a summary of the appraisal will be included in a report to
the Participants in connection with a proposed Roll-Up; (ii) any
Participant who votes "no" on the proposal will be offered a choice of
(a) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up; (b) remaining a Participant in the Partnership and
preserving his interests in the Partnership on the same terms and
conditions as existed previously; or (c) receiving cash in an amount
equal to his pro-rata share of the appraised value of the Partnership's
net assets; and (iii) the Partnership will not participate in a proposed
Roll-Up (a) which would result in the diminishment of a Participant's
voting rights under the Roll-Up Entity's chartering agreement; (b) in
which the Participants' right of access to the records of the Roll-Up
Entity would be less than those provided by the Partnership Agreement; or
(c) in which any of the costs of the transaction would be borne by the
Partnership if the proposed Roll-Up is not approved by 75% in interest of
the Participants.
The Partnership Agreement further provides that the Partnership will not
participate in a Roll-Up transaction unless the Roll-Up transaction is
approved by Participants whose Agreed Subscriptions equal 75% of the
Partnership Subscription. (See .4.03(d)(16) of the Partnership
Agreement.)
<TABLE>
<CAPTION>
CERTAIN TRANSACTIONS
As of April 16, 1996, previous limited partnerships sponsored by the Managing General Partner and its
Affiliates had made payments to the Managing General Partner and its Affiliates as follows:
Leasehold Cumulative
Leasehold Reimbursement
Drilling of General
and Cumulative and
Investor Non-recurring Completion Operator's Admn
Program Subscriptions Management Fee Costs (1)(2) Charges Overhead
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Atlas L.P. #1-1985 $ 600,000 0 $600,000 $135,095 $29,750
A.E. Partners 1986 631,250 0 631,250 98,936 39,075
A.E. Partners 1987 721,000 0 721,000 103,914 43,050
A.E. Partners 1988 617,050 0 617,050 79,860 37,350
A.E. Partners 1989 550,000 0 550,000 61,816 34,600
A.E. Partners 1990 887,500 0 887, 95,094 34,950
A.E. Nineties-10 2,200,000 0 2,200,000 216,903 35,750
A.E. Nineties-11 750,000 0 761,802 (2) 81,006 49,009
A.E. Partners 1991 868,750 0 867,750 69,168 39,300
A.E. Nineties-12 2,212,500 0 2,272,017 (2) 225,242 47,794
A.E. Nineties-JV 92 4,004,813 0 4,157,700 (2) 299,703 58,780
A.E. Partners 1992 600,000 0 600,000 37,561 17,325
A.E. Nineties-Public #1 2,988,960 0 3,026,348 (2) 117,680 32,775
A.E. Nineties-1993 Ltd. 3,753,937 0 3,480,656 (2) 211,529 36,654
A.E. Partners 1993 700,000 0 689,940 31,000 13,575
A.E. Nineties-Public #2 3,323,920 0 3,324,668 (2) 113,389 22,137
A.E. Nineties-14 9,940,045 0 9,512,015 (2) 342,413 53,164
A.E. Partners 1994 892,500 0 892,500 11,262 7,575
A.E. Nineties-Public #3 5,799,750 0 5,799,750 95,213 12,833
A.E. Nineties-15 10,954,715 0 9,859,244 41,834 6,863
A.E. Partners 1995 600,000 0 600,000 0 0
A.E. Nineties-Public #4 6,991,350 0 6,991,350 0 0
</TABLE>
- --------------------------------------------------------------------------
(Page 30)
(1) Excluding the Managing General Partner's Capital Contributions.
(2) Includes additional drilling costs paid with production revenues.
FIDUCIARY RESPONSIBILITY OF THE MANAGING GENERAL PARTNER
GENERAL
The Managing General Partner is vested with the power and authority
to manage the Partnership and its assets. Consequently, it is
accountable to the Participants as a fiduciary and must exercise good
faith and act with integrity in handling the affairs of the
Partnership. The Managing General Partner has a fiduciary
responsibility for the safekeeping and use of all funds and assets of
the Partnership whether or not in the Managing General Partner's
possession or control, and the Managing General Partner may not
employ, or permit another to employ, such funds or assets in any
manner except for the exclusive benefit of the Partnership. Neither
the Partnership Agreement nor any other agreement between the
Managing General Partner and the Partnership may contractually limit
any fiduciary duty owed to the Participants by the Managing General
Partner under applicable law except as set forth in ..4.01, 4.02,
4.04, 4.05 and 4.06 of the Partnership Agreement. This is a rapidly
expanding and changing area of the law and Participants who have
questions concerning the duties of the Managing General Partner
should consult their own counsel.
LIMITATIONS ON MANAGING GENERAL PARTNER LIABILITY AS FIDUCIARY
Under the terms of the Partnership Agreement, the Managing General
Partner, the Operator and their Affiliates will not be liable to the
Partnership or the Participants for any loss suffered by the
Partnership or Participants which arises out of any action or
inaction of the Managing General Partner, the Operator or their
Affiliates if the Managing General Partner, the Operator and their
Affiliates determined in good faith that such course of conduct was
in the best interest of the Partnership; the Managing General
Partner, the Operator and their Affiliates were acting on behalf of,
or performing services for, the Partnership; and such course of
conduct did not constitute negligence or misconduct of the Managing
General Partner, the Operator or their Affiliates. Therefore,
Participants may have a more limited right of action than they would
have had absent these limitations in the Partnership Agreement.
These limitations, however, do not apply to Participants' rights
under the federal securities laws, and Participants whose Agreed
Subscriptions equal a majority of the Partnership Subscription may
vote to remove the Managing General Partner and/or the Operator.
(See "Summary of Partnership Agreement - Voting Rights" and "-
Removal of Operator.")
In addition, the Partnership Agreement provides for indemnification
of the Managing General Partner, the Operator and their Affiliates by
the Partnership against any losses, judgements, liabilities, expenses
and amounts paid in settlement of any claims sustained by them in
connection with the Partnership provided that the Managing General
Partner, the Operator and their Affiliates determined in good faith
that the course of conduct which caused the loss or liability was in
the best interest of the Partnership; the Managing General Partner,
the Operator and their Affiliates were acting on behalf of, or
performing services for the Partnership; and such course of conduct
was not the result of negligence or misconduct of the Managing
General Partner, the Operator or their Affiliates.
Payments arising from such indemnification or agreement to hold
harmless are recoverable only out of the tangible net assets of the
Partnership including insurance proceeds.
Notwithstanding the above, the Managing General Partner, the Operator
and their Affiliates and any person acting as a broker-dealer may not
be indemnified for any losses, liabilities, or expenses arising from
or out of an alleged violation of federal or state securities laws
unless (i) there has been a successful adjudication on the merits of
each count involving alleged securities law violations as to a
particular indemnity, (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to a
particular indemnity, or (iii) a court of competent jurisdiction
approves a settlement of the claims as to a particular indemnity and
finds that indemnification of the settlement and related costs should
be made, and the court considering the request for indemnification
has been advised of the position of the Securities and Exchange
Commission, the Massachusetts Securities Division, the states which
are specifically set forth in the Partnership Agreement, and the
position of any state securities regulatory authority in which the
plaintiff claims he was offered or sold Partnership Units, with
respect to the issue of indemnification for violation of securities
laws.
LIMITATIONS ON MANAGING GENERAL PARTNER INDEMNIFICATION
To the extent that any indemnification provision in the Partnership
Agreement purports to include indemnification for liabilities arising
under the Securities Act of 1933, as amended, Participants should be
aware that, in the opinion of the Securities and Exchange Commission,
- --------------------------------------------------------------------------
(Page 31)
such indemnification is contrary to public policy and therefore
unenforceable. In any event, Participants and their advisers should
review closely the provisions of the Partnership Agreement concerning
exculpation and indemnification of the Managing General Partner and
consult their own attorneys if they have any questions.
The Partnership will not incur the cost of the portion of any
insurance which insures any party against any liability as to which
such party is prohibited from being indemnified.
The advancement of Partnership funds to the Managing General Partner
or its Affiliates for legal expenses and other costs incurred as a
result of any legal action for which indemnification is being sought
is permissible only if the Partnership has adequate funds available
and the following conditions are satisfied: the legal action relates
to acts or omissions with respect to the performance of duties or
services on behalf of the Partnership; the legal action is initiated
by a third party who is not a Participant, or the legal action is
initiated by a Participant and a court of competent jurisdiction
specifically approves such advancement; and the Managing General
Partner or its Affiliates undertake to repay the advanced funds to
the Partnership, together with the applicable legal rate of interest
thereon, in cases in which such party is found not to be entitled to
indemnification.
PRIOR ACTIVITIES
The following tables, other than Table 5, reflect certain historical
data with respect to nineteen private drilling programs in which
Atlas served as Managing General Partner, which raised a total of
$49,068,405, and four public drilling programs in which Atlas served
as Managing General Partner which raised a total of $19,103,980.
FOR SEVERAL REASONS, INCLUDING DIFFERENCES IN PROGRAM STRUCTURE, PROPERTY
LOCATIONS, PROGRAM SIZE AND ECONOMIC CONSIDERATIONS, IT SHOULD NOT BE
ASSUMED THAT PARTICIPANTS IN THE OFFERING COVERED BY THIS PROSPECTUS WILL
EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN
SUCH PRIOR DRILLING PROGRAMS. THE RESULTS OF SUCH PRIOR DRILLING PROGRAMS
SHOULD BE VIEWED ONLY AS A MEASURE OF THE LEVEL OF ACTIVITY AND EXPERIENCE
OF ATLAS WITH RESPECT TO DRILLING PROGRAMS.
- --------------------------------------------------------------------------
(Page 32)
<TABLE>
<CAPTION>
Table 1 sets forth certain sales information of previous limited partnerships sponsored by the Managing
General Partner and its Affiliates.
TABLE 1
EXPERIENCE IN RAISING FUNDS
AS OF JULY 15, 1996
DATE
OF
COM- YEARS
MENCE- DATE OF WELLS
NUMBER INVESTOR ATLAS MENT OF FIRST IN PEVIOUS
OF SUBSCRP- INVEST- TOTAL OPERA- DISTRI- PRODUC- ASSESS
PROGRAM INVESTORS TIONS MENT CAPITAL TIONS BUTIONS TION MENTS
=================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <S>
ATLAS L.P. #1 1985 19 $600,000 $114,800 $714,800 12/31/85 07/02/86 10.55 -0-
A.E. PARTNERS 1986 24 631,250 120,400 751,650 12/31/86 04/02/87 9.55 -0-
A.E. PARTNERS 1987 17 721,000 158,269 879,269 12/31/87 04/02/88 8.55 -0-
A.E. PARTNERS 1988 21 617,050 135,450 752,500 12/31/88 04/02/89 7.55 -0-
A.E. PARTNERS 1989 21 550,000 120,731 670,731 12/31/89 04/02/90 6.55 -0-
A.E. PARTNERS 1990 27 887,500 244,622 1,132,122 12/31/90 04/02/91 5.55 -0-
A.E. NINETIES-10 60 2,200,000 484,380 2,684,380 12/31/90 03/31/91 5.33 -0-
A.E. NINETIES-11 25 750,000 268,003 1,018,003 09/30/91 01/31/92 4.50 -0-
A.E. PARTNERS 1991 26 868,750 318,063 1,186,813 12/31/91 04/02/92 4.33 -0-
A.E. NINETIES-12 87 2,212,500 791,833 3,004,333 12/31/91 04/30/92 4.25 -0-
A.E. NINETIES-JV 92 155 4,004,813 1,414,917 5,419,730 10/28/92 04/05/93 3.08 -0-
A.E. PARTNERS 1992 21 600,000 176,100 776,100 12/14/92 07/02/93 3.58 -0-
A.E. NINETIES-PUBLIC #1 221 2,988,960 528,934 3,517,894 12/31/92 07/15/93 2.83 -0-
A.E. NINETIES-1993 LTD. 125 3,753,937 1,264,183 5,018,120 10/08/93 02/10/94 2.50 -0-
A.E. PARTNERS 1993 21 700,000 219,600 919,600 12/31/93 07/02/94 2.25 -0-
A.E. NINETIES-PUBLIC #2 269 3,323,920 587,340 3,911,260 12/31/93 06/15/94 2.00 -0-
A.E. NINETIES-14 263 9,940,045 3,584,027 13,524,072 08/11/94 01/10/95 1.50 -0-
A.E. PARTNERS 1994 23 892,500 231,500 1,124,000 12/31/94 07/02/95 1.25 -0-
A.E. NINETIES-PUBLIC #3 391 5,799,750 928,546 6,728,296 12/31/94 06/05/95 1.25 -0-
A.E. NINETIES-15 244 10,954,715 3,435,936 14,390,651 09/12/96 02/07/96 0.42 -0-
A.E. PARTNERS 1995 23 600,000 244,725 844,725 05/01/96 N/A N/A -0-
A.E. NINETIES-PUBLIC #4 324 6,991,350 1,287,782 8,279,132 12/31/95 07/08/96 0.25 -0-
A.E. NINETIES-16 177 7,564,345 1,134,652 8,698,997 06/15/96 N/A N/A -0-
<FN>
- --------------------------------------------------------------------------------------------------------
(Page 33)
Table 2 reflects the drilling activity of previous limited partnerships sponsored by the Managing General
Partner and its Affiliates. All of the wells were Development Wells.
</FN>
</TABLE>
TABLE 2
WELL STATISTICS - DEVELOPMENT WELLS
AS OF JULY 15, 1996
GROSS WELLS (1): NET WELLS (2)
PROGRAM OIL GAS DRY : OIL GAS DRY
- -------------------------------------------------------------
ATLAS L.P. #1 1985 0 7 1 0 3.15 0.25
A.E. PARTNERS 1986 0 8 0 0 3.50 0.00
A.E. PARTNERS 1987 0 9 0 0 4.10 0.00
A.E. PARTNERS 1988 0 9 0 0 3.80 0.00
A.E. PARTNERS 1989 0 10 0 0 3.30 0.00
A.E. PARTNERS 1990 0 12 0 0 5.00 0.00
A.E. NINETIES-10 0 12 0 0 11.50 0.00
A.E. NINETIES-11 0 14 0 0 4.30 0.00
A.E. PARTNERS 1991 0 12 0 0 4.95 0.00
A.E. NINETIES-12 0 14 0 0 12.50 0.00
A.E. NINETIES-JV 92 0 52 0 0 24.44 0.00
A.E. PARTNERS 1992 0 7 0 0 14.00 0.00
A.E. NINETIES-1993 LTD 0 20 2 0 19.40 2.00
A.E. PARTNERS 1993 0 8 0 0 4.00 0.00
A.E. NINETIES-PUBLIC #2 0 16 0 0 15.31 0.00
A.E. NINETIES-14 0 55 1 0 55.00 1.00
A.E. PARTNERS 1994 0 12 0 0 5.00 0.00
A.E. NINETIES-PUBLIC #3 0 27 0 0 26.00 0.00
A.E. NINETIES-15 0 61 0 0 55.50 0.00
A.E. PARTNERS 1995 0 6 0 0 3.00 0.00
A.E. NINETIES-PUBLIC #4 0 31 0 0 30.50 0.00
A.E. NINETIES-16 0 32 0 0 32.00 0.00
=============================================================
TOTALS: 0 448 4 0 343.75 3.25
(1) A "gross well" is one in which a leasehold interest is owned.
(2) A "net well"" equals the actual leasehold interest owned
in one gross well devided by one hundred.
Example: a 50% leasehold interest in a well is one gross well,
but a .50 net well.
- -------------------------------------------------------------------------
(Page 34)
<TABLE>
<CAPTION>
TABLE 3
INVESTOR
OPERATING RESULTS - INCLUDING EXPENSES
AS OF 07/15/96
CASH LATEST
-ON- AVERAGE QTRLY CASH
(1) - - TOTAL COSTS - - CASH (2) CASH YEARLY DISTRIB.as of
PROGRAM CAPITALIZATION OPERATING ADMIN. DIRECT DISTRIBUTIONS RETURN RETURN Dt of TBL
========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ATLAS L.P. #1 - 1985 $600,000 $117,043 $25,620 $6,834 $1,189,740 198% 19% $9,366
A.E. PARTNERS LP - 1986 631,250 85,642 33,705 5,676 549,552 87% 9% 6,000
A.E. PARTNERS LP - 1987 721,000 83,388 34,463 6,365 470,829 65% 8% 2,942
A.E. PARTNERS LP - 1988 617,050 62,877 29,273 6,065 417,769 68% 9% 4,047
A.E. PARTNERS LP - 1989 550,000 53,102 29,479 4,005 537,489 98% 15% 9,050
A.E. PARTNERS LP - 1990 887,500 75,321 36,750 3,750 605,816 68% 12% 16,219
A.E. NINETIES - 10 2,200,000 168,678 37,550 15,260 1,074,207 49% 9% 31,823
A.E. NINETIES - 11 750,000 59,021 36,458 25,757 622,993 83% 18% 22,790
A.E. PARTNERS LP - 1991 868,750 55,870 42,000 12,007 580,152 67% 15% 25,475
A.E. NINETIES - 12 2,212,500 164,474 35,633 94,236 1,161,970 53% 12% 47,613
A.E. NINETIES - JV 92 4,004,813 212,783 43,033 180,736 1,818,842(3) 45% 15% 100,936
A.E. PARTNERS LP - 1992 600,000 30,618 18,675 2,135 376,863 63% 18% 37,879
A.E. NINETIES - PUBLIC #1 2,988,960 101,905 27,283 63,384 1,138,817 38% 13% 74,949
A.E. NINETIES - 1993 LTD. 3,753,937 156,350 28,533 19,913 1,117,937 30% 12% 113,637
A.E. PARTNERS LP - 1993 700,000 26,810 15,375 1,585 314,409 45% 20% 55,877
A.E. NINETIES - PUBLIC #2 3,323,920 100,127 19,271 22,460 752,510 23% 11% 146,060
A.E. NINETIES - 14 9,940,045 255,386 46,000 8,128 1,636,319 16% 11% 249,996
A.E. PARTNERS LP - 1994 892,500 11,763 10,050 1,025 197,788 22% 18% 42,520
A.E. NINETIES - PUBLIC #3 5,799,750 93,741 17,483 18,841 901,708 16% 12% 277,070
A.E. NINETIES - 15 10,954,715 61,646 14,438 4,609 917,117 8% 20% 577,598
A.E. PARTNERS LP - 1995 600,000 0 0 0 0 0% 0% 0
A.E. NINETIES - PUBLIC #4 6,991,350 15,394 2,885 8,731 175,000 3% 10% 175,000
A.E. NINETIES - 16 (4) 7,564,345 0 0% 0 0 0% 0 0
(1) There have been no Partnership borrowings other than from Atlas.
The approximate principal amounts of such borrowings were as follows:
A.E. Nineties-10 $330,000; A.E. Nineties-11 $112,500; A.E. Nineties-12
$331,875. A portion of each program's cash distribution was used to
repay that program's loan.
(2) All cash distributions were from the sale of gas, and not sale of
properties.
(3) A portion of the cash distributions was used to drill three
reinvestment wells at a cost of $333,860 in accordance with the terms
of the offering.
(4) This program had its first closing on June 15, 1996.
- --------------------------------------------------------------------------------------------------------
(Page 35)
</TABLE>
Table 3A provides information concerning the operating results of
previous limited partnerships sponsored by the Managing General
Partner and its Affiliates
<TABLE>
<CAPTION>
TABLE 3A
MANAGING GENERAL PARTNER
OPERATING RESULTS - INCLUDING EXPENSES
AS OF 07/15/96
CASH LATEST
-ON- QTRLY CASH
--------TOTAL COSTS-------- CASH CASH DISTRIB.AS
PROGRAM CAPITALIZATION OPERATING ADMIN. DIRECT DISTRIBUTIONS(1) RETURN DATE OF TBL.
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ATLAS L.P. #1 - 1985 $114,800 $22,294 $4,880 $1,093 $223,327 195% $1,784
A.E. PARTNERS LP - 1986 120,400 16,313 6,420 908 103,649 86% 1,143
A.E. PARTNERS LP - 1987 158,269 24,043 9,937 1,424 116,994 74% 848
A.E. PARTNERS LP - 1988 135,450 20,250 9,427 1,477 99,084 73% 1,270
A.E. PARTNERS LP - 1989 120,731 11,657 6,471 721 121,682 101% 2,153
A.E. PARTNERS LP - 1990 244,622 0 0 25,107 228,707 93% 6,006
A.E. NINETIES - 10 484,380 0 0 56,226 379,306 78% 11,253
A.E. NINETIES - 11 268,003 25,295 15,625 5,981 250,803 94% 9,767
A.E. PARTNERS LP - 1991 318,063 0 0 18,623 256,756 81% 9,392
A.E. NINETIES - 12 791,833 70,489 15,271 14,880 467,618 59% 20,406
A.E. NINETIES - JV 92 1,414,917 104,803 21,195 7,480 724,273 51% 29,309
A.E. PARTNERS LP - 1992 176,100 0 0 10,206 194,209 110% 9,690
A.E. NINETIES - PUBLIC #1 528,934 32,180 8,616 8,209 330,568 62% 17,483
A.E. NINETIES - 1993 LTD. 1,264,183 67,007 12,228 4,952 322,696 26% 0
A.E. PARTNERS LP - 1993 219,600 0 0 8,937 107,103 49% 192,254
A.E. NINETIES - PUBLIC #2 587,340 31,619 6,086 7,093 126,882 22% 0
A.E. NINETIES - 14 3,584,027 125,787 22,656 4,003 819,303 23% 120,904
A.E. PARTNERS LP - 1994 231,500 0 0 3,921 57,954 25% 14,998
A.E. NINETIES - PUBLIC #3 928,546 31,247 5,828 6,280 300,569 32% 92,357
A.E. NINETIES - 15 3,435,936 26,420 6,188 1,975 393,050 11% 247,542
A.E. PARTNERS LP - 1995 244,725 0 0 0 0 0% 0
A.E. NINETIES - PUBLIC #4 1,287,782 5,131 962 2,910 13,891 1% 13,891
A.E. NINETIES - 16 (2) 1,134,652 0 0 0
</TABLE>
(1) All cash distributions were from the sale of gas and not
sales of properties.
(2) This program had its first closing on June 15, 1996.
- --------------------------------------------------------------------------
(Page 36)
Table 4 sets forth the aggregate cash distributions and estimated
federal tax savings to investors in Atlas' prior programs,
based on the maximum marginal tax rate
in each year, as reported in the partnerships'
tax returns and such share of tax deductions as a percentage of
their subscriptions. Prospective subscribers are urged
to consult with their own tax advisors concerning their
specific tax situations.
<TABLE>
<CAPTION>
TABLE 4
SUMMARY OF INVESTOR TAX BENEFITS AND CASH DISTRIBUTION RETURNS
07/15/96
ESTIMATED FEDERAL TAX SAVINGS FROM (1) CUMULATIVE
(2) (3) (3) (3) (4) (5) INVESTORS PERCENT OF
1ST YEAR EFF. 1ST YR CASH TOTAL CASH CASH DIST.
INVESTOR TAX TAX I.D.C. DEPLETION SECTION 29 DISTRIBUTION DIST & & TAX SAVINGS
PROGRAM CAPITAL DEDUCT RATE DEDUCT ALLOWANCE DEPRE TAX CREDIT TOTAL AS OF DT of TBL-SAVINGS- -TO--DATE
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
ATLAS L.P. #1 - 1985 $600,000 99% 50.0% $298,337 $99,838 N/A $55,915 $454,090 $1,189,740 $1,643,830 274%
A.E. PARTNERS LP - 1986 631,250 99% 50.0% 312,889 49,235 N/A 13,507 375,631 549,552 925,183 147%
A.E. PARTNERS LP - 1987 721,000 99% 38.5% 356,895 38,305 N/A N/A 395,200 470,829 866,029 120%
A.E. PARTNERS LP - 1988 617,050 99% 33.0% 244,351 34,045 N/A N/A 278,396 417,769 696,165 113%
A.E. PARTNERS LP - 1989 550,000 99% 33.0% 179,685 46,872 N/A N/A 226,557 537,489 764,046 139%
A.E. PARTNERS LP - 1990 887,500 99% 33.0% 275,125 56,461 N/A 159,085 490,671 605,816 1,096,487 124%
A.E. NINETIES - 10 2,200,000 100% 33.0% 726,000 101,560 N/A 298,531 1,126,091 1,074,207 2,200,298 100%
A.E. NINETIES - 11 750,000 100% 31.0% 232,500 56,731 N/A 188,742 477,973 622,993 1,100,966 147%
A.E. PARTNERS LP - 1991 868,750 100% 31.0% 269,313 59,020 N/A 162,099 490,432 580,152 1,070,584 123%
A.E. NINETIES - 12 2,212,500 100% 31.0% 685,875 117,996 N/A 342,198 1,146,069 1,161,970 2,308,039 104%
A.E. NINETIES - JV 92 4,004,813 92.5% 31.0% 1,313,629 174,683 N/A 455,273 1,943,585 1,818,842 3,762,427 94%
A.E. PARTNERS LP - 1992 600,000 100% 31.0% 186,000 41,112 N/A 114,424 341,536 376,863 718,399 120%
A.E. NINETIES - PUBLIC #1 2,988,960 80.5% 36.0% 877,511 131,397 70,847 N/A 1,079,755 1,138,817 2,218,572 74%
A.E. NINETIES - 1993 LTD. 3,753,937 92.5% 39.6% 1,378,377 108,120 N/A N/A 1,486,497 1,117,937 2,604,434 69%
A.E. PARTNERS LP - 1993 700,000 100% 39.6% 273,216 28,521 N/A N/A 301,737 314,409 616,146 88%
A.E. NINETIES - PUBLIC #2 3,323,920 78.7% 39.6% 1,036,343 105,952 65,004 N/A 1,207,299 752,510 1,959,809 59%
A.E. NINETIES - 9,940,045 95% 39.6% 3,739,445 184,853 N/A N/A 3,924,298 1,636,319 5,560,617 56%
A.E. PARTNERS LP - 1994 892,500 100% 39.6% 353,430 15,996 N/A N/A 369,426 197,788 567,214 64%
A.E. NINETIES - PUBLIC #3 5,799,750 76.2% 39.6% 1,752,761 84,725 48,574 N/A 1,886,060 901,708 2,787,768 48%
A.E. NINETIES - 15 10,954,715 90.0% 39.6% 3,904,260 82,928 N/A N/A 3,987,188 917,117 4,904,305 45%
A.E. PARTNERS LP - 1995 600,00 100% 39.6% 237,600 0 N/A N/A 237,600 - 237,600 40%
A.E. NINETIES - PUBLIC #4 6,991,350 80% 39.6% 2,214,860 13,302 0 N/A 2,228,162 175,000 2,403,162 34%
A.E. NINETIES - 16 (6) 7,564,345 80% 39.6% 2,396,385 0 0 N/A 2,396,385 0 2,396,385 32%
<FN>
(1) These columns reflect the savings in taxes which would have been paid by an investor, assuming full use of
deductions available to the investor.
(2)It is anticipated that approximately 80% of an Investor General Partner's subscription to the Partnership will be
deductible in 1996.
(3) The I.D.C. Deductions, Depletion Allowance and MACRS depreciation deductions have been reduced to credit
equivalents.
(4) The Section 29 tax credit is not avaiable with respect to wells drilled after December 31, 1992. N/A means not
applicable.
(5) These distributions were all from production revenues., See footnotes 1 and 3 of Table 3.
(6) This Program had its first closing on June 15, 1996
</FN>
</TABLE>
- ------------------------------------------------------------------------
(Page 37)
Table 5 sets forth programs in which Atlas and Atlas Energy served
as operator and/or drilling contractor for
third party general partners as well as the partnerships where Atlas
served as managing general partner. The
table includes Atlas' share of costs and revenues set forth in Table 3A,
above. Atlas has drilled
approximately 1,499 wells over the 24 year period from 1972 to 1995 and
during this time it has completed 97%
of the wells. In the current primary area of interest in Mercer County
Atlas has completed 99% of more than
approximately 640 wells drilled. These results are summarized below.
<TABLE>
<CAPTION>
TABLE 5
ATLAS RESOURCES, INC. AND ITS AFFILIATES' HISTORICAL PRODUCTION RECORD
AS OF 07/15/96 (4)
YEAR CUM % RETURN LAST
WELLS WERE TOTAL TOTAL AMOUNT TOTAL CASH THREE MONTHS DISTRIB.
PLACED INTO MCF'S INVESTED IN AMOUNT ON ENDING AS OF
PROD. WELLS(1) PRODUCED WELLS(2) RETURNED(2) CASH(3) DATE OF TABLE
=======================================================================================================
<C> <C> <C> <C> <C> <C> <C>
1973 6 2,394,376 $ 576,000 $3,834,314 666% $16,889
1974 23 3,116,867 2,515,200 4,289,637 171% 13,349
1975 23 3,657,487 2,686,200 5,841,938 217% 22,267
1976 15 2,791,582 1,819,200 4,264,180 234% 10,409
1977 29 8,905,896 4,042,600 15,789,384 391% 60,348
1978 84 7,384,967 12,269,900 18,228,172 149% 67,026
1979 54 8,711,841 7,404,000 18,969,856 256% 46,127
1980 45 5,418,403 6,561,100 13,132,495 200% 44,195
1981 85 5,860,131 14,885,850 16,351,158 110% 38,611
1982 77 2,429,650 12,745,500 5,662,450 44% 4,675
1983 33 1,177,067 6,725,480 2,819,398 42% 13,981
1984 52 4,169,283 10,663,250 9,535,375 89% 58,678
1985 46 4,485,729 8,971,200 9,584,183 107% 52,446
1986 43 4,911,497 9,439,100 9,671,868 102% 73,855
1987 12 1,088,291 2,437,800 1,928,020 79% 14,819
1988 38 3,629,990 7,886,386 6,359,146 81% 56,483
1989 48 3,355,259 9,967,768 6,203,955 62% 71,218
1990 32 3,220,952 6,607,333 6,121,072 93% 105,729
1991 92 7,371,787 18,465,287 13,753,538 74% 436,806
1992 65 5,987,348 14,444,116 10,846,242 75% 555,906
1993 106 7,098,177 21,764,596 11,739,395 54% 764,801
1994 97 3,625,470 20,418,364 5,838,216 29% 809,937
1995 103 2,458,385 22,303,186 4,077,817 18% 1,318,577
1996 58 312,235 12,957,277 564,677 4% 550,206
TOTAL 1,266 $103,562,670 $238,556,693 $205,406,485 86% $5,207,338
</TABLE>
(1) The above numbers do not include information for: (a) 87 wells
drilled for General Motors from 1971 to 1973 which were subsequently
purchased by General Motors; (b) 25 wells successfully drilled in 1981
and 1982 for an industrial customer which requested that the wells be
capped and not placed into production; (c) 127 wells drilled from 1980
to 1985 which were sold in 1993 and are no longer operated by Atlas;
and (d) wells which were drilled recently but are not yet in
production.
(2) The column "Total Amount Invested in Wells" only includes funds
paid to Atlas or Atlas Energy as operator and/or drilling contractor
for drilling and completing the designated wells. This column does not
include all of the costs paid by investors to the third party managing
general partner and/or sponsor of the program because such information
is generally not available to Atlas or Atlas Energy. Similarly, the
column "Total Amount Returned" only includes amounts paid by Atlas or
Atlas Energy as operator of the wells to the third party managing
general partner and/or sponsor of the program. This column does not
set forth the revenues which were actually received by the investors
from the third party managing general partner and/or sponsor because
such information is generally not available to Atlas or Atlas Energy.
Notwithstanding, the columns "Total Amount Invested in Wells" and
"Total Amount Returned" also include the partnerships where Atlas
serves as managing general partner and are presented on the same basis
as the third party partnerships.
(3) This column reflects total cash distributions beginning with the
first production from the well, as a percentage of the total amount
invested in the well, and includes the return of the investors'
capital.
(4) THE RESULTS OF TABLE 5 SHOULD BE VIEWED ONLY AS A MEASURE OF THE LEVEL
OF ACTIVITY AND EXPERIENCE OF ATLAS WITH RESPECT TO DRILLING PROGRAMS.
- --------------------------------------------------------------------------
(Page 38)
MANAGEMENT
MANAGING GENERAL PARTNER AND OPERATOR
Atlas, a Pennsylvania corporation, was incorporated in 1979 and Atlas
Energy, an Ohio corporation, was incorporated in 1973. As of December
31, 1995, Atlas and Atlas Energy operated approximately 1,051 oil or
natural gas wells located in Ohio and Pennsylvania. Atlas and Atlas
Energy have acted as operator with respect to the drilling of a total of
approximately 1500 gas wells, approximately 1,448 of which were capable
of production in commercial quantities. Atlas' primary offices are
located at 311 Rouser Road, Moon Township, Pennsylvania 15108, near the
Pittsburgh International Airport.
Atlas has previously sponsored four public and nineteen private drilling
programs formed since 1985 to conduct natural gas drilling and
development activities in Pennsylvania and Ohio. In addition, as
operator, Atlas acted as general contractor with respect to the drilling
and completion of such partnerships' natural gas wells located in
Pennsylvania and is responsible for operating such wells. Atlas Energy
acted in the same capacity as operator of such partnerships' wells
located in Ohio. (See "Prior Activities".)
Atlas and its Affiliates employ a total of approximately ninety-four
persons, consisting of three geologists, five landmen, five engineers,
thirty-three operations staff, eight accounting, one legal, eight gas
marketing, and eighteen administrative personnel. The balance of the
personnel are engineering, pipeline and field supervisors.
Atlas and Atlas Energy are wholly owned subsidiaries of AIC, Inc., a
corporation formed in July, 1995, which is a wholly owned subsidiary of
AEG Holdings, Inc. ("AEGH"), a corporation which was also formed in July,
1995. The other subsidiaries of AIC, Inc. are: Atlas Gas Marketing,
Inc., a gas marketing company; Mercer Gas Gathering, Inc., a gas
gathering company which gathers gas from Atlas' wells in Mercer County,
Pennsylvania, and delivers such gas directly to industrial end-users or
to interstate pipelines and local distribution companies; Pennsylvania
Industrial Energy, Inc., which sells natural gas to industrial end-users
in Pennsylvania, Transatco, Inc., which owns a 50% interest in Topico
which operates a pipeline in Ohio, and Atlas Energy Corporation, which
will serve as a drilling contractor and well operator in West Virginia
and as managing general partner of exploratory programs. In addition,
Atlas is the sole owner of ARD Investments, Inc., a corporation formed
in July, 1995, and Atlas Energy is the sole owner of AED Investments,
Inc., a corporation formed in July, 1995. Prior to July, 1995, all of
the Atlas companies were wholly owned by Atlas Energy. The purpose of
forming AEGH, AIC, Inc., ARD Investments, Inc. and AED Investments, Inc.
was to achieve more efficient concentration of funds of the Atlas group
of companies, thereby minimizing transaction costs and maximizing returns
on investment vehicles.
Atlas and its Affiliates have constructed for their use over 500 miles of
gas transmission lines, produce in excess of nine billion cubic feet of
natural gas annually from wells they operate, which they market directly
to end users or to interstate pipelines and local distribution companies,
and also purchase an additional eight billion cubic feet of natural gas
annually from third party producers locally and in the south/southwest
United States and resell the production to more than 100 customers.
- --------------------------------------------------------------------------
(Page 39)
<TABLE>
<CAPTION>
Organizational Diagram
AEG HOLDINGS,INC.
:
AIC, INC
:
.........................................................................................
: : : : : : :
ATLAS MERCER GAS PENNSYLVANIA ATLAS ENERGY TRANSATCO ATLAS GAS ATLAS ENERGY
RESOURCES GATHERING INDUSTRIAL CORPORATION INC.,WHICH MARKETING GROUP, INC.
(MANAGING INC., (GAS ENERGY,INC. (DRILLER AND OWNS 50% OF INC. (DRILLER AND
GENERAL GATHERING ("PIE") OPERATOR IN TOPICO (MARKETS OPERATOR IN
PARTNER, COMPANY) (SELLS GAS TO WV AND (OPERATES NATURAL OHIO
DRILLER PENNSYLVANIA MANAGING PIPELINE GAS)
AND OPERATOR) INDUSTRY) GENERAL IN OHIO
: :
: :
ARD AED
INVESTMENTS, INC. INVESTMENTS, INC.
<C> <C> <C> <C> <C> <C> <C>
1 2 3 4 5 6 6
</TABLE>
The audited financial statements of Atlas and AEGH as of July 31, 1995
and 1994, are included in "Financial Information Concerning the Managing
General Partner, AEGH and the Partnership".
OFFICERS, DIRECTORS AND KEY PERSONNEL
The directors of Atlas serve until Atlas' next annual meeting of
stockholders in October, 1996, or until their successors are elected. All
officers serve until the regular meeting of directors immediately
following the annual meeting of stockholders and until their successors
are elected.
The officers, directors and key personnel of Atlas, who are also
officers, directors and key personnel of AEGH and Atlas Energy, are as
follows:
NAME AGE POSITION OR OFFICE
Charles T. Koval 62 Co-Chairman of the Board and a Director
Joseph R. Sadowski 65 Co-Chairman of the Board and a Director
James R. O'Mara 52 President, Chief Executive Officer and a Director
Bruce M. Wolf 47 General Counsel, Secretary and a Director
James J. Kritzo 61 Vice President of the Land Department
Donald P. Wagner 54 Vice President of Operations
Frank P. Carolas 36 Vice President of Geology
Tony C. Banks 41 Vice President of Finance and Chief Financial
Officer
Barbara J. Krasnicki 51 Vice President of Administration
Jacqueline B. Poloka 45 Controller
John A. Ranieri 36 Director of Gas Marketing
- --------------------------------------------------------------------------
(Page 39)
CHARLES T. KOVAL. Co-Chairman of the Board and a director. From 1955 to
1963, Mr. Koval served as a pilot in the U.S. Marine Corps and the
Pennsylvania National Guard, attaining the rank of captain. He co-founded
Atlas. Prior to the formation of Atlas, he was involved in the securities
business initially with a national firm, Federated Investors, and then
with his own firm, Allegheny Planned Income, both headquartered in
Pittsburgh, Pennsylvania. Mr. Koval is serving and has served as a
director of Imperial Harbors since 1980. Mr. Koval received a Bachelor of
Science Degree from Pennsylvania State University in 1955.
JOSEPH R. SADOWSKI. Co-Chairman of the Board and a director. He co-founded
Atlas. Mr. Sadowski has been involved in the securities business with
Revere Management and Oppenheimer Management Company. From 1966 until
1971, he managed his own brokerage firm, Whitman Securities in Cherry
Hill, New Jersey. Mr. Sadowski has served as a director of Dixon
Ticonderoga since 1987 and is a past director of Northeast Ohio Operating
Companies, Inc., Canonsburg Hospital Foundation and the Verland
Foundation. Mr. Sadowski received a Bachelor of Arts Degree in Industrial
Management from LaSalle College in 1954, attended Temple University from
September, 1957 to June, 1958 and is a graduate of Girard.
JAMES R. O'MARA. President, chief executive officer and a director. Mr.
O'Mara served with the United States Army Security Agency (ASA) and is a
Vietnam veteran. Mr. O'Mara is a Certified Public Accountant and had been
associated with Coopers and Lybrand, a national accounting firm, and
Teledyne, Inc., a large conglomerate, before joining Atlas in 1975. He is
a member of the Pennsylvania Institute of Certified Public Accountants
and the President of Mercer Gas Gathering, Inc. Mr. O'Mara received a
Bachelor of Science Degree in Accounting from Gannon University in 1968.
BRUCE M. WOLF. General Counsel, Secretary and a director. Mr. Wolf
received a Bachelor of Arts Degree from Washington and Jefferson College
in 1970 and his law degree in 1975 from the University of Pittsburgh.
From 1975 until his association with Atlas in January, 1980, he was a
member of the staff of Price Waterhouse and Company, a national
accounting firm. Mr. Wolf is a member of the Bars of Pennsylvania, the
U.S. Tax Court, the Allegheny County Bar Association and its respective
Taxation and Natural Resources Sections. He is also a member of the Board
of Trustees and currently President of the Independent Oil and Gas
Association of Pennsylvania, a trade association representing
Pennsylvania natural gas producers. Mr. Wolf is the President of Atlas
Gas Marketing, Inc., AIC, Inc., ARD Investments, Inc. and AED
Investments, Inc.
JAMES J. KRITZO. Vice President of the Land Department. Mr. Kritzo attended
Indiana University of Pennsylvania. From 1956 to 1963 he was employed by
R.J. Reynolds Company in Sales and Marketing. In 1964 he joined the
Sherwin Williams Company as a Regional Sales Representative, later being
appointed Operations Manager of the Pittsburgh District Service Center.
In 1979 he joined the Land Department of Atlas. Mr. Kritzo is a member of
the Association of Petroleum Landmen and the Benedum Chapter of the
A.A.P.L.
DONALD P. WAGNER. Vice President of Operations. Mr. Wagner, who has over
32 years experience in all phases of gas and oil field operations, was
President of Energy Well Services, Inc., from 1971 through 1979 when he
joined Atlas. Mr. Wagner is a member of the Society of Petroleum
Engineers as well as a member of the Pennsylvania Oil and Gas
Association.
FRANK P. CAROLAS. Vice President of Geology. Mr. Carolas is a certified
petroleum geologist and has been with Atlas since 1981. He received a
Bachelor of Science Degree in Geology from Pennsylvania State University
in 1981 and is an active member of the American Association of Petroleum
Geologists.
TONY C. BANKS. Vice President and Chief Financial Officer. Mr. Banks has
over twenty years of finance, accounting and administrative experience in
the oil and gas industry, all with various subsidiaries of Consolidated
Natural Gas Company. He started as an accounting clerk with CNG's parent
company in 1974 and progressed through various positions with CNG's
Appalachian producer, northeast gas marketer and southwest producer to
his last position as Treasurer of CNG's national energy marketing
subsidiary. Mr. Banks served on CNG's corporate-wide Financial
Accounting and Planning, Energy Price Risk and Information Services
Steering committees and has chaired the Financial Advisory and Accounting
Research committees. In 1989, Mr. Banks was a seminar instructor for the
University of Tulsa, and over the years has given presentations to
industry groups on topics including energy derivatives, accounting for
Appalachian gas imbalances and post regulation credit review and
evaluation. He received a Bachelor of Science Degree in
Accounting/Computers from Point Park College in Pittsburgh and passed the
Pennsylvania Certified Public Accountant examination in 1988. Mr. Banks
is Vice President of AIC,Inc, ARD Investments, Inc. and AED Investments,
Inc.
- --------------------------------------------------------------------------
(Page 41)
BARBARA J. KRASNICKI. Vice President of Administration. Ms. Krasnicki has
been with Atlas Energy since its inception in 1971. She was the Office
and Personnel Manager for Atlas Energy during that time. She served as
Office Manager of Allegheny Planned Income from 1965 to 1971. Ms.
Krasnicki has an Associate in Science Degree from Point Park College,
Pittsburgh, Pennsylvania.
JACQUELINE B. POLOKA. Controller. Ms. Poloka began her career with Atlas
in 1980 as Administrative Assistant. She was promoted to Production
Accounting Manager in 1987 and subsequently to Controller in 1994. Ms.
Poloka graduated from Carlow College, Pittsburgh, Pennsylvania with a
Bachelor of Science Degree in Accounting. Ms. Poloka is a member of the
American Society of Women Accountants and the Ohio Valley College Club.
JOHN A. RANIERI. Director of Gas Marketing for Atlas Gas Marketing, Inc. Mr.
Ranieri graduated from Northwestern University in 1981 with a Bachelor of
Science Degree in Chemical Engineering. He joined the Columbia Gas
Distribution Companies as a marketing engineer; first in Charleston, West
Virginia, and later in Mansfield, Ohio. In 1984, he was promoted to Gas
Procurement Manager of Columbia Gas of Pennsylvania with responsibility
for all Appalachian purchases. In 1988 he helped start a new marketing
affiliate for the parent company and remained with that organization
until joining Atlas in July, 1990.
The officers and directors of AIC, Inc., which owns 100% of the common
stock of Atlas, are as follows: Bruce M. Wolf, President and a director,
Tony C. Banks, Vice President, Secretary and a director, and Norman J.
Shuman, Vice President, Treasurer and a director. The biographies of
Messrs. Wolf and Banks are set forth above.
REMUNERATION
No officer or director of the Managing General Partner will receive any
direct remuneration or other compensation from the Partnership. Such
persons will receive compensation solely from Atlas and its Affiliated
companies.
The aggregate remuneration paid during the fiscal year ended July 31,
1995, to the five most highly compensated persons who are executive
officers of Atlas and whose aggregate remuneration exceeded $100,000 and
to all executive officers of Atlas as a group, for services in all
capacities while acting as executive officers of Atlas and its
<TABLE>
<CAPTION>
Affiliates, was as follows:
Name of individual Capacities in which Cash Compensation Aggregate
number of persons served Compensation Pursuant to contingent forms
GROUP (3) Plans (2) of remuneration
<S> <C> <S> <C> <C>
Charles T. Koval Co-Chairman of the Board and a Director $294,700 $2,772 -
- -
Joseph R. Sadowski Co-Chairman of the Board and a Director $275,700 $2,772 -
- -
James R. O'Mara President and a Director $242,812 $10,206 -
Bruce M. Wolf General Counsel,Secretary and a Director $179,064 $8,895 -
Tony C. Banks Vice President & Chief Financial Officer $120,000 $2,310 -
- -
Executive Officers as
a Group (9 persons) $1,410,738 $58,278 -
</TABLE>
(1) The amounts indicated were composed of salaries and all cash bonuses
for services rendered to Atlas and its Affiliates during the last fiscal
year, including compensation that would have been paid in cash but for
the fact the payment of such compensation was deferred.
- --------------------------------------------------------------------------
(Page 42)
(2) Atlas and its Affiliates have a retirement plan described under "-
Security Ownership of Certain Beneficial Owners and Managers - ESOP,"
below, and a 401(K) plan which allowed employees to contribute the lesser
of 15% of their compensation or $9,500 for the calendar year 1995 or
$9,240 for the calendar year 1994. Atlas Energy contributed an amount
equal to 30% of each employee's contribution.
(3) There were no stock options granted or exercised during the fiscal
year ended July 31, 1995, to the above individuals. (See "- Security
Ownership of Certain Beneficial Owners and Managers - Agreements
Affecting Ownership of AEGH Stock," below.)
(4) During the fiscal year ended July 31, 1995, each director was paid a
director's fee of $12,000 for the year. There are no other arrangements
for remuneration of directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
AEGH owns 100% of the common stock of AIC, Inc., which owns 100% of the
common stock of Atlas. The following table sets forth, as of July 31,
1995, information as to the beneficial ownership of common stock of AEGH
by each person known to AEGH to own beneficially 5% or more of the
outstanding common stock of AEGH, by directors and nominees, naming them
individually, and by all directors and officers of AEGH as a group:
SHARES OF COMMON
PERCENT OF CLASS
Charles T. Koval 109,391 27.662%
Joseph R. Sadowski 109,142 27.599%
James R. O'Mara 95,164 (1) 24.064%
Bruce M. Wolf 44,710 (2) 11.306%
Directors and Officers as a Group
(9 persons) 377,654 (1)(2) 95.499%
(1) Includes 22,164 shares of AEGH issuable upon the grant and exercise
of stock options held by Mr. O'Mara.
(2) Includes 14,210 shares of AEGH issuable upon the grant and exercise
of stock options held by Mr. Wolf.
ESOP. AEGH has adopted Atlas Energy's existing Employee Stock Ownership
Plan ("ESOP") for the benefit of its employees, other than Messrs. Koval
and Sadowski, to which it will contribute annually approximately 6% of
annual compensation in the form of shares of AEGH. AEGH anticipates that
it will contribute approximately 3,000 shares of its stock in the ESOP
each year.
AGREEMENTS AFFECTING OWNERSHIP OF AEGH STOCK. Pursuant to agreements
between AEGH and its shareholders it is anticipated that by the year 2003
the stock ownership of AEGH by Messrs. Koval and Sadowski will be reduced
through a series of stock redemptions to approximately 15% each; the
stock ownership of certain of the remaining officers will be increased to
approximately 60%, in the aggregate; and the stock ownership of the ESOP
will be approximately 10%. The stock redemptions will require AEGH to
execute promissory notes, from time to time, in favor of Messrs. Koval
and Sadowski, the first of which, in the original principal amount of
$4,974,340 each, plus interest at 13.5%, were executed by Atlas Energy
and were assumed by AEGH and are reflected in the audited balance sheet
of Atlas Energy and its subsidiaries dated July 31, 1995. These
promissory notes are totally subordinated to AEGH's obligations to banks,
the ESOP and any and all other debts or obligations of AEGH, including
its indemnification obligations and Atlas' drilling obligation to the
Partnership. (See "Financial Information Concerning the Managing General
Partner, AEGH and the Partnership".) If AEGH defaults on a promissory
note, Messrs. Koval and Sadowski are entitled to purchase up to
approximately an additional 1,500,000 shares of AEGH to regain management
control. Messrs. Koval and Sadowski also had options to sell 131,425
shares of common stock to Atlas Energy on the earlier of the satisfaction
of the promissory notes discussed above or November 14, 1999, and an
option to sell 87,356 shares of common stock to Atlas Energy on November
14, 2004; however, these options have been waived.
Atlas views the transactions discussed above as a natural transition
which will have no adverse effect on the operations or activities of
Atlas or the Partnership. In 1990, Messrs. Koval and Sadowski entered
into five year employment agreements with Atlas Energy, which agreements
have been transferred to AEGH, renewable for an additional five year term
and on an annual basis after the first 10 years. Also, during the terms
of the promissory notes Messrs. Koval and Sadowski have the right to
serve as directors of AEGH and as one of the two trustees of the ESOP.
- --------------------------------------------------------------------------
(Page 43)
On November 8, 1990, Atlas Energy entered into a Stock Option Agreement
which established a management employee stock option plan to provide
incentive compensation for certain of its key employees to acquire up to
47,578 shares of common stock of Atlas Energy. Pursuant to the plan,
Messrs. O'Mara and Wolf were granted stock options for 22,164 and 14,210
shares, respectively. The options are 100% vested with an option price of
$1.00 per share and may be exercised when the promissory notes to Messrs.
Koval and Sadowski have been satisfied and will terminate on August 15,
2012. The issuance of future options will be determined at a later date.
On November 14, 1990, Atlas Energy granted 92,098 shares of restricted
common stock to certain management investors of the company, which was
valued at the time by Atlas Energy at $2,695,708. The restrictions lapse
with respect to 25% of the shares on November 14, 1990, 1991, 1992 and
1993. (See "Financial Information Concerning the Managing General
Partner, AEGH and the Partnership".) The Stock Option Agreement and the
outstanding stock options have been converted from Atlas Energy to AEGH.
The shareholders are also subject to a Shareholders Agreement which
provides, among other things, that such shareholders may not transfer
their shares in AEGH unless the shares have first been offered to AEGH
and the other shareholders.
TRANSACTIONS WITH MANAGEMENT AND AFFILIATES
Atlas, its officers, directors and Affiliates have in the past invested,
and may in the future invest, as participants in oil and gas programs
sponsored by Atlas on the same terms as unrelated investors. Atlas, its
officers, directors and Affiliates have also participated in the past,
and may in the future participate, as Working Interest owners in wells in
which Atlas or its oil and gas programs have an interest. Frequently,
such participation has been on more favorable terms than the terms which
were available to unrelated investors and AEGH has loaned to its officers
and directors amounts in excess of $60,000 from time to time, including
Messrs. Koval and Sadowski currently, the funds as necessary for
participation in such wells. Prior to 1996 such loans either were
non-interest bearing or accrue interest at variable rates, but since 1995
all new loans for such purposes are required to bear interest. See
"Conflicts of Interest - Certain Transactions" for further information
concerning prior activities between Atlas and its Affiliates and the
partnerships where Atlas serves as Managing General Partner.
INVESTMENT OBJECTIVES
The Partnership's principal investment objectives are to invest the
Partnership Subscription in natural gas Development Wells which will:
(1) Provide quarterly cash distributions until the wells are depleted,
(historically 20+ years) with a preferred annual cash flow of 10% during
the first five years based on the original subscription amount. (See
"Risk Factors - Special Risks of the Partnership - Risk of Unproductive
Wells in Development Drilling," "Prior Activities" and "Participation in
Costs and Revenues - Subordination of Portion of Managing General
Partner's Net Revenue Share".)
2) Obtain tax deductions in 1996 from intangible drilling and development
costs to offset a portion of the Participants' taxable income (subject to
the passive activity rules in the case of Limited Partners). One Unit
will produce a 1996 tax deduction of $8,000 against ordinary income for
Investor General Partners and against passive income for Limited
Partners. For an investor in either the 39.6% or 36% tax bracket, one
Unit will save $3,168 or $2,880 respectively in federal taxes this year.
Most states also allow this type of a deduction against the state income
tax.
3) Offset a portion of any taxable income generated by the Partnership
with tax deductions from percentage depletion, presently 20% (estimated
to be 22% on net revenue). Atlas estimates that this feature should
reduce an investor's effective tax rate from 39.6% to 31.7% (i.e., 80% of
39.6%) on Partnership net revenues.
(4) Obtain tax deductions of the remaining 20% of the initial investment
from 1997 through 2004. The investor will receive an additional $2,000
tax deduction per Unit generated through the remaining depreciation over
a seven-year cost recovery period of the Partnership's equipment costs
for the wells.
ATTAINMENT OF THE PARTNERSHIP'S INVESTMENT OBJECTIVES WILL DEPEND ON MANY
FACTORS, INCLUDING THE ABILITY OF THE MANAGING GENERAL PARTNER TO SELECT
SUITABLE PROSPECTS WHICH WILL BE PRODUCTIVE AND PRODUCE ENOUGH REVENUE TO
RETURN THE INVESTMENT MADE. THE SUCCESS OF THE PARTNERSHIP DEPENDS LARGELY ON
FUTURE ECONOMIC CONDITIONS, ESPECIALLY THE FUTURE PRICE OF NATURAL GAS WHICH
IS VOLATILE.
THERE CAN BE NO GUARANTEE THAT THE FOREGOING OBJECTIVES WILL BE ATTAINED.
- --------------------------------------------------------------------------
(Page 44)
PROPOSED ACTIVITIES
IN GENERAL
The Partnership will be funded to drill wells which are located primarily
in Mercer County, Pennsylvania, although the Managing General Partner has
reserved the right to use up to 15% of the Partnership Subscription to
drill wells in other areas of the Appalachian Basin. Atlas anticipates
that all of the Partnership's wells will be classified as gas wells which
may produce a small amount of oil. (See "- Information Regarding
Currently Proposed Prospects" and "Prior Activities".)
The wells drilled by the Partnership will be Development Wells which will
primarily test the Clinton/Medina geological formation in Pennsylvania
and Ohio or the Benson or Weir sandstone geological formation in West
Virginia. It is anticipated that the Clinton/Medina formation to be
tested by the Partnership will normally be found between 5,900 to 6,800
feet in depth. The number of Prospects in which the Partnership will
acquire interests and on which the Partnership will drill wells will
depend on the amount of the Partnership Subscription received and the
Partnership's aggregate percentage of the Working Interest in the wells.
Assuming the Partnership acquires 100% of the Working Interest in the
Prospects, the Participants would participate in developing approximately
4.49 Prospects if the minimum Partnership Subscription of $1,000,000 is
received, 31.42 Prospects if the maximum Partnership Subscription of
$7,000,000 is received, and 35.91 Prospects if the Managing General
Partner increases the size of the offering to $8,000,000. The actual
amount of the Working Interest in each Prospect acquired by the
Partnership and the number of Prospects developed by the Partnership may
vary from these estimates.
The Managing General Partner may not, without the vote of a majority in
interest of Participants, change the investment and business purpose of
the Partnership or cause the Partnership to engage in activities outside
the stated business purposes of the Partnership through joint ventures
with other entities.
INTENDED AREAS OF OPERATIONS
Prospects located in Pennsylvania and drilled to the Clinton/Medina
geological formation will consist of approximately 50 acres, subject to
adjustment to take into account lease boundaries. Wells in Pennsylvania
will not be drilled closer than approximately 1,650 feet to each other,
which is greater than the minimum area permitted by state law (660 feet)
or local practice to protect against drainage from adjacent wells.
Prospects located in Ohio and drilled to the Clinton/Medina geological
formation will consist of approximately 40 acres subject to adjustment to
take in to account Lease boundaries, and will not be drilled closer than
approximately 1,100 feet to each other. In addition, the assignments will
be limited to a depth of from the surface to the top of the Queenston
formation, and Atlas will retain the drilling rights below the
Clinton/Medina geological feature. The Partnership will not acquire the
deep drilling rights because it is a Development Drilling program which
will not allocate any money to seismic or to drilling Exploratory Wells
which would be the case with Horizons deeper than the Clinton/Medina.
Notwithstanding, in the future seismic could be run on the Horizons below
the Clinton/Medina geological feature which might provide a basis for
Atlas drilling an Exploratory Well. The Partnership would not share in
the profits, if any, from these activities. (See "- Acquisition of
Leases" and "- Information Regarding Currently Proposed Prospects",
below.)
The wells in Pennsylvania and Ohio will test the Clinton/Medina
geological formation, a blanket sandstone found throughout most of the
northwestern edge of the Appalachian Basin. The Clinton/Medina is
described in petroleum industry terms as a "tight" sandstone with
porosity ranging from 6% to 12% and with very low permeability. Porosity
is the percentage of void space between sand grains that is available for
occupancy by either liquids or gases. Permeability is the property of
porous rock that allows fluids or gas to flow through it. Geological
features such as structure and faulting are not factors in finding
productive Clinton/Medina deposits, instead, sand quality in terms of net
pay zone thickness and porosity and the effectiveness of fracture
stimulation appear to be the governing factors in generating commercial
production. A well drilled in the Clinton/Medina usually requires
hydraulic Fracturing of the formation to stimulate productive capacity.
Based on the results of Atlas' previous programs, it is anticipated that
all of the Partnership's wells will be completed and Fraced in two
different zones of the Clinton/Medina geological feature. Generally, gas
from Clinton/Medina wells is produced at rates which decline rapidly
during the first few years of operation. Although Clinton/Medina wells
can produce for many years, a proportionately larger amount of the
production can be expected within the first several years. See "-
Information Regarding Currently Proposed Prospects" and the model decline
curve included in the geological report prepared by United Energy
Development Consultants, Inc. ("UEDC"), an independent geological and
engineering firm, ("UEDC Geological Report").
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In the event Partnership Wells are drilled in West Virginia, the wells
will be Development Wells and will test the formations down to and
including the Lockport Dolomite. The Benson sandstone or Weir sandstone
produces high BTU gas (1140 MMBTU per MCF) along with some condensate,
and little to no water. The Benson formation in general consists of a
sandstone four to eight feet thick with porosities ranging from 6% to
12%. Generally the greater the porosity, the greater the reserves. The
Benson will be found between 4,800 and 5,200 feet and is encased in a
thick shale sequence. The Benson is usually slick water Fraced to
stimulate production. Shallower zones that have historically produced in
the area include the Raven Cliff, Maxton, Injun, Gordon, and Fifth Sand.
Atlas Energy Corporation, an Affiliate of Atlas, will serve as the
Operator and the general drilling contractor for any wells drilled in
West Virginia, on the same basis as Atlas and Atlas Energy for wells
drilled in Pennsylvania and Ohio. (See "Management".) The Managing
General Partner also has reserved the right to use up to 15% of the
Partnership Subscription to drill wells in other areas of the Appalachian
Basin.
ACQUISITION OF LEASES
Atlas will have the right, in its sole discretion, to select the
Prospects which the Partnership will participate in developing. The
currently proposed Prospects are set forth in "- Information Regarding
Currently Proposed Prospects", and represent the necessary Prospects if
85% of the potential maximum Partnership Subscription of $8,000,000 is
raised and the Partnership takes 100% of the Working Interest. It is
anticipated that the Prospects will be transferred to the Partnership,
but not immediately recorded, upon or after the Offering Termination Date
subject to Atlas' right of substitution of such Prospects depending upon,
among other things, the amount of the Partnership Subscription, the
latest geological data available, potential title problems, approvals by
federal and state departments or agencies, agreements with other Working
Interest owners and continuing review of other properties which may be
available and if no other circumstances occur which in Atlas' opinion
diminish the relative attractiveness of the Prospects. It is not
anticipated that such Prospects will be selected in the order in which
they are set forth. Atlas has the right, in its sole discretion, to
substitute other Prospects not identified, provided that such other
Prospects meet the same general criteria for development potential as the
currently proposed Prospects. However, most, if not all, of the
Partnership's Development Wells will have as their objective the
Clinton/Medina formation discussed in the UEDC Geological Report and will
be located in areas where Atlas or its Affiliates have previously
conducted drilling operations. Nevertheless, the Managing General
Partner has reserved the right to use up to 15% of the Partnership
Subscription to drill wells in other areas of the Appalachian Basin.
In the event any of the currently proposed Prospects are substituted, or
the Partnership takes a lesser percentage of the Working Interest in the
Prospects, or more than 85% of the potential maximum Partnership
Subscription of $8,000,000 is raised, or Prospects will be drilled in
areas of the Appalachian Basin other than the currently proposed
locations, the Prospects will be selected by Atlas primarily from Leases
included in the existing leasehold inventory of Atlas or its Affiliates
and to a lesser extent, from Leases hereafter acquired by Atlas or its
Affiliates or from leases owned by independent third parties.
Consequently, for additional or substituted Leases prospective
subscribers will not have the opportunity to evaluate for themselves the
relevant geological, economic or other information regarding one or more
of the Prospects to be developed by the Partnership. Atlas has not
authorized any party to make any representations concerning the possible
inclusion of any other Prospects in the Partnership and no such
information will be shown or provided to any person for the purpose of
deciding whether to invest in the Partnership. Any representations to the
contrary are erroneous and shall be disregarded. Accordingly, prospective
Participants should not base any investment decision on any oral
representation by any party or on the existence of any such inventory.
As of the date of this Prospectus, Atlas and its Affiliates owned
approximately 72,650 net and gross acres of undeveloped leasehold acreage
in Pennsylvania and no undeveloped leasehold acreage in any other areas
of the Appalachian Basin. However, Atlas and its Affiliates are engaged
in a program to acquire additional leasehold acreage in Pennsylvania and
other areas of the Appalachian Basin. Atlas believes that it and its
Affiliates' leasehold inventory will be sufficient to provide all of the
Prospects to be developed by the Partnership.
Before selecting a Prospect for development by the Partnership, Atlas
will review all available geologic data including logs, completion
reports and plugging reports for wells located in the vicinity of the
proposed Prospect. Atlas has obtained the UEDC Geological Report with
respect to the development of the Clinton/Medina geological formation in
the primary area where the Partnership will conduct its activity.
Although from time to time great disparity in well performance can occur
in wells located in close proximity, it has been Atlas' experience that
oil and gas production from wells drilled to the Clinton/Medina geologic
formation is reasonably consistent within close proximity. (See
"Conflicts of Interest- Conflicts Involving the Acquisition of Leases".)
Production information relating to the wells which are in the general
area of the proposed Prospects is set forth in "- Information Regarding
Currently Proposed Prospects". Atlas believes that the production
information is reliable, although as to certain of the Prospects the
production information is incomplete because there was a third party
operator and production information is not available. Also, some of the
wells
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have only been producing for a short period of time or are not yet
completed or on-line. In reviewing the production information,
prospective subscribers are cautioned to carefully read the general
comments set forth in "- Information Regarding Currently Proposed
Prospects" regarding the production information.
It is anticipated that the Leases comprising each Prospect will be
acquired from the Managing General Partner or its Affiliates and credited
to the Managing General Partner as a part of its required Capital
Contribution at its Cost unless the Managing General Partner has reason
to believe that Cost is materially more than the fair market value of
such property in which case the price will not exceed the fair market of
such property. Production and revenues from a well drilled on a Prospect
will be net of the applicable landowner's Royalty Interest (typically
1/8th (12.5%) of gross production), and any other applicable Overriding
Royalty Interests, which, in the aggregate, are not expected to exceed
1/32 of 8/8th (3.125%) in respect of any Prospect. Neither Atlas nor its
Affiliates will receive any Royalty or Overriding Royalty Interest. It is
anticipated that the Partnership will have an 87.5% Net Revenue Interest
in each Lease as shown by the summary of the Royalty and Overriding
Royalty Interests burdening each Lease location for 27 of the currently
proposed Prospects set forth in "- Information Regarding Currently
Proposed Prospects", and an 84.375% Net Revenue Interest in the Leases
covering three of the currently proposed Prospects. (See "- Interests of
Parties".) Although not likely, the Leases may also be subject to third
party net profits interests, carried interests, production payments,
reversionary interests or other retained or carried interests. With
respect to certain conflicts of interest between the Managing General
Partner and the Partnership with respect to the acquisition of Leases,
see "Conflicts of Interest - Conflicts Involving Acquisition of Leases".
Because Atlas will assign to the Partnership only such number of
Prospects as Atlas believes are necessary for the drilling operations of
the Partnership, the Partnership will not Farmout any undeveloped
Prospects.
TITLE TO PROPERTIES
Title to all Leases acquired by the Partnership will be held in the name
of the Partnership. However, it is possible that initially title to such
Leases will be held in the name of the Managing General Partner or its
Affiliates, or in the name of any nominee designated by the Managing
General Partner, in order to facilitate the acquisition of the Leases.
Title to the Leases will be transferred to the Partnership from time to
time after the Offering Termination Date, and filed for record following
drilling. It is not the practice in the oil and gas industry to obtain
title insurance on leaseholds and the Managing General Partner will not
obtain title insurance with respect to the Working Interests in the
Leases to be assigned to the Partnership. Also, in the oil and gas
industry leasehold assignments generally do not contain a warranty as to
the title to the leasehold. However, a favorable formal title opinion
with respect to the Working Interest in each Lease composing the acreage
on which the well is situated will be obtained before each well is
drilled. Nevertheless, if the title to the Working Interest in a Lease is
defective, the Partnership will not have the right to recover against the
transferor (the Managing General Partner or its Affiliates) on a title
warranty theory and there is no assurance that the Partnership will not
experience losses from title defects excluded from or not disclosed by
the formal title opinion. The Managing General Partner will take such
steps as it deems necessary to assure that the Partnership has acceptable
title for its purposes, however, the Managing General Partner is free to
use its own judgment in waiving title requirements and will not be liable
for any failure of title of Leases transferred to the Partnership.
FORMATION OF THE PARTNERSHIP AND POWERS OF THE MANAGING GENERAL PARTNER
Atlas will serve as the Managing General Partner of the Partnership and
the Operator of the wells in Pennsylvania, Atlas Energy will serve as the
Operator of any wells in Ohio, and Atlas Energy Corporation will serve as
Operator of any wells in West Virginia. Atlas' authority as Managing
General Partner in conducting the affairs of the Partnership is virtually
unlimited. However, Participants are expressly granted certain rights and
certain express restrictions are placed on the Managing General Partner
by the Partnership Agreement. As to the removal of the Managing General
Partner and the Operator, and the appointment of successors, see "Summary
of Partnership Agreement" and "Summary of Drilling and Operating
Agreement".
DRILLING AND COMPLETION ACTIVITIES; OPERATION OF PRODUCING WELLS
Under the Drilling and Operating Agreements the responsibility for
drilling and completing (or plugging) Partnership wells will be on Atlas
on Prospects located in Pennsylvania, Atlas Energy on Prospects located
in Ohio and Atlas Energy Corporation on Prospects located in West
Virginia. The Partnership will pay the drilling and completion costs to
Atlas, Atlas Energy and Atlas Energy Corporation as incurred, except that
the Partnership is permitted to make advance payments to Atlas, Atlas
Energy and Atlas Energy Corporation where necessary to secure tax
benefits of prepaid intangible drilling and development costs and there
is a valid business reason.
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(Page 47)
Wells will be drilled to a depth sufficient to test thoroughly the
Clinton/Medina formation or in West Virginia down to and including the
Lockport Dolomite formation. The Partnership will bear its proportionate
share of the cost of drilling and completing or drilling and abandoning
the Partnership's wells as follows: for each well completed and placed
into production, an amount equal to the depth of the well in feet at its
deepest penetration as recorded by the drilling contractor multiplied by
$37.39 per foot or for each well which the Partnership elects not to
complete, an amount equal to $20.60 per foot multiplied by the depth of
the well, as specified above. To the extent that the Partnership acquires
less than 100% of a Prospect, its drilling and completion costs of that
well will be proportionately decreased. In the event the foregoing rates
exceed competitive rates available from other non-affiliated persons in
the area engaged in the business of rendering or providing comparable
services or equipment, the foregoing rates will be adjusted to an amount
equal to that competitive rate. The Managing General Partner may not
benefit by interpositioning itself between the Partnership and the actual
provider of drilling contractor services. (See "Compensation".)
The footage price includes all ordinary costs of drilling, testing and
completing such well including the cost of a second completion and Frac
where Atlas considers it to be justified and installing gathering lines
and other necessary facilities for the production of natural gas.
Although the following costs are possible, it is not anticipated that
such costs will be incurred, and the footage rate will not include the
cost of completion procedures, equipment or any facilities necessary or
appropriate for the production and sale of oil or other liquids and
equipment or materials (except salt water collection tanks, separators,
siphon string and tubing, which are included) necessary or appropriate to
collect, lift or dispose of liquids for efficient gas production. The
footage rate will also not include the cost of a third completion and
Frac. Such extra costs will be charged at the Operator's standard charges
for services performed directly by it (exclusive of services in
supervision of third party services) or the Operator's invoice costs of
third party services performed and materials and equipment purchased plus
10% to cover supervisory services and overhead. Atlas expects to
subcontract some of the actual drilling and completion of Partnership
wells to third parties selected by it.
Atlas, as Operator, will determine whether or not to complete each well;
provided that a well may be completed only if Atlas determines in good
faith that there is a reasonable probability of obtaining commercial
quantities of gas. Based upon its past experience, Atlas anticipates that
all Partnership Wells will be required to be completed before a
determination can be made as to the well's productivity. In the event
that Atlas determines that a well should not be completed, the well will
be plugged and abandoned. In that event the footage rate to the
Partnership will be adjusted from $37.39 per foot to $20.60 per foot.
Atlas' duties as Operator will include (i) making necessary arrangements
for the drilling and completing of Partnership wells and related
facilities for which it has responsibility under the Drilling and
Operating Agreement; (ii) managing and conducting all field operations in
connection with the drilling, testing, equipping, operation and
production of such wells; (iii) making technical decisions required in
drilling, completing and operating such wells; (iv) maintaining such
wells, equipment and facilities in good working order during the useful
life thereof; and (v) performing necessary accounting and administrative
functions.
During producing operations Atlas, as Operator, will receive a monthly
well supervision fee of $275 for each producing well for which it has
responsibility under the Drilling and Operating Agreement. This fee will
be proportionately reduced to the extent the Partnership does not acquire
100% of the Working Interest. This fee may be adjusted on the first day
of January of each year beginning January 1, 1998, by an amount which
shall not exceed the percentage increase since the previous adjustment
date in average earnings of oil and gas industry workers as published by
a bureau of the U.S. Department of Labor. In the event the foregoing
rates exceed competitive rates available from other non-affiliated
persons in the area engaged in the business of rendering or providing
comparable services or equipment, the foregoing rates will be adjusted to
an amount equal to that competitive rate. The Managing General Partner
may not benefit by interpositioning itself between the Partnership and
the actual provider of operator services. (See "Compensation".) In no
event shall any consideration received for operator services be
duplicative of any consideration or reimbursement received pursuant to
the Partnership Agreement. The well supervision fee covers all normal and
regularly recurring operating expenses for the production, delivery and
sale of gas, such as well tending, routine maintenance and adjustment,
reading meters, recording production, pumping, maintaining appropriate
books and records, preparing reports to the Partnership and to government
agencies, and collecting and disbursing revenues. The well supervision
fees do not include costs and expenses related to the production and sale
of oil, purchase of equipment, materials or third party services, brine
disposal, and rebuilding of access roads, all of which will be billed at
the invoice cost of materials purchased or third party services
performed. The Drilling and Operating Agreement contains a number of
other material provisions which should be carefully reviewed and
understood by prospective Participants. (See "Summary of Drilling and
Operating Agreement".)
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(Page 48)
In the unlikely event that Atlas, Atlas Energy or Atlas Energy
Corporation is not the actual operator of the well during producing
operations, Atlas, as Managing General Partner, will review the
performance of the third party operator and the costs and expenses
charged by it, and will monitor the accounting and production records for
the Partnership. The actual operator of the wells will be responsible for
performing such services for each well as are customarily performed to
operate a gas well in the same general area as where such well is
located. When Atlas, Atlas Energy or Atlas Energy Corporation is not the
actual operator of the well during producing operations it will not
receive well supervision fees. The third party operator will be
reimbursed for its direct costs and will receive either reimbursement of
its administrative overhead or well supervision fees pursuant to an
operating agreement. Such fees will be subject to an annual adjustment
for inflation and will be proportionately reduced to the extent the
Partnership does not acquire 100% of the Working Interest.
It is anticipated that the Partnership generally will own 100% of the
Working Interest in each Prospect but the Partnership has reserved the
right to take as little as 25% of the Working Interest. Therefore, it is
possible that the Partnership may engage in joint activities on some of
the Prospects with third parties, which would decrease the Partnership's
Working Interest in the well but increase the diversification of the
Partnership's drilling activities. Any other Working Interest owner in
such Prospect may have a separate agreement with Atlas with respect to
the drilling and operation of a well thereon containing terms and
conditions different from those contained in the Drilling and Operating
Agreement. However, Atlas will be the operator or have the right to
replace the operator of all Partnership Wells and will control all
drilling and producing operations including operations with any third
parties.
SALE OF OIL AND GAS PRODUCTION
IN GENERAL.
The Managing General Partner is responsible for selling the
Partnership's gas and oil production. Atlas' policy is to treat all wells
in a given geographic area equally. This reduces certain potential
conflicts of interest among the owners of the various wells, including
the Partnership, concerning to whom and at what price the gas will be
sold. Atlas calculates a weighted average selling price for all of the
gas sold in the geographic area, such as the Mercer County area. To
arrive at the average weighted selling price the money received from the
sale of all of the gas sold to its customers is divided by the volume of
all gas sold from the wells in the area. During 1995, Atlas received an
average selling price of $2.28 per Mcf for gas sold in the Mercer County
area. The average price paid after deducting all expenses, including
transportation expenses, was $2.01 per Mcf. On occasion, Atlas has
reduced the amount of production it normally sells on the spot market
until the spot market price increased.
Atlas estimates that a portion of the Partnership's gas will be
transported through Atlas' own pipeline system and sold directly to
industrial end-users in the area where the wells will be drilled. This
will generally result in the Partnership receiving higher prices for the
gas than if the gas were transported a farther distance through
interstate pipelines because of increased transportation charges. The
remainder of the Partnership's gas will be transported through Atlas'
pipelines to the interconnection points maintained with Tennessee Gas
Transmission Co., National Fuel Gas Supply Corporation, National Fuel Gas
Distribution Company, East Ohio Natural Gas Company, and Peoples Natural
Gas Company. These delivery points are utilized by Atlas Gas Marketing,
Inc. to service its end-user markets in the northeast United States which
include in excess of 100 customers. Atlas is currently delivering an
average 27,000 MCF of natural gas per day from the Mercer County area to
all of the aforementioned markets and has the capacity of delivering
33,000 MCF per day from the Mercer County area. Atlas does not believe
that any purchaser of the Partnership's gas production will account for
10% of the Partnership's gas sales revenues in 1997.
In order to optimize the price it receives for the sale of natural gas,
Atlas markets portions of the gas through long term contracts, short term
contracts and monthly spot sales. Atlas currently markets approximately
30,000 MCF per day from gas it and its Affiliates produce and from gas
Atlas purchases from other producers for resale. The marketing of
natural gas production has been influenced by the availability of certain
financial instruments, such as gas futures contracts, options and swaps
which, when properly utilized as hedge instruments, provide producers or
consumers of gas with the ability to lock in the price which will
ultimately be paid for the future deliveries of gas. Atlas may, from
time to time, establish strategies utilizing financial instruments to
enhance the value of the Partnership's gas production. To assure that
the financial instruments will be used solely for hedging price risks and
not for speculative purposes, Atlas has established an Energy Price Risk
Committee comprised of the President, General Counsel, Chief Financial
Officer (chairperson) and Director of Marketing, whose responsibility
will be to ascertain that all financial trading is done in compliance
with hedging policies and procedures. Atlas does not intend to contract
for positions that it cannot offset with actual production.
TRANSPORTATION OF GAS.
One factor in determining the return to the Partnership is the proximity
of the well to the industrial end-user or to an existing pipeline system.
It is anticipated that Mercer Gas Gathering, Inc., an Affiliate of Atlas,
will transport and compress
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the natural gas produced by the Partnership
into the various pipelines or directly to industrial end-users. In
addition, Atlas Gas Marketing, Inc., an Affiliate of Atlas, will have the
responsibility to market that portion of gas delivered to the various
interconnection pipeline systems to its 100 plus customer base. The
Partnership will pay a combined transportation and marketing charge for
these services at a competitive rate, which is currently 29 cents per
MCF. (See "Compensation" and "Management".)
MARKETING OF PRODUCTION FROM WELLS IN OHIO AND WEST VIRGINIA.
For wells drilled in Ohio and West Virginia, Atlas expects that gas
produced from such wells will be supplied to industrial end-users through
various pipeline systems.
CRUDE OIL.
Any crude oil produced from the wells may flow directly into storage
tanks where it will be picked up by the oil company, a common carrier or
pipeline companies acting for the oil company which is purchasing such
crude oil. Therefore, crude oil usually does not present any
transportation problem. Atlas anticipates selling any oil produced by the
wells to Quaker State Oil Refining Company ("Quaker State") in spot
sales. Atlas was receiving approximately $15.50 per barrel in December,
1995, from Quaker State for oil produced in the drilling area. Over the
past six years, the price of oil has declined from approximately $38 to
as low as $10 per barrel. There can be no assurance as to the price of
oil during the term of the Partnership and the actions of OPEC increase
the volatility of the price of oil.
INTERESTS OF PARTIES
The Managing General Partner, Participants and unaffiliated third parties
(including landowners) share revenues from production of gas from wells
in which the Partnership has an interest. The following chart expresses
such interests in gross revenues derived from the wells based on 27 of
the currently proposed Prospects set forth below in "- Information
Regarding Currently Proposed Prospects". In the event the Partnership
acquires less than a 100% Working Interest, the percentages available to
the Partnership will decrease proportionately.
THIRD PARTY ROYALTIES
PARTNERSHIP AND OVERRIDING 87.5 % PARTNERSHIP NET
ENTITY INTEREST ROYALTY INTEREST REVENUE INTEREST(1)
Managing General Partner 25% Partnership Interest 21.875%
Participants 75% Partnership Interest 65.625%
Third Parties 12.5% Landowner Royalty 12.500%
100.000%
__________________________
(1) On three of the currently proposed Prospects the Net Revenue Interest
to the Partnership would be 84.375%, which would reduce the Participants'
interest to 63.281%.
INSURANCE
Since 1972, Atlas and its Affiliates have been involved in the drilling
of approximately 1,500 wells in Ohio and Pennsylvania and no blow-out,
fire or similar hazard has occurred with respect to any of these wells.
Therefore, Atlas and its Affiliates have not made any insurance claims in
Ohio and Pennsylvania with respect to such hazards.
Atlas will obtain and maintain for the benefit of itself and the
Partnership insurance coverage in such amounts, with provisions for such
deductible amounts and for such purposes, as would be carried by a
reasonable, prudent general contractor and operator in accordance with
industry standards. The Partnership and the Investor General Partners
will be named as an additional insured under such policies. In addition,
Atlas requires all of its subcontractors to certify that they have
acceptable insurance coverage for worker's compensation and general, auto
and excess liability coverage. Major subcontractors are required to carry
general and auto liability insurance with a minimum of $1,000,000
combined single limit for bodily injury and property damage in any one
occurrence or accident. Atlas' current insurance coverage satisfies the
following specifications:
(a) worker's compensation insurance in full compliance with the laws of
the States of Pennsylvania, Ohio, West Virginia and any other applicable
state laws;
(b) liability insurance (including automobile) which has a $1,000,000
combined single limit for bodily injury and property damage in any one
occurrence or accident and in the aggregate; and
(c) excess liability insurance as to bodily injury and property damage
with combined limits of $20,000,000 during drilling operations, per
occurrence or accident and in the aggregate, which includes $250,000 of
seepage, pollution and contamination insurance which protects and defends
the insured against property damage or bodily injury claims from third
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parties (other than a co-owner of the Working Interest) alleging seepage,
pollution or contamination damage resulting from an accident. Such excess
liability insurance will be in place and effective no later than the
Offering Termination Date and will be for the sole benefit of the
Partnership and no other Program in which Atlas serves as Managing
General Partner until the Investor General Partners are converted to
Limited Partners, at which time coverage for the exclusive benefit of the
Partnership will lapse. However, the Partnership will continue to enjoy
the non-exclusive benefit of Atlas' $11,000,000 liability insurance on
the same basis as Atlas and its Affiliates, including other Programs in
which Atlas serves as Managing General Partner. (See "Competition,
Markets and Regulation - State Regulations" and "- Environmental
Regulation".)
These policies will have terms, including exclusions, standard for the
oil and gas industry. (See "Risk Factors - General Risks of the Oil and
Gas Business - Drilling Hazards May Be Encountered".) Upon the request of
any prospective Participant, Atlas will provide to such prospective
Participant or his representatives a copy of Atlas' insurance policies.
Atlas will use its best efforts to maintain insurance coverage which
meets or exceeds its current coverage but may ultimately be unsuccessful
in such efforts because such coverage may become unavailable or cost
prohibitive.
The Managing General Partner will notify all Participants at least thirty
days prior to the effective date of any adverse material change in the
Partnership's insurance coverage. If the insurance coverage will be
materially reduced, which is not anticipated, the Investor General
Partners will have the right to convert their Units into Limited Partner
interests prior to such reduction by giving written notice to the
Managing General Partner. (See "Tax Aspects - Limitations on Passive
Activities".)
USE OF CONSULTANTS AND SUBCONTRACTORS
Although not anticipated during producing operations, the Partnership
Agreement authorizes the Managing General Partner to employ and utilize
the services of independent outside consultants and subcontractors. Such
persons will normally be compensated through payment on a per diem or
other cash fee basis. Such services will be charged to the Partnership as
a Direct Cost or as a direct expense pursuant to the Drilling and
Operating Agreement, attached as Exhibit (II) to the Partnership
Agreement, and will be in addition to the unaccountable, fixed payment
reimbursement paid to Atlas and its Affiliates for Administrative Costs,
and well supervision fees paid to Atlas as Operator. (See "Compensation"
and "Management".)
INFORMATION REGARDING CURRENTLY PROPOSED PROSPECTS
Set forth below is information relating to Prospects which have been
currently proposed for assignment to the Partnership upon the Offering
Termination Date and from time to time thereafter subject to Atlas' right
to withdraw such Prospects and to substitute other Prospects. The
specified Prospects represent the necessary Prospects if 85% of the
potential maximum Partnership Subscription of $8,000,000 is raised and
the Partnership takes 100% of the Working Interest. Atlas has not
proposed any other Prospects if more than this amount is raised, if the
Partnership takes a lesser Working Interest in the Prospects and/or if
the Prospects are substituted. The assignment of the currently proposed
Prospects will be dependent on the non-materialization of any
circumstances occurring which, in Atlas' opinion, would diminish the
relative attractiveness of the Prospects. Any substituted and/or
additional Prospects will meet the same general criteria for development
potential as the currently proposed Prospects; however, prospective
subscribers will not have the opportunity to evaluate for themselves the
relevant geophysical, geological, economic or other information regarding
such Prospects. However, most if not all of the Partnership's wells will
have as their objective the Clinton/Medina geological formation discussed
in the UEDC Geological Report and will be located in areas where Atlas or
its Affiliates have previously conducted drilling operations. (See "-
Acquisition of Leases".)
The purpose of the information regarding the currently proposed Prospects
is to assist prospective subscribers in analyzing and evaluating the
currently proposed Prospects, including production information for wells
in the general area. Atlas believes that production information with
respect to wells in the general area is an important indicator in
evaluating the economic potential of any Prospect to be developed by the
Partnership. However, there can be no assurance that a well drilled by
the Partnership will experience production comparable to the production
experienced by wells in the surrounding area since the geological
conditions in the Clinton/Medina formation can change in a short
distance.
Prospective subscribers are cautioned and urged to analyze carefully all
production information for each well offsetting or in the general area of
a specified Prospect and, in the process of doing so, to take the factors
set forth below into consideration.
1. The length of time which the well has been on line and the period of
time for which production information is shown.
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2. The impact of "flush" production of a well which usually occurs in the
early period of well operations. This period can vary depending on the
location of the well and the manner in which the well is operated.
3. Production declines at various rates throughout the life of a well and
decline curves vary depending on the geological location of the well and
the manner in which the well is operated.
4. The production information with respect to some wells is incomplete
and with other wells very limited. The designation "N/A" means the
production was not available to Atlas or if Atlas was the Operator then
the well was not on line as of the date of the report.
5. It should be noted that production information for wells located in
close proximity to a Prospect tends to be more relevant than production
information for wells located at a great distance from a Prospect.
6. Consistency in production among wells tends to confirm the reliability
and predictability of such production.
All of the specified Prospects are subject to the factors set forth
below:
1. There are no Overriding Royalty Interests or other burdens in favor of
Atlas or its Affiliates.
2. Atlas or its Affiliates will act as driller and operator for all the
wells. It is anticipated that the Partnership generally will be
transferred 100% of the Working Interest but the Partnership has reserved
the right to take as little as 25% of the Working Interest.
3. Atlas and its Affiliates own acreage in the vicinity of the Prospects.
(See "Conflicts of Interest - Conflicts Involving Acquisition of
Leases".)
4. The Leases are being contributed to the Partnership at Atlas' Cost of
such Lease, unless the Managing General Partner has reason to believe
that Cost is materially more than the fair market value of such property,
in which case the price will not exceed the fair market value.
5. All wells will be drilled through the Clinton/Medina formation to the
top of the Queenston formation. The wells will have no secondary
objectives.
6. All of the wells will be gas wells. See the Production Map for the
location of Atlas' pipeline. Also, see "- Sale of Oil and Gas Production"
concerning a discussion of the marketing arrangements for the
Partnership's gas.
Included for the Prospects is certain information set forth below which
is designed to assist the prospective subscriber in becoming familiar
with the Prospect location.
1. A map of western Pennsylvania and eastern Ohio showing their counties.
2. Prospect Lease information.
3. A Location and Production Map showing the Prospects and the wells in
the area.
4. Production data.
5. United Energy Development Consultants, Inc.'s geological report. See
"Experts" in the Prospectus.
- --------------------------------------------------------------------------
(Page 52-61)
MAP OF WESTERN PENNSYLVANIA
AND
EASTERN OHIO
Area of Interest Location Map of Western Pennsylvania and Eastern Ohio
names the following counties and depicts their boundaries on one page:
Eastern Ohio Western Pennsylvania
Cuyahoga Erie
Cleveland Crawford
Lake Mercer
Ashtabula Venango
Geauga Lawrence
Summit Butler
Portuge Beaver
Trumbull Allegheny
Stark Pittsburgh
Mahoning Washington
Columbiana Greene
Carroll Fayette
Tuscarawas
Jefferson
Harrison
Guernsey
Belmont
Noble
Monroe
<TABLE>
<CAPTION>
PROSPECT LEASE INFORMATION
EXHIBIT A
ATLAS ENERGY FOR THE NINETIES -- PUBLIC #5 LTD.
Net Acres to be
Prospect Effective Expiration Landowner Revenue Net Assigned to
Name County Date Date Royalty Interest Acres Partnership
================================================================================================
<C> <S> <C> <S> <C> <C> <C> <C> <C> <C>
1. Andrews Unit #1 Mercer 03/09/94 03/09/99 12.50% * 84.375% 18 18
2. Babcock #1 Mercer 08/17/95 08/17/98 12.50% 87.50% 89 50
3. Babyak Unit Mercer 07/10/93 07/10/98 12.50% * 84.375% 79 50
4. Black #2 Mercer 05/18/95 05/18/98 12.50% 87.50% 40 40
5. Byler #14 Lawrence 09/27/91 09/27/97 12.50% 87.50% 145 50
6. Byler #15 Lawrence 09/27/91 09/27/97 12.50% 87.50% 145 50
7. Coast #1 Butler 03/03/95 03/03/98 12.50% 87.50% 70 50
8. Court #1 Mercer 08/03/95 08/03/98 12.50% 87.50% 70 50
9. Doolin #1 Mercer 08/08/96 02/08/97 12.50% 87.50% 24 24
10. Dye #1 Mercer 04/10/95 04/10/98 12.50% 87.50% 65 50
11. Dye #2 Mercer 06/04/96 06/04/99 12.50% 87.50% 51 51
12. Fletcher Unit #2 Mercer 09/05/91 12/05/96 12.50% * 84.375% 110 50
13. Gott #4 Mercer 05/30/94 05/30/97 12.50% 87.50% 575 50
14. Hall #1 Mercer 11/13/95 11/13/98 12.50% 87.50% 52 52
15. Hissom #1 Mercer 05/23/96 05/23/99 12.50% 87.50% 78 50
16. Kelly #1 Mercer 02/11/96 02/11/99 12.50% 87.50% 135 50
17. Kingerski Unit #1 Mercer 05/26/96 05/26/98 12.50% 87.50% 98 50
18. Kloos Unit #4 Mercer HBP HBP 12.50% 87.50% 225 50
19. Kurtek #1 Mercer 04/21/93 04/21/98 12.50% 87.50% 65 50
20. Kurtz #2 Lawrence 09/27/91 09/27/97 12.50% 87.50% 88 50
21. McCullough #11 Mercer 04/12/95 04/12/98 12.50% 87.50% 75 50
22. McCurdy #1 Mercer 04/18/96 04/18/99 12.50% 87.50% 83 50
23. McDowell #11 Mercer 03/04/96 03/04/99 12.50% 87.50% 145 50
24. Myers #2 Butler 08/03/94 08/03/99 12.50% 87.50% 143 50
25. Peterka #2 Mercer HBP HBP 12.50% 87.50% 190 50
26. Rains #1 Mercer 07/25/95 07/25/98 12.50% 87.50% 35 35
27. Sines #3 Mercer 05/06/96 05/06/99 12.50% 87.50% 40 40
28. Steele #1 Mercer 07/27/95 07/27/98 12.50% 87.50% 84 50
29. Tait #3 Mercer 06/27/95 06/27/98 12.50% 87.50% 100 50
30. Vernam #1 Mercer 09/25/94 09/25/97 12.50% 87.50% 57 57
</TABLE>
- - * 3.125% Overriding Royalty Interest to a third party.
- - HBP - Held by Production
LOCATION AND PRODUCTION MAP
Location and Production Maps of Mercer,
Butler and Lawrence Counties,
Pennsylvania, which depicts the following information on nine pages:
Proposed Locations;
Producing Gas Wells;
Dry Holes;
Cambrian Tests;
Plugged Wells;
Upper Plugged, Deep Producing; and
Plugged and Abandoned.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
(Page 62)
PRODUCTION DATA
TO TOTAL LATEST
ID DATE TOTAL 30 DAY
NUMBER OPERATOR WELL NAME COMPLT'D ON LINE MCF DEPTH PROD.
====================================================================================================================
<C> <S> <C> <S> <C> <S> <C> <S> <C> <C> <S>
20026 Peoples Nat'l Gas Courtney, W.T. N/A N/A N/A 6400 N/A
20290 Deer Creek Oil & Gas Beggs Unit #1 11/07/81 N/A N/A 5382 N/A
20533 Mitchell Energy Halliday, M. #1 08/15/83 N/A N/A 5905 N/A
20557 P.N.B. Petroleum Turner #1 11/23/83 N/A N/A 5349 N/A
20560 P.N.B. Petroleum Oliver III, # 01/22/84 N/A N/A 5365 N/A
20696 Vista Resources Worley #1 06/30/95 N/A N/A 5734 N/A
20699 Atlas Resources Inc. Struthers, R & J #1 08/05/91 47.0 1477 5832 0
20727 Atlas Resources Inc. Smith-Tetrick #1 09/05/85 100.0 45169 5725 295
21049 Atlas Resources Inc. Humes Unit #1 03/09/90 73.0 108210 5674 1066
21121 Capital Oil & Gas Hostetler, M.D. #1 11/11/90 N/A N/A 6140 N/A
21161 Atlas Resources Inc. Alego #1 11/10/90 64 35730 5737 100
21189 Douglas Oil & Gas McQuiston #1 01/08/91 N/A N/A 5504 N/A
21203 Capital Oil & Gas Heck #2 03/11/91 N/A N/A 6208 N/A
21249 Douglas Oil & Gas King #1 02/23/91 N/A N/A 5761 N/A
21269 Atlas Resources Inc. Sealand #1 04/16/91 60.0 68492 5858 669
21274 Atlas Resources Inc. Murcko #1 03/14/91 61.0 64799 5761 821
21279 Atlas Resources Inc. Fridley #1 04/04/91 61.0 49265 5731 449
21294 Cabot Oil & Gas McDowell, etux #1-A 07/18/91 N/A N/A 5460 N/A
21305 Atlas Resources Inc. Marsh #1 08/15/91 57.0 26628 5831 209
21307 Atlas Resources Inc. Marsh #3 09/12/91 56.0 63321 5777 1068
21312 Atlas Resources Inc. Marsh #2 10/18/91 55.0 59806 5873 706
21313 Atlas Resources Inc. Mercer Vo-Tech #2 08/06/91 57.0 31535 5905 588
21315 Atlas Resources Inc. Kelso Unit #2 08/20/91 56.0 71374 5786 894
21316 Vista Resources King #1 N/A N/A N/A 5700 N/A
21327 Atlas Resources Inc. Cresswell #1 09/05/91 56.0 66801 5651 752
21330 Vista Resources King-Richardson Un. #1 N/A N/A N/A 5800 N/A
21333 Cabot Oil & Gas Lucas, E.I. #1 N/A N/A N/A 5500 N/A
21340 Atlas Resources Inc. Kelso #1 11/19/91 53.0 40701 5797 433
21346 Atlas Resources Inc. Thompson Unit #1 02/11/95 51.0 145809 5759 3361
21352 Atlas Resources Inc. Mathews Unit #2 11/17/95 5.0 16153 6775 603
21365 Atlas Resources Inc. Walter #5 04/03/96 N/A N/A 6737 N/A
21421 Atlas Resources Inc. Hoagland #1 03/02/92 49.0 124058 5751 1392
21424 Atlas Resources Inc. Fridley #2 12/03/91 53.0 152826 5686 2317
21484 Atlas Resources Inc. Struthers Un. #3 02/25/92 Plugged & Abandoned 5849
21497 Capital Oil & Gas Byler, S.M. #2 12/02/92 N/A N/A 6210 N/A
21510 Capital Oil & Gas Cyphert , C #1 10/09/92 N/A N/A 6242 N/A
21550 Douglas Oil & Gas Kapta Unit #1 08/12/92 N/A N/A 5474 N/A
21555 Vista Resources Chelton Unit #1 08/24/92 N/A N/A 5506 N/A
21584 Atlas Resources Inc. Bagnall Unit #6 10/23/92 41.0 154724 5623 2728
21625 Douglas Oil & Gas Wengerd Unit #2 11/21/92 N/A N/A 5475 N/A
21676 Douglas Oil & Gas Ward Unit #1 01/12/93 N/A N/A 5455 N/A
21721 Atlas Resources Inc. Root Unit #1 08/15/85 100.0 31987 5739 144
21753 Douglas Oil & Gas Wengerd Unit #3 10/05/93 N/A N/A 5527 N/A
21863 Atlas Resources Inc. Bartholomew #3 02/03/94 22.0 55783 5813 2005
21921 Atlas Resources Inc. Graham #1 07/13/94 19.0 15784 5922 444
21929 Atlas Resources Inc. Sharpsville Beagle # 12/14/94 6.0 12967 5989 1912
21941 Atlas Resources Inc. Bartholomew #4 09/01/94 19.0 33727 5791 1367
21942 Atlas Resources Inc. Shillito #1 09/09/94 17.0 69496 6017 4664
21948 Atlas Resources Inc. Mills #7 09/07/94 19.0 88692 5654 4709
21949 Atlas Resources Inc. Macri #2 09/02/94 17.0 86422 6013 3442
21954 Atlas Resources Inc. Eperthener #1 11/02/94 5.0 6455 6498 1052
21966 Atlas Resources Inc. Humes #2 10/04/94 18.0 52675 5780 2484
21991 Atlas Resources Inc. Branca Unit #1 10/07/94 17.0 25060 5778 1212
22011 Atlas Resources Inc. Hoagland Unit #2 01/11/95 16.0 34628 6499 3534
22013 Atlas Resources Inc. Andrusky #1 07/18/95 6.0 14216 5974 1735
22016 Atlas Resources Inc. Andrusky #2 02/17/95 13.0 54184 5904 4744
22037 Atlas Resources Inc. Kelly Unit #1 03/15/95 12.0 91528 6055 10042
22043 Atlas Resources Inc. Pizor #3 02/08/95 15.0 16087 6136 781
22059 Atlas Resources Inc. Freeman #1 03/08/95 13.0 17121 6085 1044
22074 Atlas Resources Inc. Graham #2 04/04/95 12.0 43978 5916 3829
22084 Atlas Resources Inc. Layton #1 03/29/95 12.0 28525 6096 1432
22099 Atlas Resources Inc. Marburger #1 07/31/95 6.0 17423 6077 2904
22100 Atlas Resources Inc. Duff #1 08/25/95 6.0 8735 5977 1027
22107 Atlas Resources Inc. Marburger Unit #3 08/01/95 6.0 23830 6101 4711
22108 Atlas Resources Inc. Marburger #2 11/20/95 4.0 6941 6037 2173
22117 Atlas Resources Inc. Polick #1 09/27/95 5.0 19795 5965 5747
22121 Atlas Resources Inc. Duffola Unit #1 09/19/95 6.0 18283 5929 2846
22123 Atlas Resources Inc. Philson #2 11/29/95 3.0 14457 5887 7968
22126 Atlas Resources Inc. Kimes Unit #1 09/22/95 3.0 2758 5994 888
22127 Atlas Resources Inc. Eagle #1 09/15/95 6.0 20508 5943 3428
22129 Atlas Resources Inc. Rabold #4 11/14/95 3.0 9929 5838 3439
22144 Atlas Resources Inc. Devonshire #1 11/30/95 3.0 7879 5988 3135
22152 Atlas Resources Inc. Irwin #2 03/15/96 2.0 1947 6057 1700
22153 Atlas Resources Inc. Buckley #1 03/11/96 2.0 3320 6063 2907
22159 Atlas Resources Inc. Rabold #6 02/09/96 3.0 8488 5900 2505
22160 Atlas Resources Inc. Rabold #5 01/26/96 3.0 9808 5917 3609
22166 Atlas Resources Inc. Goebel #1 01/23/96 3.0 15622 5891 4187
22167 Atlas Resources Inc. Smith #5 01/16/96 3.0 13244 6016 5075
22168 Atlas Resources Inc. Eperthener #2 03/12/96 1.0 840 5953 840
22169 Atlas Resources Inc. Eperthener #3 03/08/96 1.0 755 5963 755
22173 Atlas Resources Inc. McDowell #7 03/29/96 1.0 775 5829 775
22176 Atlas Resources Inc. Struthers #4 03/20/96 1.0 842 5957 842
22177 Atlas Resources Inc. Rabold #3 02/01/96 3.0 6126 5891 1857
22180 Atlas Resources Inc. Philson #3 02/07/96 3.0 6085 5948 2460
22188 Atlas Resources Inc. Vogan #2 03/05/96 1.0 3111 5911 3111
22214 Atlas Resources Inc. Struthers #3 03/26/96 2.0 7303 5878 7007
22216 Atlas Resources Inc. Baun #3 07/11/96 N/A N/A 5992 N/A
22217 Atlas Resources Inc. McDowell #8 04/04/96 1.0 428 5878 428
22226 Atlas Resources Inc. Baun #2 04/10/96 1.0 543 5945 543
22236 Atlas Resources Inc. Taylor #1 07/09/96 N/A N/A 5992 N/A
43346 Atlas Resources Inc. Armstrong #1 03/22/96 N/A N/A 6721 N/A
43347 Atlas Resources Inc. Clinton Rod & Gun1 04/10/96 N/A N/A 6820 N/A
43348 Atlas Resources Inc. Jones #1 04/15/96 N/A N/A 6848 N/A
43352 Atlas Resources Inc. Schwartz #1 03/28/96 N/A N/A 6681 N/A
</TABLE>
Production Table as of April 1996
- --------------------------------------------------------------------------
(Page 65)
GEOLOGICAL REPORT
FOR THE
CURRENTLY PROPOSED PROSPECTS
GEOLOGIC EVALUATION
of
ATLAS - ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
DRILLING PROGRAM
Southeastern Mercer Prospect Area,
Pennsylvania
Program proposed by:
ATLAS RESOURCES, INC.
311 Rouser Road
P.O. Box 611
Moon Township, PA 15108
Report submitted by:
UEDC
United Energy Development Consultants, Inc.
2301 Duss Avenue
Suite 12
Ambridge, PA 15003
For:
ATLAS - ENERGY FOR THE NINETIES - PUBLIC #5 LTD.
Drilling Program by:
ATLAS RESOURCES, INC.
311 Rouser Rd.
P.O. Box 611
Moon Township, PA 15108
LOCATION MAP - AREA OF INTEREST
( Eastern Ohio, Western Pennsylvania and Northwestern West Virginia )
TABLE OF CONTENTS
INVESTIGATION SUMMARY
OBJECTIVE
AREA OF INVESTIGATION
METHODOLOGY
SOUTHEASTERN MERCER PROSPECT AREA
DRILLING ACTIVITY
GEOLOGY
STRATIGRAPHY, LITHOLOGY & DEPOSITION
RESERVIOR CHARACTERISTICS
PRODUCTION CURVE
POTENTIAL MARKETS AND PIPELINES
STATEMENTS
CONCLUSION
DISCLAIMER
NON-INTEREST
INVESTIGATION SUMMARY
OBJECTIVE
The purpose of the following investigation is to evaluate the
geologic feasibility and further development of the Southeastern Mercer
Prospect Area (consisting of Butler, Lawrence, and Mercer Counties) as
proposed by Atlas Resources, Inc.
AREA OF INVESTIGATION
A portion of this prospect area, herein identified as the Atlas-
Energy for the Nineties-Public #5 Ltd. Drilling Program, contains acreage
in Jackson, Findley, CoolSpring, Deer Creek, Mill Creek and Springfield
Townships in Mercer County, Wilmington Township in Lawrence County and
Marion Township, Butler County. All counties are located in
Pennsylvania. Thirty (30) drilling prospects designated for this program
will be targeted to produce natural gas from Clinton-Medina Group
reserviors, found at an average depth of approximately 6,000 feet beneath
the earth's surface.
METHODOLOGY
The data incorporated into this report was provided by Atlas
Resources, Inc. and the in-house archives of UEDC, Inc. Geological
mapping and the interpretations by Atlas geologists were also examined.
Available "electric" log, completion, and production data on wells
offsetting prospect locations and other "key" wells within and adjacent
to the defined prospect area were utilized to determine productive and
depositional trends.
SOUTHEASTERN MERCER PROSPECT AREA
DRILLING ACTIVITY
The proposed drilling area lies within a region of northwestern
Pennsylvania which has been very active for the past decade in terms of
exploration for, and exploitation of natural gas reserves. Development
within and adjacent to the Southeastern Mercer Prospect Area has
escalated since 1986, with Atlas Resources, Inc. and it's affiliates
drilling over six hundred (600) wells during this period. Atlas
Resources, Inc. has encountered favorable drilling and production results
while solidifying a strong acreage position, as Atlas Resources, Inc.
continues to identify and extend productive trends. Drilling is ongoing
as of the date of this report with recent wells displaying favorable
initial drilling and completion results. Competitive activity has begun
both south and east of the prospect area, confirming the Clinton-Medina
Group of Lower Silurian age as a viable target for the further
development of economic quantities of natural gas.
GEOLOGY
STRATIGRAPHY, LITHOLOGY & DEPOSITION
Regionally, the Clinton-Medina Group was deposited in tide-
dominated shoreline, deltaic, and shelf environments and is
lithologically comprised of alternating sandstones, siltstones and
shales. Productive sandstones are composed of siliceous to dolomitic
subarkoses, sublitharenites, and quartz arenites. Reservior quality
sands occur throughout the delta-complex from eastern Ohio through
northwestern Pennsylvania and western New York. The Clinton-Medina
Group, deposited during the Lower Silurian, overlies the Upper Ordovician
age Queenston shale and is capped by the Middle Silurian Reynales
Formation. This dolomitic limestone "cap" is known locally to drillers
as the "Packer Shell".
Stratigraphically, in descending order, the potentially productive
units of the Clinton-Medina Group consist of the: 1)
Thorold, 2) Grimsby, 3) Cabot Head, and
4) Whirlpool members. These stratigraphic relationships are illustrated
in the following diagram:
Chart showing the Stratigraphic Names- New Pennsylvania
Middle Silurian
Rochester
Irondequoit
Reynales
Lower Silurian
Thorold :
Grimsby :
Cabot Head :...Clinton Medina Group
Whirlpool :
Ordovician
Queenston
The Whirlpool is a light gray quartzose sandstone to siltstone
ranging in thickness from five (5) to twenty (20) feet. Average porosity
values for this sand member range from five (5) to ten (10) percent
regionally. Within the area of investigation, porosities in excess of
twelve (12) percent occur within localized trends targeted for further
development.
The Cabot Head is a dark green to black shale, most likely of
marine origin. Within the investigated area a Cabot Head sandstone has
been encountered in numerous wells. This formation has been found to
contribute natural gas when reservior characteristics, including evidence
of enhanced permeability, warrant completion. This sand member is
considered a secondary target.
The Grimsby is the thickest sandstone member of the Clinton-Medina
Group. Sand development ranges from ten (10) to forty-five (45) feet
within an interval comprised of fine to very fine, light gray to red
sandstones and siltstones broken up by thin dark gray silty shale layers.
Average porosity values for the Grimsby are approximately six (6) to
(10) percent over the pay interval regionally. Permeability may be
enhanced locally by the presence of naturally occurring micro-fractures.
Future development focuses on established production trends.
The Thorold sandstone is the uppermost producing interval of the
Clinton-Medina sequence. This interbedded ferric sand, silt and shale
interval averages forty (40) feet. Where pay sand development occurs,
porosities are in the typical Clinton-Medina group range of six (6) to
(10) percent. Permeability may be enhanced locally by the presence of
naturally occurring micro-fractures.
RESERVIOR CHARACTERISTICS
Petroleum reservoirs are formed by the presence of an impermeable
barrier trapping natural gas of commercial quantities in a more permeable
medium. In the Clinton-Medina, this occurs either stratigraphically when
a permeable sand containing hydrocarbons encounters an impermeable shale
or when a permeable sand changes gradually into a non-permeable sand by a
cementation process known as "diagenesis". Thus, this type of trap
represents cemented-in hydrocarbon accumulations.
Electric well logs can be used in conjunction with production to
interpret reservior parameters. When sandstones in the Thorold, Grimsby,
Cabot Head or Whirlpool develop porosity in excess of 6%, or a bulk
density of 2.55 or less, the permeability of the reservoir (which ranges
from <0.l to >0.2 mD) can become great enough to allow commercial
production of natural gas. Small, naturally occurring cracks in the
formation, referred to as micro-fractures, can also enhance permeability.
A gamma, bulk density, density porosity and neutron log suite showing
sand development in the Grimsby, Cabot Head and Whirlpool is illustrated
on the following page.
Two other phenomena detected by well logs can occur which are
indicators of enhanced permeability. These indicators used to detect
productive intervals are:
Mudcake buildup across the zone of interest - after loading the
wellbore with brine fluid and circulating, an interval with enhanced
permeability will accept fluid, filtering out the solids and leaving
behind a buildup (or mudcake) on the formation wall. This is detectable
with a caliper log.
Invasion profile - during circulation, a brine that has a high
conductivity (or low resistivity) that is accepted into the formation (as
described above) will change the electrical conductivity of the reservoir
rock near and around the wellbore. The resistivity will be low nearest
to the wellbore and will increase away from the wellbore. A dual
laterolog can be used to detect this profile created by a permeable zone
- - it records resistivity near the wellbore as well as deeper into the
formation. A zone with enhanced permeability will show a separation
between the shallow and deep laterologs, while a zone with little or no
permeability would cause the two resistivity measurements to read exactly
the same. An example follows:
GAMMA RAY LOG RESISTIVITY LOG
PRODUCTION CURVE
A model decline curve for the Southeastern Mercer Prospect Area
was created, based on production histories from over 200 wells in the
mature portion of the field. The percentage of gas recovery per year is
illustrated by the diagram below:
(Chart showing a typical decline curve for a 20+ yaer period.)
POTENTIAL MARKETS AND PIPELINES
In the area of this drilling program, there are a number of
potential purchasers and transporters of natural gas. These include
Wheatland Tube Company, Tenneco, National Fuel Supply, National Fuel
Distribution and the People's Natural Gas Company.
STATEMENTS
CONCLUSION
UEDC has conducted a geologic feasibility study of the Atlas-
Energy for the Nineties-Public #5 Ltd. Drilling Program, which will
consist of developmental drilling of the Clinton-Medina Group sands in
Mercer, Lawrence and Butler Counties, Pennsylvania. It is the
professional opinion of UEDC that the drilling of wells within this
program is supported by sufficient geologic and engineering data.
DISCLAIMER
For the purpose of this evaluation, UEDC did not visit any
leaseholds or inspect any of the associated production equipment.
Likewise, UEDC has no knowledge as to the validity of title, liabilities,
or corporate matters affecting these properties. UEDC does not warrant
individual well performance.
NON-INTEREST
We hereby confirm that UEDC is an independent consulting firm and
that neither this firm or any of it's employees, contract consultants, or
officers has, or is committed to acquire any interest, directly or
indirectly, in Atlas Resources, Inc.; nor is this firm, or any employee,
contract consultant, or officer thereof, otherwise affiliated with Atlas
Resources, Inc. We also confirm that neither the employment of, nor
payment of compensation received by UEDC in connection with this report,
is on a contingent basis.
Respectfully submitted,
UEDC, Inc. (END UEDC REPORT)
- --------------------------------------------------------------------------
(Page 75)
COMPETITION, MARKETS AND REGULATION
COMPETITION
There are many companies, partnerships and individuals engaged in natural
gas exploration, development and operations in the areas where the
Partnership is expected to conduct its activities. The industry is highly
competitive in all of its phases, including acquiring suitable properties
for development and the marketing of natural gas. The Partnership will be
competing with other companies, and the sale of the production from the
wells will compete with the sale of production from the other wells that
have already been drilled or are being operated by Atlas in Mercer
County, Pennsylvania. However, to reduce and/or eliminate this conflict
of interest it is Atlas' policy to treat all wells in a geographic area
equally as to pipeline access and access to Atlas' gas supply agreements.
(See "Proposed Activities - Sale of Oil and Gas Production".)
Current economic conditions indicate that the costs of exploration and
development are increasing gradually; however, the oil and gas industry
historically has experienced periods of rapid cost increases from time to
time.
MARKETING
Natural gas and oil, if any, produced by the wells developed by the
Partnership must be marketed in order for the Participants to realize
revenues from such production. In recent years natural gas and oil prices
have been volatile.
The marketing of natural gas and oil production, if any, will be affected
by numerous factors beyond the control of the Partnership and the effect
of which cannot be accurately predicted. These factors include the
availability and proximity of adequate pipeline or other transportation
facilities; the amount of domestic production and foreign imports of oil
and gas; competition from other energy sources such as coal and nuclear
energy; local, state and federal regulations regarding production and the
cost of complying with applicable environmental regulations; and
fluctuating seasonal supply and demand. For example, the demand for
natural gas is greater in the winter months than in the summer months,
which is reflected in a higher spot market price paid for such gas. Also,
increased imports of oil and natural gas have occurred and are expected
to continue, and the free trade agreement between Canada and the United
States has eased restrictions on imports of Canadian gas to the United
States. In the past the reduced demand for natural gas and/or an excess
supply of gas has resulted in a lower price paid for the gas. It has also
resulted in some purchasers curtailing or restricting their purchases of
natural gas, renegotiating existing contracts to reduce both take-or-pay
levels and the price paid for delivered gas, and other difficulties in
the marketing of production. (See "Proposed Activities - Sale of Oil and
Gas Production".)
The Clean Air Act Amendments of 1990 contain incentives for the future
development of "clean alternative fuel," which includes natural gas and
liquefied petroleum gas for "clean-fuel vehicles". Atlas believes the
amendments ultimately will have a beneficial effect on natural gas
markets and prices.
STATE REGULATIONS
Oil and gas operations are regulated in Pennsylvania by the Department of
Environmental Resources, in Ohio by the Ohio Department of Natural
Resources, Division of Oil and Gas and in West Virginia by the Department
of Energy, Department of Oil and Gas. These states, and any other states
where Partnership Wells may be situated, impose a comprehensive statutory
and regulatory scheme with respect to oil and gas operations. Among other
things, such regulations involve (a) new well permit and well
registration requirements, procedures and fees, (b) minimum well spacing
requirements, (c) restrictions on well locations and underground gas
storage, (d) certain well site restoration, groundwater protection and
safety measures, (e) landowner notification requirements, (f) certain
bonding or other security measures, (g) various reporting requirements,
(h) well plugging standards and procedures, and (i) broad enforcement
powers.
These state regulatory agencies have been granted broad regulatory and
enforcement powers which are likely to create additional financial and
operational burdens on oil and gas operations like those of the
Partnership in such states. Pennsylvania, Ohio, West Virginia and the
other states in the Appalachian Basin also have in place other pollution
and environmental control laws which have become increasingly burdensome
in recent years. Enforcement efforts with respect to oil and gas
operations have recently increased and it can be anticipated that such
regulation will expand and have a greater impact on future oil and gas
operations.
ENVIRONMENTAL REGULATION
Various federal, state and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, may affect the Partnership's operations
and costs as a result of their effect on oil and gas exploration,
development and production activities. The Partnership may generally be
liable for cleanup costs to the United States Government under the
Federal Clean Water Act for oil or hazardous substance pollution and
under the Comprehensive Environmental
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Response, Compensation and
Liability Act of 1980 ("CERCLA" or Superfund) for hazardous substance
contamination. Such liability is unlimited in cases of willful negligence
or misconduct, and there is no limit on liability for environmental
cleanup costs or damages with respect to claims by the state or private
persons or entities. In addition, the Environmental Protection Agency
will require the Partnership to prepare and implement spill prevention
control and countermeasure plans relating to the possible discharge of
oil into navigable waters and will further require permits to authorize
the discharge of pollutants into navigable waters. State and local
permits or approvals will also be needed with respect to wastewater
discharges and air pollutant emissions. Violations of environment-related
Lease conditions or environmental permits can result in substantial civil
and criminal penalties as well as potential court injunctions curtailing
operations. Such enforcement liabilities can result from either
governmental or citizen prosecution. Compliance with these statutes and
regulations may cause delays in producing natural gas and oil from the
wells and may increase substantially the cost of producing such natural
gas and oil. However, such laws and regulations are constantly being
revised and changed, and Atlas is unable to predict the ultimate costs of
complying with present and future environmental laws and regulations. See
"Risk Factors - Special Risks of the Partnership - Unlimited Liability of
Investor General Partners" and "Proposed Activities - Insurance,"
concerning the Managing General Partner's inability to obtain insurance
to protect against environmental claims.
CRUDE OIL REGULATION
The price of oil is not regulated and is subject only to supply, demand,
competitive factors, the gravity of the crude oil, sulfur content
differentials and other factors. Certain federal reporting requirements
are still in effect under U. S. Department of Energy regulations.
FEDERAL GAS REGULATION
The sale of natural gas is subject to regulation of production and
transportation by governmental regulatory agencies. Generally, the
regulatory agency in the state where a producing natural gas well is
located supervises production activities and the transportation of
natural gas sold intrastate. The Federal Energy Regulatory Commission
("FERC"), which succeeded to the authority of the Federal Power
Commission regulates the interstate transportation of natural gas and
pricing of natural gas sold for resale interstate; and under the Natural
Gas Policy Act of 1978 ("NGPA"), the price of intrastate gas. However,
price controls for natural gas production from new wells were deregulated
on December 31, 1992. Such deregulated gas production may be sold at
market prices determined by supply, demand, BTU content, pressure,
location of the wells, and other factors. It is unlikely that the
Partnership will receive in the near future any substantial benefit from
the deregulation of natural gas from new wells.
Although the transportation and sale of gas in interstate commerce
remains heavily regulated, FERC has sought to promote greater competition
in natural gas markets by encouraging open access transportation by
interstate pipelines, with the goal of expanding opportunities for
producers to contract directly with local distribution companies and
end-users. FERC Order No. 500 affects the transportation and
marketability of natural gas. Traditionally, natural gas has been sold
by producers to pipeline companies, which then resold the gas to end-
users. FERC Order No. 500 alters this market structure by requiring
interstate pipelines that transport gas for others to provide
transportation service to producers, distributors and all other shippers
of natural gas on a nondiscriminatory, "first-come, first-served" basis
("open access transportation"), so that producers and other shippers can
sell natural gas directly to end-users. FERC Order No. 500 contains
additional provisions intended to promote greater competition in natural
gas markets. FERC Order 636 which became effective May 18, 1992,
requires gas pipeline companies to, among other things, separate their
sales services from their transportation services; and provide an open
access transportation service that is comparable in quality for all gas
suppliers. The premise behind FERC Order 636 was that the gas pipeline
companies had an unfair advantage over other gas suppliers because they
could bundle their sales and transportation services together. FERC Order
636 is designed to create a regulatory environment in which no gas seller
has a competitive advantage over another gas seller because it also
provides transportation services. It is difficult to assess the effect of
the order on the Partnership.
PROPOSED REGULATION
From time to time there are a number of proposals considered in Congress
and in the legislatures and agencies of various states that if enacted
would significantly and adversely affect the oil and natural gas
industry. Such proposals involve, among other things, the imposition of
new taxes on natural gas and limiting the disposal of waste water from
wells. At the present time, it is impossible to accurately predict what
proposals, if any, will be enacted by Congress or the legislatures and
agencies of various states and what effect any proposals which are
enacted will have on the activities of the Partnership.
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PARTICIPATION IN COSTS AND REVENUES
IN GENERAL
A tabular summary of the following discussion appears below. Please refer
to "Definitions" for a description of the items of revenue and cost
included in the terms used herein.
COSTS
1. ORGANIZATION AND OFFERING COSTS. Organization and Offering Costs will
be allocated and charged 100% to the Managing General Partner.
Notwithstanding, Organization and Offering Costs in excess of 15% of the
Partnership Subscription will be paid by the Managing General Partner,
without recourse to the Partnership, and the Managing General Partner
will not be credited with such amounts towards its required Capital
Contribution.
2. LEASE COSTS. The Leases will be contributed by the Managing General
Partner at its Cost or fair market value if Cost is materially more than
fair market value.
3. INTANGIBLE DRILLING COSTS. Intangible Drilling Costs will be allocated
and charged 100% to the Participants.
4. TANGIBLE DRILLING COSTS. Tangible Costs will be allocated and charged
14% to the Managing General Partner and 86% to the Participants.
5. OPERATING COSTS, DIRECT COSTS, ADMINISTRATIVE COSTS AND ALL OTHER COSTS.
Operating Costs, Direct Costs, Administrative Costs and all other
Partnership costs not specifically allocated will be allocated and
charged 75% to the Participants and 25% to the Managing General Partner.
However, in the event Atlas has to subordinate a part of its Partnership
revenues in an amount up to 10% of the Partnership Net Production
Revenues, Operating Costs, Direct Costs, Administrative Costs and all
other Partnership costs not specifically allocated will be charged to the
parties in the same ratio as the related production revenues are being
credited. (See "- Subordination of Portion of Managing General Partner's
Net Revenue Share," below.)
In addition, the Managing General Partner's aggregate Capital
Contributions to the Partnership (including Leases contributed) will not
be less than 15% of all Capital Contributions to the Partnership. Any
payments by the Managing General Partner in excess of the other costs
charged to it under the Partnership Agreement will be used to pay
Partnership costs which would otherwise be charged to the Participants.
Such Capital Contributions must be paid by the Managing General Partner
at the time such costs are required to be paid by the Partnership, but,
in no event, later than December 31, 1997.
REVENUES
1. PROCEEDS FROM THE SALE OF LEASES. If the Partners' Capital Accounts are
adjusted under the Partnership Agreement to reflect the simulated
depletion of an oil or gas property of the Partnership, the portion of
the total amount realized by the Partnership upon the taxable disposition
of such property that represents recovery of its simulated tax basis
therein is allocated to the Partners in the same proportion as the
aggregate adjusted tax basis of such property was allocated to such
Partners (or their predecessors in interest). If the Partners' Capital
Accounts are adjusted under the Partnership Agreement to reflect the
actual depletion of an oil or gas property of the Partnership, the
portion of the total amount realized by the Partnership upon the taxable
disposition of such property that equals the Partners' aggregate
remaining adjusted tax basis therein is allocated to the Partners in
proportion to their respective remaining adjusted tax bases in such
property. In addition, proceeds will be allocated to Atlas to the extent
of the pre-contribution appreciation in value of such property, if any.
Any excess will be credited to the parties in the ratio in which oil and
gas production revenues of the Partnership are credited as provided in 4,
below.
2. INTEREST PROCEEDS. Interest earned on Agreed Subscriptions prior to the
Offering Termination Date will be credited to the accounts of the
respective subscribers and paid approximately six weeks after the
Offering Termination Date. If a subscription is refunded any interest
allocated thereto will also be refunded. After the Offering Termination
Date and until proceeds from the offering are invested in the
Partnership's oil and gas operations any interest income from temporary
investments will be allocated pro rata to the Participants providing such
Agreed Subscriptions. All other interest income, including interest
earned on the deposit of production revenues, will be credited as
provided in 4, below.
3. EQUIPMENT PROCEEDS. Proceeds from the sale or other disposition of
equipment will be credited to the parties charged with the costs of such
equipment in the ratio in which such costs were charged.
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4. PRODUCTION REVENUES. All other revenues of the Partnership, including
production revenues, will be credited 75% to the Participants and 25% to
the Managing General Partner. (See "- Subordination of Portion of
Managing General Partner's Net Revenue Share," below and "Tax Aspects".)
5. LIQUIDATION PROCEEDS. Upon liquidation of the Partnership each
Participant will receive his Distribution Interest in the Partnership.
"Distribution Interest" means an undivided interest in the assets of the
Partnership after payments to creditors of the Partnership or the
creation of a reasonable reserve therefor, in the ratio the positive
balance of a party's Capital Account bears to the aggregate positive
balance of the Capital Accounts of all of the parties determined after
taking into account all Capital Account adjustments for the taxable year
during which liquidation occurs (other than those made pursuant to
liquidating distributions or restoration of deficit Capital Account
balances); provided, however, after the Capital Accounts of all of the
parties have been reduced to zero, such interest in the remaining assets
of the Partnership will equal a party's interest in the related revenues
of the Partnership as set forth in .5.01 and its subsections of the
Partnership Agreement.
Any in kind property distributions to the Participants must be made to a
liquidating trust or similar entity for the benefit of the Participants,
unless at the time of the distribution:
(a) the Managing General Partner offers the individual Participants the
election of receiving in kind property distributions and the Participants
accept such offer after being advised of the risks associated with such
direct ownership; or
(b) there are alternative arrangements in place which assure the
Participants that they will not, at any time, be responsible for the
operation or disposition of the Partnership properties.
It will be presumed that a Participant has refused such consent if the
Managing General Partner has not received such consent within thirty days
after the Managing General Partner mailed the request for such consent.
Any Partnership asset which would otherwise be distributed in kind to a
Participant, but for the failure or refusal of such Participant to give
his written consent to such distribution, may instead be sold by the
Managing General Partner at the best price reasonably obtainable from an
independent third party who is not an Affiliate of the Managing General
Partner.
SUBORDINATION OF PORTION OF MANAGING GENERAL PARTNER'S NET REVENUE SHARE
The Partnership is structured to provide preferred cash distributions to
the Participants equal to a minimum of 10% of their Agreed Subscriptions
in each of the first five twelve-month periods of Partnership operations.
To help insure the Participants achieve this investment feature, Atlas
will subordinate a part of its Partnership revenues in an amount up to
10% of the Partnership Net Production Revenues net of the related costs
as set forth in "- Costs - 5. Operating Costs, Direct Costs,
Administrative Costs and All Other Costs," above to the receipt by
Participants of cash distributions from the Partnership equal to 10% of
their Agreed Subscriptions in each of the first five twelve-month periods
of Partnership operations. (Partnership Net Production Revenues means
gross revenues after deduction of the related Operating Costs, Direct
Costs, Administrative Costs and all other Partnership costs not
specifically allocated.) The subordination will be determined on a
cumulative basis throughout the entire subordination period commencing
with the first distribution of revenues to the Participants by debiting
or crediting current period Partnership revenues to the Managing General
Partner as may be necessary to provide such distributions to the
Participants.
Atlas anticipates that the Participants will benefit from the
subordination if the price of gas received by the Partnership and/or the
results of the Partnership's drilling activities are unable to provide
the required return to the Participants. Notwithstanding, if the wells
produce gas in small amounts or the price of gas declines then even with
subordination the cash flow to the Participants may be very small and
they may not receive a return of their entire investment. (See "Risk
Factors - Special Risks of the Partnership - Borrowings by the Managing
General Partner Could Reduce Funds Available for Its Subordination
Obligation".)
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PARTICIPATION IN COSTS AND REVENUES
MANAGING
GENERAL
PARTNER (1) PARTICIPANTS (1)
PARTNERSHIP COSTS
Organization and Offering Costs (2) 100% 0%
Lease Costs (3) 100% 0%
Intangible Drilling Costs 0% 100%
Tangible Costs 14% 86%
Operating Costs, Administrative
Costs, Direct Costs and All
Other Costs (4)(5)(9) 25% 75%
PARTNERSHIP REVENUES
Interest Income (6) (6)
Equipment Proceeds (7) (7)
All other Revenues including
Production Revenues (4)(8) 25% 75%
PARTICIPATION IN DEDUCTIONS
Intangible Drilling Costs 0% 100%
Depreciation 14% 86%
Depletion Allowances 25% 75%
- ---------------------------------
(1) Atlas has the option of subscribing for up to 10% of the Units, which
will not be applied towards the minimum Partnership Subscription. To the
extent of such optional subscriptions the Managing General Partner is
deemed a Participant in the Partnership. (See "Terms of the Offering".)
(2) In the event the Managing General Partner pays any Organization and
Offering Costs in excess of 15% of the Partnership Subscription, such
payments will be without recourse to the Partnership, and the Managing
General Partner will not be credited with such amounts towards its
required Capital Contribution.
(3) Leases will be contributed to the Partnership by Atlas at its Cost or
fair market value if Cost is materially more than fair market value and
applied towards its required Capital Contribution to the Partnership.
(4) In the event Atlas has to subordinate a part of its Partnership
revenues in an amount up to 10% of Partnership Net Production Revenues,
then Operating Costs, Direct Costs, Administrative Costs and all other
Partnership costs not specifically allocated will be charged to the
parties in the same ratio as the related production revenues are being
credited. (See "- Subordination of a Portion of Managing General
Partner's Net Revenue Share," above and "Risk Factors - Special Risks of
the Partnership - Borrowings by the Managing General Partner Could Reduce
Funds Available for Its Subordination Obligation".)
(5) Includes any other Partnership costs which are not otherwise
specifically allocated.
(6) Interest earned on Agreed Subscriptions prior to the Offering
Termination Date will be credited to the accounts of the respective
subscribers and paid approximately six weeks after the Offering
Termination Date. If a subscription is refunded any interest allocable
thereto will also be refunded. After the Offering Termination Date and
until proceeds from the offering are invested in the Partnership's oil
and gas operations any interest income from temporary investments will be
allocated pro rata to the Participants providing such Agreed
Subscription. All other interest income, including interest earned on the
deposit of operating revenues, will be credited as oil and gas production
revenues are credited.
(7) Proceeds from the sale or other disposition of equipment will be
credited to the parties charged with the costs of such equipment in the
ratio in which such costs were charged.
(8) (See "- Revenues - Proceeds from the Sale of Leases" and "-
Subordination of Portion of Managing General Partner's Net Revenue
Share," above and "- Allocation and Adjustment Among Participants,"
below.)
(9) The Managing General Partner's aggregate Capital Contributions to the
Partnership (including Leases contributed) will not be less than 15% of
all Capital Contributions to the Partnership. Any payments by the
Managing General Partner in excess of the other costs charged to it under
the Partnership Agreement will be used to pay Partnership costs which
would otherwise be charged to the Participants. Such Capital
Contributions must be paid by the Managing General Partner at the time
such costs are required to be paid by the Partnership, but, in no event,
later than December 31, 1997.
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ALLOCATION AND ADJUSTMENT AMONG PARTICIPANTS
The Participants' share of revenues, gains, credits, costs, expenses,
losses and other charges and liabilities will be charged and credited, as
among them, pro rata in accordance with their respective Agreed
Subscriptions taking into account any Investor General Partner's status
as a defaulting Investor General Partner.
DISTRIBUTIONS
The Managing General Partner will review the accounts of the Partnership
at least quarterly to determine whether cash distributions are
appropriate and the amount to be distributed, if any. The Partnership
will distribute funds to the Managing General Partner and the
Participants allocated to their accounts which the Managing General
Partner deems unnecessary to be retained by the Partnership. In no event,
however, will funds be advanced or borrowed for purposes of
distributions, if the amount of such distributions would exceed the
Partnership's accrued and received revenues for the previous four
quarters, less paid and accrued Operating Costs with respect to such
revenues. The determination of such revenues and costs shall be made in
accordance with generally accepted accounting principles, consistently
applied. Cash distributions from the Partnership to the Managing General
Partner shall only be made in conjunction with distributions to
Participants and only out of funds properly allocated to the Managing
General Partner's account. (See "Summary of Drilling and Operating
Agreement.")
TAX ASPECTS
SUMMARY OF TAX OPINION
The Managing General Partner has received the tax opinion of Special
Counsel, Kunzman & Bollinger, Inc., Oklahoma City, Oklahoma, which is
included as Exhibit (8) to the Registration Statement. While Special
Counsel has prepared this section of the Prospectus entitled "Tax
Aspects," the opinion of Special Counsel will be limited to those
opinions set forth in its Tax Opinion which are summarized below. The Tax
Opinion represents only Special Counsel's best legal judgment, and has no
binding effect or official status. No assurance can be given that the
conclusions expressed in the opinion would be upheld by a court if
challenged by the IRS. Such tax opinion is based upon Special Counsel's
review of the Registration Statement for Atlas-Energy for the
Nineties-Public #5 Ltd., corporate records, certificates, agreements,
instruments and other documents, existing statutes, rulings and
regulations (which are subject to change and could result in different
tax consequences), and certain representations from Atlas. Included among
such representations are the following:
(1) The Partnership Agreement will be duly executed and recorded.
(2) No election will be made for the Partnership to be excluded from the
application of the partnership provisions of the Code.
(3) The Partnership will own record or legal title to the Working
Interest in all of its Prospects.
(4) The Managing General Partner will be independent of the Participants
and has and will continue to have at all times during the existence of
the Partnership a substantial net worth (excluding its interest in the
Partnership and any other limited partnerships).
(5) 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."
(6) The Partnership will elect to deduct currently all intangible
drilling and development costs.
(7) The Partnership will have a calendar year taxable year.
(8) 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.
(9) 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
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not during the first
five tax years following the funding of the Partnership exceed twice the
amounts invested by Atlas and the Participants, respectively.
(10) 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.
(11) The Units will not be traded on an established securities market.
In rendering its opinions, Special Counsel has 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.
Special Counsel believes that its 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.
Special Counsel considers 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 Special Counsel's 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 ("Intangible Drilling 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 1996 most, if not all, of
the intangible drilling and development costs related to Partnership
Wells the drilling of which will be commenced in 1997. 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 1996
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 1996 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, 1997, 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. Income or gain attributable to
investments of working capital of the
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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 the 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 "- 1996 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 "- IRS Anti-Abuse
Rule".)
OVERALL EVALUATION OF TAX BENEFITS. Based on Special Counsel's conclusion
that substantially more than half of the material tax benefits of the
Partnership, in terms of their financial impact on a typical investor,
more likely than not will be realized if challenged by the IRS, 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.
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
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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 TAXATION
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. In the event the Partnership were treated as an association taxable
as a corporation, the income and deductions of the Partnership would be
reported by the Partnership as if it were a corporation, and not by each
Partner. The Partnership would be taxed directly on its income at
corporate tax rates and distributions to Partners would be treated as
taxable dividends to shareholders to the extent of current and
accumulated earnings and profits of the Partnership.
PARTNERSHIP CLASSIFICATION
The Managing General Partner has received 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.
The tax classification of the Partnership as a partnership could be
adversely affected following the removal or resignation of the Managing
General Partner. This would depend upon the new general partner having
substantial assets in addition to its interest in the partnership and the
new general partner's relationship to the Participants. In addition, the
tax status of the Partnership as a partnership could be adversely
affected should the net worth of Atlas materially diminish, or should the
contingent liabilities of Atlas materially increase. New standards, if
adopted, could be applied retroactively and possibly could have an
adverse effect on the classification of the Partnership as a partnership.
AN ADVANCE TAX RULING CONFIRMING THE PARTNERSHIP'S STATUS AS A
PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES HAS NOT BEEN OBTAINED FROM
THE IRS AND THE MANAGING GENERAL PARTNER DOES NOT INTEND TO APPLY FOR
SUCH AN ADVANCE RULING. SUCH A RULING WOULD NOT BE ISSUED IF SOUGHT, AND
NO GUARANTY CAN BE GIVEN THAT THE IRS WILL NOT TAKE THE POSITION THAT THE
PARTNERSHIP SHOULD BE CLASSIFIED FOR TAX PURPOSES AS AN ASSOCIATION
TAXABLE AS A CORPORATION RATHER THAN A PARTNERSHIP.
The following discussion assumes that the Partnership will be treated as
a partnership for federal income tax purposes.
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. Similar rules apply with respect to tax credits.
Passive activities include any trade or business in which the taxpayer
does not materially participate. Material participation is defined as a
year-round active 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 more likely than not 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 rules.
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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. 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).
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. 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 transfers
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 1997.
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. 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, any net income from a Partnership Well allocable to an
Investor General Partner will continue to be characterized as non-passive
income which cannot be offset with passive losses, even after such
Investor General Partner has converted to Limited Partner status.
TAXABLE YEAR
The Partnership intends to adopt a calendar year taxable year.
1996 EXPENDITURES
It is anticipated that all of the Partnership's subscription proceeds
will be expended in 1996 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".) Depending
primarily on when the Partnership Subscription is received, it is
anticipated that the Partnership will prepay in 1996 most, if not all, of
the intangible drilling and development costs for wells the drilling of
which will be commenced in 1997. The deductibility in 1996 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 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 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
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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
("Intangible Drilling 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. (See "Participation in Costs and
Revenues" 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.) The amount of the deduction for intangible drilling and
development costs is limited for integrated oil companies, i.e., (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. 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 to be paid by the Partnership for a completed well to
intangible drilling and development costs. The IRS could challenge the
characterization of costs claimed by the Partnership 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.
DRILLING CONTRACTS
The Partnership will enter into the Drilling and Operating Agreement with
Atlas, 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. Under the footage
drilling contracts, Atlas anticipates that it will have reimbursement of
general and administrative overhead of $3,600 per well and a profit of
approximately 11% to 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, "Proposed
Activities" and "Compensation".)
Depending primarily on when the Partnership Subscription is received, it
is anticipated that the Partnership will prepay in 1996 most, if not all,
of the intangible drilling and development costs for Partnership Wells
the drilling of which will be commenced in 1997. 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 Partnership will attempt to comply with the guidelines
set forth in Keller with respect to any prepaid intangible drilling and
development costs. The Drilling and Operating Agreement will require the
Partnership to prepay in 1996 intangible drilling and development costs
for specified wells the drilling of which will be commenced in 1997.
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
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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 within 90 days 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, 1997. 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, 1997, will
actually be commenced by such date. In that event, deductions claimed in
1996 for prepaid intangible drilling and development costs would be
disallowed and deferred to the 1997 taxable year.
No assurance can be given that on audit the IRS will 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 will be available in the year the work is
actually performed.
DEPLETION ALLOWANCE
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.
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," above.) 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. 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 20%. (See the model decline curve included in the UEDC
Geological Report in "Proposed Activities - Information Regarding
Currently Proposed Prospects".)
Also, 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 deductions for 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 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.
Availability of percentage depletion 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 percentage depletion to them.
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DEPRECIATION - ACCELERATED COST RECOVERY SYSTEM
The cost of most equipment placed in service by the Partnership will be
recovered through depreciation deductions over a seven year cost recovery
period, using the 200% declining balance method, with a switch to
straight-line to maximize the deduction. Only a half-year of depreciation
is allowed for the year recovery property is placed in service or
disposed of and in the case of a short tax year, the ACRS deduction is
prorated on a 12-month basis.
No distinction is made between new and used property and salvage value is
disregarded. 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.) A
taxpayer may elect to recover the cost of assets using the straight-line
method or the alternative depreciation system for regular tax purposes to
avoid creating a tax preference. 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 of
the Code, which provides an election to expense up to $17,500 of the cost
of certain tangible personal property in the year such property is placed
in service. The deductible amount is reduced by the cost of qualifying
property in excess of $200,000 and 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.
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 his cash subscription
payment and his share of Partnership income.
The adjusted basis of a Participant's interest in the Partnership will be
reduced by: his share of Partnership losses; his depletion deduction (but
not below zero); and cash distributions from the Partnership to him. The
reduction in a Participant's share of Partnership 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.
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.
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.
No loss is recognized by the partners on these types of distributions.
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.
Gains or losses from sales of oil and gas properties held for more than
twelve months would be, except to the extent of depreciation recapture on
equipment and recapture of any intangible drilling and development costs,
depletion deductions and certain other losses, treated as a long-term
capital gain while a net loss will be an ordinary deduction. Other gains
and losses on sales of oil and gas properties will generally result in
ordinary gains or losses.
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. In the event the
interest is held for twelve months or less, such gain or loss will
generally be short-term gain or loss. The recapturable portions of
depreciation, depletion and intangible drilling and development costs
constitute ordinary income. A portion of any gain recognized by a Limited
Partner on the sale or other disposition of his interest
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in the
Partnership will also be characterized as portfolio income under the
passive activity rules to the extent the gain is itself attributable to
portfolio income (e.g. interest on investment of working capital). 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. 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.
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 certain Partnership assets as a result of the conversion.
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. Regular tax personal exemptions are not available for
purposes of the alternative minimum tax, however, alternative minimum
taxable income may be reduced by certain itemized deductions, exemption
amounts and net operating losses.
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. Excess intangible drilling 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 with
respect to productive wells taxpayers can elect to amortize the year's
intangible drilling and development costs ratably over a 60 month period
for all tax purposes and then such costs are not treated as an item of
tax preference.
The likelihood of a Participant incurring, or increasing, any minimum tax
liability by virtue of an investment in the Partnership 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). An Investor General
Partner's 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. 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.
No item of income or expense subject to the passive activity loss rules
is treated as investment income or investment expense.
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. (See "Participation in Costs and Revenues".) 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, 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.
It should 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
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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
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, each Participant may use his
share of the Partnership's credits or losses, if any, to offset income
from other sources. (See "- Limitations on Passive Activities," above.)
However, any individual taxpayer who sustains a loss in connection with
the Partnership may deduct such loss only to the extent of the amount he
has "at risk" in the Partnership at the end of a taxable year. 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. 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.
In addition, 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").
PARTNERSHIP ORGANIZATION AND SYNDICATION FEES
Expenses connected with the sale of interests in a partnership are not
deductible. Although certain organization expenses of a partnership may
be deducted and amortized over a period of not less than 60 months, such
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. The
Partnership Agreement provides that the Partnership may make the .754
election. Taxpayers may 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 and creating an
active trade or business; or (ii) 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
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determined that any of the Partnership's expenses constituted start-up
expenditures and not deductible business expenses, the Partnership's
deductions would be reduced.
DISALLOWANCE OF DEDUCTIONS UNDER SECTION 183 OF THE CODE
A Participant's ability to deduct his share of the Partnership's losses
could be lost if the Partnership lacks the appropriate profit motive as
determined from an examination of all facts and circumstances at the
time. There is 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. Based on Atlas' representation that the Partnership
will be conducted as described in this 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
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. 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.
LACK OF REGISTRATION AS A TAX SHELTER
An organizer of a "tax shelter" must obtain an identification number
which must be included on the tax returns of investors in such a tax
shelter. For this purpose, a "tax shelter" includes 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, determined without reduction for gross income 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 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. Any person who organizes a tax shelter required to be
registered with the IRS must maintain a list of each investor in the tax
shelter. For the reasons described above, Atlas does not believe the
Partnership is a tax shelter for this purpose. If this determination is
wrong there is a penalty of $50 for each person, 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.
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
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(Page 91)
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.
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.
VALUATION MISSTATEMENT PENALTY. There is an addition to tax of 20% of the
amount of any underpayment of tax of $5,000 or more 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%.
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.
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
and there is a reasonable basis for the tax treatment of such item by the
taxpayer. 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. A "tax shelter" for this purpose 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 this 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 retained 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
this 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.
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(Page 92)
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.
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. 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 in the event any Partnership Wells
are situated in areas of the Appalachian Basin other than Mercer County,
Pennsylvania. Currently, there is no similar tax liability in Mercer
County, Pennsylvania.
TAX CONSEQUENCES TO QUALIFIED PLANS AND IRAS
It is anticipated that the Partnership's net income will be attributable
entirely to ownership of Working Interests in the Leases and will
constitute unrelated business taxable income upon which a tax may be
imposed if received by certain tax-exempt organizations. Quarterly
payments of estimated tax on unrelated business taxable income are
required. However, an additional specific deduction of $1,000 will
generally be allowed. There also may be alternative minimum tax liability
for tax preference items.
PROSPECTIVE PARTICIPANTS THAT ARE EXEMPT FROM FEDERAL INCOME TAX SHOULD
CAREFULLY CONSIDER WHETHER AN INVESTMENT IN THE PARTNERSHIP IS
APPROPRIATE AND SHOULD CONSULT WITH THEIR OWN TAX ADVISORS PRIOR TO THE
INVESTMENT. (See "Terms of the Offering- Subscriptions by IRAs, Keogh
Plans and Other Qualified Plans".)
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. For 1996 the ceiling for social
security tax of 12.4% is $62,700 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. The Managing General Partner cannot predict what, if any, changes in
the tax law may become law in the future or even if adopted, would apply
to the Partnership.
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(Page 93)
THE FOREGOING ANALYSIS IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING. IT IS NOT POSSIBLE TO PREDICT THE EFFECT OF THE TAX LAWS ON
INDIVIDUAL PARTICIPANTS. ACCORDINGLY, 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.
DEFINITIONS
TERMS DEFINED
As used in this Prospectus, the following terms have the meanings
hereinafter set forth:
(1) "Administrative Costs" means all customary and routine expenses
incurred by the Sponsor for the conduct of Partnership administration,
including: legal, finance, accounting, secretarial, travel, office rent,
telephone, data processing and other items of a similar nature. No
Administrative Costs charged will be duplicated under any other category
of expense or cost. No portion of the salaries, benefits, compensation
or remuneration of controlling persons of Atlas will be reimbursed by the
Partnership as Administrative Costs. Controlling persons include
directors, executive officers and those holding five percent or more
equity interest in the Managing General Partner or a person having power
to direct or cause the direction of the Managing General Partner, whether
through the ownership of voting securities, by contract, or otherwise.
(2) "Administrator" means the official or agency administering the
securities laws of a state.
(3) "AEGH" means AEG Holdings, Inc., a Pennsylvania corporation, whose
principal executive offices are located at 311 Rouser Road, Moon
Township, Pennsylvania 15108.
(4) "Affiliate" means with respect to a specific person (a) any person
directly or indirectly owning, controlling, or holding with power to vote
10 per cent or more of the outstanding voting securities of such
specified person; (b) any person 10 per cent or more of whose outstanding
voting securities are directly or indirectly owned, controlled, or held
with power to vote, by such specified person; (c) any person directly or
indirectly controlling, controlled by, or under common control with such
specified person; (d) any officer, director, trustee or partner of such
specified person; and (e) if such specified person is an officer,
director, trustee or partner, any person for which such person acts in
any such capacity.
(5) "Agreed Subscription" means that amount so designated on the
Subscription Agreement executed by the Participant, or, in the case of
the Managing General Partner, its subscription under .3.03(b) and its
subsections of the Partnership Agreement.
(6) "Assessments" means additional amounts of capital which may be
mandatorily required of or paid voluntarily by a Participant beyond his
subscription commitment.
(7) "Atlas" means Atlas Resources, Inc., a Pennsylvania corporation,
whose principal executive offices are located at 311 Rouser Road, Moon
Township, Pennsylvania 15108.
(8) "Atlas Energy" means Atlas Energy Group, Inc., an Ohio corporation,
whose principal executive offices are located at 311 Rouser Road, Moon
Township, Pennsylvania 15108.
(9) "Capital Account" or "account" means the account established for each
party to the Partnership Agreement, maintained as provided in .5.02 and
its subsections of the Partnership Agreement.
(10) "Capital Contribution" means the amount agreed to be contributed to
the Partnership by a party pursuant to ..3.04 and 3.05 and their
subsections of the Partnership Agreement.
(11) "Carried Interest" means an equity interest in a program issued to a
person without consideration, in the form of cash or tangible property,
in an amount proportionately equivalent to that received from
Participants.
(12) "Code" means the Internal Revenue Code of 1986, as amended.
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(Page 94)
(13) "Cost", when used with respect to the sale of property to the
Partnership, means (a) the sum of the prices paid by the seller to an
unaffiliated person for such property, including bonuses; (b) title
insurance or examination costs, brokers' commissions, filing fees,
recording costs, transfer taxes, if any, and like charges in connection
with the acquisition of such property; (c) a pro rata portion of the
seller's actual necessary and reasonable expenses for seismic and
geophysical services; and (d) rentals and ad valorem taxes paid by the
seller with respect to such property to the date of its transfer to the
buyer, interest and points actually incurred on funds used to acquire or
maintain such property, and such portion of the seller's reasonable,
necessary and actual expenses for geological, engineering, drafting,
accounting, legal and other like services allocated to the property cost
in conformity with generally accepted accounting principles and industry
standards, except for expenses in connection with the past drilling of
wells which are not producers of sufficient quantities of oil or gas to
make commercially reasonable their continued operations, and provided
that the expenses enumerated in this subsection (d) hereof shall have
been incurred not more than 36 months prior to the purchase by the
Partnership. When used with respect to services, "cost" means the
reasonable, necessary and actual expense incurred by the seller on behalf
of the Partnership in providing such services, determined in accordance
with generally accepted accounting principles. As used elsewhere, "cost"
means the price paid by the seller in an arm's-length transaction.
(14) "Development Drilling" means drilling a Development Well.
(15) "Development Well" means a well drilled within the proved area of an
oil or gas reservoir to the depth of a stratigraphic Horizon known to be
productive.
(16) "Direct Costs" means all actual and necessary costs directly
incurred for the benefit of the Partnership and generally attributable to
the goods and services provided to the Partnership by parties other than
the Sponsor or its Affiliates. Direct Costs shall not include any cost
otherwise classified as Organization and Offering Costs, Administrative
Costs, Intangible Drilling Costs, Tangible Costs, Operating Costs or
costs related to the Leases. Direct Costs may include the cost of
services provided by the Sponsor or its Affiliates if such services are
provided pursuant to written contracts and in compliance with .4.03(d)(7)
of the Partnership Agreement.
(17) "Drilling and Operating Agreement" means the proposed Drilling and
Operating Agreement between Atlas, Atlas Energy or Atlas Energy
Corporation as Operator, and the Partnership as Developer, a copy of the
proposed form of which is attached as Exhibit (II) to the Partnership
Agreement.
(18) "Dry Hole" means a well which is plugged and abandoned with or
without a completion attempt because the Operator has determined that it
will not be productive of gas and/or oil in commercial quantities.
(19) "Exploratory Drilling" means drilling an Exploratory Well.
(20) "Exploratory Well" means a well drilled to find commercially
productive hydrocarbons in an unproved area, to find a new commercially
productive Horizon in a field previously found to be productive of
hydrocarbons at another Horizon, or to significantly extend a known
prospect.
(21) "Farmout" means an agreement whereby the owner of the leasehold or
Working Interest agrees to assign his interest in certain specific
acreage to the assignees, retaining some interest such as an Overriding
Royalty Interest, an oil and gas payment, offset acreage or other type of
interest, subject to the drilling of one or more specific wells or other
performance as a condition of the assignment.
(22) "Final Terminating Event" means any one of the following: (i) the
expiration of the fixed term of the Partnership; (ii) the giving of
notice to the Participants by the Managing General Partner of its
election to terminate the affairs of the Partnership; (iii) the giving of
notice by the Participants to the Managing General Partner of their
similar election through the affirmative vote of Participants whose
Agreed Subscriptions equal a majority of the Partnership Subscription; or
(iv) the termination of the Partnership under .708(b)(1)(A) of the Code
or the Partnership ceases to be a going concern.
(23) "Fracturing" or "Frac" means a treatment to a potentially productive
geological formation intended to enhance the ability of oil or gas to
migrate through the formation to the well hole. Fracturing may involve
the application of hydraulic pressure to the reservoir formation or the
use of explosive devices to create or enlarge fractures through which oil
or gas may move.
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(Page 95)
(24) "Horizon" means a zone of a particular formation; that part of a
formation of sufficient porosity and permeability to form a petroleum
reservoir.
(25) "Independent Expert" means a person with no material relationship to
the Sponsor or its Affiliates who is qualified and who is in the business
of rendering opinions regarding the value of oil and gas properties based
upon the evaluation of all pertinent economic, financial, geologic and
engineering information available to the Sponsor or its Affiliates.
(26) "Intangible Drilling Costs"or "Non-Capital Expenditures" means those
expenditures associated with property acquisition and the drilling and
completion of oil and gas wells that under present law are generally
accepted as fully deductible currently for federal income tax purposes;
and includes all expenditures made with respect to any well prior to the
establishment of production in commercial quantities for wages, fuel,
repairs, hauling, supplies and other costs and expenses incident to and
necessary for the drilling of such well and the preparation thereof for
the production of oil or gas, that are currently deductible pursuant to
Section 263(c) of the Code and Treasury Reg. Section 1.612-4, which are
generally termed "intangible drilling and development costs," including
the expense of plugging and abandoning any well prior to a completion
attempt.
(27) "Investor General Partners" means the persons signing the
Subscription Agreement as Investor General Partners and the Managing
General Partner to the extent of any optional subscription under
.3.03(b)(2) of the Partnership Agreement. All Investor General Partners
will be of the same class and have the same rights.
(28) "IRS" means the United States Internal Revenue Service.
(29) "Landowner's Royalty Interest" means an interest in production, or
the proceeds therefrom, to be received free and clear of all costs of
development, operation, or maintenance, reserved by a landowner upon the
creation of an oil and gas Lease.
(30) "Leases" means full or partial interests in oil and gas leases, oil
and gas mineral rights, fee rights, licenses, concessions, or other
rights under which the holder is entitled to explore for and produce oil
and/or gas, and further includes any contractual rights to acquire any
such interest.
(31) "Limited Partners" means the persons signing the Subscription
Agreement as Limited Partners, the Managing General Partner to the extent
of any optional subscription under .3.03(b)(2) of the Partnership
Agreement, the Investor General Partners upon the conversion of their
Investor General Partner Units to Limited Partner interests pursuant to
.6.01 (c) of the Partnership Agreement, and any other persons who are
admitted to the Partnership as additional or substituted Limited
Partners. All Limited Partners will be of the same class and have the
same rights; provided, however, Limited Partners who were formerly
Investor General Partners remain liable for Partnership obligations
incurred prior to the conversion of their Investor General Partner Units
to Limited Partner interests in the Partnership, as set forth in the
Partnership Agreement.
(32 ) "Managing General Partner" means Atlas Resources, Inc. or any
Person admitted to the Partnership as a general partner other than as an
Investor General Partner pursuant to the Partnership Agreement who is
designated to exclusively supervise and manage the operations of the
Partnership.
(33) "MCF" means one thousand cubic feet of natural gas.
(34) "Net Revenue Interest" means that percentage of revenues
attributable to the oil and gas rights subject to a particular Lease
which a party acquiring a Lease is entitled to receive by virtue of its
interest therein.
(35) "Offering Termination Date" means the date after the minimum
Partnership Subscription has been received on which the Managing General
Partner determines, in its sole discretion, the Partnership's
subscription period is closed and the acceptance of subscriptions ceases,
which shall not be later than December 31, 1996.
(36) "Operating Costs" means expenditures made and costs incurred in
producing and marketing oil or gas from completed wells, including, in
addition to labor, fuel, repairs, hauling, materials, supplies, utility
charges and other costs incident to or therefrom, ad valorem and
severance taxes, insurance and casualty loss expense, and compensation to
well operators or others for services rendered in conducting such
operations. Subject to the foregoing, Operating Costs also include
reworking, workover, subsequent equipping and similar expenses relating
to any well.
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(Page 96)
(37) "Operator" means Atlas, as operator of Partnership Wells in
Pennsylvania, Atlas Energy as operator of Partnership Wells in Ohio and
Atlas Energy Corporation as operator of Partnership Wells in West
Virginia.
(38) "Organization Costs" means all costs of organizing the offering,
including, but not limited to, expenses for printing, engraving, mailing,
charges of transfer agents, registrars, trustees, escrow holders,
depositaries, engineers and other experts, expenses of qualification of
the sale of the securities under Federal and State law, including taxes
and fees, accountants' and attorneys' fees and other front-end fees.
(39) "Organization and Offering Costs" means all costs of organizing and
selling the offering including, but not limited to, total underwriting
and brokerage discounts and commissions (including fees of the
underwriters' attorneys), expenses for printing, engraving, mailing,
salaries of employees while engaged in sales activities, charges of
transfer agents, registrars, trustees, escrow holders, depositaries,
engineers and other experts, expenses of qualification of the sale of the
securities under federal and state law, including taxes and fees,
accountants' and attorneys' fees and other front-end fees.
(40) "Overriding Royalty Interest" means an interest in the oil and gas
produced pursuant to a specified oil and gas lease or leases, or the
proceeds from the sale thereof, carved out of the Working Interest, to be
received free and clear of all costs of development, operation, or
maintenance.
(41) "Participants" means the Managing General Partner to the extent of
its optional subscription under .3.03(b)(2) of the Partnership Agreement,
the Limited Partners and the Investor General Partners.
(42) "Partners" means the Managing General Partner, the Investor General
Partners and the Limited Partners.
(43) "Partnership" means Atlas-Energy for the Nineties-Public #5 Ltd.,
the Pennsylvania limited partnership formed pursuant to the Partnership
Agreement.
(44) "Partnership Agreement" means the Amended and Restated Certificate
and Agreement of Limited Partnership, including all Exhibits thereto, as
set forth in Exhibit (A) to this Prospectus.
(45) "Partnership Net Production Revenues" means gross revenues after
deduction of the related Operating Costs, Direct Costs, Administrative
Costs and all other Partnership costs not specifically allocated.
(46) "Partnership Subscription" means the aggregate Agreed Subscriptions
of the parties to the Partnership Agreement; provided, however, with
respect to Participant voting rights under the Partnership Agreement, the
term "Partnership Subscription" shall be deemed not to include the
Managing General Partner's required subscription under .3.03(b)(1) of the
Partnership Agreement.
(47) "Partnership Well" means a well, some portion of the revenues from
which is received by the Partnership.
(48) "Person" means a natural person, partnership, corporation,
association, trust or other legal entity.
(49) "Program" means one or more limited or general partnerships or other
investment vehicles formed, or to be formed, for the primary purpose of
exploring for oil, gas and other hydrocarbon substances or investing in
or holding any property interests which permit the exploration for or
production of hydrocarbons or the receipt of such production or the
proceeds thereof.
(50) "Prospect" means an area covering lands which are believed by the
Managing General Partner to contain subsurface structural or
stratigraphic conditions making it susceptible to the accumulations of
hydrocarbons in commercially productive quantities at one or more
Horizons. The area, which may be different for different Horizons, shall
be designated by the Managing General Partner in writing prior to the
conduct of Partnership operations and shall be enlarged or contracted
from time to time on the basis of subsequently acquired information to
define the anticipated limits of the associated hydrocarbon reserves and
to include all acreage encompassed therein. A "Prospect" with respect to
a particular Horizon may be limited to the minimum area permitted by
state law or local practice, whichever is applicable, to protect against
drainage from adjacent wells if the well to be drilled by the Partnership
is to a Horizon containing Proved Reserves. Subject to the foregoing
sentence, with respect to the Clinton/Medina geological formation in Ohio
and Pennsylvania "Prospect" shall be deemed the drilling or spacing unit.
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(Page 96)
(51) "Proved Reserves" means the estimated quantities of crude oil,
natural gas, and natural gas liquids which geological and engineering
data demonstrate with reasonable certainty to be recoverable in future
years from known reservoirs under existing economic and operating
conditions, i.e., prices and costs as of the date the estimate is made.
Prices include consideration of changes in existing prices provided only
by contractual arrangements, but not on escalations based upon future
conditions.
(i) Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes (a) that portion
delineated by drilling and defined by gas-oil and/or oil-water contacts,
if any; and (b) the immediately adjoining portions not yet drilled, but
which can be reasonably judged as economically productive on the basis of
available geological and engineering data. In the absence of information
on fluid contacts, the lowest known structural occurrence of hydrocarbons
controls the lower proved limit of the reservoir.
(ii) Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in
the "proved" classification when successful testing by a pilot project,
or the operation of an installed program in the reservoir, provides
support for the engineering analysis on which the project or program was
based.
(iii) Estimates of proved reserves do not include the following: (a) oil
that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (b) crude oil, natural
gas, and natural gas liquids, the recovery of which is subject to
reasonable doubt because of uncertainty as to geology, reservoir
characteristics, or economic factors; (c) crude oil, natural gas, and
natural gas liquids, that may occur in undrilled prospects; and (d) crude
oil, natural gas, and natural gas liquids, that may be recovered from oil
shales, coal, gilsonite and other such sources.
(52) "Proved Developed Oil and Gas Reserves" means reserves that can be
expected to be recovered through existing wells with existing equipment
and operating methods. Additional oil and gas expected to be obtained
through the application of fluid injection or other improved recovery
techniques for supplementing the natural forces and mechanisms of primary
recovery should be included as "proved developed reserves" only after
testing by a pilot project or after the operation of an installed program
has confirmed through production response that increased recovery will be
achieved.
(53) "Proved Undeveloped Reserves" means reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells
where a relatively major expenditure is required for recompletion.
Reserves on undrilled acreage shall be limited to those drilling units
offsetting productive units that are reasonably certain of production
when drilled. Proved reserves for other undrilled units can be claimed
only where it can be demonstrated with certainty that there is continuity
of production from the existing productive formation. Under no
circumstances should estimates for proved undeveloped reserves be
attributable to any acreage for which an application of fluid injection
or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in
the same reservoir.
(54) "Roll-Up" means a transaction involving the acquisition, merger,
conversion or consolidation, either directly or indirectly, of the
Partnership and the issuance of securities of a Roll-Up Entity. Such term
does not include: (a) a transaction involving securities of the
Partnership that have been listed for at least twelve months on a
national exchange or traded through the National Association of
Securities Dealers Automated Quotation National Market System; or (b) a
transaction involving the conversion to corporate, trust or association
form of only the Partnership if, as a consequence of the transaction,
there will be no significant adverse change in any of the following:
voting rights, the term of existence of the Partnership, the Managing
General Partner's compensation and the Partnership's investment
objectives.
(55) "Roll-Up Entity" means a partnership, trust, corporation or other
entity that would be created or survive after the successful completion
of a proposed roll-up transaction.
(56) "Sales Commissions" means all underwriting and brokerage discounts
and commissions incurred in the sale of Units in the Partnership payable
to registered broker-dealers, excluding reimbursement for bona fide
accountable due diligence expenses and wholesaling fees.
(57) "Sponsor" means any person directly or indirectly instrumental in
organizing, wholly or in part, a program or any person who will manage or
is entitled to manage or participate in the management or control of a
program. "Sponsor" includes the managing and controlling general
partner(s) and any other person who actually controls or selects the
person who controls 25% or more of the exploratory, development or
producing activities of the program, or any segment thereof, even if that
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(Page 98)
person has not entered into a contract at the time of formation of the
program. "Sponsor" does not include wholly independent third parties such
as attorneys, accountants, and underwriters whose only compensation is
for professional services rendered in connection with the offering of
units. Whenever the context so requires, the term "sponsor" shall be
deemed to include its affiliates.
(58) "Spud" means with respect to any well the commencement of the first
boring of the hole for the well for which a "spudding bit" may be used,
or such other meaning as is generally accepted in the oil and gas
industry.
(59) "Shut-In" means temporary cessation of operation of a producing
well; such as down time for repair and maintenance or due to the lack of
market for production or as a result of a decrease in the price of gas
the Managing General Partner has ceased producing all or a portion of the
gas from the well.
(60) "Subscription Agreement" means an execution and subscription
instrument in the form attached as Exhibit (I-B) to the Partnership
Agreement.
(61) "Subordinated Interest" means an equity interest in a program issued
to a person, without payment of full consideration, after the attainment
of certain specified performance by the program.
(62) "Tangible Costs"or "Capital Expenditures" means those costs
associated with the drilling and completion of oil and gas wells which
are generally accepted as capital expenditures pursuant to the provisions
of the Internal Revenue Code; and includes all costs of equipment, parts
and items of hardware used in drilling and completing a well, and those
items necessary to deliver acceptable oil and gas production to
purchasers to the extent installed downstream from the wellhead of any
well and which are required to be capitalized pursuant to applicable
provisions of the Code and regulations promulgated thereunder.
(63) "Tax Matters Partner" means the Managing General Partner.
(64) "Units" or "Units of Participation" means the Limited Partner
interests and the Investor General Partner interests purchased by
Participants in the Partnership under the provisions of .3.03 and its
subsections of the Partnership Agreement.
(65) "Working Interest" means an interest in an oil and gas leasehold
which is subject to some portion of the Cost of development, operation,
or maintenance.
SUMMARY OF PARTNERSHIP AGREEMENT
NOTE: THE RIGHTS AND OBLIGATIONS OF THE MANAGING GENERAL PARTNER AND THE
PARTICIPANTS ARE GOVERNED BY THE PARTNERSHIP AGREEMENT, A COPY OF WHICH
IS ATTACHED AS EXHIBIT (A) TO THIS PROSPECTUS. NO PROSPECTIVE PARTICIPANT
SHOULD SUBSCRIBE TO THE PARTNERSHIP WITHOUT FIRST THOROUGHLY REVIEWING
SUCH PARTNERSHIP AGREEMENT. THE FOLLOWING IS A SUMMARY OF CERTAIN
PROVISIONS IN THE PARTNERSHIP AGREEMENT NOT COVERED ELSEWHERE IN THIS
PROSPECTUS.
RESPONSIBILITY OF MANAGING GENERAL PARTNER
The Managing General Partner will have the exclusive management and
control of all aspects of the business of the Partnership. (See .4.02(b)
of the Partnership Agreement.) No Participant, including the Investor
General Partners, will have any voice in the day-to-day business
operations of the Partnership. (See .4.03(a)(2) of the Partnership
Agreement.) The Managing General Partner is authorized to delegate and
subcontract its duties under the Partnership Agreement to others,
including entities related to it. (See .4.02(c)(3)(a) of the Partnership
Agreement.)
LIABILITIES OF GENERAL PARTNERS, INCLUDING INVESTOR GENERAL PARTNERS
General Partners, including Investor General Partners, will not be
protected by limited liability for Partnership activities. The Investor
General Partners will be jointly and severally liable for all obligations
and liabilities to creditors and claimants, whether arising out of
contract or tort, in the conduct of Partnership operations. (See .4.05(b)
of the Partnership Agreement.)
If an Investor General Partner is called upon to pay an additional
Capital Contribution to the Partnership and fails to pay such required
Capital Contribution when due, the remaining Investor General Partners,
pro rata, must pay such defaulting Investor General Partner's share of
Partnership liabilities and obligations. In that event, the remaining
Investor General Partners will have a first and preferred
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(Page 99)
lien on the
defaulting Investor General Partner's interest in the Partnership to
secure payment of the amount in default plus interest at the legal rate;
will be entitled to receive 100% of the defaulting Investor General
Partner's cash distributions directly from the Partnership until the
amount in default is recovered in full plus interest at the legal rate;
and may commence legal action to collect the amount due plus interest at
the legal rate. (See .3.05(b) of the Partnership Agreement.)
The Managing General Partner maintains general liability insurance. (See
.4.02(c)(1)(vi) of the Partnership Agreement.) In addition, the Managing
General Partner and AEGH have agreed to indemnify each of the Investor
General Partners for obligations related to casualty and business losses
which exceed available insurance coverage and Partnership net assets.
(See .4.05(b) of the Partnership Agreement.)
LIABILITY OF LIMITED PARTNERS
The Partnership will be governed by the Pennsylvania Revised Uniform
Limited Partnership Act under which a Limited Partner will not be liable
to third parties for the obligations of the Partnership unless he is also
an Investor General Partner or, in addition to the exercise of his rights
and powers as a Limited Partner, such person takes part in the control of
the business of the Partnership. (See .4.05(c) of the Partnership
Agreement.)
Under Pennsylvania law, the Limited Partners should have no liability to
the Partnership in excess of their respective Capital Contributions to
the Partnership and their share of the Partnership's assets and
undistributed income, except generally to the extent of (i) a failure to
make a required Capital Contribution, and (ii) for a period of two years,
any Capital Contributions "wrongfully" returned to a Limited Partner in
violation of the Partnership Agreement or Pennsylvania law, including but
not limited to any distribution to the Limited Partners to the extent
that, after giving effect to such distribution, all liabilities of the
Partnership, other than liabilities to the Participants on account of
their contributions and to the Managing General Partner, exceed
Partnership assets. Participants will not be obligated to restore any
negative balances which exist in their Capital Accounts after liquidation
of their interests in the Partnership. (See .3.04(a) of the Partnership
Agreement.)
AMENDMENTS
Amendments to the Partnership Agreement may be proposed by the Managing
General Partner or by Participants whose Agreed Subscriptions equal 10%
or more of the Partnership Subscription and adopted upon the affirmative
vote of Participants whose Agreed Subscriptions equal a majority of the
Partnership Subscription. The Partnership Agreement may also be amended
by the Managing General Partner for certain purposes, but no amendment
materially and adversely affecting the Participants can be made without
the consent of the Participants who are so affected. In addition, the
Managing General Partner may not, without the affirmative vote of
Participants whose Agreed Subscriptions equal a majority of the
Partnership Subscription, change the investment and business purpose of
the Partnership or cause the Partnership to engage in activities outside
the stated business purposes of the Partnership through joint ventures
with other entities. (See ..1.04 and 8.05 of the Partnership Agreement.)
NOTICE
Notice to Participants runs from the date of mailing and is binding on
the Participants irrespective of whether or not the notice is in fact
received by them. The notice periods are frequently quite short and apply
to matters which may seriously affect the Participants' rights. Except
where the Partnership Agreement expressly requires affirmative approval,
any Participant who fails to timely respond to a request by the Managing
General Partner for approval of or concurrence in a proposed action will
conclusively be deemed to have approved such action. (See ..8.01(d) and
8.01(e) of the Partnership Agreement.)
VOTING RIGHTS
Participants owning 10% or more of the Partnership Subscription have the
right to require the Managing General Partner to call a meeting of the
Partners. (See .4.03(c) of the Partnership Agreement.) Participants will
be entitled to vote with respect to Partnership matters. Each Unit is
entitled to one vote on all matters; each fractional Unit is entitled to
that fraction of one vote equal to the fractional interest in the Unit.
Participants whose Agreed Subscriptions equal a majority of the
Partnership Subscription may, without the concurrence of the Managing
General Partner or its Affiliates, vote to: (1) amend the Partnership
Agreement; provided however, any such amendment may not increase the
duties or liabilities of any Participant or the Managing General Partner
or increase or decrease the profit or loss sharing or required Capital
Contribution of any Participant or the Managing General Partner without
the approval of such Participant or the Managing General Partner.
Furthermore, any such amendment may not affect the classification of
Partnership income and loss for federal income tax purposes without the
unanimous approval of all Participants; (2) dissolve the Partnership; (3)
remove the Managing General Partner and elect a new Managing General
Partner; (4) elect a new Managing General Partner if the Managing General
Partner elects to withdraw from the Partnership; (5) remove the Operator
and elect a new Operator; (6) approve or disapprove the sale of all or
substantially all of the assets of the Partnership; and (7) cancel any
contract for services with the Managing General Partner, or the Operator
or their Affiliates except services described in this Prospectus without
penalty upon 60 days notice. Any Units owned by the Managing General
Partner or its Affiliates will not be included with respect to the
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(Page 100)
issues
set forth in (3) and (5) above, and any other transaction between the
Managing General Partner or its Affiliates and the Partnership. In
determining the requisite percentage in interest of Units necessary to
approve any Partnership matter on which the Managing General Partner and
its Affiliates may not vote or consent, any Units owned by the Managing
General Partner and its Affiliates shall not be included. (See
.4.03(c)(1) of the Partnership Agreement.)
ACCESS TO RECORDS
Participants will have access to all records of the Partnership including
a list of the Participants, after adequate notice, at any reasonable
time, except that logs, well reports and other drilling and operating
data may be kept confidential for reasonable periods of time. A
Participant's ability to obtain the Participant List is subject to
additional requirements set forth in the Partnership Agreement. (See
..4.03(b)(5) and 4.03(b)(6) of the Partnership Agreement.)
WITHDRAWAL OF MANAGING GENERAL PARTNER
At any time commencing ten years after the Offering Termination Date and
the Partnership's primary drilling activities, the Managing General
Partner may voluntarily withdraw as Managing General Partner for whatever
reason upon giving 120 days' written notice of withdrawal to the
Participants. The Managing General Partner may not partially withdraw a
property interest held by the Partnership in the form of a Working
Interest in the Partnership Wells equal to or less than its respective
interest in the revenues of the Partnership unless such withdrawal is
necessary to satisfy the bona fide request of its creditors or approved
by Participants whose Agreed Subscriptions equal a majority of the
Partnership Subscription. (See ..4.04(a)(3) and 6.03 of the Partnership
Agreement.)
REMOVAL OF OPERATOR
The Operator may be replaced at any time upon 60 days advance written
notice to the outgoing Operator by the Managing General Partner acting on
behalf of the Partnership upon the affirmative vote of Participants whose
Agreed Subscriptions equal a majority of the Partnership Subscription.
(See .4.04(a)(4) of the Partnership Agreement and "Summary of Drilling
and Operating Agreement".)
TERM AND DISSOLUTION
The Partnership will continue in existence for 50 years unless earlier
terminated by certain Final Terminating Events, including an election by
the Managing General Partner or the affirmative vote of Participants
whose Agreed Subscriptions equal a majority of the Partnership
Subscription. The Partnership may terminate on the occurrence of various
events, other than a Final Terminating Event, but a successor limited
partnership will automatically be formed under those circumstances. (See
..7.01 and 7.02 of the Partnership Agreement.)
SUMMARY OF DRILLING AND OPERATING AGREEMENT
Atlas will serve as the Operator pursuant to the Drilling and Operating
Agreement, Exhibit (II) to the Partnership Agreement, for wells situated
in Pennsylvania, Atlas Energy will serve as the Operator for any wells
situated in Ohio and Atlas Energy Corporation will serve as the Operator
for any wells situated in West Virginia. The Operator may be replaced at
any time upon sixty days advance written notice to the outgoing Operator
by the Managing General Partner acting on behalf of the Partnership upon
the affirmative vote of Participants whose Agreed Subscriptions equal a
majority of the Partnership Subscription.
The Drilling and Operating Agreement provides a number of material
provisions, including, without limitation, those set forth below.
(1) The right of the Operator to resign after five years.
(2) The right of the Operator of a Partnership well beginning three years
after the well is placed into production to retain $200 per month to
cover future plugging and abandonment of such well, although Atlas
historically has never done this after only three years.
(3) The grant of a first lien and security interest in the wells and
related production to secure payment of amounts due to the Operator by
the Partnership.
(4) The prescribed insurance coverage to be maintained by the Operator.
(5) Limitations on the Operator's authority to incur extraordinary costs
with respect to producing wells in excess of $5,000 per well.
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(Page 101)
(6) Restrictions on the Partnership's ability to transfer its interest in
fewer than all wells, unless such transfer is of an equal undivided
interest in all wells.
(7) The limitation of the Operator's liability except for violations of
law, negligence or misconduct by it, its employees, agents or
subcontractors and breach of the Drilling and Operating Agreement.
(8) The excuse for nonperformance by the Operator due to force majeure.
The foregoing is only a summary of some of the many provisions of the
proposed form of Drilling and Operating Agreement, and is qualified in
its entirety by reference to such form attached to the Partnership
Agreement as Exhibit (II). No prospective Participant should subscribe to
the Partnership without first thoroughly reviewing the Drilling and
Operating Agreement.
REPORTS TO INVESTORS
The Partnership will provide the reports set forth below to investors and
to the state securities commissions which request the reports.
(1) Commencing with the 1996 calendar year, the Partnership will provide
each Participant an annual report within 120 days after the close of the
calendar year, and commencing with the 1997 calendar year, a report
within 75 days after the end of the first six months of its calendar
year, containing, except as otherwise indicated, at least the following
information:
(a) Audited financial statements of the Partnership, including a balance
sheet and statements of income, cash flow and Partners' equity prepared
in accordance with generally accepted accounting principles. Semiannual
reports need not be audited. (See .4.03(b)(1)(a) of the Partnership
Agreement.)
(b) A summary of the total fees and compensation paid by the Partnership
to the Managing General Partner, the Operator and their Affiliates. In
addition, Participants shall be provided the percentage that the annual
unaccountable, fixed payment reimbursements for Administrative Costs
bears to annual Partnership revenues. (See .4.03(b)(1)(b) of the
Partnership Agreement.)
(c) A description of each Prospect owned by the Partnership, including
the Cost, location, number of acres and the Working Interest except
succeeding reports need contain only material changes, if any. (See
.4.03(b)(1)(c) of the Partnership Agreement.)
(d) A list of the wells drilled or abandoned by the Partnership
(indicating whether each of such wells has or has not been completed),
and a statement of the Cost of each well completed or abandoned. (See
.4.03(b)(1)(d) of the Partnership Agreement.)
(e) A description of all farmins and joint ventures. (See .4.03(b)(1)(e)
of the Partnership Agreement.)
(f) A schedule reflecting the total Partnership costs, the costs paid by
the Managing General Partner and the costs paid by the Participants, the
total Partnership revenues, the revenues received or credited to the
Managing General Partner and the revenues received or credited to the
Participants. (See .4.03(b)(1)(f) of the Partnership Agreement.)
(2) The Partnership will, within 75 days after the end of each fiscal
year, transmit to each Partner such information as may be needed to
enable such Partner to file his federal and state income tax returns.
(See .4.03(b)(2) of the Partnership Agreement.)
(3) Beginning January 1, 1998, and every year thereafter, Atlas shall
provide a computation of the total oil and gas Proved Reserves of the
Partnership and the dollar value thereof. The reserve computations shall
be based upon engineering reports prepared by the Partnership and
reviewed by an Independent Expert. (See .4.03(b)(3) of the Partnership
Agreement.)
(4) The cost of all such reports described above will be paid by the
Partnership as Direct Costs. (See .4.03(b)(4) of the Partnership
Agreement.)
REPURCHASE OBLIGATION
Beginning in 2000, Participants may present their interests for purchase
by the Managing General Partner but are not obligated to do so. THE
MANAGING GENERAL PARTNER WILL NOT PURCHASE MORE THAN 10% OF THE UNITS IN ANY
CALENDAR YEAR. The Managing General Partner anticipates purchasing such
interests primarily through corporate cash flow and secondarily through
corporate borrowings
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(Page 102)
secured by the interests purchased. Therefore, the
Managing General Partner's ability to purchase interests will depend upon
its corporate cash flow and ability to arrange financing for such purpose
on terms which are reasonable as determined by the Managing General
Partner. In the event the Managing General Partner does not have the
necessary cash flow or is unable to borrow funds for such purpose on
terms the Managing General Partner deems reasonable, the Managing General
Partner may suspend its repurchase obligation by so notifying the
Participants. Following such notice, if such notice is given, the
Managing General Partner will not be contractually obligated to purchase
any interests presented for repurchase. In addition, the Managing General
Partner's repurchase of Units may be conditioned, in the Managing General
Partner's sole discretion, on the receipt of an opinion of counsel that
such transfers will not cause the Partnership to be treated as a
"publicly traded partnership"under the Code.
The Managing General Partner will make a written offer to repurchase a
Participant's interest in cash in every year beginning in 2000 within 120
days of the Partnership reserve report reviewed by an Independent Expert
(the "Reserve Report") discussed below. A Participant may accept the
repurchase offer by a written acceptance; however, the Participant is not
obligated to accept such repurchase offer. No presentment will be
considered effective until after the payment has been made to the
Participant in cash. In addition, in accordance with Treas. Reg.
.1.7704-1(f), no repurchase shall occur until at least 60 calendar days
after the Participant notifies the Partnership in writing of the
Participant's intention to exercise the repurchase right.
The Managing General Partner will not purchase less than one Unit of a
Participant's interest unless such lesser amount represents the entire
amount of the Participant's interest. If less than all interests
presented at any time are to be purchased, the Participants whose
interests are to be purchased will be selected by lot and in any calendar
year the Managing General Partner will not purchase more than 10% of the
Units. The Managing General Partner may waive these limitations in its
sole discretion, other than the limitations on its purchasing more than
10% of the Units in any calendar year.
The Managing General Partner's obligation to purchase interests presented
for purchase may be discharged for the benefit of the Managing General
Partner by a third party or an Affiliate. The interests of the selling
Participant will be transferred to the party who pays for it. A selling
Participant will be required to deliver an executed assignment of his
interests, together with such other documentation as the Managing General
Partner may reasonably request.
The amount attributable to Partnership reserves will be determined based
upon the last Reserve Report. Beginning in 1998 and every year
thereafter, the reserve computations will be based on an engineering
report prepared by the Partnership and reviewed by an Independent Expert.
The Participants will be provided a computation of the total oil and gas
Proved Reserves of the Partnership and the present worth thereof as
determined by the Partnership and reviewed by an Independent Expert. In
making this estimate of the present worth of future net revenues, the
Partnership and the Independent Expert will employ a discount rate equal
to 10%, use a constant price for the oil and base the price of gas upon
the existing gas contract(s) at the time of the repurchase. The Reserve
Report must be within 120 days of the commencement of the repurchase
offer.
The purchase price to be paid to the Participant will be based upon the
Participant's share of the net assets and liabilities of the Partnership
and allocated pro rata to each Participant based upon his Agreed
Subscription. The purchase price will include the sum of the following
items: (i) an amount based on 70% of the present worth of future net
revenues from the Partnership's Proved Reserves, determined as described
above, (ii) Partnership cash on hand, (iii) prepaid expenses and accounts
receivable of the Partnership, less a reasonable amount for doubtful
accounts, and (iv) the estimated market value of all assets of the
Partnership not separately specified above, determined in accordance with
standard industry valuation procedures. There will be deducted from the
foregoing sum the following items: (i) an amount equal to all Partnership
debts, obligations and other liabilities, including accrued expenses, and
(ii) any distributions made to the Participants between the date of the
request and the actual payment; provided, however, that if any cash
distributed was derived from the sale, subsequent to the request, of oil,
gas or other mineral production or of a producing property owned by the
Partnership, for purposes of determining the reduction of the purchase
price, such distributions shall be discounted at the same rate used to
take into account the risk factors employed to determine the present
worth of the Partnership's Proved Reserves (see below).
The purchase price may be further adjusted by the Managing General
Partner for estimated changes therein from the date of such report to the
date of payment of the purchase price to the Participants: (i) by reason
of production or sales of, or additions to, reserves and lease and well
equipment, sale or abandonment of leases, and similar matters occurring
prior to payment of the purchase price to the selling Participant, and
(ii) by reason of any of the following occurring prior to payment of the
purchase price to the selling Participant: changes in well performance,
increases or decreases in the market price of oil, gas or other minerals,
revision of regulations relating to the importing of hydrocarbons,
changes in income, ad valorem and other tax laws (e.g., material
variations in the provisions for depletion) and similar matters.
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(Page 103)
Because of the difficulty in accurately estimating oil and gas reserves,
the purchase price may not reflect the full value of the Partnership
property to which it relates. Such estimates are merely appraisals of
value and may not correspond to realizable value. There can be no
assurance that the revenues received by the Participant prior to the
repurchase offer and the purchase price paid for the interests will be
equal to the original price paid for such interests. The Participants
are not obligated to tender their Units for repurchase and a Participant
should recognize that he may realize a greater return if he retains
rather than sells the Units as provided herein. The Managing General
Partner has and will incur similar presentment obligations in connection
with other oil and gas programs which it or its Affiliates may sponsor.
There can be no assurance that the Managing General Partner will have
any funds available to repurchase any interests presented. Also, the
sale of interests pursuant to the Managing General Partner's repurchase
obligation will be a taxable event for the Participants, and gain or
loss generally will be recognized for federal income tax purposes. (See
"Tax Aspects - Disposition of Partnership Interests".)
TRANSFERABILITY OF UNITS
IN GENERAL
Transferability of the Units is restricted. The restrictions on
transferability are as follows: (i) no sale, exchange, transfer or
assignment may be made if it would, in the opinion of counsel for the
Partnership, result in the termination of the Partnership within the
meaning of Section 708 of the Code, or would result in materially
adverse tax consequences to the Partnership or the Partners; and (ii) no
sale, assignment, pledge, hypothecation or transfer of a Partnership
interest other than by operation of law may be made in the absence of an
effective registration of the Units under the Securities Act of 1933, as
amended, and qualification under applicable state securities law or an
opinion of counsel acceptable to the Managing General Partner that such
registration and qualification are not required.
Subject to the foregoing and to the consent of the Managing General
Partner the Partnership will recognize the assignment of one or more
whole Units unless the Participant owns less than a whole Unit, in which
case his entire fractional interest must be assigned. The Managing
General Partner may delay the recognition of the assignment until the
last day of the calendar month in which it is made.
Such assignment must be properly executed by the assignor and assignee
on a form satisfactory to the Managing General Partner and its terms
must not contravene those of the Partnership Agreement. An assignee of
Units only has the right to receive all or part of the share of profit,
loss, income, gain, cash distributions or return of capital to which the
assignor of the Units would otherwise be entitled. The Costs associated
with a transfer or assignment are to be borne by the assignor Partner.
An assignee may become a substituted Limited Partner or Investor General
Partner only upon meeting certain further conditions, which include: (i)
the assignor gives the assignee such right; (ii) the Managing General
Partner consents to such substitution, which consent shall be in the
Managing General Partner's absolute discretion; (iii) the assignee pays
to the Partnership all costs and expenses incurred in connection with
such substitution; and (iv) the assignee executes and delivers such
instruments, in form and substance satisfactory to the Managing General
Partner, necessary or desirable to effect such substitution and to
confirm the agreement of the assignee to be bound by all terms and
provisions of the Partnership Agreement. A substitute Limited Partner
or Investor General Partner is entitled to all of the rights
attributable to full ownership of the assigned Units, including the
right to vote.
The Partnership will amend its records at least once each calendar year
to effect the substitution of substituted Participants. Any transfer
permitted where the assignee does not become a substituted Limited
Partner or Investor General Partner will be effective as of midnight of
the last day of the calendar month in which it is made, or, at the
Managing General Partner's election, 7:00 A.M. of the following day.
CONVERSION OF UNITS BY INVESTOR GENERAL PARTNERS
The Investor General Partners will have their Units automatically
converted into Limited Partner interests and thereafter become Limited
Partners of the Partnership after substantially all of the Partnership
Wells have been drilled and completed. (See "Summary of the Offering -
Actions to be Taken by Managing General Partner to Reduce Risks of
Additional Payments by Investor General Partners".)
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(Page 104)
PLAN OF DISTRIBUTION
COMMISSIONS
The Units will be offered by registered broker-dealers which are members
of the NASD on a "best efforts" basis. (Best efforts means that the
broker-dealer will not guarantee the sale of a certain amount of Units.)
The broker-dealers will receive a 7.5% Sales Commission and will be
entitled to reimbursement of their bona fide accountable due diligence
expenses of .5% on each Agreed Subscription. In addition, Atlas has
engaged three wholesalers who will be compensated in an amount not to
exceed 2.5% of Agreed Subscriptions obtained through such wholesalers'
efforts. The offering will be made in compliance with Rule 2810 of the
NASD Conduct Rules and all compensation to broker-dealers and
wholesalers, regardless of the source, will be limited to 10% of the
gross proceeds of the offering, plus the reimbursement for bona fide
accountable due diligence expenses of .5% on each Agreed Subscription.
All Sales Commissions, due diligence reimbursements and wholesaling fees
will be aggregated and paid by the Managing General Partner as a part of
Organization and Offering Costs and will not be deducted from
subscription proceeds. Notwithstanding, the broker-dealers and officers
and directors of the Managing General Partner may purchase Units in the
offering on the same terms and conditions as other investors net of
Sales Commissions, due diligence reimbursements and wholesaling fees.
Any Units purchased by the Managing General Partner and its Affiliates
will be held for investment and not for resale.
Subject to the receipt of the minimum Partnership Subscription and the
checks having cleared the banking system, Sales Commissions, accountable
due diligence reimbursements and wholesaling fees will be paid to the
broker-dealers approximately every two weeks until the Offering
Termination Date. (See "Terms of the Offering - Partnership Closing and
Escrow".)
INDEMNIFICATION
The broker-dealers and wholesalers may be deemed underwriters, as that
term is defined in the Securities Act of 1933, to the extent of their
participation in the distribution and the compensation described above
may be deemed underwriting compensation. It is anticipated that the
Managing General Partner and each broker-dealer will agree to indemnify
each other against certain liabilities, including liabilities under the
Securities Act of 1933.
SALES MATERIAL
The Managing General Partner will utilize sales material in addition to
the Prospectus in connection with the offering of the Units. The sales
material will consist of a brochure entitled "Atlas-Energy for the
Nineties-Public #5 Ltd." and Atlas Energy Group, Inc.'s corporate
profile. (See "Management".) The Managing General Partner has not
authorized the use of other sales material and the offering of Units is
made only by means of this Prospectus. Sales material must be preceded
or accompanied by this Prospectus. Although the information contained in
the sales material does not conflict with any of the information set
forth herein, such material does not purport to be complete. Sales
material should not be considered a part of or incorporated into this
Prospectus or the Registration Statement of which this Prospectus is a
part.
ATLAS ALSO HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY REPRESENTATION OR
STATEMENT TO BROKER-DEALERS, CONSULTANTS, ANY PROSPECTIVE SUBSCRIBER OR ANY
OTHER PERSON WHICH IS NOT CONSISTENT WITH THIS PROSPECTUS. ACCORDINGLY,
PROSPECTIVE SUBSCRIBERS SHOULD NOT BASE ANY INVESTMENT DECISION ON ANY SUCH
REPRESENTATION BY ANY PERSON.
LEGAL OPINIONS
Kunzman & Bollinger, Inc., has issued its opinion to the Managing
General Partner regarding the validity and due issuance of the Units
offered hereby and its opinion on material tax consequences to
individual investors in the Partnership, including an opinion that,
under current federal income tax law, it is more likely than not that
the Partnership will be classified as a partnership for federal income
tax purposes and not as an association taxable as a corporation.
Notwithstanding, the factual statements herein are those of the Managing
General Partner, and counsel has not given any opinions with respect to
any of the tax or other legal aspects of this offering except as
expressly set forth above.
EXPERTS
The financial statements included in this Prospectus for the
Partnership, AEGH and subsidiaries as of July 31, 1995 and 1994, and for
Atlas as of July 31, 1995 and 1994, have been audited by McLaughlin &
Courson, as of the date indicated in their reports thereon
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(Page 105)
which appear
elsewhere herein. The financial statements have been included in
reliance on their reports given on their authority as experts in
auditing and accounting.
The geological report of United Energy Development Consultants, Inc.,
which is not affiliated with Atlas and its Affiliates, appearing in
"Proposed Activities - Information Regarding Currently Proposed
Prospects" has been included herein in reliance upon the authority of
United Energy Development Consultants, Inc. as an expert with respect to
the matters covered by such report and in the giving of such report.
LITIGATION
The Managing General Partner knows of no litigation pending or
threatened to which the Managing General Partner or the Partnership is
subject or may be a party, which it believes would have a material
adverse effect upon the Partnership or its business, and no such
proceedings are known to be contemplated by governmental authorities or
other parties. Notwithstanding, on November 22, 1995, Winston
Management Services Corporation ("Winston") and Professional Planning &
Technologies, Inc. ("PPT") filed a complaint in the United States
District Court for the District of Rhode Island against Atlas Resources,
Inc., Atlas Energy Group, Inc., and others. The gist of the complaint
is for breach of contract relating to the interpretation of agreements
allegedly entered into between Winston and PPT and Atlas and Atlas
Energy in 1987, 1988, 1989 and 1990. The complaint seeks compensatory
damages in an unspecified amount in excess of $50,000 plus an
unspecified amount of punitive damages together with interest and costs
of the lawsuit. Atlas believes the lawsuit is without merit and intends
to fight it vigorously.
ADDITIONAL INFORMATION
A Registration Statement (together with amendments thereto, hereinafter
referred to as the "Registration Statement") on Form SB-2 with respect
to the Units offered hereby has been filed on behalf of the Partnership
with the Securities and Exchange Commission, Washington, D.C. 20549,
under the Securities Act of 1933, as amended. This Prospectus does not
contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Reference is made
to such Registration Statement, including exhibits, for further
information. Statements contained in this Prospectus as to the contents
of any document are not necessarily complete, and, in each instance,
reference is hereby made to the copy of such document filed as an
exhibit to the Registration Statement for full statements of the
provisions thereof, and each such statement in this Prospectus is
qualified in all respects by this reference. Copies of any materials
filed as a part of the Registration Statement, including the Tax Opinion
as set forth on Exhibit 8, may be obtained from the Securities and
Exchange Commission by payment of the requisite fees therefor and may be
examined in the offices of the Commission without charge. In addition, a
copy of the Tax Opinion may be obtained by prospective investors or
their advisors from the Managing General Partner at no cost. The
delivery of this Prospectus at any time does not imply that the
information contained herein is correct as of any time subsequent to the
date hereof.
Atlas is fully aware of its obligations under Rule 13e-4 of the
Securities Exchange Act of 1934. It is fully the intention of Atlas to
comply with Rule 13e-4 and to cause the Partnership to comply with Rule
13e-4.
FINANCIAL INFORMATION CONCERNING THE MANAGING GENERAL
PARTNER, AEGH AND THE PARTNERSHIP
Financial information concerning the Partnership, Atlas and AEGH is
reflected in the following financial statements. The financial
statements of AEGH are included in this Prospectus because both Atlas
and AEGH have agreed to indemnify each Investor General Partner from any
liability incurred in connection with the Partnership which is in excess
of such Investor General Partner's share of Partnership assets. Since
July, 1995, Atlas is the wholly owned subsidiary of AIC, Inc. which is
the wholly owned subsidiary of AEGH. (See "Management".)
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SECURITIES OF, NOR IS
THE INVESTOR ACQUIRING AN INTEREST IN ATLAS, ATLAS ENERGY, AEGH, THEIR
AFFILIATES, OR ANY OTHER ENTITY OTHER THAN THE PARTNERSHIP.
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(Page 106)
AUDITED FINANCIAL STATEMENT
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
A PENNSYLVANIA LIMITED PARTNERSHIP
JULY 26, 1996
INDEPENDENT AUDITORS' REPORT
To the Partners
Atlas-Energy for the Nineties-Public #5 Ltd.
A Pennsylvania Limited Partnership
We have audited the accompanying statement of assets and partner's
capital of Atlas-Energy for the Nineties-Public #5 Ltd., A Pennsylvania
Limited Partnership as of July 26, 1996. This financial statement is
the responsibility of the Partnership's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statement. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents
fairly, in all material respects, the financial position of Atlas-Energy
for the Nineties-Public #5 Ltd., A Pennsylvania Limited Partnership as
of July 26, 1996 in conformity with generally accepted accounting
principles.
/s/ McLaughlin & Courson
Pittsburgh, Pennsylvania
August 6, 1996
BALANCE SHEET
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
A PENNSYLVANIA LIMITED PARTNERSHIP
JULY 26, 1996
ASSETS
Receivable from managing general partner $100
PARTNER'S CAPITAL
Partner's capital $100
See notes to financial statement
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NOTES TO FINANCIAL STATEMENT
ORGANIZATION AND DESCRIPTION OF BUSINESS
Atlas-Energy for the Nineties-Public #5 Ltd. (the "Partnership"), is a
Pennsylvania limited partnership which will include Atlas Resources,
Inc. ("Atlas"), of Pittsburgh, Pennsylvania, as Managing General Partner
and Operator, and subscribers to Units as either Limited Partners or
Investor General Partners. The Partnership will be funded to drill gas
wells which are proposed to be located primarily in Mercer County,
Pennsylvania.
Subscriptions at a cost of $10,000 per unit will be sold through
wholesalers and broker-dealers which will be compensated in an amount
equal to 10% of the subscription cost plus a .5% accountable due
diligence fee. Commencement of Partnership operations is subject to the
receipt of minimum Partnership subscriptions of $1,000,000 (to a maximum
of $8,000,000) by December 31, 1996.
PROPOSED ACCOUNTING POLICIES
Financial statements are to be prepared in accordance with generally
accepted accounting principles.
The Partnership proposes to use the successful efforts method of
accounting for oil and gas producing activities. Costs to acquire
mineral interests in oil and gas properties and to drill and equip wells
are capitalized.
Capitalized costs are to be expensed at unit cost rates calculated
annually based on the estimated volume of recoverable gas and the
related costs.
FEDERAL INCOME TAXES
The Partnership is not treated as a taxable entity for federal income
tax purposes. Any item of income, gain, loss, deduction or credit flows
through to the partners as though each partner had incurred such item
directly. As a result, each partner must take into account his pro rata
share of all items of partnership income and deductions in computing his
federal income tax liability. Many provisions of the federal income tax
laws are complex and subject to various interpretations.
PARTICIPATION IN REVENUES AND COSTS
Atlas and the other partners will generally participate in revenues and
costs in the following manner:
OTHER
ATLAS PARTNERS
Organization and offering costs 100% 0%
Lease costs 100% 0%
Revenues 25% 75%
Direct operating costs 25% 75%
Intangible drilling costs 0% 100%
Tangible costs 14% 86%
Tax deductions:
Intangible drilling and
development costs 0% 100%
Depreciation 14% 86%
Depletion allowances 25% 75%
TRANSACTIONS WITH ATLAS AND ITS AFFILIATES
The Partnership intends to enter into the following significant
transactions with Atlas and its affiliates.
Drilling contracts to drill and complete Partnership wells at an
anticipated cost of $37.39 per foot on completed wells.
Administrative costs at $75 per well per month
Well supervision fees initially of $275 per well per month plus the
cost of third party materials and services
Gas transportation and marketing charges at competitive rates which
currently is 29 cents per MCF
PURCHASE COMMITMENT
Subject to certain conditions, investor partners may present their
interests beginning in 2000 for purchase by Atlas. Atlas is not
obligated to purchase more than 10% of the units in any calendar year.
SUBORDINATION OF MANAGING GENERAL PARTNER'S REVENUE SHARE
Atlas will subordinate a part of its partnership revenues in an amount
up to 10% of production revenues of the Partnership net of related
operating costs, administrative costs and well supervision fees to the
receipt by participants of cash distributions from the Partnership equal
to at least 10% of their agreed subscriptions, determined on a
cumulative basis, in each of the first five years of Partnership
operations, commencing with the first distribution of revenues to the
Participants.
INDEMNIFICATION
In order to limit the potential liability of the investor general
partners, Atlas and AEG Holdings, Inc. (parent company of Atlas) have
agreed to indemnify each investor general partner from any liability
incurred which exceeds such partner's share of Partnership assets.
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INDEPENDENT AUDITORS' REPORT
Board of Directors
Atlas Resources, Inc.
Coraopolis, Pennsylvania
We have audited the accompanying balance sheets of Atlas Resources,
Inc. as of July 31, 1995 and
1994. These financial statements are the responsibility of the
Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the balance
sheets are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheets.
An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the
overall balance sheet presentation. We believe that our audits
of the balance sheets provide a reasonable
basis for our opinion.
In our opinion, the balance sheets referred to above present
fairly, in all material respects, the financial
position of Atlas Resources, Inc. as of July 31, 1995 and 1994,
in conformity with generally accepted
accounting principles.
/s/ McLaughlin & Courson
Pittsburgh, Pennsylvania
October 24, 1995
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BALANCE SHEETS
ATLAS RESOURCES, INC.
JULY 31, 1995 AND 1994
ASSETS
1995 1994
CURRENT ASSETS
Cash $ 1,717,898 $ 2,488,007
Trade accounts and notes receivable 1,639,274 2,061,921
Costs in excess of billings of
$-0- in 1995 and $16,255
in 1994 on uncompleted contracts 291,379 334,441
Inventories 495,063 568,555
Prepaid expenses and other current assets 145,602 34,233
TOTAL CURRENT ASSETS 4,289,216 5,487,157
OIL AND GAS PROPERTIES
Oil and gas wells and leases 23,195,675 18,526,049
Less accumulated depreciation, depletion
and amortization 6,454,328 5,281,366
16,741,347 13,244,683
PROPERTY, PLANT AND EQUIPMENT
Land 161,000 161,000
Building 1,636,990 1,513,071
Equipment 778,237 717,797
Gathering lines 994,953 924,564
3,571,180 3,316,432
Less accumulated depreciation 1,838,518 1,583,399
1,732,662 1,733,033
$22,763,225 $20,464,873
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,427,385 $ 2,830,274
Working interests and royalties payable 1,741,474 1,174,227
Billings in excess of costs of $1,486,813 in 1995
and $2,445,622 in 1994 on uncompleted contract 5, 455,355 4,997,543
Current maturities on long-term debt 60,300 475,000
TOTAL CURRENT LIABILITIES 9,684,514 9,477,044
LONG-TERM DEBT, net of current maturities -0- 38,244
OTHER LONG-TERM LIABILITIES 40,880 40,880
ADVANCES FROM PARENT COMPANY 5,847,024 6,405,924
STOCKHOLDERS' EQUITY
Capital stock - stated value $10 per share: Authorized - 500 shares;
issued and outstanding - 200 shares 2,000 2,000
Retained earnings 7,188,807 4,500,781
7,190,807 4,502,781
$22,763,225 $20,464,873
See notes to financial statements
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NOTES TO FINANCIAL STATEMENTS
ATLAS RESOURCES, INC.
1. DESCRIPTION OF BUSINESS
Atlas Resources, Inc. (the Company) is engaged in the exploration for,
development, production, and marketing of natural gas and oil primarily in the
Appalachian Basin Area. In addition, the Company performs contract
drilling and well operation services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Affiliated companies
Atlas Resources, Inc. is a wholly owned subsidiary of AIC, Inc. which is a
wholly owned subsidiary of AEG Holdings, Inc. (AEGH) formerly Atlas Energy
Group, Inc. (parent company) and is affiliated with other companies
controlled by AEGH. The Company's operations are dependent upon the
resources and services provided by the parent company.
Investment in oil and gas partnerships
The Company's proportionate share of the assets and liabilities of
affiliated oil and gas partnerships are included in the balance sheets.
Inventories
Inventories, consisting of oil and gas field materials and supplies, are
stated at the lower of first-in, first-out cost or market.
Method of accounting for oil and gas properties
The Company uses the successful efforts method of accounting for
oil and gas producing activities. Property acquisition
costs are capitalized when incurred.
Geological and geophysical costs and delay rentals are expensed
when incurred. Development costs, including equipment and intangible
drilling costs related to both producing wells and developmental dry holes,
are capitalized. All capitalized costs are generally depreciated and
depleted on the unit-of-production method using estimates of proven reserves.
Oil and gas properties are periodically assessed and when unamortized costs
exceed expected future net cash flows, a loss is recognized by recording a
charge to income.
On the sale or retirement of oil and gas properties, the cost and related
accumulated depreciation, depletion and amortization are eliminated from the
property accounts, and the resultant gain or loss is recognized.
For tax purposes, intangible drilling costs are being written off as
incurred. The greater of cost or percentage depletion as defined by the
Internal Revenue Code, is used as a deduction from income.
Property, plant and equipment
Land, building, equipment and gathering lines are recorded at cost. Major
additions and betterments are charged to the property accounts while
replacements, maintenance and repairs which do not improve or extend the life
of the respective assets are expensed currently. As property is retired or
otherwise disposed of, the cost of the property is removed from the asset
account, accumulated depreciation is charged with an amount equivalent to the
depreciation provided, and the difference, if any, is charged or credited to
income. Depreciation is computed over the estimated useful life of the
assets generally by the straight-line method.
Revenue recognition
The Company sells interests in oil and gas wells and retains therefrom a
working interest and/or an overriding royalty in the producing wells. The
income from the working interests and royalties is recorded when the natural
gas and oil are produced.
The Company also contracts to drill oil and gas wells. The income from
these contracts is recorded upon substantial completion of the well.
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs, and depreciation costs. General and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
Costs in excess of amounts billed are classified as current assets under
costs in excess of billings on uncompleted contracts. Billings in excess of
costs are classified under current liabilities as billings in excess of costs
on uncompleted contracts. Contract retentions are included in accounts
receivable.
3. INCOME TAXES
Atlas Resources, Inc. files a consolidated federal income tax return with AEG
Holdings, Inc. (parent company). Atlas Resources, Inc.'s allocations for
federal income taxes are included in advances from parent company.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes" effective August 1,
1993. There was no cumulative effect of this change in accounting for income
taxes as of August 1, 1993 as the method previously used by the
Company does not
differ significantly from the requirements of SFAS No. 109.
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4. LONG-TERM DEBT
Long-term debt on Atlas Resources, Inc.'s books at July 31, 1995 and 1994
consists of the following:
1995 1994
Other $ 60,300 $ 513,244
Less current maturities (60,300) 475,000
$ -0- $ 28,244
5. REVOLVING CREDIT AND TERM LOAN AGREEMENT AND CONTINGENT LIABILITY
On July 31, 1995 Atlas Resources, Inc. together with AEGH (parent company),
renegotiated its bank revolving credit and term loan agreement. The new credit
agreement enables the Company or AEGH to borrow $5,000,000 on a revolving
credit basis until August 31, 1996.
A commitment fee at a rate of three-eights of one
percent (3/8%) is charged on the unused portion. During the revolving credit
period, loans bear interest at or below prime rate plus one-quarter percent
(1/4%).
The interest rate at July 31, 1995 was 7.875%. The company may convert
any outstanding borrowings into a 5-year term loan, repayable in equal monthly
installments,
plus interest at or below prime rate plus one-half percent (1/2%).
At July 31, 1995 AEGH (parent company) had borrowed $4,750,000 under the
revolving credit line.
The revolving credit line and term loan agreements are secured by certain
assets of the Company.
The Company has pledged its building and equipment having a net book value of
$1,317,165 at July 31, 1995 to secure a loan of $1,300,000 obtained by a
subsidiary of AEGH.
6. OPTION ON BUILDING
AEGH (parent company) has granted the majority shareholders of AEGH an option
to acquire the land and building utilized as the Company's headquarters for a
period of six months commencing on August 15, 2003 and ending February 15, 2004
for $500,000.
7. COMMITMENTS
Atlas Resources, Inc., as general partner in several oil and gas limited
partnerships, and AEGH have agreed to indemnify each investor general partner
from any liability incurred which exceeds such partner's share of partnership
assets. Management believes that any such liabilities that may occur will be
covered by insurance and, if not covered by insurance, will not result in a
significant loss to AEGH and its subsidiaries.
Subject to certain conditions, investor general partners in certain oil and
gas limited partnerships may present their interests beginning in 1995 for
purchase by Atlas Resources, Inc., as managing general partner. Atlas
Resources, Inc. is not obligated to purchase more than 5% of the units in any
calendar year.
Atlas Resources, Inc., as managing general partner in a certain oil and gas
limited partnership, has also agreed to subordinate its share of production
revenues to the receipt by investor partners of cash distributions equal to at
least 10% of their subscriptions in each of the first five years of partnership
operations.
8. GAIN ON SALE OF ASSETS
Income for the year ended July 31, 1994 included a gain of $1,135,834 on the
sale of the Company's interest in certain oil and gas properties for $1,260,000.
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9. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED)
The supplementary information summarized below presents the
results of natural
gas and oil activities in accordance with SFAS No. 69, "Disclosures About Oil
and Gas Producing Activities."
(1) Production Costs
The following table presents the costs incurred relating to natural gas and
oil production activities:
1995 1994
Capitalized costs at July 31:
Capitalized costs $23,195,675 $18,526,049
Accumulated depreciation and depletion 6,454,328 5,281,366
Net capitalized costs $16,741,347 $13,244,683
Costs incurred during the year ended July 31:
Property acquisition costs -
proved undeveloped properties $ -0- $ 1,695
Development costs $ 4,669,626 $5,024,722
Property acquisition costs include costs to purchase, lease or otherwise
acquire a property. Development costs include costs to gain access to and
prepare development well locations for drilling, to drill and equip development
wells and to provide facilities to extract, treat, gather and store oil and gas.
(2) Results of Operations for Producing Activities
The following table presents the results of operations related to natural gas
and oil production for the years ended July 31, 1995 and 1994:
1995 1994
Revenues $ 2,991,813 $3,056,364
Production costs (185,356) (159,148)
Depreciation and depletion (1,072,962) (1,510,966)
Income tax expense (364,315) (380,386)
Results of operations from producing activities $ 1,369,180 $1,005,864
Depreciation, depletion and amortization of natural gas and oil properties
are provided on the unit-of-production method.
(3) Reserve Information
The information presented below represents estimates of proved natural gas and
oil reserves. Proved developed reserves represent only those reserves expected
to be recovered from existing wells and support equipment. Proved undeveloped
reserves represent proved reserves expected to be recovered
from new wells after
substantial development costs are incurred.
All reserves are located in Eastern
Ohio and Western Pennsylvania.
1995 1994
NATURAL GAS OIL NATURAL GAS OIL
(Mcf) (Barrels) (Mcf) (Barrels)
Proved developed and undeveloped reserves:
Beginning of period 50,226,287 7,386 37,252,313 4,670
Revision of previous estimates (684,821) 6,816 2,687,590 3,409
Extensions, discoveries
and other additions 21,535,654 -0- 24,612,144 -0-
Production (1,499,244) (606) (1,431,572) (693)
Sales of minerals in place (12,366,526) -0- (12,894,188) -0-
End of period 57,211,350 13,596 50,226,287 7,386
Proved developed reserves:
Beginning of period 14,603,407 7,386 11,605,013 4,670
End of period 17,378,470 13,596 14,603,407 7,386
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9. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)
(4) Standard Measure of Discounted Future Cash Flows
Management cautions that the standard measure of discounted future cash flows
should not be viewed as an indication of the fair market value of natural gas
and oil producing properties, nor of the future cash flows expected to be
generated therefrom. The information presented does not give recognition to
future changes in estimated reserves, selling prices or costs and has been
discounted at an arbitrary rate of 10%. Estimated future net cash flows from
natural gas and oil reserves based on selling prices and costs at July 31, 1995
and July 31, 1994 price levels are as follows:
1995 1994
Future cash inflows $128,363,532 $119,960,569
Future production costs (27,812,401) (25,779,988)
Future development costs (41,574,000) (36,300,000)
Future income tax expense (11,406,096) (12,409,625)
Future net cash flow 47,571,035 45,470,956
10% annual discount for estimated
timing of cash flows (35,761,224) (33,597,945)
Standardized measure of discounted
future net cash flows $ 11,809,811 $ 11,873,011
Summary of changes in the standardized measure of discounted future net cash
flows:
1995 1994
Sales of gas and oil produced - net $(1,369,180) $ (1,005,864)
Net changes in prices, production and
development costs (3,969,631) 243,724
Extensions, discoveries, and
improved recovery, less
related costs 58,615 1,125,162
Development costs incurred 5,081,411 1,905,750
Revisions of previous quantity estimates (330,491) (359,095)
Sales of minerals in place (1,216,889) (2,948,236)
Accretion of discount 1,006,878 1,674,640
Net change in income taxes 676,087 1,815,596
Net increase (decrease) (63,200) 2,451,677
Beginning of period 11,873,011 9,421,334
End of period $11,809,811 $ 11,873,011
=========================================================================
ATLAS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS (unaudited)
As of May 31, 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $332,109
Trade accounts receivable 2,232,480
Accounts payable to affiliates 415,807
Other receivables 634,303
Costs in excess of billings on uncompleted contracts 0
Inventories 496,391
Other current assets 20,701
TOTAL CURRENT ASSETS 4,131,791
OIL AND GAS PROPERTIES
Oil and gas wells and leases 28,558,094
Less accumulated depreciation, depletion and amortization 7,700,321
NET OIL & GAS PROPERTIES 20,857,773
OTHER ASSETS 2,613
PROPERTY, PLANT AND EQUIPMENT
Land 161,000
Buildings 1,641,671
Equipment 779,253
Gathering Lines 978,879
Sub-total 3,560,803
Less accumulated depreciation 1,974,462
NET PROPERTY, PLANT & EQUIPMENT 1,586,341
TOTAL ASSETS $26,578,518
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $3,705,281
Working interests and royalties payable 4,900,058
Billings in excess of costs on uncompleted contracts 948,194
Current maturities on long-term debt: 185,714
Income taxes payable 885,868
TOTAL CURRENT LIABILITIES 10,625,115
LONG-TERM DEBT
Notes payable to banks 959,524
Notes payable to affiliates 1,000,000
TOTAL LONG-TERM DEBT 1,959,524
DEFERRED REVENUE AND OTHER LONG-TERM LIABILITIES 708,801
STOCKHOLDERS' EQUITY
Capital stock, stated value $10.00: Authorized - 500 shs; 2,000
- --------------------------------------------------------------------------
Issued - 500 shs.
Retained earnings 13,283,078
TOTAL STOCKHOLDERS' EQUITY 13,285,078
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,578,518
ATLAS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Ten Months Ended May 31, 1996
INCOME
Sales-gas wells $16,302,706
Purchased gas revenues 1,470
Well operating fees 1,841,788
Working interest and royalties 3,213,021
Non-recurring Income (Note 2) 2,059,179
Interest Income 84,495
Other 543,746
TOTAL INCOME 24,046,405
COST OF SALES AND OTHER EXPENSES
Costs of sales-gas wells 11,881,671
Cost of purchased gas 1,365
Gathering line operation and maintenance 298,533
General and administrative 2,003,215
Interest 1,381,937
TOTAL COST OF SALES AND OTHER EXPENSES 15,748,152
INCOME BEFORE INCOME TAXES 8,298,253
INCOME TAXES 2,202,302
NET INCOME $6,095,951
ATLAS RESOURCES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
Ten Months Ended May 31, 1995
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 7,708,919
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in oil and gas wells and leases (5,352,042)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Borrowings from banks 1,104,358
- --------------------------------------------------------------------------
Repayment of advances from affiliates (4,847,024)
Net cash used in financing activities (3,742,666)
Net increase (decrease) in cash and cash equivalents (1,385,789)
Cash and cash equivalents at beginning of year 1,717,898
Cash and cash equivalents at May 31, 1996 $332,109
ATLAS RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
May 31, 1996
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements as of May 31, 1996 and for the
ten months then ended have been prepared
by the management of the Company, without audit,
pursuant to the rules and regulations of the Securities and
Exchange Commission.
Certain information and footnote disclosures normally included
in financial statements
prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations
, although the Company believes that the disclosures
are adequate to make the information
presented not misleading.
These consolidated financial statements should be read in conjunction
with the
audited July 31, 1995 and 1994 consolidated financial statements.
In the opinion of management, all
adjustments (consisting of only normal recurring accruals)
considered necessary for presentation have been
included.
2. NON-RECURRING INCOME
The non-recurring income item pertains to a settlement of certain claims
with Columbia Gas Transmission Corporation.
aegh==========================================================================
INDEPENDENT AUDITORS' REPORT
Board of Directors
AEG Holdings, Inc.
Coraopolis, Pennsylvania
We have audited the accompanying consolidated statements of
financial position of AEG Holdings, Inc. (formerly Atlas
Energy Group, Inc.) and subsidiaries as of July 31, 1995 and
1994, and the related consolidated statements of income and
cash flows for the years then ended. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of AEG Holdings, Inc. as of July 31, 1995 and 1994,
and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted
accounting principles.
/s/ McLaughlin & Courson
Pittsburgh, Pennsylvania
October 24, 1995
- --------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AEG HOLDINGS, INC.
JULY 31, 1995 AND 1994
ASSETS
1995 1994
CURRENT ASSETS
Cash and cash equivalents $ 8,224,721 $ 6,495,318
Trade accounts and notes receivable, less
allowance for doubtful
accounts of $100,000 in 1995 and $25,000 in 1994 3,278,178 4,392,029
Other receivables 501,174 567,785
Costs in excess of billings of $-0- in 1995 and
$16,255 in 1994
on uncompleted contracts 293,372 334,440
Inventories 495,063 568,555
Prepaid expenses and other current assets 409,969 265,727
TOTAL CURRENT ASSETS 13,202,477 12,623,854
OIL AND GAS PROPERTIES
Oil and gas wells and leases 28,185,190 23,431,643
Less accumulated depreciation, depletion
and amortization
10,518,131 9,204,137
17,667,059 14,227,506
OTHER ASSETS 294,851 300,942
PROPERTY, PLANT AND EQUIPMENT
Land 359,193 395,193
Buildings 1,785,776 1,657,202
Equipment 1,025,609 957,933
Gathering lines 16,666,091 15,447,425
19,836,669 18,457,753
Less accumulated depreciation 11,695,999 10,298,479
8,140,670 8,159,274
$39,305,057 $35,311,576
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 5,007,209 $ 5,301,064
Working interests and royalties payable 2,217,294 1,740,187
Billings in excess of costs of $1,636,992
in 1995 and $2,445,622
in 1994 on uncompleted contracts 5,472,266 4,997,543
Current maturities on long-term debt:
Subordinated notes payable to stockholders 1,461,795 1,279,808
Other 246,014 475,000
Income taxes payable 234,057 410,352
TOTAL CURRENT LIABILITIES 14,638,635 14,203,954
DEFERRED INCOME TAXES 1,330,000 1,100,000
LONG-TERM DEBT, net of current maturities:
Subordinated notes payable to stockholders 4,924,934 6,386,729
Other 5,864,286 4,038,244
OTHER LONG-TERM LIABILITIES 265,640 354,121
STOCKHOLDERS' EQUITY
Capital stock, no par; authorized 2,000,000
shares; issued 500,000
shares 1,250 1,250
Paid-in capital 560,093 560,093
Retained earnings 17,351,614 14,451,945
Treasury stock, at cost (140,919 shares
and 144,619 shares,
respectively) (5,631,395)(5,784,760)
12,281,562 9,228,528
$39,305,057 35,311,576
See notes to consolidated financial statements
- ----------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
AEG HOLDINGS, INC.
YEARS ENDED JULY 31, 1995 AND 1994
1995 1994
INCOME
Sales - gas wells $22,707,513 $15,446,241
Purchased gas revenues 12,602,845 18,143,103
Well operating fees 3,132,886 2,692,782
Gathering line charges 1,970,964 2,051,191
Working interests and royalties 3,903,888 4,107,866
Interest 151,749 110,719
Gain on sale of assets -0- 1,454,048
Other 198,925 142,265
44,668,770 44,148,215
COSTS OF SALES AND OTHER EXPENSES
Costs of sales - gas wells 19,216,912 13,550,846
Cost of purchased gas 12,987,224 18,105,442
Gathering line operation and maintenance 1,592,691 1,556,756
General and administrative 3,221,659 3,978,639
Interest:
Subordinated notes payable to stockholders 925,139 1,106,134
Other 268,162 118,228
Depreciation, depletion and amortization 2,711,514 2,972,213
40,923,301 41,388,258
INCOME BEFORE INCOME TAXES 3,745,469 2,759,957
INCOME TAXES
Current:
Federal 380,000 340,000
State 240,000 256,000
Deferred 230,000 (36,000)
850,000 560,000
NET INCOME $ 2,895,469 $ 2,199,957
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
AEG HOLDINGS, INC.
YEARS ENDED JULY 31, 1995 AND 1994
1995 1994
Cash flows from operating activities:
Net income $ 2,895,469 $ 2,199,957
Adjustments to reconcile net income to net
cash provided by (used in)
operating activities:
Depreciation, depletion and amortization 2,711,514 2,972,213
Amortization of deferred compensation -0- 673,927
Expense funded by issuance of capital stock 172,200 87,810
Gain on sale of assets -0- (1,454,048)
Other, net (3,579) 22,056
Change in assets and liabilities:
Receivables 1,180,462 (115,821)
Inventories 73,492 (13,935)
Prepaid expenses and other current assets
(144,242) (71,140)
Accounts payable and accrued expenses and
working interests and royalties payable 183,252 (698,316)
Uncompleted contract billings, net 515,791 3,705,541
Income taxes payable (176,295) 357,631
Deferred income taxes 230,000 (36,000)
Long-term liabilities (88,481) (189,750)
Net cash provided by operating activities 7,549,583 7,440,125
Cash flows used in investing activities:
Proceeds from sale of assets 47,000 1,768,327
Investment in oil and gas wells and leases (4,753,547) (5,080,777)
Liquidations of other assets, net 6,091 2,658
Gathering line additions (1,218,666) (1,590,030)
Other property additions (196,250) (152,474)
Net cash used in investing activities (6,115,372) (5,052,296)
Cash flows provided by financing activities:
Proceeds from long-term borrowings 6,050,000 4,000,000
Principal payments on long-term borrowings (4,000,000) (1,500,000)
Principal payments on notes payable to
stockholders (1,279,808) (1,120,477)
Principal payments on other term loans (475,000) (175,000)
Net cash provided by financing activities 295,192 1,204,523
Net increase in cash and cash equivalents 1,729,403 3,592,352
Cash and cash equivalents at beginning of year 6,495,318 2,902,966
Cash and cash equivalents at end of year $ 8,224,721 $ 6,495,318
Additional Cash Flow Information:
Cash paid during the year for:
Interest $ 1,196,345 $ 1,201,051
Income taxes 796,295 238,369
See notes to consolidated financial statements
- -----------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AEG HOLDINGS, INC.
1. DESCRIPTION OF BUSINESS
AEG Holdings, Inc. (AEGH) was formed in July, 1995 to hold,
through its wholly owned subsidiary AIC, Inc. also formed in
July, 1995, Atlas Energy Group and its subsidiaries, including
Atlas Resources, Inc. and Atlas Gas Marketing, Inc. The purpose
of the reorganization is to achieve more efficient concentration
of funds of the Atlas group of companies, thereby minimizing
transaction costs and maximizing returns on investment vehicles.
No changes in the consolidated assets, liabilities or
stockholders' equity occurred as a result of the reorganization.
AEGH and subsidiaries are engaged in the exploration for,
development, production, and marketing of natural gas and oil
primarily in the Appalachian Basin area. In addition, the
Company performs contract drilling and well operation services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of AEG
Holdings, Inc., and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Inventories
Inventories, consisting of oil and gas field materials and
supplies, are stated at the lower of first-in, first-out cost
or market.
Method of accounting for oil and gas properties
The Company uses the successful efforts method of accounting for
oil and gas producing activities. Property acquisition costs
are capitalized when incurred. Geological and geophysical
costs and delay rentals are expensed when incurred.
Development costs, including equipment and intangible drilling
costs related to both producing wells and developmental dry
holes, are capitalized. All capitalized costs are generally
depreciated and depleted on the unit-of-production method
using estimates of proven reserves. Oil and gas properties
are periodically assessed and when unamortized costs exceed
expected future net cash flows, a loss is recognized by
recording a charge to income.
On the sale or retirement of oil and gas properties, the cost and
related accumulated depreciation, depletion and amortization
are eliminated from the property accounts, and the resultant
gain or loss is recognized.
For tax purposes, intangible drilling costs are being written off
as incurred. The greater of cost or percentage depletion as
defined by the Internal Revenue Code, is used as a deduction
from income.
Property, plant and equipment
Land, buildings, equipment and gathering lines are recorded at
cost. Major additions and betterments are charged to the
property accounts while replacements, maintenance and repairs
which do not improve or extend the life of the respective
assets are expensed currently. As property is retired or
otherwise disposed of, the cost of the property is removed
from the asset account, accumulated depreciation is charged
with an amount equivalent to the depreciation provided, and
the difference, if any, is charged or credited to income.
Depreciation is computed over the estimated useful life of the
assets generally by the straight-line method.
Revenue recognition
The Company sells interests in oil and gas wells and retains
therefrom a working interest and/or overriding royalty in the
producing wells. The income from the working interests is
recorded when the natural gas and oil are produced.
The Company also contracts to drill oil and gas wells. The
income from these contracts is recorded upon substantial
completion of the well.
Contract costs include all direct material and labor costs and
those indirect costs related to contract performance, such as
indirect labor, supplies, tools, repairs, and depreciation
costs. General and administrative costs are charged to
expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such
losses are determined.
Costs in excess of amounts billed are classified as current
assets under costs in excess of billings on uncompleted
contracts. Billings in excess of costs are classified under
current liabilities as billings in excess of costs on
uncompleted contracts. Contract retentions are included in
accounts receivable.
Working interests and royalties
Revenues from working interests and royalties are recognized when
the natural gas and oil are produced. For the year ended July
31, 1995, the Company recognized working interest income of
$3,008,027 and royalty income of $895,861. Working interest
and royalty income during the year ended July 31, 1994
amounted to $2,975,467 and $1,132,399, respectively.
Cash Equivalents
For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
3. AFFILIATED OIL AND GAS PARTNERSHIPS
In connection with the sponsorship of oil and gas partnerships,
the Company is reimbursed by the partnerships for certain
operating and overhead costs incurred on their behalf. These
reimbursements totalled approximately $265,000 and $250,000
during the years ended July 31, 1995 and 1994, respectively. In
addition, as part of its duties as well operator, the Company
receives proceeds from the sale of oil and gas and makes
distributions to investors according to their working interest in
the related oil and gas properties.
4. PLAN OF REORGANIZATION
On November 8, 1990 the Company adopted a plan of reorganization
whereby a substantial portion of the common stock of the two
majority shareholders would be purchased by the Company and
shares of the Company's stock would be granted to certain key
employees of the Company (Management Investors) giving the
Management Investors control of the Company.
STOCK SPLIT
Pursuant to that plan the stockholders approved an increase in
the authorized number of shares of no par value common stock from
500 to 2,000,000 shares and declared a stock split on a 1,000 to
1 basis.
All references in the consolidated financial statements to the
number of shares have been adjusted for the stock split.
PURCHASE OF TREASURY SHARES AND NOTES PAYABLE TO STOCKHOLDERS
On November 14, 1990 the Company entered into an agreement
effective as of August 16, 1990 to purchase 248,717 shares of
common stock from its two majority shareholders at $40.00 per
share ($9,948,680).
The purchase price is evidenced by promissory notes bearing
interest at 13.5%. Quarterly principal payments range from
$100,574 on November 15, 1991 to a final payment of $856,103 on
November 15, 1998. Payments may be deferred or accelerated under
certain circumstances. Principal payments totaled $1,279,808 and
$1,120,477 during the years ended July 31, 1995 and 1994
respectively. Interest expense amounted to $925,139 and
$1,106,134 for the years ended July 31, 1995 and 1994,
respectively.
The notes are subordinate to all direct and indirect debt, past,
present or future and all obligations, if any, to make
contributions to any employee stock ownership plan now in
existence or hereinafter created.
The promissory notes are secured by warrants on the common stock
of the Company that are exercisable upon an uncorrected event of
default. At July 31, 1995 and 1994, the following warrants were
outstanding:
1995 1994
Number of shares 643,824 927,030
Exercise price 9.92 8.27
The Company has options to purchase, and the majority
shareholders had options to sell 131,425 shares of the Company's
common stock at per share prices ranging from $63.25 to $74.10
commencing on the earlier of the satisfaction of all the
Company's obligations under the foregoing promissory notes or
November 14, 1999. The shareholders also had an option on
November 14, 2004 to sell 87,356 shares to the Company. The
shareholder options to sell the 218,781 shares of common stock to
the Company were waived on November 24, 1992 and the waiver has
been retroactively applied in the accompanying financial
statements.
STOCK GRANTS
On November 14, 1990 certain management investors of the Company
were granted 92,098 shares of restricted common stock. The
shares may not be transferred or sold until these restrictions
lapse. Restricted shares may be forfeited in the event the
investor's employment with the Company terminates for reasons
other than death, retirement, disability or termination without
cause. These restrictions lapse with respect to 25% of the
shares on each of the following dates: November 14, 1990, 1991,
1992 and 1993.
The fair value of the granted shares at the time of the grant has
been determined by management to be $29.27 per share
($2,695,708). A corresponding amount representing unearned
compensation is reflected as a reduction of stockholders' equity
and is to be reported as compensation expense ($673,927 per year)
over the restriction period.
The Company has established a management employee stock option
consisting of an aggregate of options to acquire 47,578 shares of
common stock at $1.00 per share. No options have been granted as
of July 31, 1995. The option will terminate August 15, 2012.
There are restrictions on the sale of the vested Management
Investor and ESOP shares of common stock which include among
other restrictions, that shares may not be sold until obligations
to the majority shareholders are satisfied. Shares offered for
sale must first be offered to the Company and then to other
shareholders before being offered to a third party. Further
conditions apply to sales that would result in a third party
owning 5% or more of the total shares of the Company.
5. OTHER LONG-TERM DEBT AND CREDIT FACILITY
Long-term debt at July 31, 1995 and 1994 consists of the
following:
19951994
Revolving credit loan payable to bank$4,750,000 $4,000,000
Note payable to bank in monthly installments through
August 2002 of $15,476, plus interest at or below prime
rate plus one-half percent (1/2%) (8.125% at July 31, 1995).
Secured by building and equipment having a net book value of
$1,347,592 at July 31, 1995 1,300,000 -0-
Other 60,300 513,244
6,110,300 4,513,244
Less current maturities (246,014) (475,000)
$5,864,286 $4,038,244
On July 31, 1995, AEGH renegotiated its revolving credit and
term loan agreement. The new credit agreement enables the
Company to borrow $5,000,000 on a revolving basis until August
31, 1996. A commitment fee at a rate of three-eights of one
percent (3/8%) is charged on the unused portion. During the
revolving credit period, loans bear interest at or below prime
rate plus one-quarter percent (1/4%). The interest rate at July
31, 1995 was 7.875%. The Company may convert any outstanding
borrowings into a 5-year term loan, repayable in equal monthly
installments, plus interest at or below prime rate plus one-half
percent (1/2%).
The loan agreements are secured by certain assets of the
Company.
6. MATURITIES ON LONG-TERM DEBT
Aggregate maturities on long-term debt at July 31, 1995 for
the next five fiscal years are as follows:
FISCAL SUBORDINATED OTHER
YEAR NOTES PAYABLE LONG-TERM
ENDING TO STOCKHOLDERSDEBT TOTAL
1996 $1,461,795 $ 246,014 $1,707,809
1997 1,669,661 1,056,547 2,726,208
1998 1,907,084 1,135,714 3,042,798
1999 1,348,189 1,135,714 2,483,903
2000 -0- 1,135,714 1,135,714
7. INCOME TAXES
The Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes" effective August 1, 1993. There was no cumulative effect
of this change in accounting for income taxes as of August 1,
1993 as the method previously used by the Company does not differ
significantly from the requirements of SFAS No. 109.
Net deferred tax liabilities consist of the following:
JULY 31,
1995 1994
Exploration and development costs expensed
for income tax reporting $1,782,000 $1,336,000
Tax depreciation in excess of
book depreciation 256,000 418,000
Investment tax credit (235,000) (367,000)
Alternative minimum tax (366,000) (225,000)
Other (107,000) (62,000)
$1,330,000 $1,100,000
A reconciliation between the Company's effective tax rate and the
U.S. statutory rate is as follows:
1994 1995
U.S. statutory rate 34.0 % 34.0 %
State income taxes net of federal income tax benefit 5.8 6.1
Depletion (7.0) (8.9)
Nonconventional fuels and alternative minimum tax
credits (10.0) (9.4)
Other (0.1) (1.5)
Effective tax rate 22.7 %20.3 %
8. PROFIT SHARING PLAN
The Company maintains a defined contribution 401 (K) profit
sharing plan covering substantially all of its employees. The
Plan Administrator set the maximum allowable employee
contribution at the lesser of 15% of their compensation or $9,240
for the calendar years 1995 and 1994. The Company matches
employee contributions by contributing an amount equal to 30% of
each employee's contribution. Pension expense under the 401 (K)
profit sharing plan was $67,974 and $60,895 for the years ended
July 31, 1995 and 1994, respectively.
9. OPTION ON BUILDING
The majority shareholders were granted an option to acquire the
land and building utilized as the Company's headquarters for a
period of six months commencing on August 15, 2003 and ending
February 15, 2004 for $500,000.
10. CHANGES IN STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the years ended July 31,
1994 and 1995 were as follows:
<TABLE>
CAPTION>
CAPITAL PAID-IN RETAINED TREASURY DEFERRED
STOCK CAPITAL EARNINGS STOCK COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 31, 1993 $1,250 $560,093 $12,284,178 $(5,904,760) $673,927)
Treasury stock issued
to ESOP
(3,000 shares) (32,190) 120,000
Amortization of deferred compensation 673,927
Net income for the year 2,199,957
BALANCE AT
JULY 31, 1994 1,250 560,093 14,451,945 (5,784,760) -0-
Treasury stock issued to ESOP
(3,000 shares) 3,000 120,000
Other (700 shares net) 1,200 33,365
Net income for the year 2,895,469
BALANCE AT JULY 31, 1995 $1,250 $560,093 $17,351,614 $(5,631,395)$ -0-
</TABLE>
11. EMPLOYEE STOCK OWNERSHIP PLAN
Effective August 1, 1990 the Company established a non-
contributory employee stock ownership plan (ESOP) covering
substantially all employees except the Company's two majority
shareholders. The Company contributed 3,000 shares of common
stock with a fair market value of $41.00 ($123,000) and $29.27
($87,810) to the plan during the years ended July 31, 1995 and
1994, respectively. The Company contributed $26,418 and $25,304
in cash during the years ended July 31, 1995 and 1994,
respectively. Employee benefits vest after five years of
service, including service prior to establishment of the plan.
There are restrictions on the sale of the stock (see Plan of
Reorganization).
12. GAIN ON SALE OF ASSETS
Gain on sale of assets for the year ended July 31, 1994 included
a gain of $1,135,834 on the sale of the Company's interest in
certain oil and gas properties for $1,260,000 and a gain of
$290,231 on the sale of stock in an unrelated company for
$481,647.
13. FUTURES CONTRACTS
The Company enters into natural gas future contracts to reduce
the exposure to changes in gas prices. Futures gains or losses
are included in cost of purchased gas.
14. COMMITMENTS
Atlas Resources, Inc., as general partner in several oil and gas
limited partnerships, and AEG Holdings, Inc. have agreed to
indemnify each investor general partner from any liability
incurred which exceeds such partner's share of partnership
assets. Management believes that such liabilities that may occur
will be covered by insurance and, if not covered by insurance,
will not result in a significant loss to AEG Holdings, Inc. and
its subsidiaries.
Subject to certain conditions, investor general partners in
certain oil and gas limited partnerships may present their
interests beginning in 1995 for purchase by Atlas Resources,
Inc., as managing general partner. Atlas Resources, Inc. is not
obligated to purchase more than 5% of the units in any calendar
year.
Atlas Resources, Inc., as managing general partner in certain oil
and gas limited partnerships has also agreed to subordinate its
share of production revenues to the receipt by investor partners
of cash distributions equal to at least 10% of their
subscriptions in each of the first five years of partnership
operations.
15. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED)
The supplementary information summarized below presents the
results of natural gas and oil activities in accordance with SFAS
No. 69, "Disclosures About Oil and Gas Producing Activities."
(1) Production Costs
The following table presents the costs incurred relating to
natural gas and oil production activities:
1995 1994
Capitalized costs at July 31:
Capitalized costs $28,185,190 $23,431,643
Accumulated depreciation
and depletion 10,518,131 9,204,137
Net capitalized costs $17,667,059 $14,227,506
Costs incurred during the year ended July 31:
Property acquisition costs - proved
undeveloped properties $
500 $ 1,695
Developed costs $ 4,753,047 $ 5,079,082
Property acquisition costs include
costs to purchase, lease
or otherwise acquire a property.
Development costs include costs
to gain access to and prepare development well locations for
drilling, to drill and equip development wells and to provide
facilities to extract, treat, gather and store oil and gas.
(2) Results of Operations for Producing Activities
The following table presents the results of operations related to
natural gas and oil production for the years ended July 31, 1995
and 1994:
1995 1994
Revenues $ 3,903,888 $ 4,107,866
Production costs (230,256 )(213,909)
Depreciation and depletion (1,313,993 )(1,711,393)
Income tax expense (631,545) (642,217)
Results of operations from
producing activities $ 1,728,094 $ 1,540,347
Depreciation, depletion and amortization of natural gas and oil
properties are provided on the unit-of production method.
(3) Reserve Information
The information presented below represents estimates of proved
natural gas and oil reserves. Proved developed reserves
represent only those reserves expected to be recovered from
existing wells and support equipment. Proved undeveloped
reserves represent proved reserves expected to be recovered from
new wells after substantial development costs are incurred. All
reserves are located in Eastern Ohio and Western Pennsylvania.
<TABLE>
<CAPTION>
1995 1994
NATURAL GAS OIL NATURAL GAS OIL
(Mcf) (Barrels) (Mcf) (Barrels)
Proved developed and undeveloped reserves:
<S> <C> <C> <C> <C>
Beginning of period 55,084,369 86,390 40,721,177 41,221
Revision of previous estimates (1,604,824) (1,833) 4,365,530 53,751
Extensions, discoveries and other additions 22,723,456 121,285 24,612,144 -0-
Production (1,875,795) (6,728) (1,819,122) (8,042)
Sales of minerals in place (13,380,243)(107,854) (12,795,360) (540)
End of period 60,946,963 91,260 55,084,369 86,390
Proved developed reserves:
Beginning of period 19,461,489 86,390 15,073,877 41,221
End of period 21,114,083 91,260 19,461,489 86,390
</TABLE>
- -------------------------------------------------------------------
15. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED)
(4) Standard Measure of Discounted Future Cash Flows
Management cautions that the standard measure of discounted
future cash flows should not be viewed as an indication of the
fair market value of natural gas and oil producing properties,
nor of the future cash flows expected to be generated therefrom.
The information presented does not give recognition to future
changes in estimated reserves, selling prices or costs and has
been discounted at an arbitrary rate of 10%. Estimated future
net cash flows from natural gas and oil reserves based on selling
prices and costs at July 31, 1995 and July 31, 1994 price levels
are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Future cash inflows $139,389,034 $134,367,458
Future production costs (30,822,109) (29,671,518)
Future development costs (41,574,000) (36,300,000)
Future income tax expense (13,691,210) (15,488,911)
Future net cash flow 53,301,715 52,907,029
10% annual discount for estimated timing of cash flows
(38,511,020) (37,449,112)
Standardized measure of discounted future net cash flows $
14,790,695 $ 15,457,917
Summary of changes in the standardized measure of discounted
future net cash flows:
1995 1994
Sales of gas and oil produced - net $ (1,728,094)$ (1,540,347)
Net changes in prices, production and development costs
(4,087,588) 818,263
Extensions, discoveries, and improved recovery,
less related costs 792,963 1,125,162
Development costs incurred 5,081,411 1,905,750
Revisions of previous quantity estimates (961,361) 1,069,732
Sales of minerals in place (1,843,660) (3,158,806)
Accretion of discount 1,376,058 1,633,244
Net change in income taxes 703,049 1,659,590
Net (decrease) increase (667,222) 3,512,588
Beginning of period 15,457,917 11,945,329
End of period $ 14,790,695 $ 15,457,917
</TABLE>
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------
==========================================================================
AEG HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (unaudited
As of May 31, 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $6,021,315
Trade accounts and notes receivable, less allowance for
doubtful accounts of $190,120 6,411,167
Other receivables 828,880
Costs in excess of billings on uncompleted contracts 403,989
Inventories 496,391
Prepaid expenses and other current assets 837,090
TOTAL CURRENT ASSETS 14,998,832
OIL AND GAS PROPERTIES
Oil and gas wells and leases 33,548,231
Less accumulated depreciation, depletion
and amortization 11,858,870
NET OIL & GAS PROPERTIES 21,689,361
OTHER ASSETS 275,682
PROPERTY, PLANT AND EQUIPMENT
Land 365,568
Buildings 1,790,457
Equipment 1,153,733
Gathering Lines 18,223,327
Sub-total 21,533,085
Less accumulated depreciation 12,825,255
TOTAL PROPERTY, PLANT & EQUIPMENT 8,707,830
TOTAL ASSETS $45,671,705
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILTIIES
Accounts payable and accrued expenses $8,014,373
Working interests and royalties payable 3,629,596
Billings in excess of costs on uncompleted contracts 1,386,987
Current maturities on long-term debt:
Subordinated notes payable to stockholders 1,669,661
Other 185,714
Income taxes payable 864,522
TOTAL CURRENT LIABILITIES 15,750,853
DEFERRED INCOME TAXES 1,330,000
LONG-TERM DEBT, net of current maturities
Notes Payable to Banks 5,709,524
Subordinated notes payable to stockholders 3,255,274
TOTAL LONG-TERM DEBT 8,964,798
DEFERRED REVENUE AND OTHER LONG-TERM LIABILITIES 1,210,613
STOCKHOLDERS' EQUITY
Capital stock, no par; authorized 2,000,000 shares;
issued 500,000 shares 1,250
Paid-in capital 560,093
Retained earnings 23,342,993
Treasury stock, at cost (5,488,895)
TOTAL STOCKHOLDERS' EQUITY 18,415,441
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $45,671,705
AEG HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited
Five Months Ended December 31, 1995
INCOME
Sales-gas wells $16,302,706
Purchased gas revenues 34,917,254
Well operating fees 2,685,711
Gathering line charges 2,172,349
Working interest and royalties 3,858,537
Non-recurring Income (Note 2 2,924,146
Interest Income 198,529
Other 851,512
TOTAL INCOME 63,910,744
COST OF SALES AND OTHER EXPENSES
Costs of sales-gas wells 13,693,934
Cost of purchased gas 34,932,992
Gathering line operation and maintenance 2,187,450
General and administrative 1,595,695
Interest:
Subordinated notes payable to stockholders 638,658
Other 345,292
Depreciation, depletion and amortization 2,469,995
TOTAL COST OF SALES AND OTHER EXPENSES 55,864,016
INCOME BEFORE INCOME TAXES 8,046728
INCOME TAXES 2,070,349
NET INCOME $5,976,379
AEG HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited
Five Months Ended December 31, 1995
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 6,680,473
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in oil and gas wells and leases (5,363,041)
Other property additions (1,696,416)
Net cash used in investing activities (7,059,457)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments on notes payable to stockholders (1,669,660)
Principal payments on other long-term borrowings (154,762)
Net cash used in financing activities (1,824,422)
Net increase (decrease in cash and cash equivalents (2,203,406)
Cash and cash equivalents at beginning of year 8,224,721
Cash and cash equivalents at May 31, 1996 $6,021,315
AEG HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED
May 31, 1996
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial
statements as of May 31, 1996 and
for the ten months then ended
have been prepared by the
management of the Company,
without audit, pursuant to the
rules and regulations of the
Securities and Exchange
Commission. Certain information
and footnote disclosures normally
included in financial statements
prepared in accordance with
generally accepted accounting
principles have been omitted
pursuant to such rules and
regulations, although the Company
believes that the disclosures are
adequate to make the information
presented not misleading. These
consolidated financial statements
should be read in conjunction
with the audited July 31, 1995
and 1994 consolidated financial
statements. In the opinion of
management, all adjustments
(consisting of only normal
recurring accruals considered
necessary for presentation have
been included.
2. NON-RECURRING INCOME
The non-recurring income item
pertains to a settlement of
certain claims with Columbia Gas
Transmission Corporation.
AEG HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS (unaudited
As of May 31, 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $6,021,315
Trade accounts and notes receivable, less allowance for
doubtful accounts of $190,120 6,411,167
Other receivables 828,880
Costs in excess of billings on uncompleted contracts 403,989
Inventories 496,391
Prepaid expenses and other current assets 837,090
TOTAL CURRENT ASSETS 14,998,832
OIL AND GAS PROPERTIES
Oil and gas wells and leases 33,548,231
Less accumulated depreciation, depletion and amortization
11,858,870
NET OIL & GAS PROPERTIES 21,689,361
OTHER ASSETS 275,682
PROPERTY, PLANT AND EQUIPMENT
Land 365,568
Buildings 1,790,457
Equipment 1,153,733
Gathering Lines 18,223,327
Sub-total 21,533,085
Less accumulated depreciation 12,825,255
TOTAL PROPERTY, PLANT & EQUIPMENT 8,707,830
TOTAL ASSETS $45,671,705
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILTIIES
Accounts payable and accrued expenses $8,014,373
Working interests and royalties payable 3,629,596
Billings in excess of costs on uncompleted contracts 1,386,987
Current maturities on long-term debt:
Subordinated notes payable to stockholders 1,669,661
Other 185,714
Income taxes payable 864,522
TOTAL CURRENT LIABILITIES 15,750,853
DEFERRED INCOME TAXES 1,330,000
LONG-TERM DEBT, net of current maturities
Notes Payable to Banks 5,709,524
Subordinated notes payable to stockholders 3,255,274
TOTAL LONG-TERM DEBT 8,964,798
DEFERRED REVENUE AND OTHER LONG-TERM LIABILITIES 1,210,613
STOCKHOLDERS' EQUITY
Capital stock, no par; authorized 2,000,000 shares;
issued 500,000 shares 1,250
Paid-in capital 560,093
Retained earnings 23,342,993
Treasury stock, at cost (5,488,895)
TOTAL STOCKHOLDERS' EQUITY 18,415,441
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $45,671,705
AEG HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME (unaudited
Five Months Ended December 31, 1995
INCOME
Sales-gas wells $16,302,706
Purchased gas revenues 34,917,254
Well operating fees 2,685,711
Gathering line charges 2,172,349
Working interest and royalties 3,858,537
Non-recurring Income (Note 2 2,924,146
Interest Income 198,529
Other 851,512
TOTAL INCOME 63,910,744
COST OF SALES AND OTHER EXPENSES
Costs of sales-gas wells 13,693,934
Cost of purchased gas 34,932,992
Gathering line operation and maintenance 2,187,450
General and administrative 1,595,695
Interest:
Subordinated notes payable to stockholders 638,658
Other 345,292
Depreciation, depletion and amortization 2,469,995
TOTAL COST OF SALES AND OTHER EXPENSES 55,864,016
INCOME BEFORE INCOME TAXES 8,046,728
INCOME TAXES 2,070,349
NET INCOME $5,976,379
AEG HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited
Five Months Ended December 31, 1995
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 6,680,473
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in oil and gas wells and leases (5,363,041)
Other property additions (1,696,416)
Net cash used in investing activities (7,059,457)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Principal payments on notes payable to stockholders (1,669,660)
Principal payments on other long-term borrowings (154,762)
Net cash used in financing activities (1,824,422)
Net increase (decrease in cash and cash equivalents (2,203,406)
Cash and cash equivalents at beginning of year 8,224,721
Cash and cash equivalents at May 31, 1996 $6,021,315
AEG HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED
May 31, 1996
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial
statements as of May 31, 1996 and
for the ten months then ended
have been prepared by the
management of the Company,
without audit, pursuant to the
rules and regulations of the
Securities and Exchange
Commission. Certain information
and footnote disclosures normally
included in financial statements
prepared in accordance with
generally accepted accounting
principles have been omitted
pursuant to such rules and
regulations, although the Company
believes that the disclosures are
adequate to make the information
presented not misleading. These
consolidated financial statements
should be read in conjunction
with the audited July 31, 1995
and 1994 consolidated financial
statements. In the opinion of
management, all adjustments
(consisting of only normal
recurring accruals considered
necessary for presentation have
been included.
2. NON-RECURRING INCOME
The non-recurring income item
pertains to a settlement of
certain claims with Columbia Gas
Transmission Corporation.
EXHIBIT (A)
AMENDED AND RESTATED CERTIFICATE
AND
AGREEMENT OF LIMITED PARTNERSHIP
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
TABLE OF CONTENTS
SECTION NO. DESCRIPTION PAGE
I. FORMATION
1.01 Formation 1
1.02 Certificate of Limited
Partnership 1
1.03 Name, Principal Office
and Residence 1
1.04 Purpose 1
II. DEFINITION OF TERMS
2.01 Definitions 1
III. SUBSCRIPTIONS AND FURTHER
CAPITAL CONTRIBUTIONS
3.01 Designation of Managing
General Partner and
Participants 7
3.02 Participants 7
3.03 Subscriptions to the
Partnership 7
3.04 Capital Contributions 8
3.05 Payment of Subscriptions
9
3.06 Partnership Funds 9
IV. CONDUCT OF OPERATIONS
4.01 Acquisition of Leases 10
4.02 Conduct of Operations 11
4.03 General Rights and
Obligations of the
Participants and
Restricted and
Prohibited Transactions
14
4.04 Designation,
Compensation and
Removal
of Managing General
Partner and Removal of
Operator 20
4.05 Indemnification and
Exoneration 21
4.06 Other Activities 22
V. PARTICIPATION IN COSTS AND
REVENUES, CAPITAL ACCOUNTS,
ELECTIONS AND DISTRIBUTIONS
5.01 Participation in Costs
and Revenues 23
5.02 Capital Accounts and
Allocations
Thereto 24
5.03 Allocation of Income,
Deductions and
Credits 25
5.04 Elections 26
5.05 Distributions 26
VI. TRANSFER OF INTERESTS
6.01 Transferability 27
6.02 Special Restrictions on
Transfers 28
6.03 Right of Managing
General Partner to
Hypothecate and/or
Withdraw Its Interests
28
6.04 Repurchase Obligation 29
VII. DURATION, DISSOLUTION, AND
WINDING
UP
7.01 Duration 30
7.02 Dissolution and Winding
Up 30
VIII. MISCELLANEOUS PROVISIONS
8.01 Notices 31
8.02 Time 31
8.03 Applicable Law 31
8.04 Agreement in Counterparts
31
8.05 Amendment 31
8.06 Additional Partners 31
8.07 Legal Effect 32
EXHIBITS
EXHIBIT (I-A) - Managing
General
Partner
Signature
Page
EXHIBIT (I-B) - Subscription
Agreement
EXHIBIT (II) - Drilling and
Operating
Agreement
- --------------------------------------------------------------------------
AMENDED AND RESTATED CERTIFICATE AND
AGREEMENT OF LIMITED PARTNERSHIP
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
THIS AMENDED AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED
PARTNERSHIP ("AGREEMENT"), amending and restating the original
Certificate of Limited Partnership, is made and entered into as of
, 1996, by and among Atlas Resources, Inc., hereinafter
referred to as "Atlas" or the "Managing General Partner", and the
remaining parties from time to time signing a Subscription Agreement for
Limited Partner Units, such parties hereinafter sometimes referred to as
"Limited Partners," or for Investor General Partner Units, such parties
hereinafter sometimes referred to as "Investor General Partners".
ARTICLE I
FORMATION
1.01. FORMATION. The parties hereto form a limited partnership pursuant
to the Pennsylvania Revised Uniform Limited Partnership Act, upon the
terms and conditions set forth herein.
1.02. CERTIFICATE OF LIMITED PARTNERSHIP. This document shall constitute
not only the agreement among the parties hereto, but also shall
constitute the Amended and Restated Certificate and Agreement of Limited
Partnership of the Partnership and shall be filed or recorded in such
public offices as is required under applicable law or deemed advisable in
the discretion of the Managing General Partner. Amendments to the
certificate of limited partnership shall be filed or recorded in such
public offices as required under applicable law or deemed advisable in
the discretion of the Managing General Partner.
1.03. NAME, PRINCIPAL OFFICE AND RESIDENCE. The name of the Partnership is
Atlas-Energy for the Nineties-Public #5 Ltd. The residence of Atlas shall
be its principal place of business at 311 Rouser Road, Moon Township,
Pennsylvania 15108, which shall also serve as the principal place of
business of the Partnership. The residence of each Participant shall be
as set forth on the Subscription Agreement executed by each such party.
All such addresses shall be subject to change upon notice to the parties.
The name and address of the agent for service of process shall be Mr.
J.R. O'Mara at Atlas Resources, Inc., 311 Rouser Road, Moon Township,
Pennsylvania 15108.
1.04. PURPOSE. The Partnership shall engage in all phases of the oil
and gas business, including, without limitation, exploration for,
development and production of oil and gas upon the terms and conditions
hereinafter set forth and any other proper purpose under the Pennsylvania
Revised Uniform Limited Partnership Act. The Managing General Partner may
not, without the affirmative vote of Participants whose Agreed
Subscriptions equal a majority of the Partnership Subscription, change
the investment and business purpose of the Partnership or cause the
Partnership to engage in activities outside the stated business purposes
of the Partnership through joint ventures with other entities. No
operations of the Partnership shall be commenced until the receipt of the
minimum Partnership Subscription set forth in .3.02(d) and the Offering
Termination Date.
ARTICLE II
DEFINITION OF TERMS
2.01. DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings hereinafter set forth:
1. "Administrative Costs" shall mean all customary and routine
expenses incurred by the Sponsor for the conduct of Partnership
administration, including: legal, finance, accounting,
secretarial, travel, office rent, telephone, data processing and
other items of a similar nature. No Administrative Costs charged
shall be duplicated under any other category of expense or cost.
No portion of the salaries, benefits, compensation or
remuneration of controlling persons of Atlas will be reimbursed
by the Partnership as Administrative Costs. Controlling persons
include directors, executive officers and those holding five
percent or more equity interest in the Managing General Partner
or a person having power to direct or cause the direction of the
Managing General Partner, whether through the ownership of voting
securities, by contract, or otherwise.
- -----------------------------------------------------------------------
2. "Administrator" shall mean the official or agency administering
the securities laws of a state.
3. "AEGH" shall mean AEG Holdings, Inc., a Pennsylvania corporation
whose principal executive offices are located at 311 Rouser Road,
Moon Township, Pennsylvania 15108.
4. "Affiliate" shall mean with respect to a specific person (a) any
person directly or indirectly owning, controlling, or holding
with power to vote 10 per cent or more of the outstanding voting
securities of such specified person; (b) any person 10 per cent
or more of whose outstanding voting securities are directly or
indirectly owned, controlled, or held with power to vote, by such
specified person; (c) any person directly or indirectly
controlling, controlled by, or under common control with such
specified person; (d) any officer, director, trustee or partner
of such specified person; and (e) if such specified person is an
officer, director, trustee or partner, any person for which such
person acts in any such capacity.
5. "Agreed Subscription" shall mean that amount so designated on the
Subscription Agreement executed by the Participant, or, in the
case of the Managing General Partner, its subscription under
.3.03(b) and its subsections.
6. "Agreement" shall mean this Amended and Restated Certificate and
Agreement of Limited Partnership, including all exhibits hereto.
7. "Assessments" shall mean additional amounts of capital which may
be mandatorily required of or paid voluntarily by a Participant
beyond his subscription commitment.
8. "Atlas" shall mean Atlas Resources, Inc., a Pennsylvania
corporation, whose principal executive offices are located at 311
Rouser Road, Moon Township, Pennsylvania 15108.
9. "Atlas Energy" shall mean Atlas Energy Group, Inc., an Ohio
corporation, whose principal executive offices are located at 311
Rouser Road, Moon Township, Pennsylvania 15108.
10. "Capital Account" or "account" shall mean the account established
for each party hereto, maintained as provided in .5.02 and its
subsections.
11. "Capital Contribution" shall mean the amount agreed to be
contributed to the Partnership by a party pursuant to ..3.04 and
3.05 and their subsections.
12. "Carried Interest" shall mean an equity interest in the
Partnership issued to a Person without consideration, in the form
of cash or tangible property, in an amount proportionately
equivalent to that received from the Participants.
13. "Code" shall mean the Internal Revenue Code of 1986, as amended.
14. "Cost", when used with respect to the sale of property to the
Partnership, shall mean (a) the sum of the prices paid by the
seller to an unaffiliated person for such property, including
bonuses; (b) title insurance or examination costs, brokers'
commissions, filing fees, recording costs, transfer taxes, if
any, and like charges in connection with the acquisition of such
property; (c) a pro rata portion of the seller's actual necessary
and reasonable expenses for seismic and geophysical services; and
(d) rentals and ad valorem taxes paid by the seller with respect
to such property to the date of its transfer to the buyer,
interest and points actually incurred on funds used to acquire or
maintain such property, and such portion of the seller's
reasonable, necessary and actual expenses for geological,
engineering, drafting, accounting, legal and other like services
allocated to the property cost in conformity with generally
accepted accounting principles and industry standards, except for
expenses in connection with the past drilling of wells which are
not producers of sufficient quantities of oil or gas to make
commercially reasonable their continued operations, and provided
that the expenses enumerated in this subsection (d) hereof shall
have been incurred not more than 36 months prior to the purchase
by the Partnership. When used with respect to services, "cost"
shall mean the reasonable, necessary and actual expense incurred
by the seller on behalf of the Partnership in providing such
services, determined in accordance with generally accepted
accounting principles. As used elsewhere, "cost" shall mean the
price paid by the seller in an arm's-length transaction.
15. "Development Well" shall mean a well drilled within the proved
area of an oil or gas reservoir to the depth of a stratigraphic
Horizon known to be productive.
- ---------------------------------------------------------------------
(Page 3)
16. "Direct Costs" shall mean all actual and necessary costs directly
incurred for the benefit of the Partnership and generally
attributable to the goods and services provided to the
Partnership by parties other than the Sponsor or its Affiliates.
Direct Costs shall not include any cost otherwise classified as
Organization and Offering Costs, Administrative Costs, Intangible
Drilling Costs, Tangible Costs, Operating Costs or costs related
to the Leases. Direct Costs may include the cost of services
provided by the Sponsor or its Affiliates if such services are
provided pursuant to written contracts and in compliance with
.4.03(d)(7).
17. "Distribution Interest" shall mean an undivided interest in the
assets of the Partnership after payments to creditors of the
Partnership or the creation of a reasonable reserve therefor, in
the ratio the positive balance of a party's Capital Account bears
to the aggregate positive balance of the Capital Accounts of all
of the parties determined after taking into account all Capital
Account adjustments for the taxable year during which liquidation
occurs (other than those made pursuant to liquidating
distributions or restoration of deficit Capital Account
balances); provided, however, after the Capital Accounts of all
of the parties have been reduced to zero, such interest in the
remaining assets of the Partnership shall equal a party's
interest in the related revenues of the Partnership as set forth
in .5.01 and its subsections of this Agreement.
18. "Drilling and Operating Agreement" shall mean the proposed
Drilling and Operating Agreement between Atlas, Atlas Energy or
Atlas Energy Corporation as Operator, and the Partnership as
Developer, a copy of the proposed form of which is attached
hereto as Exhibit (II).
19. "Exploratory Well" shall mean a well drilled to find commercially
productive hydrocarbons in an unproved area, to find a new
commercially productive Horizon in a field previously found to be
productive of hydrocarbons at another Horizon, or to
significantly extend a known prospect.
20. "Farmout" shall mean an agreement whereby the owner of the
leasehold or Working Interest agrees to assign his interest in
certain specific acreage to the assignees, retaining some
interest such as an Overriding Royalty Interest, an oil and gas
payment, offset acreage or other type of interest, subject to the
drilling of one or more specific wells or other performance as a
condition of the assignment.
21. "Final Terminating Event" shall mean any one of the following:
(i) the expiration of the fixed term of the Partnership; (ii) the
giving of notice to the Participants by the Managing General
Partner of its election to terminate the affairs of the
Partnership; (iii) the giving of notice by the Participants to
the Managing General Partner of their similar election through
the affirmative vote of Participants whose Agreed Subscriptions
equal a majority of the Partnership Subscription; or (iv) the
termination of the Partnership under .708(b)(1)(A) of the Code or
the Partnership ceases to be a going concern.
22. "Horizon" shall mean a zone of a particular formation; that part
of a formation of sufficient porosity and permeability to form a
petroleum reservoir.
23. "Independent Expert" shall mean a person with no material
relationship to the Sponsor or its Affiliates who is qualified
and who is in the business of rendering opinions regarding the
value of oil and gas properties based upon the evaluation of all
pertinent economic, financial, geologic and engineering
information available to the Sponsor or its Affiliates.
24. "Intangible Drilling Costs"or "Non-Capital Expenditures" shall
mean those expenditures associated with property acquisition and
the drilling and completion of oil and gas wells that under
present law are generally accepted as fully deductible currently
for federal income tax purposes; and includes all expenditures
made with respect to any well prior to the establishment of
production in commercial quantities for wages, fuel, repairs,
hauling, supplies and other costs and expenses incident to and
necessary for the drilling of such well and the preparation
thereof for the production of oil or gas, that are currently
deductible pursuant to Section 263(c) of the Code and Treasury
Reg. Section 1.612-4, which are generally termed "intangible
drilling and development costs," including the expense of
plugging and abandoning any well prior to a completion attempt.
25. "Investor General Partners" shall mean the persons signing the
Subscription Agreement as Investor General Partners and the
Managing General Partner to the extent of any optional
subscription under .3.03(b)(2). All Investor General Partners
shall be of the same class and have the same rights.
- -------------------------------------------------------------------------
(Page 4)
26. "Landowner's Royalty Interest" shall mean an interest in
production, or the proceeds therefrom, to be received free and
clear of all costs of development, operation, or maintenance,
reserved by a landowner upon the creation of an oil and gas
Lease.
27. "Leases" shall mean full or partial interests in oil and gas
leases, oil and gas mineral rights, fee rights, licenses,
concessions, or other rights under which the holder is entitled
to explore for and produce oil and/or gas, and further includes
any contractual rights to acquire any such interest.
28. "Limited Partners" shall mean the persons signing the
Subscription Agreement as Limited Partners, the Managing General
Partner to the extent of any optional subscription under
.3.03(b)(2), the Investor General Partners upon the conversion of
their Investor General Partner Units to Limited Partner interests
pursuant to .6.01(c), and any other persons who are admitted to
the Partnership as additional or substituted Limited Partners.
Except as provided in .3.05(b), with respect to the required
additional Capital Contributions of Investor General Partners,
all Limited Partners shall be of the same class and have the same
rights.
29. "Managing General Partner" shall mean Atlas Resources, Inc. or
any Person admitted to the Partnership as a general partner other
than as an Investor General Partner pursuant to this Agreement
who is designated to exclusively supervise and manage the
operations of the Partnership.
30. "Managing General Partner Signature Page" shall mean an execution
and subscription instrument in the form attached as Exhibit (I-A)
to this Agreement, which is incorporated herein by reference.
31. "Offering Termination Date" shall mean the date after the minimum
Partnership Subscription has been received on which the Managing
General Partner determines, in its sole discretion, the
Partnership's subscription period is closed and the acceptance of
subscriptions ceases, which shall not be later than December 31,
1996.
32. "Operating Costs" shall mean expenditures made and costs incurred
in producing and marketing oil or gas from completed wells,
including, in addition to labor, fuel, repairs, hauling,
materials, supplies, utility charges and other costs incident to
or therefrom, ad valorem and severance taxes, insurance and
casualty loss expense, and compensation to well operators or
others for services rendered in conducting such operations.
Subject to the foregoing, Operating Costs also include reworking,
workover, subsequent equipping and similar expenses relating to
any well.
33. "Operator" shall mean Atlas, as operator of Partnership Wells in
Pennsylvania, Atlas Energy as operator of Partnership Wells in
Ohio and Atlas Energy Corporation as Operator of Partnership
Wells in West Virginia.
34. "Organization and Offering Costs" shall mean all costs of
organizing and selling the offering including, but not limited
to, total underwriting and brokerage discounts and commissions
(including fees of the underwriters' attorneys), expenses for
printing, engraving, mailing, salaries of employees while engaged
in sales activities, charges of transfer agents, registrars,
trustees, escrow holders, depositaries, engineers and other
experts, expenses of qualification of the sale of the securities
under federal and state law, including taxes and fees,
accountants' and attorneys' fees and other front-end fees.
35. "Overriding Royalty Interest" shall mean an interest in the oil
and gas produced pursuant to a specified oil and gas lease or
leases, or the proceeds from the sale thereof, carved out of the
working interest, to be received free and clear of all costs of
development, operation, or maintenance.
36. "Participants" shall mean the Managing General Partner to the
extent of its optional subscription under .3.03(b)(2); the
Limited Partners, and the Investor General Partners.
37. "Partners" shall mean the Managing General Partner, the Investor
General Partners and the Limited Partners.
38. "Partnership" shall mean Atlas-Energy for the Nineties-Public #5
Ltd., the Pennsylvania limited partnership formed pursuant to
this Agreement.
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(Page 5)
39. "Partnership Net Production Revenues" shall mean gross revenues
after deduction of the related Operating Costs, Direct Costs,
Administrative Costs and all other Partnership costs not
specifically allocated.
40. "Partnership Subscription" shall mean the aggregate Agreed
Subscriptions of the parties to this Agreement; provided,
however, with respect to Participant voting rights under this
Agreement, the term "Partnership Subscription" shall be deemed
not to include the Managing General Partner's required
subscription under .3.03(b)(1).
41. "Partnership Well" shall mean a well, some portion of the
revenues from which is received by the Partnership.
42. "Person" shall mean a natural person, partnership, corporation,
association, trust or other legal entity.
43. "Program" shall mean one or more limited or general partnerships
or other investment vehicles formed, or to be formed, for the
primary purpose of exploring for oil, gas and other hydrocarbon
substances or investing in or holding any property interests
which permit the exploration for or production of hydrocarbons or
the receipt of such production or the proceeds thereof.
44. "Prospect" shall mean an area covering lands which are believed
by the Managing General Partner to contain subsurface structural
or stratigraphic conditions making it susceptible to the
accumulations of hydrocarbons in commercially productive
quantities at one or more Horizons. The area, which may be
different for different Horizons, shall be designated by the
Managing General Partner in writing prior to the conduct of
Partnership operations and shall be enlarged or contracted from
time to time on the basis of subsequently acquired information to
define the anticipated limits of the associated hydrocarbon
reserves and to include all acreage encompassed therein. A
"Prospect" with respect to a particular Horizon may be limited to
the minimum area permitted by state law or local practice,
whichever is applicable, to protect against drainage from
adjacent wells if the well to be drilled by the Partnership is to
a Horizon containing Proved Reserves. Subject to the foregoing
sentence, with respect to the Clinton/Medina geological formation
in Ohio and Pennsylvania "Prospect"shall be deemed the drilling
or spacing unit.
45. "Proved Reserves" shall mean the estimated quantities of crude
oil, natural gas, and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing
economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future
conditions.
(i) Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation
test. The area of a reservoir considered proved includes (a)
that portion delineated by drilling and defined by gas-oil
and/or oil-water contacts, if any; and (b) the immediately
adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of
available geological and engineering data. In the absence of
information on fluid contacts, the lowest known structural
occurrence of hydrocarbons controls the lower proved limit of
the reservoir.
(ii) Reserves which can be produced economically through
application of improved recovery techniques (such as fluid
injection) are included in the "proved" classification when
successful testing by a pilot project, or the operation of an
installed program in the reservoir, provides support for the
engineering analysis on which the project or program was
based.
(iii) Estimates of proved reserves do not include the following:
(a) oil that may become available from known reservoirs but
is classified separately as "indicated additional reserves";
(b) crude oil, natural gas, and natural gas liquids, the
recovery of which is subject to reasonable doubt because of
uncertainty as to geology, reservoir characteristics, or
economic factors; (c) crude oil, natural gas, and natural gas
liquids, that may occur in undrilled prospects; and (d) crude
oil, natural gas, and natural gas liquids, that may be
recovered from oil shales, coal, gilsonite and other such
sources.
46. "Proved Developed Oil and Gas Reserves" shall mean reserves that
can be expected to be recovered through existing wells with
existing equipment and operating methods. Additional oil and gas
expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing
the natural forces and
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(Page 6)
mechanisms of primary recovery should be
included as "proved developed reserves" only after testing by a
pilot project or after the operation of an installed program has
confirmed through production response that increased recovery
will be achieved.
47. "Proved Undeveloped Reserves" shall mean reserves that are
expected to be recovered from new wells on undrilled acreage, or
from existing wells where a relatively major expenditure is
required for recompletion. Reserves on undrilled acreage shall be
limited to those drilling units offsetting productive units that
are reasonably certain of production when drilled. Proved
reserves for other undrilled units can be claimed only where it
can be demonstrated with certainty that there is continuity of
production from the existing productive formation. Under no
circumstances should estimates for proved undeveloped reserves be
attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated,
unless such techniques have been proved effective by actual tests
in the area and in the same reservoir.
48. "Roll-Up" shall mean a transaction involving the acquisition,
merger, conversion or consolidation, either directly or
indirectly, of the Partnership and the issuance of securities of
a Roll-Up Entity. Such term does not include: (a) a transaction
involving securities of the Partnership that have been listed for
at least twelve months on a national exchange or traded through
the National Association of Securities Dealers Automated
Quotation National Market System; or (b) a transaction involving
the conversion to corporate, trust or association form of only
the Partnership if, as a consequence of the transaction, there
will be no significant adverse change in any of the following:
voting rights; the term of existence of the Partnership; the
Managing General Partner's compensation; and the Partnership's
investment objectives.
49. "Roll-Up Entity" shall mean a partnership, trust, corporation or
other entity that would be created or survive after the
successful completion of a proposed roll-up transaction.
50. "Sales Commissions" shall mean all underwriting and brokerage
discounts and commissions incurred in the sale of Units in the
Partnership payable to registered broker-dealers, excluding
reimbursement for bona fide accountable due diligence expenses
and wholesaling fees.
51. "Sponsor" shall mean any person directly or indirectly
instrumental in organizing, wholly or in part, a program or any
person who will manage or is entitled to manage or participate in
the management or control of a program. "Sponsor" includes the
managing and controlling general partner(s) and any other person
who actually controls or selects the person who controls 25% or
more of the exploratory, development or producing activities of
the program, or any segment thereof, even if that person has not
entered into a contract at the time of formation of the program.
"Sponsor" does not include wholly independent third parties such
as attorneys, accountants, and underwriters whose only
compensation is for professional services rendered in connection
with the offering of units. Whenever the context so requires, the
term "sponsor" shall be deemed to include its affiliates.
52. "Subscription Agreement" shall mean an execution and subscription
instrument in the form attached as Exhibit (I-B) to this
Agreement, which is incorporated herein by reference.
53. "Tangible Costs"or "Capital Expenditures" shall mean those costs
associated with the drilling and completion of oil and gas wells
which are generally accepted as capital expenditures pursuant to
the provisions of the Internal Revenue Code; and includes all
costs of equipment, parts and items of hardware used in drilling
and completing a well, and those items necessary to deliver
acceptable oil and gas production to purchasers to the extent
installed downstream from the wellhead of any well and which are
required to be capitalized pursuant to applicable provisions of
the Code and regulations promulgated thereunder.
54. "Tax Matters Partner" shall mean the Managing General Partner.
55. "Units" or "Units of Participation" shall mean the Limited
Partner interests and the Investor General Partner interests
purchased by Participants in the Partnership under the provisions
of .3.03 and its subsections.
56. "Working Interest" shall mean an interest in an oil and gas
leasehold which is subject to some portion of the Cost of
development, operation, or maintenance.
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(Page 7)
ARTICLE III
SUBSCRIPTIONS AND FURTHER CAPITAL CONTRIBUTIONS
3.01. DESIGNATION OF MANAGING GENERAL PARTNER AND PARTICIPANTS. Atlas
shall serve as Managing General Partner of the Partnership. Atlas shall
further serve as a Participant to the extent of any subscription made by
it pursuant to .3.03(b)(2). Limited Partners and Investor General
Partners, including Affiliates of the Managing General Partner, shall
serve as Participants; and except as provided under the Pennsylvania
Revised Uniform Limited Partnership Act, the Limited Partners shall not
be bound by the obligations of the Partnership.
3.02. PARTICIPANTS.
3.02(a). LIMITED PARTNER AT FORMATION. Atlas Energy Group, Inc., as
Original Limited Partner, has acquired one Unit and has made a Capital
Contribution of $100. Upon the admission of Limited Partners and
Investor General Partners pursuant to .3.02(c) below, the Partnership
shall return to such Original Limited Partner its Capital Contribution
and shall reacquire its Unit and such Original Limited Partner shall
cease to be a Limited Partner in the Partnership with respect to such
Unit.
3.02(b). OFFERING OF INTERESTS. The Partnership is authorized to admit to
the Partnership at or prior to the Offering Termination Date additional
Limited Partners and Investor General Partners whose Agreed Subscriptions
for Units are accepted by the Managing General Partner if, after the
admission of such additional Limited Partners and Investor General
Partners, the Agreed Subscriptions of all Limited Partners and Investor
General Partners do not exceed the number of Units set forth in
.3.03(c)(1). The Managing General Partner may refuse to admit any person
as a Limited Partner or Investor General Partner for any reason
whatsoever pursuant to .3.03(d).
3.02(c). ADMISSION OF LIMITED PARTNERS AND/OR INVESTOR GENERAL PARTNERS. No
action or consent by the Participants shall be required for the admission
of additional Limited Partners and Investor General Partners pursuant to
.3.02(b). All subscribers' funds shall be held by an independent interest
bearing escrow holder and shall not be released to the Partnership until
the receipt of the minimum Partnership Subscription in .3.03(c)(2).
Thereafter, subscriptions may be paid directly to the Partnership
Account.
3.02(d). MINIMUM CAPITALIZATION AND DURATION OF OFFERING. The offering of
Units shall be terminated not later than the earlier of (i) December 31,
1996; or (ii) at such time as Agreed Subscriptions for the maximum
Partnership Subscription set forth in .3.03(c)(1) shall have been
received and accepted by the Managing General Partner. The offering may
be terminated earlier at the option of the Managing General Partner. If
at the time of termination Agreed Subscriptions for fewer than 100 Units
have been received and accepted, all monies deposited by subscribers
shall be promptly returned to them with the interest earned thereon from
the date such monies were deposited in escrow through the date of refund.
3.03. SUBSCRIPTIONS TO THE PARTNERSHIP.
3.03(a). SUBSCRIPTIONS BY PARTICIPANTS.
3.03(a)(1). AGREED SUBSCRIPTION. A Participant's Agreed Subscription to
the Partnership shall be the amount so designated on his Subscription
Agreement.
3.03(a)(2). SUBSCRIPTION PRICE AND MINIMUM AGREED SUBSCRIPTION. The
subscription price of a Unit in the Partnership shall be $10,000, payable
as set forth herein. The minimum Agreed Subscription per Participant
shall be one Unit ($10,000); however, the Managing General Partner, in
its discretion, may accept one-half Unit ($5,000) subscriptions. Larger
Agreed Subscriptions shall be accepted in $1,000 increments.
3.03(a)(3). EFFECT OF SUBSCRIPTION. Execution of a Subscription Agreement
shall serve as an agreement by such Limited Partner or Investor General
Partner to be bound by each and every term of this Agreement.
3.03(b). SUBSCRIPTIONS BY MANAGING GENERAL PARTNER.
3.03(b)(1). MANAGING GENERAL PARTNER'S REQUIRED SUBSCRIPTION. The Managing
General Partner, as a general partner and not as a Limited Partner or
Investor General Partner, shall contribute to the Partnership the Leases
which will be drilled by the Partnership
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(Page 8)
on the terms set forth in
.4.01(a)(3) and shall pay the costs charged to it pursuant to .5.01(a).
Such amounts shall be paid as set forth in .3.05(a).
3.03(b)(2). MANAGING GENERAL PARTNER'S OPTIONAL ADDITIONAL SUBSCRIPTION.
In addition to the Managing General Partner's required subscription under
.3.03(b)(1), the Managing General Partner may subscribe to up to 10% of
the Units on the same basis as a Participant may subscribe to Units under
the provisions of .3.03(a) and its subsections, and, subject to the
limitations on voting rights set forth in .4.03(c)(1), to that extent
shall be deemed a Participant in the Partnership for all purposes under
this Agreement. Notwithstanding the foregoing, broker-dealers and the
Managing General Partner and its officers and directors shall not be
required to pay any Sales Commission, accountable due diligence expense
or wholesaling fee.
3.03(b)(3). EFFECT OF AND EVIDENCING SUBSCRIPTION. The Managing General
Partner has executed a Managing General Partner Signature Page which
evidences the Managing General Partner's required subscription under
.3.03(b)(1) and which may be amended to reflect the amount of any
optional subscription under .3.03(b)(2). Execution of the Managing
General Partner Signature Page serves as an agreement by the Managing
General Partner to be bound by each and every term of this Agreement.
3.03(c). MAXIMUM AND MINIMUM PARTNERSHIP SUBSCRIPTION.
3.03(c)(1). MAXIMUM PARTNERSHIP SUBSCRIPTION. The maximum Partnership
Subscription excluding the Managing General Partner's required
subscription under .3.03(b)(1) may not exceed $7,000,000 (700 Units).
However, if subscriptions for all 700 Units being offered are obtained,
the Managing General Partner, in its sole discretion, may offer not more
than 100 additional Units and increase the maximum aggregate
subscriptions with which the Partnership may be funded to not more than
800 Units ($8,000,000).
3.03(c)(2). MINIMUM PARTNERSHIP SUBSCRIPTION. The minimum Partnership
Subscription shall equal at least $1,000,000 (100 Units). The Managing
General Partner and its Affiliates may purchase up to 10% of the
Partnership Subscription, none of which shall be applied to satisfy the
$1,000,000 minimum.
3.03(d). ACCEPTANCE OF SUBSCRIPTIONS. Acceptance of subscriptions shall
be discretionary with Atlas and Atlas may reject any subscription for any
reason it deems appropriate. A Participant's subscription to the
Partnership and Atlas' acceptance thereof shall be evidenced by the
execution of a Subscription Agreement by the Limited Partner or the
Investor General Partner and by Atlas. Agreed Subscriptions shall be
accepted or rejected by the Partnership within thirty days of their
receipt; if rejected, all funds shall be returned to the subscriber
immediately. The subscriber must be admitted as a Partner in the
Partnership within 150 days after the date on which the Subscription
Agreement is received by the escrow agent. Upon the original sale of
Units, the Participants shall be admitted as Partners not later than
fifteen days after the release from escrow of Participants' funds to the
Partnership, and thereafter Participants shall be admitted into the
Partnership not later than the last day of the calendar month in which
their Agreed Subscriptions were accepted by the Partnership.
3.04. CAPITAL CONTRIBUTIONS.
3.04(a). CAPITAL CONTRIBUTIONS. Each Participant shall make a Capital
Contribution to the Partnership equal to the sum of: (i) the Agreed
Subscription of such Participant; and (ii) in the case of Investor
General Partners, but not the Limited Partners, the additional Capital
Contributions required in .3.05(b). Participants shall not be required to
restore any deficit balances in their Capital Accounts except as set
forth in .5.03(h).
3.04(b). ADDITIONAL MANAGING GENERAL PARTNER CAPITAL CONTRIBUTIONS.
3.04(b)(1). ADDITIONAL CAPITAL CONTRIBUTIONS OF THE MANAGING GENERAL
PARTNER. In addition to any Capital Contribution required of the
Managing General Partner as provided in .3.03(b)(1) and any optional
Capital Contribution as a Participant as provided in .3.03(b)(2), the
Managing General Partner shall further contribute cash sufficient to pay
all costs charged to it under this Agreement to the extent such costs
exceed: (i) its Capital Contribution pursuant to .3.03(b); and (ii) its
share of undistributed revenues. In any event, the Managing General
Partner's aggregate Capital Contributions to the Partnership (including
Leases contributed pursuant to .3.03(b)(1)) shall not be less than 15% of
all Capital Contributions to the Partnership. Any payments by the
Managing General Partner in excess of the costs set forth in .3.03(b)(1)
shall be used to pay Partnership costs which would otherwise be charged
to the Participants. Such Capital Contributions shall be paid by the
Managing General Partner at the time such costs are required to be paid
by the Partnership, but, in no event, later than December 31, 1997. Upon
liquidation of the Partnership or its interest in the Partnership, the
Managing General Partner shall contribute to the Partnership any deficit
balance in its Capital Account, determined
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(Page 9)
after taking into account all
adjustments for the Partnership's taxable year during which such
liquidation occurs (other than adjustments made pursuant to this
requirement), by the end of the taxable year in which its interest in the
Partnership is liquidated (or, if later, within 90 days after the date of
such liquidation), to be paid to creditors of the Partnership or
distributed to the other parties hereto in accordance with .7.02 upon
liquidation of the Partnership. The Managing General Partner shall
maintain a minimum Capital Account balance equal to 1% of total positive
Capital Account balances for the Partnership.
3.04(b)(2). INTEREST FOR CONTRIBUTIONS. The interest of the Managing
General Partner in the capital and revenues of the Partnership is in
consideration for, and is the only consideration for, its Capital
Contribution to the Partnership.
3.04(c). LIMITATION ON AMOUNT OF REQUIRED CAPITAL CONTRIBUTIONS OF LIMITED
PARTNERS. In no event shall a Limited Partner be required to make
contributions to the Partnership greater than his required Capital
Contribution under .3.04(a).
3.05. PAYMENT OF SUBSCRIPTIONS.
3.05(a). MANAGING GENERAL PARTNER'S SUBSCRIPTIONS. The Managing General
Partner shall contribute to the Partnership the Leases pursuant to
.3.03(b)(1) and pay the costs charged to it when incurred by the
Partnership, subject to .3.04(b)(1). Any optional subscription under
.3.03(b)(2) shall be paid by the Managing General Partner in the same
manner as provided for the payment of Participant subscriptions under
.3.05(b).
3.05(b). PARTICIPANT SUBSCRIPTIONS AND ADDITIONAL CAPITAL CONTRIBUTIONS OF
THE INVESTOR GENERAL PARTNERS. A Participant shall pay his Agreed
Subscription 100% in cash at the time of subscribing. A Participant shall
receive interest on his Agreed Subscription up until the Offering
Termination Date.
Investor General Partners are obligated to make Capital Contributions to
the Partnership when called by the Managing General Partner, in addition
to their Agreed Subscriptions, for their pro rata share of any
Partnership obligations and liabilities which are recourse to the
Investor General Partners and are represented by their ownership of Units
prior to the conversion of Investor General Units to Limited Partner
interests pursuant to .6.01(c). The failure of an Investor General
Partner to timely make a required additional Capital Contribution
pursuant to this section results in his personal liability to the other
Investor General Partners for the amount in default. The remaining
Investor General Partners, pro rata, must pay such defaulting Investor
General Partner's share of Partnership liabilities and obligations. In
that event, the remaining Investor General Partners shall have a first
and preferred lien on the defaulting Investor General Partner's interest
in the Partnership to secure payment of the amount in default plus
interest at the legal rate; shall be entitled to receive 100% of the
defaulting Investor General Partner's cash distributions directly from
the Partnership until the amount in default is recovered in full plus
interest at the legal rate; and may commence legal action to collect the
amount due plus interest at the legal rate.
3.06. PARTNERSHIP FUNDS.
3.06(a). FIDUCIARY DUTY. The Managing General Partner shall have a
fiduciary responsibility for the safekeeping and use of all funds and
assets of the Partnership, whether or not in the Managing General
Partner's possession or control, and the Managing General Partner shall
not employ, or permit another to employ, such funds and assets in any
manner except for the exclusive benefit of the Partnership. Neither this
Agreement nor any other agreement between the Sponsor and the Partnership
shall contractually limit any fiduciary duty owed to the Participants by
the Sponsor under applicable law, except as provided in ..4.01, 4.02,
4.04, 4.05 and 4.06 of this Agreement.
3.06(b). SPECIAL ACCOUNT AFTER THE RECEIPT OF THE MINIMUM PARTNERSHIP
SUBSCRIPTION. Following the receipt of the minimum Partnership
Subscription, the funds of the Partnership shall be held in a separate
interest-bearing account maintained for the Partnership and shall not be
commingled with funds of any other entity.
3.06(c). INVESTMENT. Partnership funds may not be invested in the
securities of another person except in the following instances: (1)
investments in Working Interests or undivided Lease interests made in the
ordinary course of the Partnership's business; (2) temporary investments
made as set forth below; (3) multi-tier arrangements meeting the
requirements of .4.03(d)(15); (4) investments involving less than 5% of
the Partnership Subscription which are a necessary and incidental part of
a property acquisition transaction; and (5) investments in entities
established solely to limit the Partnership's liabilities associated with
the ownership or operation of property or equipment, provided, in such
instances duplicative fees and expenses shall be prohibited. After the
Offering Termination Date and
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(Page 10)
until proceeds from the public offering are
invested in the Partnership's operations, such proceeds may be
temporarily invested in income producing short-term, highly liquid
investments, where there is appropriate safety of principal, such as U.S.
Treasury Bills.
ARTICLE IV
CONDUCT OF OPERATIONS
4.01. ACQUISITION OF LEASES.
4.01(a). ASSIGNMENT TO PARTNERSHIP.
4.01(a)(1). GENERAL. The Managing General Partner shall select, acquire
and assign or cause to have assigned to the Partnership full or partial
interests in Leases, by any method customary in the oil and gas industry,
subject to the terms and conditions set forth below. The Partnership
shall acquire only Leases reasonably expected to meet the stated purposes
of the Partnership. No Leases shall be acquired for the purpose of a
subsequent sale unless the acquisition is made after a well has been
drilled to a depth sufficient to indicate that such an acquisition would
be in the Partnership's best interest.
4.01(a)(2). FEDERAL AND STATE LEASES. The Partnership is authorized to
acquire Leases on federal and state lands.
4.01(a)(3). TERMS AND OBLIGATIONS. Subject to the provisions of .4.03(d)
and its subsections, such acquisitions of Leases or other property may be
made under any terms and obligations, including any limitations as to the
Horizons to be assigned to the Partnership, and subject to any burdens,
as the Managing General Partner deems necessary in its sole discretion.
Provided, however, that any Lease acquired from the Managing General
Partner, the Operator or their Affiliates shall be credited towards the
Managing General Partner's required Capital Contribution set forth in
.3.03(b)(1) at the Cost of such Lease, unless the Managing General
Partner shall have cause to believe that Cost is materially more than the
market value of such property, in which case the credit for such
contribution will be made at a price not in excess of the fair market
value. A determination of fair market value must be supported by an
appraisal from an Independent Expert. Such opinion and any associated
supporting information must be maintained in the Partnership's records
for six years. To the extent the Partnership does not acquire a full
interest in a Lease from the Managing General Partner, the remainder of
the interest in such Lease may be held by the Managing General Partner
which may either retain and exploit it for its own account or sell or
otherwise dispose of all or a part of such remaining interest. Profits
from such exploitation and/or disposition shall be for the benefit of the
Managing General Partner to the exclusion of the Partnership.
4.01(a)(4). NO BREACH OF DUTY. Subject to the provisions of .4.03 and
its subsections, acquisition of Leases from the Managing General Partner,
the Operator or their Affiliates shall not be considered a breach of any
obligation owed by the Managing General Partner, the Operator, or their
Affiliates to the Partnership or the Participants.
4.01(b). OVERRIDING ROYALTY INTERESTS. Neither the Managing General
Partner nor any Affiliate shall acquire or retain any Overriding Royalty
Interest on the Lease interests acquired by the Partnership.
4.01(c). TITLE AND NOMINEE ARRANGEMENTS.
4.01(c)(1). LEGAL TITLE. Legal title to all Leases acquired by the
Partnership shall be held on a permanent basis in the name of the
Partnership. However, Partnership properties may be held temporarily in
the name of the Managing General Partner, the Operator or their
Affiliates or in the name of any nominee designated by the Managing
General Partner to facilitate the acquisition of the properties.
4.01(c)(2). TITLE. The Managing General Partner shall take such steps as
are necessary in its best judgment to render title to the Leases to be
acquired by the Partnership acceptable for the purposes of the
Partnership. No operation shall be commenced on Leases acquired by the
Partnership unless the Managing General Partner is satisfied that
necessary title requirements have been satisfied. The Managing General
Partner shall be free, however, to use its own best judgment in waiving
title requirements and shall not be liable to the Partnership or to the
other parties for any mistakes of judgment; nor shall the Managing
General Partner be deemed to be making any warranties or representations,
express or implied, as to the validity or merchantability of the title to
the Leases assigned to the Partnership or the extent of the interest
covered thereby except as otherwise may be provided in the Drilling and
Operating Agreement.
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(Page 11)
4.02. CONDUCT OF OPERATIONS.
4.02(a). IN GENERAL. The Managing General Partner shall establish a
program of operations for the Partnership. Subject to the limitations
contained in Article III of this Agreement concerning the maximum Capital
Contribution which can be required of a Limited Partner, the Managing
General Partner, the Limited Partners and the Investor General Partners
agree to participate in the program so established by the Managing
General Partner.
4.02(b). MANAGEMENT. Subject to any restrictions contained in this
Agreement, the Managing General Partner shall exercise full control over
all operations of the Partnership.
4.02(c). GENERAL POWERS OF THE MANAGING GENERAL PARTNER.
4.02(c)(1). IN GENERAL. Subject to the provisions of .4.03 and its
subsections, and to any authority which may be granted the Operator under
.4.02(c)(3)(b), the Managing General Partner shall have full authority to
do all things deemed necessary or desirable by it in the conduct of the
business of the Partnership. Without limiting the generality of the
foregoing, the Managing General Partner is expressly authorized to engage
in:
(i) the making of all determinations of which Leases, wells and
operations will be participated in by the Partnership, which
Leases are developed and which Leases are abandoned, or at its
sole discretion, sold or assigned to other parties, including
other investor ventures organized by the Managing General
Partner, the Operator or any of their Affiliates;
(ii) the negotiation and execution on any terms deemed desirable in
its sole discretion of any contracts, conveyances, or other
instruments, considered useful to the conduct of such operations
or the implementation of the powers granted it under this
Agreement, including, without limitation, the making of
agreements for the conduct of operations or the furnishing of
equipment, facilities, supplies and material, services, and
personnel and the exercise of any options, elections, or
decisions under any such agreements;
(iii) the exercise, on behalf of the Partnership or the parties, in
such manner as the Managing General Partner in its sole judgment
deems best, of all rights, elections and options granted or
imposed by any agreement, statute, rule, regulation, or order;
(iv) the making of all decisions concerning the desirability of
payment, and the payment or supervision of the payment, of all
delay rentals and shut-in and minimum or advance royalty
payments;
(v) the selection of full or part-time employees and outside
consultants and contractors and the determination of their
compensation and other terms of employment or hiring;
(vi) the maintenance of such insurance for the benefit of the
Partnership and the parties as it deems necessary, but, subject
to .6.01(c), in no event less in amount or type than the
following: worker's compensation insurance in full compliance
with the laws of the states of Pennsylvania, Ohio and West
Virginia and any other applicable state laws; liability insurance
(including automobile) which has a $1,000,000 combined single
limit for bodily injury and property damage in any one accident
or occurrence and in the aggregate; and such excess liability
insurance as to bodily injury and property damage with combined
limits of $20,000,000, per occurrence or accident and in the
aggregate, which includes $250,000 of seepage, pollution and
contamination insurance which protects and defends the insured
against property damage or bodily injury claims from third
parties (other than a co-owner of the Working Interest) alleging
seepage, pollution or contamination damage resulting from an
accident. Such excess liability insurance shall be in place and
effective no later than the Offering Termination Date and shall
be for the sole benefit of the Partnership and no other Program
in which Atlas serves as Managing General Partner until the
Investor General Partners are converted to Limited Partners, at
which time coverage for the exclusive benefit of the Partnership
will lapse. The Partnership shall continue to enjoy the non-
exclusive benefit of Atlas' $11,000,000 liability insurance on
the same basis as Atlas and its Affiliates, including other
Programs in which Atlas serves as Managing General Partner;
(vii) the use of the funds and revenues of the Partnership, and the
borrowing on behalf of, and the loan of money to, the
Partnership, on any terms it sees fit, for any purpose, including
without limitation the conduct or financing, in whole or in part,
of the drilling and other activities of the Partnership or the
conduct of additional operations, and the repayment of any such
borrowings or loans used initially to finance such operations or
activities;
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(Page 12)
(viii) the disposition, hypothecation, sale, exchange, release,
surrender, reassignment or abandonment of any or all assets of
the Partnership (including, without limitation, the Leases,
wells, equipment and production therefrom) provided that the sale
of all or substantially all of the assets of the Partnership
shall only be made as provided in .4.03(d)(6);
(ix) the formation of any further limited or general partnership, tax
partnership, joint venture, or other relationship which it deems
desirable with any parties who it, in its sole and absolute
discretion, selects, including any of its Affiliates;
(x) the control of any matters affecting the rights and obligations
of the Partnership, including the employment of attorneys to
advise and otherwise represent the Partnership, the conduct of
litigation and other incurring of legal expense, and the
settlement of claims and litigation;
(xi) the operation of producing wells drilled on the Leases owned by
the Partnership, or on a Prospect which includes any part of the
Leases;
(xii) the exercise of the rights granted to it under the power of
attorney created pursuant to this Agreement; and
(xiii) the incurring of all costs and the making of all expenditures
in any way related to any of the foregoing.
4.02(c)(2). SCOPE OF POWERS. The Managing General Partner's powers shall
extend to any operation participated in by the Partnership or affecting
its Leases, or other property or assets, irrespective of whether or not
the Managing General Partner is designated operator of such operation by
any outside persons participating therein.
4.02(c)(3). DELEGATION OF AUTHORITY.
4.02(c)(3)(a). IN GENERAL. The Managing General Partner may subcontract
and delegate all or any part of its duties hereunder to any entity chosen
by it, including an entity related to it, and such party shall have the
same powers in the conduct of such duties as would the Managing General
Partner; but such delegation shall not relieve the Managing General
Partner of its responsibilities hereunder.
4.02(c)(3)(b). DELEGATION TO OPERATOR. The Managing General Partner is
specifically authorized to delegate any or all of its duties to the
Operator by executing the Drilling and Operating Agreement, but such
delegation shall not relieve the Managing General Partner of its
responsibilities hereunder. In no event shall any consideration received
for operator services be in excess of the competitive rates or
duplicative of any consideration or reimbursements received pursuant to
this Agreement. The Managing General Partner may not benefit by
interpositioning itself between the Partnership and the actual provider
of operator services.
4.02(c)(4). RELATED PARTY TRANSACTIONS. Subject to the provisions of
.4.03 and its subsections, any transaction which the Managing General
Partner is authorized to enter into on behalf of the Partnership under
the authority granted in this section and its subsections, may be entered
into by the Managing General Partner with itself or with any other
general partner, the Operator or any of their Affiliates.
4.02(d). ADDITIONAL POWERS. In addition to the powers granted the
Managing General Partner under .4.02(c) and its subsections or elsewhere
in this Agreement, the Managing General Partner, where specified, shall
have the following additional express powers.
4.02(d)(1). DRILLING CONTRACTS. Partnership Wells drilled in
Pennsylvania, Ohio, West Virginia and other areas of the Appalachian
Basin may be drilled pursuant to the Drilling and Operating Agreement on
a per-foot basis with Atlas or its Affiliates based on $37.39 per foot
or, with respect to a well which the Partnership elects not to complete,
$20.60 per foot. In no event shall Atlas or its Affiliates, as drilling
contractor, receive a per foot rate which is not competitive with the
rates charged by unaffiliated contractors in the same geographic region.
No turnkey drilling contracts shall be made between the Managing General
Partner or its Affiliates and the Partnership. Neither the Managing
General Partner nor its Affiliates shall profit by drilling in
contravention of its fiduciary obligations to the Partnership. The
Managing General Partner may not benefit by interpositioning itself
between the Partnership and the actual provider of drilling contractor
services.
4.02(d)(2). POWER OF ATTORNEY.
4.02(d)(2)(a). IN GENERAL. Each party hereto hereby makes, constitutes
and appoints the Managing General Partner his true and lawful
attorney-in-fact for him and in his name, place and stead and for his use
and benefit, from time to time:
1. to create, prepare, complete, execute, file, swear to, deliver,
endorse and record any and all documents, certificates or other
instruments required or necessary to amend this Agreement as
authorized under the terms of this Agreement,
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(Page 13)
or to qualify the
Partnership as a limited partnership or partnership in commendam
and to conduct business under the laws of any jurisdiction in
which the Managing General Partner elects to qualify the
Partnership or conduct business; and
2. to create, prepare, complete, execute, file, swear to, deliver,
endorse and record any and all instruments, assignments, security
agreements, financing statements, certificates and other
documents as may be necessary from time to time to implement the
borrowing powers granted under this Agreement.
4.02(d)(2)(b). FURTHER ACTION. Each party hereto hereby authorizes such
attorney-in-fact to take any further action which such attorney-in-fact
shall consider necessary or advisable in connection with any of the
foregoing and acknowledges that the power of attorney granted under this
section is a special power of attorney coupled with an interest and is
irrevocable and shall survive the assignment by a party of the whole or a
portion of his interest in the Partnership; except that where such
assignment is of such party's entire interest in the Partnership and the
purchaser, transferee or assignee thereof, with the consent of the
Managing General Partner, is admitted as a successor Limited Partner or
Investor General Partner, the power of attorney shall survive the
delivery of such assignment for the sole purpose of enabling such
attorney-in-fact to execute, acknowledge and file any such agreement,
certificate, instrument or document necessary to effect such
substitution.
4.02(d)(2)(c). POWER OF ATTORNEY TO OPERATOR. The Managing General
Partner is hereby authorized to grant a Power of Attorney to the Operator
on behalf of the Partnership.
4.02(e). BORROWINGS AND USE OF PARTNERSHIP REVENUES.
4.02(e)(1). POWER TO BORROW OR USE PARTNERSHIP REVENUES. If additional
funds over the Partners' Capital Contributions are needed for Partnership
operations, the Managing General Partner may: (i) use Partnership
revenues allocable to the accounts of the Partners on whose behalf such
Partnership revenues are expended for such purposes; or (ii) the Managing
General Partner and its Affiliates may advance to the Partnership the
funds necessary pursuant to .4.03(d)(8)(b) which borrowings (other than
credit transactions on open account customary in the industry to obtain
goods and services) shall be without recourse to the Investor General
Partners and the Limited Partners except as otherwise provided herein.
Also, the amount that may be borrowed at any one time (other than credit
transactions on open account customary in the industry to obtain goods
and services) shall not exceed an amount equal to 5% of the Partnership
Subscription. Notwithstanding, the Managing General Partner and it
Affiliates shall not be obligated to advance the funds to the
Partnership.
4.02(e)(2). IMPLEMENTATION OF BORROWING PROVISIONS.
4.02(e)(2)(a). INDEMNIFICATION AND HOLD HARMLESS. Each party hereto for
whose account an interest in Partnership assets is mortgaged, pledged or
otherwise encumbered hereby indemnifies and agrees to hold harmless every
other party from any loss resulting from such mortgage, pledge or
encumbrance, limited to the amount of his agreed Capital Contribution.
4.02(e)(2)(b). FORECLOSURE. Should a foreclosure of a mortgage, pledge
or security interest permitted hereunder occur, any revenues, proceeds
and all taxable gain or loss resulting from such foreclosure shall be
allocated entirely to the party for whose account such interest was
pledged; and such party's interest in the remaining revenues of the
Partnership shall be reduced to take into account the foreclosure of the
interests foreclosed.
4.02(f). DESIGNATION OF TAX MATTERS PARTNER. Atlas is hereby designated
the Tax Matters Partner of the Partnership pursuant to .6231(a)(7) of the
Code and is authorized to act in such capacity on behalf of the
Partnership and the Participants and to take such action, including
settlement or litigation, as it in its sole discretion deems to be in the
best interest of the Partnership. Costs incurred by the Tax Matters
Partner shall be considered a Direct Cost of the Partnership. The Tax
Matters Partner shall notify all Participants of any partnership
administrative proceedings commenced by the Internal Revenue Service, and
thereafter shall furnish all Participants periodic reports at least
quarterly on the status of such proceedings. Each Partner agrees as
follows: (1) he will not file the statement described in Section
6224(c)(3)(B) of the Code prohibiting the Managing General Partner as the
Tax Matters Partner for the Partnership from entering into a settlement
on his behalf with respect to partnership items (as such term is defined
in Section 6231(a)(3) of Code) of the Partnership; (2) he will not form
or become and exercise any rights as a member of a group of Partners
having a 5% or greater interest in the profits of the Partnership under
Section 6223(b)(2) of the Code; and (3) the Managing General Partner is
authorized to file a copy of this Agreement (or pertinent portions
hereof) with the Internal Revenue Service pursuant to Section 6224(b) of
the Code if necessary to perfect the waiver of rights under this
Subsection 4.02(f).
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(Page 14)
4.03. GENERAL RIGHTS AND OBLIGATIONS OF THE PARTICIPANTS AND RESTRICTED AND
PROHIBITED TRANSACTIONS.
4.03(a)(1). LIMITED LIABILITY OF LIMITED PARTNERS. Limited Partners shall
not be bound by the obligations of the Partnership and shall not be
personally liable for any debts of the Partnership or any of the
obligations or losses thereof beyond the amount of their agreed Capital
Contributions, except to the extent such parties also subscribe to the
Partnership as Investor General Partners, or, in the case of Atlas, as
Managing General Partner.
4.03(a)(2). NO MANAGEMENT AUTHORITY OF PARTICIPANTS. Participants, as
such, shall have no power over the conduct of the affairs of the
Partnership; and no Participant, as such, shall take part in the
management of the business of the Partnership, or have the power to sign
for or to bind the Partnership.
4.03(b). REPORTS AND DISCLOSURES.
(1) Commencing with the 1996 calendar year, the Partnership shall
provide each Participant an annual report within 120 days after
the close of the calendar year, and commencing with the 1997
calendar year, a report within 75 days after the end of the first
six months of its calendar year, containing, except as otherwise
indicated, at least the information set forth below:
(a) Audited financial statements of the Partnership, including a
balance sheet and statements of income, cash flow and
Partners' equity, all of which shall be prepared in
accordance with generally accepted accounting principles and
accompanied by an auditor's report containing an opinion of
an independent public accountant selected by the Managing
General Partner stating that his audit was made in accordance
with generally accepted auditing standards and that in his
opinion such financial statements present fairly the
financial position, results of operations, partners' equity
and cash flows in accordance with generally accepted
accounting principles. Semiannual reports need not be
audited.
(b) A summary itemization, by type and/or classification of the total
fees and compensation including any unaccountable, fixed
payment reimbursements for Administrative Costs and Operating
Costs, paid by the Partnership, or indirectly on behalf of
the Partnership, to the Managing General Partner, the
Operator and their Affiliates. In addition, Participants
shall be provided the percentage that the annual
unaccountable, fixed fee reimbursement for Administrative
Costs bears to annual Partnership revenues.
(c) A description of each Prospect in which the Partnership owns an
interest, including the Cost, location, number of acres under
lease and the Working Interest owned therein by the
Partnership, except succeeding reports need contain only
material changes, if any, regarding such Prospects.
(d) A list of the wells drilled or abandoned by the Partnership
during the period of the report (indicating whether each of
such wells has or has not been completed), and a statement of
the Cost of each well completed or abandoned. Justification
shall be included for wells abandoned after production has
commenced.
(e) A description of all farmins and joint ventures, made during
the period of the report, including the Managing General
Partner's justification for the arrangement and a description
of the material terms.
(f) A schedule reflecting the total Partnership costs, the costs
paid by the Managing General Partner and the costs paid by
the Participants, the total Partnership revenues, the
revenues received or credited to the Managing General Partner
and the revenues received and credited to the Participants
and a reconciliation of such expenses and revenues in
accordance with the provisions of Article V.
(2) The Partnership shall, by March 15 of each year, prepare, or
supervise the preparation of, and transmit to each Partner such
information as may be needed to enable such Partner to file his
federal income tax return, any required state income tax return
and any other reporting or filing requirements imposed by any
governmental agency or authority.
(3) Annually, beginning January 1, 1998, a computation of the total
oil and gas Proved Reserves of the Partnership and the present
worth of such reserves determined using a discount rate of 10%, a
constant price for the oil and basing the price of gas upon the
existing gas contracts shall be provided to each Participant
along with each Participant's interest therein.
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(Page 15)
The reserve
computations shall be based upon engineering reports prepared by
the Partnership and reviewed by an Independent Expert. There
shall also be included an estimate of the time required for the
extraction of such reserves and a statement that because of the
time period required to extract such reserves the present value
of revenues to be obtained in the future is less than if
immediately receivable. In addition to the foregoing computation
and required estimate, as soon as possible, and in no event more
than ninety days after the occurrence of an event leading to
reduction of such reserves of the Partnership of 10% or more,
excluding reduction as a result of normal production, sales of
reserves or product price changes, a computation and estimate
shall be sent to each Participant.
(4) The cost of all such reports described in this .4.03(b) shall be
paid by the Partnership as Direct Costs.
(5) The Participants and/or their representatives shall be permitted
access to all records of the Partnership, after adequate notice,
at any reasonable time and may inspect and copy any of them. The
Managing General Partner will provide a copy of this Agreement or
other documents to the Participants after the Partnership's
documents have been filed with the Commonwealth of Pennsylvania
upon request. The Managing General Partner shall maintain and
preserve during the term of the Partnership and for six years
thereafter all accounts, books and other relevant documents,
including a record that a Participant meets the suitability
standards established in connection with an investment in the
Partnership and of fair market value as set forth in .4.01(a)(3).
Notwithstanding the foregoing, the Managing General Partner may
keep logs, well reports and other drilling and operating data
confidential for reasonable periods of time. The Managing General
Partner may release information concerning the operations of the
Partnership to such sources as are customary in the industry or
required by rule, regulation, or order of any regulatory body.
(6) The following provisions apply regarding access to the list of
Participants: (a) an alphabetical list of the names, addresses
and business telephone numbers of the Participants along with the
number of Units held by each of them (the "Participant List")
shall be maintained as a part of the books and records of the
Partnership and shall be available for inspection by any
Participant or its designated agent at the home office of the
Partnership upon the request of the Participant; (b) the
Participant List shall be updated at least quarterly to reflect
changes in the information contained therein; (c) a copy of the
Participant List shall be mailed to any Participant requesting
the Participant List within ten days of the written request. The
copy of the Participant List shall be printed in alphabetical
order, on white paper, and in a readily readable type size (in no
event smaller than 10-point type). A reasonable charge for copy
work shall be charged by the Partnership; (d) the purposes for
which a Participant may request a copy of the Participant List
include, without limitation, matters relating to Participant's
voting rights under this Agreement and the exercise of
Participant's rights under the federal proxy laws; and (e) if the
Managing General Partner neglects or refuses to exhibit, produce,
or mail a copy of the Participant List as requested, the Managing
General Partner shall be liable to any Participant requesting the
list for the costs, including attorneys fees, incurred by that
Participant for compelling the production of the Participant
List, and for actual damages suffered by any Participant by
reason of such refusal or neglect. It shall be a defense that the
actual purpose and reason for the requests for inspection or for
a copy of the Participant List is to secure the list of
Participants or other information for the purpose of selling such
list or information or copies thereof, or of using the same for a
commercial purpose other than in the interest of the applicant as
a Participant relative to the affairs of the Partnership. The
Managing General Partner shall require the Participant requesting
the Participant List to represent in writing that the list was
not requested for a commercial purpose unrelated to the
Participant's interest in the Partnership. The remedies provided
hereunder to Participants requesting copies of the Participant
List are in addition to, and shall not in any way limit, other
remedies available to Participants under federal law, or the laws
of any state.
(7) Concurrently with their transmittal to Participants, and as
required, the Managing General Partner shall file a copy of each
report provided for in this .4.03(b) with the Arkansas Securities
Department, the California Commissioner of Corporations, the
Kentucky Department of Financial Institutions, the Virginia State
Corporation Commission and with the securities commissions of
other states which request the report.
4.03(c). MEETINGS OF PARTICIPANTS. Meetings of the Participants may be
called by the Managing General Partner or by Participants whose Agreed
Subscriptions equal 10% or more of the Partnership Subscription for any
matters for which Participants may vote. Such call for a meeting shall be
deemed to have been made upon receipt by the Managing General Partner of
a written request from holders of the requisite percentage of Agreed
Subscriptions stating the purpose(s) of the meeting. The Managing General
Partner shall deposit in the United States mail within fifteen days after
the receipt of said request, written notice to all Participants of the
meeting and the purpose of such meeting, which shall be held on a date
not less than thirty days nor more than sixty days after the date of the
mailing
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(Page 16)
of said notice, at a reasonable time and place. Provided,
however, that the date for notice of such a meeting may be extended for a
period of up to sixty days, if in the opinion of the Managing General
Partner such additional time is necessary to permit preparation of proxy
or information statements or other documents required to be delivered in
connection with such meeting by the Securities and Exchange Commission or
other regulatory authorities. Participants shall have the right to vote
in person or by proxy at any meetings of the Participants.
4.03(c)(1). SPECIAL VOTING RIGHTS. At the request of Participants whose
Agreed Subscriptions equal 10% or more of the Partnership Subscription,
the Managing General Partner shall call for a vote by Participants. Each
Unit is entitled to one vote on all matters; each fractional Unit is
entitled to that fraction of one vote equal to the fractional interest in
the Unit. Participants whose Agreed Subscriptions equal a majority of the
Partnership Subscription may, without the concurrence of the Managing
General Partner or its Affiliates, vote to:
(a) amend this Agreement; provided however, any such amendment may
not increase the duties or liabilities of any Participant or the
Managing General Partner or increase or decrease the profit or
loss sharing or required Capital Contribution of any Participant
or the Managing General Partner without the approval of such
Participant or the Managing General Partner. Furthermore, any
such amendment may not affect the classification of Partnership
income and loss for federal income tax purposes without the
unanimous approval of all Participants;
(b) dissolve the Partnership;
(c) remove the Managing General Partner and elect a new Managing General
Partner;
(d) elect a new Managing General Partner if the Managing General Partner
elects to withdraw from the Partnership;
(e) remove the Operator and elect a new Operator;
(f) approve or disapprove the sale of all or substantially all of the
assets of the Partnership; and
(g) cancel any contract for services with the Managing General Partner,
or the Operator or their Affiliates, except services described in
the Prospectus without penalty upon sixty days notice.
With respect to Units owned by the Managing General Partner or its
Affiliates, the Managing General Partner and its Affiliates may not vote
or consent on the matters set forth in (c) or (e) above, or regarding any
transaction between the Partnership and the Managing General Partner or
its Affiliates. In determining the requisite percentage in interest of
Units necessary to approve any Partnership matter on which the Managing
General Partner and its Affiliates may not vote or consent, any Units
owned by the Managing General Partner and its Affiliates shall not be
included.
4.03(c)(2). RESTRICTIONS ON LIMITED PARTNER VOTING RIGHTS. The exercise by
the Limited Partners of the rights granted Participants under .4.03(c),
except for the special voting rights granted Participants under
.4.03(c)(1), shall be subject to the prior legal determination that the
grant or exercise of such powers will not adversely affect the limited
liability of Limited Partners, unless in the opinion of counsel to the
Partnership, such legal determination is not necessary under Pennsylvania
law to maintain the limited liability of the Limited Partners. A legal
determination under this paragraph may be made either pursuant to an
opinion of counsel, such counsel being independent of the Partnership and
selected upon the vote of Limited Partners whose Agreed Subscriptions
equal a majority of the Agreed Subscriptions held by Limited Partners, or
a declaratory judgment issued by a court of competent jurisdiction. The
Investor General Partners may exercise the rights granted to the
Participants whether or not the Limited Partners can participate in such
vote if the Investor General Partners represent the requisite percentage
of the Participants necessary to take such action.
4.03(d). RESTRICTED AND PROHIBITED TRANSACTIONS.
4.03(d)(1). EQUAL PROPORTIONATE INTEREST. If the Managing General
Partner or an Affiliate, excluding another program in which the interest
of the Managing General Partner or its Affiliates is substantially
similar to or less than their interest in the Partnership, sells,
transfers or conveys any oil, gas or other mineral interests or property
to the Partnership, it must, at the same time, sell to the Partnership an
equal proportionate interest in all its other property in the same
Prospect. Notwithstanding, a Prospect shall be deemed to consist of the
drilling or spacing unit on which such well will be drilled by the
Partnership if the geological feature to which such well will be drilled
contains Proved Reserves and the drilling or spacing unit protects
against drainage. With respect to an oil and gas Prospect located in Ohio
and Pennsylvania on which a well will be drilled by the Partnership to
test the Clinton/Medina geologic formation a Prospect shall be deemed to
consist of the drilling and spacing unit if it meets the test in the
preceding sentence. Neither the Managing General Partner nor its
Affiliates may drill any well within 1,650 feet of an existing
Partnership Well in the
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(Page 17)
Clinton/Medina formation in Pennsylvania or
within 1,100 feet of an existing Partnership Well in Ohio within five
years of the drilling of the Partnership Well. In the event the
Partnership abandons its interest in a well, this restriction will
continue for one year following the abandonment.
If the area constituting the Partnership's Prospect is subsequently
enlarged to encompass any area wherein the Managing General Partner or an
Affiliate, excluding another Program in which the interest of the
Managing General Partner or its Affiliates is substantially similar to or
less than their interest in the Partnership, owns a separate property
interest, such separate property interest or a portion thereof shall be
sold, transferred or conveyed to the Partnership as set forth in
..4.01(a)(3), 4.03(d)(1) and 4.03(d)(2) if the activities of the
Partnership were material in establishing the existence of Proved
Undeveloped Reserves which are attributable to such separate property
interest. Notwithstanding, Prospects in the Clinton/Medina geological
formation shall not be enlarged or contracted if the Prospect was limited
to the drilling or spacing unit because the well was being drilled to
Proved Reserves in the Clinton/Medina geological formation and the
drilling or spacing unit protected against drainage.
4.03(d)(2). TRANSFER OF LESS THAN THE MANAGING GENERAL PARTNER'S AND ITS
AFFILIATES' ENTIRE INTEREST. A sale, transfer or a conveyance to the
Partnership of less than all of the ownership of the Managing General
Partner or an Affiliate, excluding another Program in which the interest
of the Managing General Partner or its Affiliates is substantially
similar to or less than their interest in the Partnership, in any
Prospect shall not be made unless the interest retained by the Managing
General Partner or the Affiliate is a proportionate Working Interest, the
respective obligations of the Managing General Partner or its Affiliates
and the Partnership are substantially the same after the sale of the
interest by the Managing General Partner or its Affiliates, and the
Managing General Partner's interest in revenues does not exceed the
amount proportionate to its retained Working Interest. Neither the
Managing General Partner nor any Affiliate will retain any Overriding
Royalty Interests or other burdens on an interest sold by it to the
Partnership. With respect to its retained interest the Managing General
Partner shall not Farmout a Lease for the primary purpose of avoiding
payment of its costs relating to drilling the Lease. This section does
not prevent the Managing General Partner or its Affiliates from
subsequently dealing with their retained interest as they may choose with
unaffiliated parties or Affiliated partnerships.
4.03(d)(3). TRANSFER OF LEASES TO THE MANAGING GENERAL PARTNER. The
Managing General Partner and its Affiliates shall not purchase any
producing or non-producing oil and gas properties from the Partnership.
4.03(d)(4). LIMITATIONS ON ACTIVITIES OF THE MANAGING GENERAL PARTNER AND
ITS AFFILIATES ON LEASES ACQUIRED BY THE PARTNERSHIP. During a period of five
years from the Offering Termination Date of the Partnership, if the
Managing General Partner or any of its Affiliates, excluding another
Program in which the interest of the Managing General Partner or its
Affiliates is substantially similar to or less than their interest in the
Partnership, proposes to acquire an interest, from an unaffiliated
person, in a Prospect in which the Partnership possesses an interest or
in a Prospect in which the Partnership's interest has been terminated
without compensation within one year preceding such proposed acquisition,
the following conditions shall apply:
(a) if the Managing General Partner or the Affiliate, excluding
another Program in which the interest of the Managing General
Partner or its Affiliates is substantially similar to or less
than their interest in the Partnership, does not currently own
property in the Prospect separately from the Partnership, then
neither the Managing General Partner nor the Affiliate shall be
permitted to purchase an interest in the Prospect; and
(b) if the Managing General Partner or the Affiliate, excluding
another Program in which the interest of the Managing General
Partner or its Affiliates is substantially similar to or less
than their interest in the Partnership, currently own a
proportionate interest in the Prospect separately from the
Partnership, then the interest to be acquired shall be divided
between the Partnership and the Managing General Partner or the
Affiliate in the same proportion as is the other property in the
Prospect; provided, however, if cash or financing is not
available to the Partnership to enable it to consummate a
purchase of the additional interest to which it is entitled, then
neither the Managing General Partner nor the Affiliate shall be
permitted to purchase any additional interest in the Prospect.
4.03(d)(5). TRANSFER OF LEASES BETWEEN AFFILIATED LIMITED PARTNERSHIPS. The
Partnership shall not purchase properties from or sell properties to any
other affiliated partnership. This prohibition, however, shall not apply
to joint ventures among such affiliated partnerships, provided that the
respective obligations and revenue sharing of all parties to the
transaction are substantially the same and the compensation arrangement
or any other interest or right of either the Managing General Partner or
its Affiliates is the same in each affiliated partnership, or, if
different, the aggregate compensation of the Managing General Partner or
the Affiliate is reduced to reflect the lower compensation arrangement.
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(Page 18)
4.03(d)(6). SALE OF ALL ASSETS. The sale of all or substantially all of
the assets of the Partnership (including, without limitation, Leases,
wells, equipment and production therefrom) shall be made only with the
consent of Participants whose Agreed Subscriptions equal a majority of
the Partnership Subscription.
4.03(d)(7). SERVICES. The Managing General Partner and any Affiliate
shall not render to the Partnership any oil field, equipage or other
services nor sell or lease to the Partnership any equipment or related
supplies unless such person is engaged, independently of the Partnership
and as an ordinary and ongoing business, in the business of rendering
such services or selling or leasing such equipment and supplies to a
substantial extent to other persons in the oil and gas industry in
addition to the partnerships in which the Managing General Partner or an
Affiliate has an interest; and the compensation, price or rental therefor
is competitive with the compensation, price or rental of other persons in
the area engaged in the business of rendering comparable services or
selling or leasing comparable equipment and supplies which could
reasonably be made available to the Partnership. If such person is not
engaged in such a business then such compensation, price or rental will
be the Cost of such services, equipment or supplies to such person or the
competitive rate which could be obtained in the area, whichever is less.
Any such services for which the Managing General Partner or an Affiliate
is to receive compensation other than those described in this Prospectus
shall be embodied in a written contract which precisely describes the
services to be rendered and all compensation to be paid. Such contracts
are cancellable without penalty upon sixty days written notice by
Participants whose Agreed Subscriptions equal a majority of the
Partnership Subscription.
4.03(d)(8). LOANS.
4.03(d)(8)(a). LOANS FROM THE PARTNERSHIP. No loans or advances shall be
made by the Partnership to the Managing General Partner or any Affiliate.
4.03(d)(8)(b). LOANS TO THE PARTNERSHIP. Neither the Managing General
Partner nor any Affiliate shall loan money to the Partnership where the
interest to be charged exceeds the Managing General Partner's or the
Affiliate's interest cost or where the interest to be charged exceeds
that which would be charged to the Partnership (without reference to the
Managing General Partner's or the Affiliate's financial abilities or
guarantees) by unrelated lenders, on comparable loans for the same
purpose, and neither the Managing General Partner nor any Affiliate shall
receive points or other financing charges or fees, regardless of the
amount, although the actual amount of such charges incurred from
third-party lenders may be reimbursed to the Managing General Partner or
the Affiliate.
4.03(d)(9). FARMOUTS. The Partnership shall not Farmout its Leases.
4.03(d)(10). COMPENSATING BALANCES. Neither the Managing General
Partner nor any Affiliate shall use the Partnership's funds as
compensating balances for its own benefit.
4.03(d)(11). FUTURE PRODUCTION. Neither the Managing General Partner
nor any Affiliate shall commit the future production of a well developed
by the Partnership exclusively for its own benefit.
4.03(d)(12). MARKETING ARRANGEMENTS. All benefits from marketing
arrangements or other relationships affecting property of the Managing
General Partner or its Affiliates and the Partnership shall be fairly and
equitably apportioned according to the respective interests of each in
such property. The Managing General Partner shall treat all wells in a
geographic area equally concerning to whom and at what price the
Partnership's gas will be sold and to whom and at what price the gas of
other oil and gas Programs which the Managing General Partner has
sponsored or will sponsor will be sold. The Managing General Partner
calculates a weighted average selling price for all of the gas sold in a
geographic area by taking all money received from the sale of all of the
gas sold to its customers in a geographic area and dividing by the volume
of all gas sold from the wells in that geographic area. Notwithstanding,
the Managing General Partner and its Affiliates are parties to, and
contract for, the sale of natural gas with industrial end-users and will
continue to enter into such contracts on their own behalf, and the
Partnership will not be a party to such contracts. The Managing General
Partner and its Affiliates also have a substantial interest in certain
pipeline facilities and compression facilities which access interstate
pipeline systems, which it is anticipated will be used to transport the
Partnership's gas production as well as Affiliated partnership and
third-party gas production, and the Partnership will not receive any
interest in the Managing General Partner's and its Affiliates' pipeline
or gathering system or compression facilities.
4.03(d)(13). ADVANCE PAYMENTS. Advance payments by the Partnership to
the Managing General Partner and its Affiliates are prohibited, except
where advance payments are required to secure the tax benefits of prepaid
drilling costs and for a business purpose. These advance payments, if
any, shall not include nonrefundable payments for completion costs prior
to the time that a decision was made that the well or wells warrant a
completion attempt.
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(Page 19)
4.03(d)(14). NO REBATES. No rebates or give-ups may be received by the
Managing General Partner or any Affiliate nor may the Managing General
Partner or any Affiliate participate in any reciprocal business
arrangements which would circumvent these guidelines.
4.03(d)(15). PARTICIPATION IN OTHER PARTNERSHIPS. If the Partnership
participates in other partnerships or joint ventures (multi-tier
arrangements), the terms of any such arrangements shall not result in the
circumvention of any of the requirements or prohibitions contained in
this Agreement, including the following: (i) there shall be no
duplication or increase in organization and offering expenses, the
Managing General Partner's compensation, Partnership expenses or other
fees and costs; (ii) there shall be no substantive alteration in the
fiduciary and contractual relationship between the Managing General
Partner and the Participants; and (iii) there shall be no diminishment in
the voting rights of the Participants.
4.03(d)(16). ROLL-UP LIMITATIONS. In connection with a proposed Roll-Up,
the following shall apply:
(a) An appraisal of all Partnership assets shall be obtained from a
competent Independent Expert. If the appraisal will be included
in a prospectus used to offer securities of a Roll-Up Entity, the
appraisal shall be filed with the Securities and Exchange
Commission and the Administrator as an exhibit to the
registration statement for the offering. Accordingly, an issuer
using the appraisal shall be subject to liability for violation
of Section 11 of the Securities Act of 1933 and comparable
provisions under state law for any material misrepresentations or
material omissions in the appraisal. Partnership assets shall be
appraised on a consistent basis. The appraisal shall be based on
all relevant information, including current reserve estimates
prepared by an independent petroleum consultant, and shall
indicate the value of the Partnership's assets as of a date
immediately prior to the announcement of the proposed Roll-Up
transaction. The appraisal shall assume an orderly liquidation of
the Partnership's assets over a twelve month period. The terms of
the engagement of the Independent Expert shall clearly state that
the engagement is for the benefit of the Partnership and the
Participants. A summary of the independent appraisal, indicating
all material assumptions underlying the appraisal, shall be
included in a report to the Participants in connection with a
proposed Roll-Up.
(b) In connection with a proposed Roll-Up, Participants who vote "no"
on the proposal shall be offered the choice of:
(1) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up;
(2) remaining as Participants in the Partnership and preserving
their interests therein on the same terms and conditions as
existed previously; or
(3) receiving cash in an amount equal to the Participants' pro
rata share of the appraised value of the net assets of the
Partnership.
(c) The Partnership shall not participate in any proposed Roll-Up
which, if approved, would result in the diminishment of any
Participant's voting rights under the Roll-Up Entity's chartering
agreement. In no event shall the democracy rights of Participants
in the Roll-Up Entity be less than those provided for under
..4.03(c) and 4.03(c)(1) of this Agreement. If the Roll-Up Entity
is a corporation, the democracy rights of Participants shall
correspond to the democracy rights provided for in this Agreement
to the greatest extent possible.
(d) The Partnership shall not participate in any proposed Roll-Up
transaction which includes provisions which would operate to
materially impede or frustrate the accumulation of shares by any
purchaser of the securities of the Roll-Up Entity (except to the
minimum extent necessary to preserve the tax status of the
Roll-Up Entity); nor shall the Partnership participate in any
proposed Roll-Up transaction which would limit the ability of a
Participant to exercise the voting rights of its securities of
the Roll-Up Entity on the basis of the number of Units held by
that Participant.
(e) The Partnership shall not participate in a Roll-Up in which
Participants' rights of access to the records of the Roll-Up
Entity will be less than those provided for under ..4.03(b)(5)
and 4.03(b)(6) of this Agreement.
(f) The Partnership shall not participate in any proposed Roll-Up
transaction in which any of the costs of the transaction would be
borne by the Partnership if less than 75% in interest of the
Participants vote to approve the proposed Roll-Up.
(g) The Partnership shall not participate in a Roll-Up transaction
unless the Roll-Up transaction is approved by Participants whose
Agreed Subscriptions equal 75% of the Partnership Subscription.
4.03(d)(17). DISCLOSURE OF BINDING AGREEMENTS. Any agreement or
arrangement which binds the Partnership must be disclosed in the
Prospectus.
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(Page 20)
4.03(d)(18) FAIR AND REASONABLE. Neither the Managing General Partner
nor any Affiliate will sell, transfer, or convey any property to or
purchase any property from the Partnership, directly or indirectly,
except pursuant to transactions that are fair and reasonable, nor take
any action with respect to the assets or property of the Partnership
which does not primarily benefit the Partnership.
4.04. DESIGNATION, COMPENSATION AND REMOVAL OF MANAGING GENERAL PARTNER
AND REMOVAL OF OPERATOR.
4.04(a). MANAGING GENERAL PARTNER.
4.04(a)(1). TERM OF SERVICE. Atlas shall serve as the Managing General
Partner of the Partnership until it is removed pursuant to .4.04(a)(3).
4.04(a)(2). COMPENSATION OF MANAGING GENERAL PARTNER. Charges by the
Managing General Partner for goods and services must be fully supportable
as to the necessity thereof and the reasonableness of the amount charged.
All actual and necessary expenses incurred by the Partnership may be paid
out of the Partnership Subscription and out of Partnership revenues.
In addition to the compensation set forth in ..4.01(a)(3) and 4.02(d)(1)
Atlas, as Managing General Partner and its Affiliates shall be reimbursed
for all Direct Costs and credited pursuant to .5.01(a) for Organization
and Offering Costs not exceeding 15% of the Partnership Subscription;
provided, however, Direct Costs shall be billed directly to and paid by
the Partnership to the extent practicable. In addition, subject to the
above paragraph, Atlas shall receive an unaccountable, fixed payment
reimbursement for its Administrative Costs of $75 per well per month,
which shall be proportionately reduced to the extent the Partnership
acquires less than 100% of the Working Interest in the well. The
unaccountable, fixed payment reimbursement of $75 per well per month
shall not be increased in amount during the term of the Partnership.
Further, Atlas, as Managing General Partner, shall not be reimbursed for
any additional Partnership Administrative Costs and the unaccountable,
fixed payment reimbursement of $75 per well per month shall be the entire
payment to reimburse Atlas for the Partnership's Administrative Costs.
Finally, Atlas, as Managing General Partner, shall not receive the
unaccountable, fixed payment reimbursement of $75 per well per month for
plugged or abandoned wells.
Atlas and its Affiliates shall also receive a combined transportation and
marketing fee at a competitive rate for transporting and marketing the
Partnership's gas.
The Managing General Partner and its Affiliates may enter into
transactions pursuant to .4.03(d)(7) and shall be entitled to
compensation pursuant to such section. In addition, the Managing General
Partner and its Affiliates shall receive compensation as set forth in the
Drilling and Operating Agreement.
4.04(a)(3). REMOVAL OF MANAGING GENERAL PARTNER. The Managing General
Partner may be removed and a new Managing General Partner or Managing
General Partners may be substituted at any time upon sixty days advance
written notice to the outgoing Managing General Partner, by the
affirmative vote of Participants whose Agreed Subscriptions equal a
majority of the Partnership Subscription. Should Participants vote to
remove the Managing General Partner from the Partnership, Participants
must elect by an affirmative vote of Participants whose Agreed
Subscriptions equal a majority of the Partnership Subscription either to
terminate, dissolve and wind up the Partnership or to continue as a
successor limited partnership under all the terms of this Partnership
Agreement, as provided in .7.01(c). If the Participants elect to continue
as a successor limited partnership, the Managing General Partner shall
not be removed until a substituted Managing General Partner has been
selected by an affirmative vote of Participants whose Agreed
Subscriptions equal a majority of the Partnership Subscription and
installed as such.
In the event the Managing General Partner is removed, the Managing
General Partner's interest in the Partnership shall be determined by
appraisal by a qualified Independent Expert selected by mutual agreement
between the removed Managing General Partner and the incoming Managing
General Partner, such appraisal to take into account an appropriate
discount, to reflect the risk of recovery of oil and gas reserves, but
not less than that utilized in the most recent repurchase offer, if any.
The cost of such appraisal shall be borne equally by the removed Managing
General Partner and the Partnership. The incoming Managing General
Partner shall have the option to purchase 20% of the removed Managing
General Partner's interest for the value determined by the Independent
Expert.
The method of payment for such interest must be fair and must protect the
solvency and liquidity of the Partnership. Where the termination is
voluntary, the method of payment shall be a non-interest bearing
unsecured promissory note with principal payable, if at all, from
distributions which the Managing General Partner otherwise would have
received under the Partnership Agreement had the Managing General Partner
not been terminated. Where the termination is involuntary, the method of
payment shall be an interest bearing promissory note coming due in no
less than five years with equal installments each year. The interest rate
shall be that charged
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(Page 21)
on comparable loans. The removed Managing General
Partner, at the time of its removal shall cause, to the extent it is
legally possible, its successor to be transferred or assigned all its
rights, obligations and interests as Managing General Partner of the
Partnership in contracts entered into by it on behalf of the Partnership.
In any event, the removed Managing General Partner shall cause its
rights, obligations and interests as Managing General Partner of the
Partnership in any such contract to terminate at the time of its removal.
Notwithstanding any other provision in this Agreement, the Partnership or
the successor Managing General Partner shall not be a party to any gas
purchase agreement that Atlas or its Affiliates enters into with a third
party and shall not have any rights pursuant to such gas purchase
agreement. Further, the Partnership or the successor Managing General
Partner shall not receive any interest in Atlas' and its Affiliates'
pipeline or gathering system or compression facilities.
At any time commencing ten years after the Offering Termination Date of
the Partnership and the Partnership's primary drilling activities, the
Managing General Partner may voluntarily withdraw as Managing General
Partner upon giving 120 days' written notice of withdrawal to the
Participants and its interest in the Partnership shall be determined as
provided above with respect to removal. Such interest shall be
distributed to the Managing General Partner as described above with
respect to voluntary removal, subject to the option of any successor
Managing General Partner to purchase 20% of such interest at the value
determined as described above with respect to removal.
The Managing General Partner has the right at any time to withdraw a
property interest held by the Partnership in the form of a Working
Interest in the Partnership Wells equal to or less than its respective
interest in the revenues of the Partnership pursuant to the conditions
set forth in .6.03. The Managing General Partner shall fully indemnify
the Partnership against any additional expenses which may result from a
partial withdrawal of its interests and such withdrawal may not result in
a greater amount of Direct Costs or Administrative Costs being allocated
to the Participants. The expenses of withdrawing shall be borne by the
withdrawing Managing General Partner.
4.04(a)(4). REMOVAL OF OPERATOR. The Operator may be removed and a new
Operator may be substituted at any time upon 60 days advance written
notice to the outgoing Operator by the Managing General Partner acting on
behalf of the Partnership upon the affirmative vote of Participants whose
Agreed Subscriptions equal a majority of the Partnership Subscription.
The Operator shall not be removed until a substituted Operator has been
selected by an affirmative vote of Participants whose Agreed
Subscriptions equal a majority of the Partnership Subscription and
installed as such.
4.05. INDEMNIFICATION AND EXONERATION.
4.05(a). GENERAL STANDARDS. The Managing General Partner, the Operator
and their Affiliates shall have no liability whatsoever to the
Partnership or to any Participant for any loss suffered by the
Partnership or Participants which arises out of any action or inaction of
the Managing General Partner, the Operator or their Affiliates if the
Managing General Partner, the Operator and their Affiliates, determined
in good faith that such course of conduct was in the best interest of the
Partnership, the Managing General Partner, the Operator and their
Affiliates were acting on behalf of or performing services for the
Partnership and such course of conduct did not constitute negligence or
misconduct of the Managing General Partner, the Operator or their
Affiliates.
The Managing General Partner, the Operator and their Affiliates shall be
indemnified by the Partnership against any losses, judgments,
liabilities, expenses and amounts paid in settlement of any claims
sustained by them in connection with the Partnership, provided that the
Managing General Partner, the Operator and their Affiliates determined in
good faith that the course of conduct which caused the loss or liability
was in the best interest of the Partnership, the Managing General
Partner, the Operator and their Affiliates were acting on behalf of or
performing services for the Partnership and such course of conduct was
not the result of negligence or misconduct of the Managing General
Partner, the Operator or their Affiliates.
Provided, however, payments arising from such indemnification or
agreement to hold harmless are recoverable only out of the tangible net
assets of the Partnership, including any insurance proceeds.
Notwithstanding anything to the contrary contained in the above, the
Managing General Partner, the Operator and their Affiliates and any
person acting as a broker-dealer shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation of
federal or state securities laws by such party unless (1) there has been
a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee; (2) such
claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee, or (3) a court of
competent jurisdiction approves a settlement of the claims against a
particular indemnitee and finds that indemnification of the settlement
and the related costs should be made, and the court considering the
request for indemnification has been advised of the position of the
Securities and Exchange Commission,
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(Page 22)
the Massachusetts Securities
Division, and the position of any state securities regulatory authority
in which plaintiffs claim they were offered or sold Partnership Units,
with respect to the issue of indemnification for violation of securities
laws.
The advancement of Partnership funds to the Managing General Partner or
its Affiliates for legal expenses and other costs incurred as a result of
any legal action for which indemnification is being sought is permissible
only if the Partnership has adequate funds available and the following
conditions are satisfied: (1) the legal action relates to acts or
omissions with respect to the performance of duties or services on behalf
of the Partnership; (2) the legal action is initiated by a third party
who is not a Participant, or the legal action is initiated by a
Participant and a court of competent jurisdiction specifically approves
such advancement; and (3) the Managing General Partner or its Affiliates
undertake to repay the advanced funds to the Partnership, together with
the applicable legal rate of interest thereon, in cases in which such
party is found not to be entitled to indemnification.
The Partnership shall not bear the cost of that portion of insurance
which insures the Managing General Partner, the Operator or their
Affiliates for any liability for which the Managing General Partner, the
Operator or their Affiliates could not be indemnified pursuant to the
first two paragraphs of this .4.05(a).
4.05(b). LIABILITY OF PARTNERS. Pursuant to the Pennsylvania Revised
Uniform Limited Partnership Act the Investor General Partners are liable
jointly and severally for all liabilities and obligations of the
Partnership. Notwithstanding the foregoing, as among themselves, the
Investor General Partners hereby agree that each shall be solely and
individually responsible only for his pro rata share of the liabilities
and obligations of the Partnership. In addition, Atlas and AEGH agree to
use their corporate assets and not the assets of the Partnership to
indemnify each of the Investor General Partners against all Partnership
related liabilities which exceed such Investor General Partner's interest
in the undistributed net assets of the Partnership and insurance
proceeds, if any. Further, Atlas and AEGH agree to indemnify each
Investor General Partner against any personal liability as a result of
the unauthorized acts of another Investor General Partner. Upon such
indemnification by Atlas and AEGH, each Investor General Partner who has
been indemnified shall and does hereby transfer and subrogate his rights
for contribution from or against any other Investor General Partner to
Atlas and/or AEGH.
4.05(c). ORDER OF PAYMENT. Claims shall be paid first out of any
insurance proceeds, next out of the assets and revenues of the
Partnership, and finally by the Managing General Partner as provided in
..3.05(b) and 4.05(b). No Limited Partner shall be required to reimburse
the Managing General Partner, the Operator or their Affiliates or the
Investor General Partners for any liability in excess of his agreed
Capital Contribution, except for a liability resulting from such Limited
Partner's unauthorized participation in Partnership management, or from
some other breach by such Limited Partner of this Agreement.
4.05(d). AUTHORIZED TRANSACTIONS. No transaction entered into or action
taken by the Partnership or the Managing General Partner, the Operator or
their Affiliates, which is authorized by this Agreement to be entered
into or taken with such party shall be deemed a breach of any obligation
owed by the Managing General Partner, the Operator or their Affiliates to
the Partnership or the Participants.
4.06. OTHER ACTIVITIES. The Managing General Partner, the Operator and
their Affiliates are now engaged, and will engage in the future, for
their own account and for the account of others, including other
investors, in all aspects of the oil and gas business, including, without
limitation, the evaluation, acquisition and sale of producing and
nonproducing Leases, and the exploration for and production of oil, gas,
and other minerals. The Managing General Partner is required to devote
only so much of its time as is necessary to manage the affairs of the
Partnership. Except as expressly provided to the contrary in this
Agreement, and subject to fiduciary duties, such parties may continue
such activities, or initiate further such activities, individually,
jointly with others, or as a part of any other limited or general
partnership, tax partnership, joint venture, or other entity or activity
to which they are or may become a party, in any locale and in the same
fields, areas of operation or prospects in which the Partnership may
likewise be active; may reserve partial interests in Leases being
assigned to the Partnership or any other interests not expressly
prohibited by this Agreement; may deal with the Partnership as
independent parties or through any other entity in which they may be
interested; may conduct business with the Partnership as set forth
herein; may participate in such other investor operations, as investors
or otherwise; and shall not be required to permit the Partnership or the
Participants to participate in any such operations in which they may be
interested or share in any profits or other benefits therefrom. However,
except as otherwise provided herein, the Managing General Partner and any
of its Affiliates may pursue business opportunities that are consistent
with the Partnership's investment objectives for their own account only
after they have determined that such opportunity either cannot be pursued
by the Partnership because of insufficient funds or because it is not
appropriate for the Partnership under the existing circumstances. Atlas
or its Affiliates may manage multiple programs simultaneously.
Notwithstanding any other provision in this Agreement, the Partnership
shall not be a party to any gas supply agreement that Atlas or its
Affiliates enters into with a third party and shall not have any rights
pursuant to such gas
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(Page 23)
supply agreement. Further, the Partnership shall not
receive any interest in Atlas' and its Affiliates' pipeline or gathering
system or compression facilities.
ARTICLE V
PARTICIPATION IN COSTS AND REVENUES,
CAPITAL ACCOUNTS, ELECTIONS AND DISTRIBUTIONS
5.01. PARTICIPATION IN COSTS AND REVENUES. Except as otherwise provided in
this Agreement, costs and revenues shall be charged and credited to the
Managing General Partner and the Participants as set forth in this .5.01
and its subsections.
5.01(a). COSTS. Costs shall be charged as follows:
(1) Organization and Offering Costs shall be charged 100% to the
Managing General Partner. For purposes of sharing in revenues,
pursuant to .5.01(b)(4), the Managing General Partner shall be
credited with Organization and Offering Costs up to and including
15% of the Partnership Subscription which were paid by the
Managing General Partner. Notwithstanding, Organization and
Offering Costs in excess of 15% of the Partnership Subscription
shall be charged 100% to the Managing General Partner without
recourse to the Partnership and the Managing General Partner
shall not be credited with such amounts towards its required
Capital Contribution.
(2) Intangible Drilling Costs shall be charged 100% to the
Participants.
(3) Tangible Costs shall be charged 14% to the Managing General
Partner and 86% to the Participants.
(4) Operating Costs, Direct Costs, Administrative Costs and all other
Partnership costs not specifically allocated shall be charged 75%
to the Participants and 25% to the Managing General Partner.
Provided, however, in the event a portion of the Managing General
Partner's Partnership Net Production Revenues are subordinated
pursuant to .5.01(b)(4), all such Operating Costs, Direct Costs,
Administrative Costs and all other Partnership costs not
specifically allocated shall be charged between the Managing
General Partner and the Participants in the same ratio as the
related production revenues are being credited.
5.01(b). REVENUES. Revenues of the Partnership from all sources and
wells shall be commingled and credited as follows:
(1) If the Partners' Capital Accounts are adjusted to reflect the
simulated depletion of an oil or gas property of the Partnership,
the portion of the total amount realized by the Partnership upon
the taxable disposition of such property that represents recovery
of its simulated tax basis therein shall be allocated to the
Partners in the same proportion as the aggregate adjusted tax
basis of such property was allocated to such Partners (or their
predecessors in interest). lf the Partners' Capital Accounts are
adjusted to reflect the actual depletion of an oil or gas
property of the Partnership, the portion of the total amount
realized by the Partnership upon the taxable disposition of such
property that equals the Partners' aggregate remaining adjusted
tax basis therein shall be allocated to the Partners in
proportion to their respective remaining adjusted tax bases in
such property. Thereafter, any excess shall be allocated to Atlas
in an amount equal to the difference between the fair market
value of the Lease at the time it was contributed to the
Partnership and its simulated or actual adjusted tax basis at
such time. Finally, any excess shall be credited to the parties
in accordance with the sharing ratios provided in (4), below. In
the event of a sale of developed oil and gas properties with
equipment thereon, the Managing General Partner may make any
reasonable allocation of proceeds between the equipment and the
Leases.
(2) Interest earned on Agreed Subscriptions before the Offering
Termination Date pursuant to .3.05(b) shall be credited to the
accounts of the respective subscribers who paid such
subscriptions to the Partnership and paid approximately six weeks
after the Offering Termination Date. After the Offering
Termination Date and until proceeds from the offering are
invested in the Partnership's oil and gas operations, any
interest income from temporary investments shall be allocated pro
rata to the Participants providing such Agreed Subscriptions. All
other interest income, including interest earned on the deposit
of production revenues, shall be credited as provided in (4),
below.
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(Page 24)
(3) Proceeds from the sale or disposition of equipment shall be
credited to the parties charged with the costs of such equipment
in the ratio in which such costs were charged.
(4) All other revenues of the Partnership shall be credited 75% to
the Participants and 25% to the Managing General Partner.
Notwithstanding, the Managing General Partner shall subordinate a
part of its Partnership production revenues in an amount up to
10% of the Partnership's Net Production Revenues net of the
related costs as provided in .5.01(a)(4), to the receipt by
Participants of cash distributions from the Partnership equal to
10% of their Agreed Subscriptions in each of the first five
twelve-month periods of Partnership operations. The subordination
shall be determined on a cumulative basis throughout the entire
subordination period commencing with the first distribution of
revenues to the Participants by debiting or crediting current
period Partnership revenues to the Managing General Partner as
may be necessary to provide such distributions to the
Participants.
5.01(c). ALLOCATIONS.
5.01(c)(1). ALLOCATIONS AMONG PARTICIPANTS. Except as provided otherwise
in this Agreement, costs and revenues shared or credited to the
Participants as a group shall be allocated among the Participants
(including the Managing General Partner to the extent of any optional
subscription pursuant to .3.03(b)(2)) in the ratio of their respective
Agreed Subscriptions.
5.01(c)(2). COSTS AND REVENUES NOT DIRECTLY ALLOCABLE TO A PARTNERSHIP
WELL. Costs and revenues not directly allocable to a particular
Partnership Well or additional operation shall be allocated among the
Partnership Wells or additional operations in any manner the Managing
General Partner in its reasonable discretion, shall select, and shall
then be charged or credited in the same manner as costs or revenues
directly applicable to such Partnership Well or additional operation are
being charged or credited.
5.01(c)(3). DISCRETION IN MAKING ALLOCATIONS. In determining the proper
method of allocating charges or credits among the parties, or in making
any other allocations hereunder, the Managing General Partner may adopt
any method of allocation which it, in its reasonable discretion, selects,
if, in its sole discretion based on advice from its legal counsel or
accountants, a revision to such allocations is required for such
allocations to be recognized for federal income tax purposes either
because of the promulgation of Treasury Regulations or other developments
in the tax law. Any new allocation provisions shall be provided by an
amendment to this Agreement and shall be made in a manner that would
result in the most favorable aggregate consequences to the Participants
as nearly as possible consistent with the original allocations described
herein.
5.02. CAPITAL ACCOUNTS AND ALLOCATIONS THERETO.
5.02(a). CAPITAL ACCOUNTS. A single, separate Capital Account shall be
established for each party to this Agreement, regardless of the number of
interests owned by such party, the class of the interests and the time or
manner in which such interests were acquired.
5.02(b). CHARGES AND CREDITS. Except as otherwise provided in this
Agreement, the Capital Account of each party shall be determined and
maintained in accordance with Treas. Reg. .1.704-l(b)(2)(iv) and shall be
increased by: (i) the amount of money contributed by him to the
Partnership; (ii) the fair market value of property contributed by him
(without regard to .7701(g) of the Code) to the Partnership (net of
liabilities secured by the contributed property that the Partnership is
considered to assume or take subject to under .752 of the Code); and
(iii) allocations to him of Partnership income and gain (or items
thereof), including income and gain exempt from tax and income and gain
described in Treas. Reg. .1.704-l(b)(2)(iv)(g), but excluding income and
gain described in Treas. Reg. .1.704-l(b)(4)(i); and shall be decreased
by (iv) the amount of money distributed to him by the Partnership; (v)
the fair market value of property distributed to him (without regard to
.7701(g) of the Code) by the Partnership (net of liabilities secured by
the distributed property that he is considered to assume or take subject
to under .752 of the Code); (vi) allocations to him of Partnership
expenditures described in .705(a)(2)(B) of the Code; and (vii)
allocations to him of Partnership loss and deduction (or items thereof),
including loss and deduction described in Treas. Reg.
.1.704-l(b)(2)(iv)(g), but excluding items described in (vi) above, and
loss or deduction described in Treas. Reg. .1.704-l(b)(4)(i) or (iii). If
Treas. Reg. .1.704-l(b)(2)(iv)fails to provide guidance, Capital Account
adjustments shall be made in a manner that: (i) maintains equality
between the aggregate governing Capital Accounts of the Partners and the
amount of Partnership capital reflected on the Partnership's balance
sheet, as computed for book purposes; (ii) is consistent with the
underlying economic arrangement of the Partners; and (iii) is based,
wherever practicable, on federal tax accounting principles.
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5.02(c). PAYMENTS TO THE MANAGING GENERAL PARTNER. The Capital Account
of the Managing General Partner shall be reduced by payments to it
pursuant to .4.04(a)(2) only to the extent of the Managing General
Partner's distributive share of any Partnership deduction, loss, or other
downward Capital Account adjustment resulting from such payments.
5.02(d). DISCRETION OF MANAGING GENERAL PARTNER. Notwithstanding any
other provisions of this Agreement, the method of maintaining Capital
Accounts may be changed from time to time, in the discretion of the
Managing General Partner, to take into consideration .704 and other
provisions of the Code and such rules, regulations and interpretations
relating thereto as may exist from time to time.
5.02(e). REVALUATIONS OF PROPERTY. In the discretion of the Managing
General Partner the Capital Accounts of the Partners may be increased or
decreased to reflect a revaluation of Partnership property, including
intangible assets such as goodwill, (on a property-by-property basis
except as otherwise permitted under .704(c) of the Code and the
regulations thereunder) on the Partnership's books, in accordance with
Treas. Reg. .1.704-l(b)(2)(iv)(f).
5.02(f). AMOUNT OF BOOK ITEMS. In cases where .704(c) of the Code or
.5.02(e) applies, Capital Accounts shall be adjusted in accordance with
Treas. Reg. .1.704-l(b)(2)(iv)(g) for allocations of depreciation,
depletion, amortization and gain and loss, as computed for book purposes,
with respect to such property.
5.03. ALLOCATION OF INCOME, DEDUCTIONS AND CREDITS.
5.03(a). IN GENERAL. To the extent permitted by law and except as
otherwise provided in this Agreement, nonrecourse deductions shall be
allocated among the Partners in the ratio in which income and gain (other
than minimum gain recognized by the Partnership) attributable to the
property securing the nonrecourse liabilities are allocated among the
Partners during the period in question. All other deductions and credits,
including, but not limited to, intangible drilling and development costs
and depreciation, shall be allocated to the party who has been charged
with the expenditure giving rise to such deductions and credits; and to
the extent permitted by law, such parties shall be entitled to such
deductions and credits in computing taxable income or tax liabilities to
the exclusion of any other party. Except as otherwise provided in this
Agreement, all items of income and gain, including gain on disposition of
assets, shall be allocated in accordance with the related revenue
allocations set forth in .5.01(b) and its subsections.
5.03(b). TAX BASIS. Subject to .704(c) of the Code, the tax basis of each
oil and gas property for computation of cost depletion and gain or loss
on disposition shall be allocated and reallocated when necessary based
upon the capital interest in the Partnership as to such property and the
capital interest in the Partnership for such purpose as to each property
shall be considered to be owned by the parties hereto in the ratio in
which the expenditure giving rise to the tax basis of such property has
been charged as of the end of the year.
5.03(c). GAIN OR LOSS ON OIL AND GAS PROPERTIES. Each party shall
separately compute its gain or loss on the disposition of each oil and
gas property in accordance with the provisions of .613A(c)(7)D) of the
Code, and the calculation of such gain or loss shall consider the party's
adjusted basis in his property interest computed as provided in .5.03(b)
and the party's allocable share of the amount realized from the
disposition of the property.
5.03(d). GAIN ON DEPRECIABLE PROPERTY. Gain from each sale or other
disposition of depreciable property shall be allocated to each party
whose share of the proceeds from such sale or other disposition exceeds
its contribution to the adjusted basis of the property in the ratio that
such excess bears to the sum of the excesses of all parties having such
an excess.
5.03(e). LOSS ON DEPRECIABLE PROPERTY. Loss from each sale, abandonment
or other disposition of depreciable property shall be allocated to each
party whose contribution to the adjusted basis of the property exceeds
its share of the proceeds from such sale, abandonment or other
disposition in the proportion that such excess bears to the sum of the
excesses of all parties having such an excess.
5.03(f). RECAPTURE. Any recapture treated as an increase in ordinary
income by reason of ..1245, 1250, or 1254 of the Code shall be allocated
to the parties in the amounts in which such recaptured items were
previously allocated to them; provided that to the extent recapture
allocated to any party is in excess of such party's gain from the
disposition of the property, such excess shall be allocated to the other
parties but only to the extent of such other parties' gain from the
disposition of the property.
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5.03(g). TAX CREDITS. If a Partnership expenditure (whether or not
deductible) that gives rise to a tax credit in a Partnership taxable year
also gives rise to valid allocations of Partnership loss or deduction (or
other downward Capital Account adjustments) for such year, then the
Partners' interests in the Partnership with respect to such credit (or
the cost giving rise thereto) shall be in the same proportion as such
Partners' respective distributive shares of such loss or deduction (and
adjustments). Identical principles shall apply in determining the
Partners' interests in the Partnership with respect to tax credits that
arise from receipts of the Partnership (whether or not taxable).
5.03(h). DEFICIT CAPITAL ACCOUNTS AND QUALIFIED INCOME OFFSET.
Notwithstanding any provisions of this Agreement to the contrary, an
allocation of loss or deduction which would result in a Partner having a
deficit Capital Account balance as of the end of the taxable year to
which such allocation relates, if charged to such Partner, (to the extent
such Partner is not required to restore such deficit to the Partnership),
taking into account: (i) adjustments that, as of the end of such year,
reasonably are expected to be made to such Partner's Capital Account for
depletion allowances with respect to the Partnership's oil and gas
properties; (ii) allocations of loss and deduction that, as of the end of
such year, reasonably are expected to be made to such Partner pursuant to
..704(e)(2) and 706(d) of the Code and Treas. Reg. .1.751-1(b)(2)(ii);
and (iii) distributions that, as of the end of such year, reasonably are
expected to be made to such Partner to the extent they exceed offsetting
increases to such Partner's Capital Account (assuming for this purpose
that the fair market value of Partnership property equals its adjusted
tax basis) that reasonably are expected to occur during (or prior to) the
Partnership taxable years in which such distributions reasonably are
expected to be made, shall be charged to the Managing General Partner;
provided further, the Managing General Partner shall be credited with an
additional amount of Partnership income or gain equal to the amount of
such loss or deduction as quickly as possible (to the extent such
chargeback does not cause or increase deficit balances in the Partners'
Capital Accounts which are not required to be restored to the
Partnership). Notwithstanding any provisions of this Agreement to the
contrary, if such Partner unexpectedly receives an adjustment,
allocation, or distribution described in (i), (ii), or (iii) above, or
any other distribution, which causes or increases a deficit balance in
such Partner's Capital Account which is not required to be restored to
the Partnership, such Partner shall be allocated items of income and gain
(consisting of a pro rata portion of each item of Partnership income,
including gross income, and gain for such year) in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible.
5.03(i). PARTNERS' ALLOCABLE SHARES. Except as otherwise provided in this
Agreement, each Partner's allocable share of Partnership income, gain,
loss, deductions and credits shall be determined by the use of any method
prescribed or permitted by the Secretary of the Treasury by regulations
or other guidelines and selected by the Managing General Partner which
takes into account the varying interests of the Partners in the
Partnership during the taxable year. In the absence of such regulations
or guidelines, except as otherwise provided in this Agreement, such
allocable share shall be based on actual income, gain, loss, deductions
and credits economically accrued each day during the taxable year in
proportion to each Partner's varying interest in the Partnership on each
day during the taxable year.
5.04. ELECTIONS.
5.04(a). INTANGIBLES ELECTION. The Partnership's federal income tax
return shall be made in accordance with an election under the option
granted by the Code to deduct intangible drilling and development costs.
5.04(b). NO ELECTION OUT OF SUBCHAPTER K. No election shall be made by
the Partnership, any Partner, or the Operator for the Partnership to be
excluded from the application of the provisions of Subchapter K of the
Code.
5.04(c). CONTINGENT INCOME. If it is determined that any taxable income
results to any party by reason of its entitlement to a share of profits
or revenues of the Partnership before such profit or revenue has been
realized by the Partnership, the resulting deduction as well as any
resulting gain, shall not enter into Partnership net income or loss but
shall be separately allocated to such party.
5.04(d). .754 ELECTION. In the event of the transfer of an interest in
the Partnership, or upon the death of an individual party hereto, or in
the event of the distribution of property to any party hereto, the
Managing General Partner may choose for the Partnership to file an
election in accordance with the applicable Treasury Regulations to cause
the basis of the Partnership's assets to be adjusted for federal income
tax purposes as provided by ..734 and 743 of the Code.
5.05. DISTRIBUTIONS.
5.05(a). IN GENERAL. The Managing General Partner shall review the
accounts of the Partnership at least quarterly to determine whether cash
distributions are appropriate and the amount to be distributed, if any.
The Partnership shall distribute funds to the
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Managing General Partner
and the Participants allocated to their accounts which the Managing
General Partner deems unnecessary to retain by the Partnership. In no
event, however, shall funds be advanced or borrowed for purposes of
distributions, if the amount of such distributions would exceed the
Partnership's accrued and received revenues for the previous four
quarters, less paid and accrued Operating Costs with respect to such
revenues. The determination of such revenues and costs shall be made in
accordance with generally accepted accounting principles, consistently
applied. Cash distributions from the Partnership to the Managing General
Partner shall only be made in conjunction with distributions to
Participants and only out of funds properly allocated to the Managing
General Partner's account.
At any time after three years from the date each Partnership Well is
placed into production, the Managing General Partner shall have the right
to deduct each month from the Partnership's proceeds of the sale of the
production from the well up to $200 for the purpose of establishing a
fund to cover the estimated costs of plugging and abandoning said well.
All such funds shall be deposited in a separate interest bearing account
for the benefit of the Partnership, and the total amount so retained and
deposited shall not exceed the Managing General Partner's reasonable
estimate of such costs.
5.05(b). DISTRIBUTION OF UNCOMMITTED SUBSCRIPTION PROCEEDS. Any net
subscription proceeds not expended or committed for expenditure, as
evidenced by a written agreement, by the Partnership within twelve months
of the Offering Termination Date of the Partnership, except necessary
operating capital, shall be distributed pro rata to the Participants in
the ratio of their Agreed Subscriptions to the Partnership, as a return
of capital and the Managing General Partner shall reimburse the
Participants for the selling or other offering expenses allocable to the
return of capital. For purposes of this subsection, "committed for
expenditure" shall mean contracted for, actually earmarked for or
allocated by the Managing General Partner to the Partnership's drilling
operations, and "necessary operating capital" shall mean those funds
which, in the opinion of the Managing General Partner, should remain on
hand to assure continuing operation of the Partnership.
5.05(c). DISTRIBUTIONS ON WINDING UP. Upon the winding up of the
Partnership distributions shall be made as provided in .7.02.
5.05(d). INTEREST AND RETURN OF CAPITAL. It is agreed among the parties
hereto that no party shall under any circumstances be entitled to any
interest on amounts retained by the Partnership, and that each
Participant shall look only to his share of distributions, if any, from
the Partnership for a return of his Capital Contribution.
ARTICLE VI
TRANSFER OF INTERESTS
6.01. TRANSFERABILITY.
6.01(a). IN GENERAL. In addition to other restrictions on
transferability provided in this Agreement, interests in the Partnership
(and any rights to income or other attributes of Units in the
Partnership) shall be nontransferable except transfers to or with the
consent of the Managing General Partner where the transfer of a
Participant's interest is involved, and, except as otherwise provided in
this Agreement, the consent of Participants whose Agreed Subscriptions
equal a majority of the Partnership Subscription where a transfer by the
Managing General Partner is involved. Unless an assignee becomes a
substituted Partner in accordance with the provisions set forth below, he
shall not be entitled to any of the rights granted to a Partner
hereunder, other than the right to receive all or part of the share of
the profits, losses, income, gain, credits and cash distributions or
returns of capital to which his assignor would otherwise be entitled.
6.01(b). OBJECTIONS TO TRANSFER. Failure to notify the transferring
party of an objection to any proposed or completed transfer of the
transferor's interest hereunder within thirty days following the receipt
of notice thereof shall conclusively serve as a consent to such transfer.
6.01(c). CONVERSION OF INVESTOR GENERAL PARTNER UNITS TO LIMITED PARTNER
INTERESTS. After substantially all of the Partnership Wells have been
drilled and completed the Managing General Partner shall file an amended
certificate of limited partnership with the Secretary of State of the
Commonwealth of Pennsylvania for the purpose of converting the Investor
General Partner Units to Limited Partner interests. Upon such conversion
the Investor General Partners shall be Limited Partners entitled to
limited liability; however, they shall remain liable to the Partnership
for any additional Capital Contribution required for their proportionate
share of any Partnership obligation or liability arising prior to the
conversion of their Units as provided in .3.05(b). Such conversion shall
not affect the allocation to any Partner of any item of Partnership
income, gain, loss, deduction or credit or other item of special tax
significance
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(other than Partnership liabilities, if any) and shall not
affect any Partner's interest in the Partnership's oil and gas properties
and unrealized receivables.
Notwithstanding the foregoing, the Managing General Partner shall notify
all Participants at least thirty days prior to the effective date of any
adverse material change in the Partnership's insurance coverage. If the
insurance coverage is to be materially reduced, the Investor General
Partners shall have the right to convert their Units into Limited Partner
interests prior to such reduction by giving written notice to the
Managing General Partner.
6.02. SPECIAL RESTRICTIONS ON TRANSFERS.
6.02(a). IN GENERAL. Only whole Units may be assigned unless the
Participant owns less than a whole Unit, in which case his entire
fractional interest must be assigned. The costs and expenses associated
with the assignment must be paid by the assignor Partner and the
assignment must be in a form satisfactory to the Managing General
Partner. The terms of the assignment must not contravene those of this
Agreement. Transfers of interest in the Partnership are subject to the
following additional restrictions.
6.02(a)(1). SECURITIES LAWS RESTRICTION. Subject to transfers permitted
by .6.04 and transfers by operation of law, no interest in the
Partnership shall be sold, assigned, pledged, hypothecated or transferred
in the absence of an effective registration of the Units under the
Securities Act of 1933, as amended and qualification under applicable
state securities laws or an opinion of counsel acceptable to the Managing
General Partner that such registration and qualification are not
required. Transfers are also subject to any conditions contained in the
Subscription Agreement and Exhibit (B) to the Prospectus.
6.02(a)(2). TAX LAW RESTRICTIONS. No sale, exchange, transfer or
assignment shall be made which, in the opinion of counsel to the
Partnership, would result in the Partnership being considered to have
been terminated for purposes of Section 708 of the Code or would result
in materially adverse tax consequences to the Partnership or the
Partners.
6.02(a)(3). SUBSTITUTE PARTNER. An assignee of a Limited Partner's or
Investor General Partner's interest in the Partnership shall become a
substituted Limited Partner or Investor General Partner entitled to all
the rights of a Limited Partner or Investor General Partner, as the case
may be, if, and only if: (i) the assignor gives the assignee such right;
(ii) the Managing General Partner consents to such substitution, which
consent shall be in the Managing General Partner's absolute discretion;
(iii) the assignee pays to the Partnership all costs and expenses
incurred in connection with such substitution; and (iv) the assignee
executes and delivers such instruments, in form and substance
satisfactory to the Managing General Partner, necessary or desirable to
effect such substitution and to confirm the agreement of the assignee to
be bound by all of the terms and provisions of this Agreement. A
substitute Limited Partner or Investor General Partner is entitled to all
of the rights attributable to full ownership of the assigned Units
including the right to vote.
6.02(b). EFFECT OF TRANSFER. The Partnership shall amend its records at
least once each calendar quarter to effect the substitution of
substituted Participants. Any transfer permitted hereunder where the
assignee does not become a substituted Limited Partner or Investor
General Partner shall be effective as of midnight of the last day of the
calendar month in which it is made, or, at the Managing General Partner's
election, 7:00 A.M. of the following day. No such transfer, including a
transfer of less than all of a party's rights hereunder or the transfer
of rights hereunder to more than one party, shall relieve the transferor
of its responsibility for its proportionate part of any expenses,
obligations and liabilities hereunder related to the interest so
transferred, whether arising prior or subsequent to such transfer, nor
shall any such transfer require an accounting by the Managing General
Partner, or the granting of rights hereunder as between such parties and
the remaining parties hereto, including the exercise of any elections
hereunder, to more than one party unanimously designated by the
transferees and, if he should have retained an interest hereunder, the
transferor.
Until a proper designation acceptable to it is received by the Managing
General Partner, it shall continue to account only to the person to whom
it was furnishing notices prior to such time pursuant to .8.01 and its
subsections; and such party shall continue to exercise all rights
applicable to the entire interest previously owned by the transferor.
6.03. RIGHT OF MANAGING GENERAL PARTNER TO HYPOTHECATE AND/OR WITHDRAW
ITS INTERESTS. The Managing General Partner shall have the authority
(without the consent of the Participants and without affecting the
allocation of costs and revenues received or incurred hereunder), to
hypothecate, pledge, or otherwise encumber, on any terms it sees fit, its
Partnership interest (or an undivided interest in the assets of the
Partnership equal to or less than its respective interest in the revenues
of the Partnership) to obtain funds for use by it for its own general
purposes. All repayments of such borrowings and costs and interest or
other charges related thereto shall be borne and paid separately by the
Managing General Partner; and in no event shall such repayments, costs,
interest, or other
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charges be charged to the account of the Participants.
In addition, subject to a required participation of not less than 1% of
the Partnership Subscription, the Managing General Partner may withdraw a
property interest held by the Partnership in the form of a Working
Interest in the Partnership Wells equal to or less than its respective
interest in the revenues of the Partnership if such withdrawal is
necessary to satisfy the bona fide request of its creditors or approved
by Participants whose Agreed Subscriptions equal a majority of the
Partnership Subscription.
6.04. REPURCHASE OBLIGATION.
6.04(a). IN GENERAL. Participants shall have the right to present their
interests to the Managing General Partner subject to the conditions and
limitations set forth in this section. The Managing General Partner shall
not purchase more than 10% of the Units in any calendar year and shall
not purchase less than one Unit of a Participant's interests in the
Partnership unless such lesser amount represents the entire amount of the
Participant's interest. The Managing General Partner may waive these
limitations in its sole discretion other than the limitation that it
shall not purchase more than 10% of the Units in any calendar year. The
Participant is not obligated to accept such repurchase offer.
The Managing General Partner shall offer to repurchase a Participant's
interest in cash in the second quarter of every year beginning in 2000.
The commencement of the offer must be made within 120 days of the reserve
report set forth in .4.03(b)(3). A Participant may accept the repurchase
offer by a written acceptance. No repurchase shall be considered
effective until after the payment has been made to the Participant in
cash. In addition, in accordance with Treas. Reg. .1.7704-1(f), no
repurchase shall occur until at least 60 calendar days after the
Participant notifies the Partnership in writing of the Participant's
intention to exercise the repurchase right.
6.04(b). INDEPENDENT PETROLEUM CONSULTANT. The amount attributable to
Partnership reserves shall be determined based upon the last reserve
report of the Partnership reviewed by the Independent Expert. The
Partnership and the Independent Expert shall estimate the present worth
of future net revenues attributable to the Partnership's interest in the
Proved Reserves, and in making this estimate, they shall employ a
discount rate equal to 10%, use a constant price for the oil and base the
price of gas upon the existing gas contracts at the time of the
repurchase. The calculation of the repurchase price shall be as set forth
in .6.04(c).
6.04(c). CALCULATION OF REPURCHASE PRICE. The purchase price shall be
based upon the Participant's share of the net assets and liabilities of
the Partnership and allocated pro rata to each Participant based upon his
Agreed Subscription. The repurchase price shall include the sum of the
following items:
(i) an amount based on 70% of the present worth of future net
revenues from the Partnership's Proved Reserves determined as
described in .6.04(b);
(ii) Partnership cash on hand;
(iii) prepaid expenses and accounts receivable of the Partnership,
less a reasonable amount for doubtful accounts; and
(iv) the estimated market value of all assets of the Partnership, not
separately specified above, determined in accordance with
standard industry valuation procedures.
There shall be deducted from the foregoing sum the following items:
(i) an amount equal to all Partnership debts, obligations, and other
liabilities, including accrued expenses; and
(ii) any distributions made to the Participants between the date of
the request and the actual payment; provided, however, that if
any cash distributed was derived from the sale, subsequent to the
request, of oil, gas or other mineral production, or of a
producing property owned by the Partnership, for purposes of
determining the reduction of the purchase price, such
distributions shall be discounted at the same rate used to take
into account the risk factors employed to determine the present
worth of the Partnership's Proved Reserves.
The purchase price may be further adjusted by the Managing General
Partner for estimated changes therein from the date of such report to the
date of payment of the purchase price to the Participants: (i) by reason
of production or sales of, or additions to, reserves and lease and well
equipment, sale or abandonment of Leases, and similar matters occurring
prior to the request for repurchase, and (ii) by reason of any of the
following occurring prior to payment of the purchase price to the selling
Participants: changes in well performance, increases or decreases in the
market price of oil, gas, or other minerals, revision of regulations
relating to the importing of hydrocarbons, changes in income, ad valorem,
and other tax laws (e.g. material variations in the provisions for
depletion) and similar matters.
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6.04(d). SELECTION BY LOT. If less than all interests presented at any
time are to be purchased, the Participants whose interests are to be
purchased will be selected by lot. The Managing General Partner's
obligation to purchase such interests may be discharged for the benefit
of the Managing General Partner by a third party or an Affiliate. The
interests of the selling Participant will be transferred to the party who
pays for it. A selling Participant will be required to deliver an
executed assignment of his interest, together with such other
documentation as the Managing General Partner may reasonably request.
6.04(e). NO OBLIGATION OF THE MANAGING GENERAL PARTNER TO ESTABLISH A
RESERVE. The Managing General Partner shall have no obligation to
establish any reserve to satisfy the repurchase obligations under this
section.
6.04(f). SUSPENSION OF REPURCHASE OBLIGATION. The Managing General
Partner may suspend its repurchase obligation at any time if it does not
have sufficient cash flow or is unable to borrow funds for such purpose
on terms it deems reasonable, by so notifying the Participants. In
addition, the Managing General Partner's repurchase obligation may be
conditioned, in the Managing General Partner's sole discretion, on the
Managing General Partner's receipt of an opinion of counsel that such
transfers will not cause the Partnership to be treated as a "publicly
traded partnership" under the Code. The Managing General Partner shall
hold such repurchased Units for its own account and not for resale.
ARTICLE VII
DURATION, DISSOLUTION, AND WINDING UP
7.01. DURATION.
7.01(a). FIFTY YEAR TERM. The Partnership shall continue in existence for
a term of fifty years from the effective date of this Agreement unless
sooner terminated as hereinafter set forth.
7.01(b). TERMINATION. The Partnership shall terminate following the
occurrence of a Final Terminating Event, or upon the occurrence of any
event which under the Pennsylvania Revised Uniform Limited Partnership
Act causes the dissolution of a limited partnership.
7.01(c). CONTINUANCE OF PARTNERSHIP. Except upon the occurrence of a
Final Terminating Event, the Partnership or any successor limited
partnership shall not be wound up, but shall be continued by the parties
and their respective successors as a successor limited partnership under
all the terms of this Agreement. Such successor limited partnership shall
succeed to all of the assets of the Partnership. As used throughout this
Agreement, the term "Partnership" shall include such successor limited
partnerships and the parties thereto.
7.02. DISSOLUTION AND WINDING UP. Upon the occurrence of a Final
Terminating Event, the affairs of the Partnership shall be wound up and
there shall be distributed to each of the parties its Distribution
Interest in the remaining assets of the Partnership. To the extent
practicable and in accordance with sound business practices in the
judgment of the Managing General Partner, liquidating distributions shall
be made by the end of the taxable year in which liquidation occurs
(determined without regard to .706(c)(2)(A) of the Code) or, if later,
within ninety days after the date of such liquidation. Provided, however,
amounts withheld for reserves reasonably required for liabilities of the
Partnership and installment obligations owed to the Partnership need not
be distributed within the foregoing time period so long as such withheld
amounts are distributed as soon as practicable. Any in kind property
distributions to the Participants shall be made to a liquidating trust or
similar entity for the benefit of the Participants, unless at the time of
the distribution:
(1) the Managing General Partner shall offer the individual
Participants the election of receiving in kind property
distributions and the Participants accept such offer after being
advised of the risks associated with such direct ownership; or
(2) there are alternative arrangements in place which assure the
Participants that they will not, at any time, be responsible for
the operation or disposition of Partnership properties.
It shall be presumed that a Participant has refused such consent if the
Managing General Partner has not received such consent within thirty days
after the Managing General Partner mailed the request for such consent.
Any Partnership asset which would otherwise be distributed in kind to a
Participant, but for the failure or refusal of such Participant to give
his written consent to such distribution, may instead be sold by the
Managing General Partner at the best price reasonably obtainable from an
independent third party who is not an Affiliate of the Managing General
Partner.
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ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.01. NOTICES.
8.01(a). METHOD. Any notice required hereunder shall be in writing,
and given by mail or wire addressed to the party to receive such notice
at the address designated in .1.03.
8.01(b). CHANGE IN ADDRESS. The address of any party hereto may be
changed by written notice to the other parties hereto in the event of a
change of address by the Managing General Partner or to the Managing
General Partner in the event of a change of address by a Participant;
provided, however, that in the event of a transfer of rights hereunder,
no notice to any such transferee shall be required, nor shall such
transferee have any rights hereunder, until notice thereof shall have
been given to the Managing General Partner. Any transfer of rights
hereunder shall not increase the duty to give notice, and in the event of
a transfer of rights hereunder to more than one party, notice to any
owner of any interest in such rights shall be notice to all owners
thereof.
8.01(c). TIME NOTICE DEEMED GIVEN. Any notice shall be considered given,
and any applicable time shall run, from the date such notice is placed in
the mails or delivered to the telegraph company as to any notice given by
the Managing General Partner and when received as to any notice given by
any Participant.
8.01(d). EFFECTIVENESS OF NOTICE. Any notice to a party other than the
Managing General Partner, including a notice requiring concurrence or
nonconcurrence, shall be effective, and any failure to respond binding,
irrespective of whether or not such notice is actually received, and
irrespective of any disability or death on the part of the noticee,
whether or not known to the party giving such notice.
8.01(e). FAILURE TO RESPOND. Except where this Agreement expressly
requires affirmative approval of a Participant, any Participant who fails
to respond in writing within the time specified for such response (which
time shall be not less than fifteen business days from the date of
mailing of such request) to a request by the Managing General Partner for
approval of or concurrence in a proposed action shall be conclusively
deemed to have approved such action.
8.02. TIME. Time is of the essence of each part of this Agreement.
8.03. APPLICABLE LAW. The terms and provisions hereof shall be construed
under the laws of the Commonwealth of Pennsylvania, provided, however,
this .8.03 shall not be deemed to limit causes of action for violations
of federal or state securities law to the laws of the Commonwealth of
Pennsylvania. Neither this Agreement nor the Subscription Agreement shall
require mandatory venue or mandatory arbitration of any or all claims by
Participants against the Sponsor.
8.04. AGREEMENT IN COUNTERPARTS. This Agreement may be executed in
counterpart and shall be binding upon all parties executing this or
similar agreements from and after the date of execution by each party.
8.05. AMENDMENT. No changes herein shall be binding unless proposed in
writing by the Managing General Partner, and adopted with the consent of
Participants whose Agreed Subscriptions equal a majority of the
Partnership Subscription; or unless proposed in writing by Participants
whose Agreed Subscriptions equal 10% or more of the Partnership
Subscription and approved by an affirmative vote of Participants whose
Agreed Subscriptions equal a majority of the Partnership Subscription;
provided, however, that the Managing General Partner is authorized to
amend this Agreement and its exhibits without such consent in any way
deemed necessary or desirable by it: (i) to add or substitute (in the
case of an assigning party) additional Limited Partners or Investor
General Partners; (ii) to enhance the tax benefits of the Partnership to
the parties; and (iii) to satisfy any requirements, conditions,
guidelines, options, or elections contained in any opinion, directive,
order, ruling, or regulation of the Securities and Exchange Commission,
the Internal Revenue Service, or any other federal or state agency, or in
any federal or state statute, compliance with which it deems to be in the
best interest of the Partnership. Notwithstanding the foregoing, no
amendment materially and adversely affecting the interests or rights of
Participants shall be made without the consent of the Participants whose
interests will be so affected.
8.06. ADDITIONAL PARTNERS. Each Participant hereby consents to the
admission to the Partnership of such additional Limited Partners or
Investor General Partners as the Managing General Partner, in its
discretion, chooses to admit.
- ------------------------------------------------------------------------
(Page 32)
8.07. LEGAL EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties, their heirs, devisees, personal
representatives, successors and assigns, and shall run with the interests
subject hereto. The terms "Partnership," "Limited Partner," "Investor
General Partner," "Participant," "Partner," "Managing General Partner,"
"Operator," or "parties" shall equally apply to any successor limited
partnership, and any heir, devisee, personal representative, successor or
assign of a party.
IN WITNESS WHEREOF, the parties hereto set their hands and seal as of the
day and year hereinabove shown.
ATLAS:
Attest:
(SEAL) Secretary
ATLAS RESOURCES, INC.
Managing General Partner
By:
EXHIBIT (I-B)
SUBSCRIPTION AGREEMENT
ATLAS-ENERGY FOR THE NLNETLES-PUBLLC #5 LTD.
SUBSCRIPTION AGREEMENT
The undersigned hereby offers to purchase Units of Atlas-Energy for the
Nineties-Public #5 Ltd. in the amount set forth on the Signature Page of
this Subscription Agreement and on the terms described in the current
Prospectus for Atlas-Energy for the Nineties-Public #5 Ltd. (as
supplemented or amended from time to time). The undersigned acknowledges
and agrees that his execution of this Subscription Agreement also
constitutes his execution of the Amended and Restated Certificate and
Agreement of Limited Partnership (the "Partnership Agreement" the form
of which is attached as Exhibit (A) to the Prospectus and the undersigned
agrees to be bound by all of the terms and conditions of the Partnership
Agreement if his Agreed Subscription is accepted by the Managing General
Partner. The undersigned understands and agrees that this offer may not
be assigned or withdrawn by the undersigned. The undersigned hereby
irrevocably constitutes and appoints Atlas Resources, Inc. (and its duly
authorized agents) the undersigned's agent and attorney-in-fact, in the
undersigned's name, place and stead, to make, execute, acknowledge, swear
to, file, record and deliver the Amended and Restated Certificate and
Agreement of Limited Partnership and any certificates related thereto.
In order to induce Atlas to accept this subscription, the undersigned
hereby represents, warrants, covenants and agrees as follows:
INVESTOR'S INITIALS
_____ The undersigned has received the Prospectus.
_____ The undersigned (other than Minnesota residents) recognizes that
prior to this offering there has been no public market for the
Units and that it is not likely that after the offering there will
be any such market. In addition, the undersigned understands that
the transferability of the Units is restricted and that he cannot
expect to be able to readily liquidate his investment in the Units
in case of emergency or other change in circumstances.
_____ The undersigned is purchasing the Units for his own account, for
investment purposes and not for the account of others and he is
not purchasing the Units with the present intention of reselling
them.
_____ The undersigned, if he is an individual, is a citizen of the
United States of America and is at least twenty-one years of age,
or, if a partnership, corporation or trust, the members,
stockholders or beneficiaries thereof are citizens of the United
States and each is at least twenty-one years of age.
_____ The undersigned, if he is not an individual, is empowered and duly
authorized under a governing document, trust instrument, pension
plan, charter, certificate of incorporation, by-law provision or
the like to enter into this Subscription Agreement and to perform
the transactions contemplated by the Prospectus, including the
exhibits thereto.
_____ (a) The undersigned has: (i) a net worth of at least $225,000
(exclusive of home, furnishings and automobiles); or (ii) a
net worth (exclusive of home, furnishings and automobiles) of
at least $60,000 and had during the last tax year, or
estimates that he will have during the current tax year,
"taxable income" as defined in Section 63 of the Code of at
least $60,000, without regard to an investment in the
Partnership.
(B) IN ADDITION, IF A RESIDENT OF ALABAMA, ARIZONA, CALIFORNIA, INDIANA,
IOWA,KENTUCKY, MAINE, MASSACHUSETTS, MICHIGAN, MINNESOTA, MISSISSIPPI,
MISSOURI, NEW HAMPSHIRE, NEW MEXICO, NORTH CAROLINA, OHIO,
OKLAHOMA, PENNSYLVANIA, SOUTH DAKOTA, TENNESSEE, TEXAS, VERMONT
OR WASHINGTON, THE UNDERSIGNED REPRESENTS THAT HE IS AWARE OF
AND MEETS THAT STATE'S QUALIFICATIONS AND SUITABILITY STANDARDS
SET FORTH IN EXHIBIT (B) TO THE PROSPECTUS.
(c) If a fiduciary, I am purchashing for a person or entity having the
appropriate income and/or net worth specified in (a) or (b)
above.
(d) If a resident of Michigan or Ohio, the undersigned's investment
does not exceed 10% of his net worth (exclusive of home,
furnishings and automobiles).
THE ABOVE REPRESENTATIONS DO NOT CONSTITUTE A WAIVER OF ANY RIGHTS THAT I MAY
HAVE UNDER THE ACTS ADMINISTERED BY THE SECURITIES AND EXCHANGE COMMISSION
OR BY ANY STATE REGULATORY AGENCY ADMINISTERING STATUTES BEARING ON THE SALE
OF SECURITIES.
An Investor General Partner will have unlimited joint and several
liability for Partnership obligations and liabilities including amounts
in excess of his Agreed Subscription to the extent such obligations and
liabilities exceed the Partnership's insurance proceeds, the
Partnership's assets and indemnification by the Managing General Partner
and AEGH. Insurance may be inadequate to cover such liabilities and there
is no insurance coverage for certain claims.
Partnership losses allocable to a Limited Partner generally may be used
only to the extent of his net passive income from passive activities in
such year, with any excess losses being deferred.
No state or federal governmental authority has made any finding or
determination relating to the fairness for public investment of the Units
and that no state or federal governmental authority has recommended or
endorsed or will recommend or endorse the Units.
The Soliciting Dealer or registered representative is required to inform
potential investors of all pertinent facts relating to the Units,
including the following:
(a) the risks involved in the offering, including the speculative
nature of the investment and the speculative nature of drilling
for oil and gas;
(b) the financial hazards involved in the offering, including the risk
of losing the entire investment;
(c) the lack of liquidity of this investment;
(d) the restrictions of transferability of the Units;
(e) the background of the Managing General Partner and the Operator;
(f) the tax consequences of the investment; and
(g) the unlimited joint and several liability of the Investor General
Partners.
Investors are required to execute their own Subscription Agreements. The
Managing General Partner will not accept any Subscription Agreement that
has been executed by someone other than the investor unless such person
has been given the legal power of attorney to sign on the investor's
behalf and the investor meets all of the conditions herein. In the case
of sales to fiduciary accounts, the minimum standards set forth herein
shall be met by the beneficiary, the fiduciary account, or by the donor
or grantor who directly or indirectly supplies the funds to purchase the
Partnership interests if the donor or grantor is the fiduciary.
The execution of the Subscription Agreement by a subscriber constitutes a
binding offer to buy Units in the Partnership and an agreement to hold
the offer open until the Agreed Subscription is accepted or rejected by
the Managing General Partner. Once an investor subscribes he will not
have any revocation rights. The Managing General Partner has the
discretion to refuse to accept any Agreed Subscription without liability
to the subscriber. Agreed Subscriptions will be accepted or rejected by
the Partnership within thirty days of their receipt; if rejected, all
funds will be returned to the subscriber immediately. The subscriber
must be admitted as a Partner in the Partnership within 150 days after
the date on which the Subscription Agreement is received by the escrow
agent. Upon the original sale of Units, the Participants will be
admitted as Partners not later than fifteen days after the release from
escrow of Participants' funds to the Partnership, and thereafter
Participants will be admitted into the Partnership not later than the
last day of the calendar month in which their Agreed Subscriptions were
accepted by the Partnership.
The Managing General Partner may not complete a sale of Units to an
investor until at least five business days after the date the investor
receives a final Prospectus. In addition, the Managing General Partner
will send each investor a confirmation of purchase.
NOTICE TO CALIFORNIA RESIDENTS: This offering deviates in certain respects
from various requirements of Title 10 of the California Administrative
Code. These deviations include, but are not limited to the following: the
definition of Prospect in the Prospectus, unlike Rule 260.140.127.2(b)
and Rule 260.140.121(1) does not require enlarging or contracting of the
size of the area on the basis of geological data in all cases.
If a resident of California the undersigned acknowledges the receipt of
California Rule 260.141.11 set forth in Exhibit (B) to the Prospectus.
SIGNATURE PAGE OF SUBSCRIPTION AGREEMENT
The undersigned agrees to purchase ________ Units of Participation at
$10,000 per Unit in ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD. (the
"Partnership") as (check one):
INVESTOR GENERAL PARTNER AGREED SUBSCRIPTION
LIMITED PARTNER $ ___________________________
(_________________
______ # Units)
Make check payable to: "National City Bank, Escrow Agent, Atlas Public #5
Ltd."
Minimum Subscription: one Unit ($10,000), however, the Managing General
Partner, in its discretion, may accept one-half Unit ($5,000)
subscriptions; and Additional Subscriptions in $1,000 increments.
Subscriber (All individual investors must personally Address
sign this Signature Page.)
_________________________________________________
____________________________________________________
Print Name
_________________________________________________
____________________________________________________
Signature
_________________________________________________
____________________________________________________
Print Name
_________________________________________________
Signature
_________________________________________________
Name of Entity if a Trust, Corporation or Partnership is
Subscribing
Address for Distributions if
Different from Above
_________________________________
___________________
_________________________________
___________________
Date: __________________ Telephone No.: Business
______________________________ Home _________________________
Tax I.D. No. (Social Security No.):
_________________________________________________________________________
____
(CHECK ONE): Calendar Year Taxpayer __________ Fiscal Year Taxpayer
__________
(CHECK ONE): OWNERSHIP - Tenants-in-Common ________ Partnership ________
Joint Tenancy ________ C Corporation ________
Individual ________ S Corporation ________
Trust ________ Community Property ________
Other ________
TO BE COMPLETED BY REGISTERED REPRESENTATIVE (FOR COMMISSION AND OTHER
PURPOSES)
I hereby represent that I have discharged my affirmative obligations
under Rule 2810(b)(2)(B) and (b)(3)(D) of the NASD's Conduct Rules and
specifically have obtained information from the above-named subscriber
concerning his/her age, net worth, annual income, federal income tax
bracket, investment objectives, investment portfolio and other financial
information and have determined that an investment in the Partnership is
suitable for such subscriber, that such subscriber is or will be in a
financial position to realize the benefits of this investment, and that
such subscriber has a fair market net worth sufficient to sustain the
risks for this investment. I have also informed the subscriber of all
pertinent facts relating to the liquidity and marketability of an
investment in the Partnership, of the risks of unlimited liability
regarding an investment as an Investor General Partner, and of the
passive loss limitations for tax purposes of an investment as a Limited
Partner.
_________________________________________________
____________________________________________________
Registered Representative Name and Number Name of Broker-Dealer
Registered Representative Office Address:
_________________________________________________
____________________________________________________
Company Name (if other than Broker-Dealer Name)
_________________________________________________
_________________________________________________
Phone Number; Facsimile Number
NOTICE TO BROKER-DEALER:
Send complete and signed DOCUMENTS Send CHECK and COPY OF SUBSCRIPTION
and a COPY OF CHECK to: AGREEMENT to:
Mr. J. R. O'Mara National City Bank of Pennsylvania
Atlas Resources, Inc. Corporate Trust Department
311 Rouser Road 300 Fourth Avenue
Moon Township, Pennsylvania 15108 Pittsburgh, Pennsylvania 15278-2331
(412) 262-2830
TO BE COMPLETED BY ATLAS RESOURCES, INC.
ACCEPTED THIS ______ day
of _________________ , 1996
Attest
(SEAL) Secretary
ATLAS RESOURCES, INC.,
MANAGING GENERAL PARTNER
By:
J.R. O'Mara, President
EXHIBIT (II)
DRILLING AND OPERATING AGREEMENT
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
INDEX
SECTION PAGE
1. Assignment of Well Locations; Representations; Designation
of Additional Well Locations;
Outside Activities 1
2. Drilling of Wells; Interest of Developer; Right of
Substitution 2
3. Operator - Responsibilities in General; Term 3
4. Operator's Charges for Drilling and Completing Wells;
Completion Determination 3
5. Title Examination of Well Locations; Liability for Title
Defects 4
6. Operations Subsequent to Completion of the Wells; Price
Determinations; Plugging and Abandonment 5
7. Billing and Payment Procedure with Respect to Operation of
Wells; Records, Reports and Information 6
8. Operator's Lien 7
9. Successors and Assigns; Transfers; Appointment of Agent 7
10. Insurance; Operator's Liability 7
11. Internal Revenue Code Election, Relationship of Parties;
Right to Take Production in Kind 8
12. Force Majeure 9
13. Term 9
14. Governing Law and Invalidity 9
15. Integration 9
16. Waiver of Default or Breach 9
17. Notices 9
18. Interpretation 10
19. Counterparts 10
Signature Page 10
Exhibit A Description of Leases and Initial Well Locations
Exhibits A-l through A-___ Maps of Initial Well Locations
Exhibit B Form of Assignment
Exhibit C Form of Addendum
DRILLING AND OPERATING AGREEMENT
THIS AGREEMENT made this ______ day of _______________, 1996, by and
between ATLAS RESOURCES, INC., a Pennsylvania corporation (hereinafter
referred to as "Atlas" or "Operator"),
and
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD., a Pennsylvania limited
partnership, (hereinafter referred to as the "Developer").
WITNESSETH THAT:
WHEREAS, Atlas, by virtue of the Oil and Gas Leases (the "Leases")
described on Exhibit A attached hereto and made a part hereof, has
certain rights to develop the ____________ (______) initial well
locations identified on the maps attached hereto as Exhibits A-l through
A-______ (the "Initial Well Locations");
WHEREAS, the Developer, subject to the terms and conditions hereof,
desires to acquire certain of Atlas' rights to develop the aforesaid
____________ (______) Initial Well Locations and to provide for the
development upon the terms and conditions herein set forth of additional
well locations ("Additional Well Locations") which the parties may from
time to time designate; and
WHEREAS, Operator is in the oil and gas exploration and development
business, and the Developer desires that Operator, as its independent
contractor, perform certain services in connection with its efforts to
develop the aforesaid Initial and Additional Well Locations (hereinafter
collectively referred to as the "Well Locations") and to operate the
wells completed thereon, on the terms and conditions herein set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and subject to the terms and conditions hereinafter set forth, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Assignment of Well Locations; Representations; Designation of
Additional Well Locations; Outside Activities.
(a) Atlas shall execute an assignment of an undivided percentage of
Working Interest in the Well Location acreage for each well to the
Developer as shown on Exhibit A attached hereto, which assignment shall
be limited to a depth from the surface to the top of the Queenston
formation in Mercer County, Pennsylvania and Ohio. The assignment shall
be substantially in the form of Exhibit B attached hereto and made a part
hereof. The amount of acreage included in each Initial Well Location and
the configuration thereof are indicated on the maps attached hereto as
Exhibits A-l through A-______. The amount of acreage included in each
Additional Well Location and the configuration thereof shall be indicated
on the maps to be attached as exhibits to the applicable addendum as
provided in sub-section (c) below.
(b) As of the date hereof, Atlas represents and warrants to the
Developer that Atlas is the lawful owner of said Lease and rights and
interest thereunder and of the personal property thereon or used in
connection therewith; that Atlas has good right and authority to sell and
convey the same, and that said rights, interest and property are free and
clear from all liens and encumbrances, and that all rentals and royalties
due and payable thereunder have been duly paid. The foregoing
representations and warranties shall also be made by Atlas at the time of
each recorded assignment of the acreage included in each Initial Well
Location and at the time of each recorded assignment of the acreage
included in each Additional Well Location designated pursuant to
sub-section (c) below, such representations and warranties to be included
in each recorded assignment substantially in the manner set forth in the
form of assignment attached hereto and made a part hereof as Exhibit B.
Atlas agrees to indemnify, protect and hold the Developer and its
successors and assigns harmless from and against all costs (including but
not limited to reasonable attorneys' fees), liabilities, claims,
penalties, losses, suits, actions, causes of action, judgments or decrees
resulting from the breach of any of the aforesaid representations and
warranties. It is understood and agreed that, except as specifically set
forth above, Atlas makes no warranty or representation, express or
implied, as to its title or the title of the lessors in and to the lands
or oil and gas interests covered by said Leases.
(c) In the event that the parties hereto desire to designate
Additional Well Locations to be developed in accordance with the terms
and conditions of this Agreement, each of said parties shall execute an
addendum substantially in the form of Exhibit C attached hereto and made
a part hereof specifying the undivided percentage of Working Interest and
the Oil and Gas Leases to be included as Leases hereunder, specifying the
amount and configuration of acreage included in each such Additional Well
Location on maps attached as exhibits to such addendum and setting forth
their agreement that such Additional Well Locations shall be developed in
accordance with the terms and conditions of this Agreement.
(d) It is understood and agreed that the assignment of rights under
the Leases and the oil and gas development activities contemplated by
this Agreement relate only to the Initial Well Locations described herein
and to the Additional Well Locations designated pursuant to sub-section
(c) above. Nothing contained in this Agreement shall be interpreted to
restrict in any manner the right of each of the parties hereto to conduct
without the participation of any other party hereto any additional
activities relating to exploration, development, drilling, production or
delivery of oil and gas on lands adjacent to or in the immediate vicinity
of the aforesaid Initial and Additional Well Locations or elsewhere.
2. Drilling of Wells; Interest of Developer; Right of
Substitution.
(a) Operator, as Developer's independent contractor, agrees to
drill, complete (or plug) and operate ____________ (_____) natural gas
wells on the ____________ (______) Initial Well Locations in accordance
with the terms and conditions of this Agreement, and Developer, as a
minimum commitment, agrees to participate in and pay the Operator's
charges for drilling and completing the wells and any extra costs
pursuant to Section 4 hereof in proportion to the share of the Working
Interest owned by the Developer in the wells with respect to all
___________ (______) initial wells, it being expressly understood and
agreed that, subject to sub-section (e) below, Developer does not reserve
the right to decline participation in the drilling of any of the
____________ (______) initial wells to be drilled hereunder.
(b) Operator will use its best efforts to commence drilling the
first well within thirty (30) days after the date of this Agreement and
to commence the drilling of each of said ______________ (_____) initial
wells for which payment is made pursuant to Section 4(b) of this
Agreement, on or before March 31, 1997. Subject to the foregoing time
limits, Operator shall determine the timing of and the order of the
drilling of said ____________ (______) Initial Well Locations.
(c) The ____________ (______) initial wells to be drilled on the
Initial Well Locations designated pursuant to this Agreement and any
additional wells drilled hereunder on any Additional Well Locations
designated pursuant to Section l(c) above shall be drilled and completed
(or plugged) in accordance with the generally accepted and customary oil
and gas field practices and techniques then prevailing in the
geographical area of the Well Locations and shall be drilled to a depth
sufficient to test thoroughly the objective formation or the deepest
assigned depth, whichever is less.
(d) Except as otherwise provided herein, all costs, expenses and
liabilities incurred in connection with the drilling and other operations
and activities contemplated by this Agreement shall be borne and paid,
and all wells, gathering lines of up to approximately 1,500 feet on the
Prospect, equipment, materials, and facilities acquired, constructed or
installed hereunder shall be owned, by the Developer in proportion to the
share of the Working Interest owned by the Developer in the wells.
Subject to the payment of lessor's royalties and other royalties and
overriding royalties, if any, production of oil and gas from the wells to
be drilled hereunder shall be owned by the Developer in proportion to the
share of the Working Interest owned by the Developer in the wells.
(e) Notwithstanding the provisions of sub-section (a) above, in the
event the Operator or Developer determines in good faith, with respect to
any Well Location, before operations commence hereunder with respect to
such Well Location, based upon the production (or failure of production)
of any other wells which may have been recently drilled in the immediate
area of such Well Location, or upon newly discovered title defects, or
upon such other evidence with respect to the Well Location as may be
obtained, that it would not be in the best interest of the parties hereto
to drill a well on such Well Location, then the party making the
determination shall notify the other party hereto of such determination
and the basis therefor and, unless otherwise instructed by Developer,
such well shall not be drilled. If such well is not drilled, Operator
shall promptly propose a new well location (including such information
with respect thereto as Developer may reasonably request) within
Pennsylvania or Ohio to be substituted for such original Well Location
and Developer shall thereafter have the option for a period of seven (7)
business days to either reject or accept the proposed new well location.
If the new well location is rejected, Operator shall promptly propose
another substitute well location pursuant to the provisions hereof. Once
the Developer accepts a substitute well location or does not reject it
within said seven (7) day period, this Agreement shall terminate as to
the original Well Location and the substitute well location shall become
subject to the terms and conditions hereof.
3. Operator - Responsibilities in General; Term.
(a) Atlas shall be the Operator of the wells and Well Locations
subject to this Agreement and, as the Developer's independent contractor,
shall, in addition to its other obligations hereunder, (i) make the
necessary arrangements for the drilling and completion of wells and the
installation of the necessary gas gathering line systems and connection
facilities; (ii) make the technical decisions required in drilling,
testing, completing and operating such wells; (iii) manage and conduct
all field operations in connection with the drilling, testing,
completing, equipping, operating and producing of the wells; (iv)
maintain all wells, equipment, gathering lines and facilities in good
working order during the useful life thereof; and (v) perform the
necessary administrative and accounting functions. In the performance of
work contemplated by this Agreement, Operator is an independent
contractor with authority to control and direct the performance of the
details of the work.
(b) Operator covenants and agrees that (i) it shall perform and
carry on (or cause to be performed and carried on) its duties and
obligations hereunder in a good, prudent, diligent and workmanlike manner
using technically sound, acceptable oil and gas field practices then
prevailing in the geographical area of the aforesaid Well Locations; (ii)
all drilling and other operations conducted by, for and under the control
of Operator hereunder shall conform in all respects to federal, state and
local laws, statutes, ordinances, regulations, and requirements; (iii)
unless otherwise agreed in writing by the Developer, all work performed
hereunder pursuant to a written estimate shall conform to the technical
specifications set forth in such written estimate and all equipment and
materials installed or incorporated in the wells and facilities hereunder
shall be new or used and of good quality; (iv) in the course of
conducting operations hereunder, it shall comply with all terms and
conditions of the Leases (and any related assignments, amendments,
subleases, modifications and supplements) other than any minimum drilling
commitments contained therein; (v) it shall keep the Well Locations
subject to this Agreement and all wells, equipment and facilities located
thereon, free and clear of all labor, materials and other liens or
encumbrances arising out of operations hereunder; (vi) it shall file all
reports and obtain all permits and bonds required to be filed with or
obtained from any governmental authority or agency in connection with the
drilling or other operations and activities which are the subject of this
Agreement; and (vii) it will provide competent and experienced personnel
to supervise the drilling, completing (or plugging), and operating of the
wells and use the services of competent and experienced service companies
to provide any third party services necessary or appropriate in order to
perform its duties hereunder.
(c) Atlas shall serve as Operator hereunder until the earliest of
(i) the termination of this Agreement pursuant to Section 13 hereof; (ii)
the termination of Atlas as Operator by the Developer which may be
effected by the Developer at any time in its discretion, with or without
cause; upon sixty (60) days advance written notice to the Operator; or
(iii) the resignation of Atlas as Operator hereunder which may occur upon
ninety (90) days' written notice to the Developer at any time after five
(5) years from the date hereof, it being expressly understood and agreed
that Atlas shall have no right to resign as Operator hereunder prior to
the expiration of the aforesaid five-year period. Any successor Operator
hereunder shall be selected by the Developer. Nothing contained in this
sub-section (c) shall relieve or release Atlas or the Developer from any
liability or obligation hereunder which accrued or occurred prior to
Atlas' removal or resignation as Operator hereunder. Upon any change in
Operator pursuant to this provision, the then present Operator shall
deliver to the successor Operator possession of all records, equipment,
materials and appurtenances used or obtained for use in connection with
operations hereunder and owned by the Developer.
4. Operator's Charges for Drilling and Completing Wells; Completion
Determination
(a) All natural gas wells which are drilled and completed hereunder
shall be drilled and completed on a footage basis for a price of $37.39
per foot to the depth of the well at its deepest penetration as recorded
by Operator. The aforesaid footage price for each of said natural gas
wells shall be set forth in an AFE which shall be attached to this
Agreement as an Exhibit, and shall cover all ordinary costs which may be
incurred in drilling and completing each such well for production of
natural gas, including without limitation, site preparation, permits and
bonds, roadways, surface damages, power at the site, water, Operator's
overhead and profit, rights-of-way, drilling rigs, equipment and
materials, costs of title examination, logging, cementing, fracturing,
casing, meters (other than utility purchase meters), connection
facilities, salt water collection tanks, separators, siphon string,
rabbit, tubing, an average of 1,500 feet of gathering line per well,
geological and engineering services and completing two (2) zones;
provided, that such footage price shall not include the cost of (i)
completing more than two (2) zones; (ii) completion procedures,
equipment, or any facilities necessary or appropriate for the production
and sale of oil and/or natural gas liquids; and (iii) equipment or
materials necessary or appropriate to collect, lift or dispose of liquids
for efficient gas production, except that the cost of saltwater
collection tanks, separators, siphon string and tubing shall be included
in the aforesaid footage price. Any such extra costs shall be billed to
Developer in proportion to the share of the Working Interest owned by the
Developer in the wells on a direct cost basis equal to the sum of (i)
Operator's invoice costs of third party services performed and materials
and equipment purchased plus ten percent (10%) to cover supervisory
services and overhead; and (ii) Operator's standard charges for services
performed directly by it.
(b) In order to enable Operator to commence site preparation for
________________ (______) initial wells, to obtain suitable
subcontractors for the drilling and completion of such wells at currently
prevailing prices, and to insure the availability of equipment and
materials, the Developer shall pay to Operator, in proportion to the
share of the Working Interest owned by the Developer in the wells, one
hundred percent (100%) of the estimated price for all _________________
(______) initial wells upon execution of this Agreement, such payment to
be nonrefundable in all events, except that Developer shall not be
required to pay completion costs prior to the time that a decision is
made that the well warrants a completion attempt and Atlas' share of such
payments as Managing General Partner of the Developer shall be paid
within five (5) business days of notice from Operator that such costs
have been incurred. With respect to each additional well drilled on the
Additional Well Locations, if any, in order to enable Operator to
commence site preparation, to obtain suitable subcontractors for the
drilling and completion of such wells at currently prevailing prices, and
to insure the availability of equipment and materials, Developer shall
pay Operator, in proportion to the share of the Working Interest owned by
the Developer in the wells, one hundred percent (100%) of the estimated
price for such well upon execution of the applicable addendum pursuant to
Section l(c) above, except that Developer shall not be required to pay
completion costs prior to the time that a decision is made that the well
warrants a completion attempt and Atlas' share of such payments as
Managing General Partner of the Developer shall be paid within five (5)
business days of notice from Operator that such costs have been incurred.
With respect to each well, Developer shall pay to Operator, in proportion
to the share of the Working Interest owned by the Developer in the wells,
all other costs for such well within five (5) business days of receipt of
notice from Operator that such well has been drilled to the objective
depth and logged and is to be completed. Developer shall pay, in
proportion to the share of the Working Interest owned by the Developer in
the wells, any extra costs incurred with respect to each well pursuant to
sub-section (a) above within ten (10) business days of its receipt of
Operator's statement therefor.
(c) Operator shall determine whether or not to run the production
casing for an attempted completion or to plug and abandon any well
drilled hereunder; provided, however, that a well shall be completed only
if Operator has made a good faith determination that there is a
reasonable possibility of obtaining commercial quantities of oil and/or
gas.
(d) If Operator determines at any time during the drilling or
attempted completion of any well hereunder, in accordance with the
generally accepted and customary oil and gas field practices and
techniques then prevailing in the geographic area of the well location,
that such well should not be completed, it shall promptly and properly
plug and abandon the same. In such event, such well shall be deemed a dry
hole and the dry hole footage price for each well drilled hereunder shall
be $20.60 per foot multiplied by the depth of the well, as specified in
sub-section (a) above, and shall be charged to the Developer in
proportion to the share of the Working Interest owned by the Developer in
the well. Any amounts paid by the Developer with respect to such dry hole
which exceed the aforesaid dry hole footage price shall be retained by
Operator and shall be applied to the costs for an additional well or
wells to be drilled on the Additional Well Locations.
5. Title Examination of Well Locations; Liability for Title Defects.
(a) The Developer hereby acknowledges that Operator has furnished
Developer with the title opinions identified on Exhibit A, and other
documents and information which Developer or its counsel has requested in
order to determine the adequacy of the title to the Initial Well
Locations and leased premises subject to this Agreement. The Developer
hereby accepts the title to said Initial Well Locations and leased
premises and acknowledges and agrees that, except for any loss, expense,
cost or liability caused by the breach of any of the warranties and
representations made by Atlas in Section l(b) hereof, any loss, expense,
cost or liability whatsoever caused by or related to any defect or
failure of such title shall be the sole responsibility of and shall be
borne entirely by the Developer.
(b) Prior to commencing the drilling of any well on any Additional
Well Location designated pursuant to this Agreement, Operator shall
conduct, or cause to be conducted, a title examination of such Additional
Well Location, in order to obtain appropriate abstracts, opinions and
certificates and other information necessary to determine the adequacy of
title to both the applicable Lease and the fee title of the lessor to the
premises covered by such Lease. The results of such title examination and
such other information as is necessary to determine the adequacy of title
for drilling purposes shall be submitted to the Developer for its review
and acceptance, and no drilling shall be commenced until such title has
been accepted in writing by the Developer. After any title has been
accepted by the Developer, any loss, expense, cost or liability
whatsoever, caused by or related to any defect or failure of such title
shall be the sole responsibility of and shall be borne entirely by the
Developer, unless such loss, expense, cost or liability was caused by the
breach of any of the warranties and representations made by Atlas in
Section l(b) of this Agreement.
6. Operations Subsequent to Completion of the Wells; Price
Determinations; Plugging and Abandonment.
(a) Commencing with the month in which a well drilled hereunder
begins to produce, Operator shall be entitled to an operating fee of $275
per month for each well being operated under this Agreement,
proportionately reduced to the extent the Developer owns less than 100%
of the Working Interest in the wells, in lieu of any direct charges by
Operator for its services or the provision by Operator of its equipment
for normal superintendence and maintenance of such wells and related
pipelines and facilities. Such operating fees shall cover all normal,
regularly recurring operating expenses for the production, delivery and
sale of natural gas, including without limitation well tending, routine
maintenance and adjustment, reading meters, recording production,
pumping, maintaining appropriate books and records, preparing reports to
the Developer and government agencies, and collecting and disbursing
revenues, but shall not cover costs and expenses related to the (i)
production and sale of oil, (ii) collection and disposal of salt water or
other liquids produced by the wells, (iii) rebuilding of access roads,
and (iv) purchase of equipment, materials or third party services, which,
subject to the provisions of sub-section (c) of this Section 6, shall be
paid by the Developer in proportion to the share of the Working Interest
owned by the Developer in the wells. Any well which is temporarily
abandoned or shut-in continuously for the entire month shall not be
considered a producing well for purposes of determining the number of
wells in such month subject to the aforesaid operating fee.
(b) The monthly operating fee set forth in sub-section (a) above may
in the following manner be adjusted annually as of the first day of
January (the "Adjustment Date") each year beginning January l, 1998. Such
adjustment, if any, shall not exceed the percentage increase in the
average weekly earnings of "Crude Petroleum, Natural Gas, and Natural Gas
Liquids" workers, as published by the U.S. Department of Labor, Bureau of
Labor Statistics, and shown in Employment and Earnings Publication,
Monthly Establishment Data, Hours and Earning Statistical Table C-2,
Index Average Weekly Earnings of "Crude Petroleum, Natural Gas, and
Natural Gas Liquids" workers, SIC Code #131-2, or any successor index
thereto, since January l, 1996, in the case of the first adjustment, and
since the previous Adjustment Date, in the case of each subsequent
adjustment.
(c) Without the prior written consent of the Developer, pursuant to
a written estimate submitted by Operator, Operator shall not undertake
any single project or incur any extraordinary cost with respect to any
well being produced hereunder reasonably estimated to result in an
expenditure of more than $5,000, unless such project or extraordinary
cost is necessary to safeguard persons or property or to protect the well
or related facilities in the event of a sudden emergency. In no event,
however, shall the Developer be required to pay for any project or
extraordinary cost arising from the negligence or misconduct of Operator,
its agents, servants, employees, contractors, licensees or invitees. All
extraordinary costs incurred and the cost of projects undertaken with
respect to a well being produced hereunder shall be billed at the invoice
cost of third party services performed or materials purchased together
with a reasonable charge by Operator for services performed directly by
it, in proportion to the share of the Working Interest owned by the
Developer in the wells. Operator shall have the right to require the
Developer to pay in advance of undertaking any such project all or a
portion of the estimated costs thereof in proportion to the share of the
Working Interest owned by the Developer in the wells.
(d) Developer shall have no interest in the pipeline gathering
system, which gathering system shall remain the sole property of Operator
and shall be maintained at Operator's sole cost and expense.
(e) Notwithstanding anything herein to the contrary, the Developer
shall have full responsibility for and bear all costs in proportion to
the share of the Working Interest owned by the Developer in the wells
with respect to obtaining price determinations under and otherwise
complying with the Natural Gas Policy Act of 1978 and the implementing
state regulations. Such responsibility shall include, without limitation,
preparing, filing, and executing all applications, affidavits, interim
collection notices, reports and other documents necessary or appropriate
to obtain price certification, to effect sales of natural gas, or
otherwise to comply with said Act and the implementing state regulations.
Operator agrees to furnish such information and render such assistance as
the Developer may reasonably request in order to comply with said Act and
the implementing state regulations without charge for services performed
by its employees.
(f) The Developer shall have the right to direct Operator to plug
and abandon any well which has been completed hereunder as a producer,
and Operator shall not plug and abandon any such well prior to obtaining
the written consent of the Developer; provided, however, that if Operator
in accordance with the generally accepted and customary oil and gas field
practices and techniques then prevailing in the geographic area of the
well location, determines that any such well should be plugged and
abandoned and makes a written request to the Developer for authority to
plug and abandon any such well and the Developer fails to respond in
writing to such request within forty-five (45) days following the date of
such request, then the Developer shall be deemed to have consented to the
plugging and abandonment of such well(s). All costs and expenses related
to plugging and abandoning the wells which have been drilled and
completed as producing wells hereunder shall be borne and paid by the
Developer in proportion to the share of the Working Interest owned by the
Developer in the wells. At any time after three (3) years from the date
each well drilled and completed hereunder is placed into production,
Operator shall have the right to deduct each month from the proceeds of
the sale of the production from the well operated hereunder up to $200,
in proportion to the share of the Working Interest owned by the Developer
in the wells, for the purpose of establishing a fund to cover the
estimated costs of plugging and abandoning said well. All such funds
shall be deposited in a separate interest bearing escrow account for the
account of the Developer, and the total amount so retained and deposited
shall not exceed Operator's reasonable estimate of such costs.
7. Billing and Payment Procedure with Respect to Operation of Wells;
Records, Reports and Information.
(a) Operator shall promptly and timely pay and discharge on behalf
of the Developer, in proportion to the share of the Working Interest
owned by the Developer in the wells, all severance taxes, royalties,
overriding royalties, operating fees, pipeline gathering charges and
other expenses and liabilities payable and incurred by reason of its
operation of the wells in accordance with this Agreement and shall pay,
in proportion to the share of the Working Interest owned by the Developer
in the wells, on or before the due date any third party invoices rendered
to Operator with respect to such costs and expenses; provided, however,
that Operator shall not be required to pay and discharge as aforesaid any
such costs and expenses which are being contested in good faith by
Operator. Operator shall deduct the foregoing costs and expenses from the
Developer's share of the proceeds of the oil and/or gas sold from the
wells operated hereunder and shall keep an accurate record of the
Developer's account hereunder, showing expenses incurred and charges and
credits made and received with respect to each well. In the event that
such proceeds are insufficient to pay said costs and expenses, Operator
shall promptly and timely pay and discharge the same, in proportion to
the share of the Working Interest owned by the Developer in the wells,
and prepare and submit an invoice to the Developer each month for said
costs and expenses, such invoice to be accompanied by the form of
statement specified in sub-section (b) below. Any such invoice shall be
paid by the Developer within ten (10) business days of its receipt.
(b) Operator shall disburse to the Developer, on a monthly basis,
the Developer's share of the proceeds received from the sale of oil
and/or gas sold from the wells operated hereunder, less (i) the amounts
charged to the Developer under sub-section (a) hereof, and (ii) such
amount, if any, withheld by Operator for future plugging costs pursuant
to sub-section (f) of Section 6. Each such disbursement made and/or
invoice submitted pursuant to sub-section (a) above shall be accompanied
by a statement itemizing with respect to each well (i) the total
production of oil and/or gas since the date of the last disbursement or
invoice billing period, as the case may be, and the Developer's share
thereof, (ii) the total proceeds received from any sale thereof, and the
Developer's share thereof, (iii) the costs and expenses deducted from
said proceeds and/or being billed to the Developer pursuant to
sub-section (a) above, (iv) the amount withheld for future plugging
costs, and (v) such other information as Developer may reasonably
request, including without limitation copies of all third party invoices
listed thereon for such period. Operator agrees to deposit all proceeds
from the sale of oil and/or gas sold from the wells operated hereunder in
a separate checking account maintained by Operator, which account shall
be used solely for the purpose of collecting and disbursing funds
constituting proceeds from the sale of production hereunder.
(c) In addition to the statements required under sub-section (b)
above, Operator, within seventy-five (75) days after the completion of
each well drilled hereunder, shall furnish the Developer with a detailed
statement itemizing with respect to such well the total costs and charges
under Section 4(a) hereof and the Developer's share thereof, and such
information as is necessary to enable the Developer (i) to allocate any
extra costs incurred with respect to such well between tangible and
intangible and (ii) to determine the amount of investment tax credit, if
applicable.
(d) Upon request, Operator shall promptly furnish the Developer with
such additional information as it may reasonably request, including
without limitation geological, technical and financial information, in
such form as may reasonably be requested, pertaining to any phase of the
operations and activities governed by this Agreement. The Developer and
its authorized employees, agents and consultants, including independent
accountants shall, at Developer's sole cost and expense, (i) upon at
least ten (10) days' written notice have access during normal business
hours to all of Operator's records pertaining to operations hereunder,
including without limitation, the right to audit the books of account of
Operator relating to all receipts, costs, charges and expenses under this
Agreement, and (ii) have access, at its sole risk, to any wells drilled
by Operator hereunder at all times to inspect and observe any machinery,
equipment and operations.
8. Operator's Lien.
(a) The Developer hereby grants Operator a first and preferred lien
on and security interest in the interest of the Developer covered by this
Agreement, and in the Developer's interest in oil and gas produced and
the proceeds thereof, and upon the Developer's interest in materials and
equipment, to secure the payment of all sums due from Developer to
Operator under the provisions of this Agreement.
(b) In the event that the Developer fails to pay any amount owing
hereunder by it to the Operator within the time limit for payment
thereof, Operator, without prejudice to other existing remedies, is
authorized at its election to collect from any purchaser or purchasers of
oil or gas and retain the proceeds from the sale of the Developer's share
thereof until the amount owed by the Developer, plus twelve percent (12%)
interest on a per annum basis and any additional costs (including without
limitation actual attorneys' fees and costs) resulting from such
delinquency, has been paid. Each purchaser of oil or gas shall be
entitled to rely upon Operator's written statement concerning the amount
of any default.
9. Successors and Assigns; Transfers; Appointment of Agent.
(a) This Agreement shall be binding upon and shall inure to the
benefit of the undersigned parties and their respective successors and
permitted assigns; provided, however, that Operator may not assign,
transfer, pledge, mortgage, hypothecate, sell or otherwise dispose of any
of its interest in this Agreement, or any of the rights or obligations
hereunder, without the prior written consent of the Developer, except
that such consent shall not be required in connection with (i) the
assignment of work to be performed for Operator by subcontractors, it
being understood and agreed, however, that any such assignment to
Operator's subcontractors shall not in any manner relieve or release
Operator from any of its obligations and responsibilities under this
Agreement, or (ii) any lien, assignment, security interest, pledge or
mortgage arising under or pursuant to Operator's present or future
financing arrangements, or (iii) the liquidation, merger, consolidation
or sale of substantially all of the assets of Operator or other corporate
reorganization; and provided, further, that in order to maintain
uniformity of ownership in the wells, production, equipment, and
leasehold interests covered by this Agreement, and notwithstanding any
other provisions to the contrary, the Developer shall not, without the
prior written consent of Operator, sell, assign, transfer, encumber,
mortgage or otherwise dispose of any of its interest in the wells,
production, equipment or leasehold interests covered hereby unless such
disposition encompasses either (i) the entire interest of the Developer
in all wells, production, equipment and leasehold interests subject
hereto or (ii) an equal undivided interest in all such wells, production,
equipment, and leasehold interests.
(b) Subject to the provisions of sub-section (a) above, any sale,
encumbrance, transfer or other disposition made by the Developer of its
interests in the wells, production, equipment, and/or leasehold interests
covered hereby shall be made (i) expressly subject to this Agreement,
(ii) without prejudice to the rights of the other party, and (iii) in
accordance with and subject to the provisions of the Lease.
(c) If at any time the interest of the Developer is divided among or
owned by co-owners, Operator may, at its discretion, require such
co-owners to appoint a single trustee or agent with full authority to
receive notices, reports and distributions of the proceeds from
production, to approve expenditures, to receive billings for and approve
and pay all costs, expenses and liabilities incurred hereunder, to
exercise any rights granted to such co-owners under this Agreement, to
grant any approvals or authorizations required or contemplated by this
Agreement, to sign, execute, certify, acknowledge, file and/or record any
agreements, contracts, instruments, reports, or documents whatsoever in
connection with this Agreement or the activities contemplated hereby, and
to deal generally with, and with power to bind, such co-owners with
respect to all activities and operations contemplated by this Agreement;
provided, however, that all such co-owners shall continue to have the
right to enter into and execute all contracts or agreements for their
respective shares of the oil and gas produced from the wells drilled
hereunder in accordance with sub-section (c) of Section 11 hereof.
10. Insurance; Operator's Liability.
(a) Operator shall obtain and maintain at its own expense so long as
it is Operator hereunder all required Workmen's Compensation Insurance
and comprehensive general public liability insurance in amounts and
coverage not less than $1,000,000 per person per occurrence for personal
injury or death and $1,000,000 for property damage per occurrence, which
insurance shall include coverage for blow-outs and total liability
coverage of not less than $10,000,000. Subject to the aforesaid limits,
the Operator's general public liability insurance shall be in all
respects comparable to that generally maintained in the industry with
respect to services of the type to be rendered and activities of the type
to be conducted under this Agreement; Operator's general public liability
insurance shall, if permitted by Operator's insurance carrier, (i) name
the Developer and all of Developer's Investor General Partners as
additional insured parties, and (ii) provide that at least thirty (30)
days' prior notice of cancellation and any other adverse material change
in the policy shall be given to the Developer and its Investor General
Partners; provided, that the Developer shall reimburse Operator for the
additional cost, if any, of including it and its Investor General
Partners as additional insured parties under the Operator's insurance.
Current copies of all policies or certificates thereof shall be delivered
to the Developer upon request. It is understood and agreed that
Operator's insurance coverage may not adequately protect the interests of
the Developer hereunder and that the Developer shall carry at its expense
such excess or additional general public liability, property damage, and
other insurance, if any, as the Developer deems appropriate.
(b) Operator shall require all of its subcontractors to carry all
required Workmen's Compensation Insurance and to maintain such other
insurance, if any, as Operator in its discretion may require.
(c) Operator's liability to the Developer as Operator hereunder
shall be limited to, and Operator shall indemnify the Developer and hold
it harmless from, claims, penalties, liabilities, obligations, charges,
losses, costs, damages or expenses (including but not limited to
reasonable attorneys' fees) relating to, caused by or arising out of (i)
the noncompliance with or violation by Operator, its employees, agents,
or subcontractors of any local, state or federal law, statute,
regulation, or ordinance; (ii) the negligence or misconduct of Operator,
its employees, agents or subcontractors; or (iii) the breach of or
failure to comply with any provisions of this Agreement.
11. Internal Revenue Code Election; Relationship of Parties; Right to
Take Production in Kind.
(a) With respect to this Agreement, each of the parties hereto
elects, under the authority of Section 761 (a) of the Internal Revenue
Code of 1986, as amended, to be excluded from the application of all of
the provisions of Subchapter K of Chapter 1 of Sub Title A of the
Internal Revenue Code of 1986, as amended. If the income tax laws of the
state or states in which the property covered hereby is located contain,
or may hereafter contain, provisions similar to those contained in the
Subchapter of the Internal Revenue Code of 1986, as amended, referred to
under which a similar election is permitted, each of the parties agrees
that such election shall be exercised. Beginning with the first taxable
year of operations hereunder, each party agrees that the deemed election
provided by Section 1.761-2(b)(2)(ii) of the Regulations under the
Internal Revenue Code of 1986, as amended, will apply; and no party will
file an application under Section 1.761-2 (b)(3)(i) and (ii) of said
Regulations to revoke such election. Each party hereby agrees to execute
such documents and make such filings with the appropriate governmental
authorities as may be necessary to effect such election.
(b) It is not the intention of the parties hereto to create, nor
shall this Agreement be construed as creating, a mining or other
partnership or association or to render the parties liable as partners or
joint venturers for any purpose. Operator shall be deemed to be an
independent contractor and shall perform its obligations as set forth
herein or as otherwise directed by the Developer.
(c) Subject to the provisions of Section 8 hereof, the Developer
shall have the exclusive right to sell or dispose of its proportionate
share of all oil and gas produced from the wells to be drilled hereunder,
exclusive of production which may be used in development and producing
operations, production unavoidably lost, and production used to fulfill
any free gas obligations under the terms of the applicable Lease or
Leases; and Operator shall not have any right to sell or otherwise
dispose of such oil and gas. The Developer shall have the exclusive right
to execute all contracts relating to the sale or disposition of its
proportionate share of the production from the wells drilled hereunder.
Developer shall have no interest in any gas purchase agreements of
Operator, except the right to receive Developer's share of the proceeds
received from the sale of any gas or oil from wells developed hereunder.
The Developer agrees to designate Operator or Operator's designated bank
agent as the Developer's collection agent in any such contract. Upon
request, Operator shall render assistance in arranging such sale or
disposition and shall promptly provide the Developer with all relevant
information which comes to Operator's attention regarding opportunities
for sale of production. In the event Developer shall fail to make the
arrangements necessary to take in kind or separately dispose of its
proportionate share of the oil and gas produced hereunder, Operator shall
have the right, subject to the revocation at will by the Developer, but
not the obligation, to purchase such oil and gas or sell it to others at
any time and from time to time, for the account of the Developer at the
best price obtainable in the area for such production, however, Operator
shall have no liability to Developer should Operator fail to market such
production. Any such purchase or sale by Operator shall be subject always
to the right of the Developer to exercise at any time its right to take
in kind, or separately dispose of, its share of oil and gas not
previously delivered to a purchaser. Any purchase or sale by Operator of
any other party's share of oil and gas shall be only for such reasonable
periods of time as are consistent with the minimum needs of the Industry
under the particular circumstance, but in no event for a period in excess
of one (1) year.
12. Force Majeure.
(a) If Operator is rendered unable, wholly or in part, by force
majeure (as hereinafter defined) to carry out its obligations under this
Agreement, the Operator shall give to the Developer prompt written notice
of the force majeure with reasonably full particulars concerning it;
thereupon, the obligations of the Operator, so far as it is affected by
the force majeure, shall be suspended during but no longer than, the
continuance of the force majeure. Operator shall use all reasonable
diligence to remove the force majeure as quickly as possible to the
extent the same is within reasonable control.
(b) The term "force majeure" shall mean an act of God, strike,
lockout, or other industrial disturbance, act of the public enemy, war,
blockade, public riot, lightning, fire, storm, flood, explosion,
governmental restraint, unavailability of equipment or materials, plant
shut-downs, curtailments by purchasers and any other causes whether of
the kind specifically enumerated above or otherwise, which directly
precludes Operator's performance hereunder and is not reasonably within
the control of the Operator.
(c) The requirement that any force majeure shall be remedied with
all reasonable dispatch shall not require the settlement of strikes,
lockouts, or other labor difficulty affecting the Operator, contrary to
its wishes; the method of handling all such difficulties shall be
entirely within the discretion of the Operator.
13. Term.
This Agreement shall become effective when executed by Operator and the
Developer and, except as provided in sub-section (c) of Section 3, shall
continue and remain in full force and effect for the productive lives of
the wells being operated hereunder.
14. Governing Law and Invalidity.
This Agreement shall be governed by, construed and interpreted in
accordance with the laws of the Commonwealth of Pennsylvania. The
invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this
Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
15. Integration.
This Agreement, including the Exhibits hereto, constitutes and represents
the entire understanding and agreement of the parties with respect to the
subject matter hereof and supersedes all prior negotiations,
understandings, agreements, and representations relating to the subject
matter hereof. No change, waiver, modification, or amendment of this
Agreement shall be binding or of any effect unless in writing duly signed
by the party against which such change, waiver, modification, or
amendment is sought to be enforced.
16. Waiver of Default or Breach.
No waiver by any party hereto to any default of or breach by any other
party under this Agreement shall operate as a waiver of any future
default or breach, whether of like or different character or nature.
17. Notices.
Unless otherwise provided herein, all notices, statements, requests, or
demands which are required or contemplated by this Agreement shall be in
writing and shall be hand-delivered or sent by registered or certified
mail, postage prepaid, to the following addresses until changed by
certified or registered letter so addressed to the other party:
(i) If to Atlas, to:
Atlas Resources, Inc.
311 Rouser Road
Moon Township, Pennsylvania 15108
Attention: President
(ii) If to Developer, to:
Atlas-Energy for the Nineties-Public #5 Ltd.
c/o Atlas Resources, Inc.
311 Rouser Road
Moon Township, Pennsylvania 15108
Notices which are served by registered or certified mail upon the parties
hereto in the manner provided in this Section shall be deemed
sufficiently served or given for all purposes under this Agreement at the
time such notice shall be mailed as provided herein in any post office or
branch post office regularly maintained by the United States Postal
Service or any successor to the functions thereof. All payments hereunder
shall be hand-delivered or sent by United States mail, postage prepaid to
the addresses set forth above until changed by certified or registered
letter so addressed to the other party.
18. Interpretation.
Whenever this Agreement makes reference to "this Agreement" or to any
provision "hereof," or words to similar effect, such reference shall be
construed to refer to the within instrument unless the context clearly
requires otherwise. The titles of the Sections herein have been inserted
as a matter of convenience of reference only and shall not control or
affect the meaning or construction of any of the terms and provisions
hereof. As used in this Agreement, the plural shall include the singular
and the singular shall include the plural whenever appropriate.
19. Counterparts.
The parties hereto may execute this Agreement in any number of separate
counterparts, each of which, when executed and delivered by the parties
hereto, shall have the force and effect of an original; but all such
counterparts shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
under their respective seals as of the day and year first above written.
Attest
Secretary
[Corporate Seal]
Attest
Secretary
[Corporate Seal]
ATLAS RESOURCES, INC.
By:
President
ATLAS-ENERGY FOR NINETIES-PUBLIC #5 LTD.
By its Managing General Partner:
ATLAS RESOURCES, INC.
By:
President
DESCRIPTION OF LEASES AND INITIAL WELL LOCATIONS
[To be completed as information becomes available]
1. WELL LOCATION
(a) Oil and Gas Lease from _________________________________________
dated _____________________ and recorded in Deed Book Volume
__________, Page __________ in the Recorder's Office of County,
____________, covering approximately_________acres in
________________________________ Township, ___________________
County, __________________________.
(b) The portion of the leasehold estate constituting the
________________________________________________ No. __________
Well Location is described on the map attached hereto as Exhibit
A-l.
(c) Title Opinion of ____________________________________,
_____________________________________,
________________________________________,
________________________________________, dated
___________________, 19_____.
(d) The Developer's interest in the leasehold estate constituting
this Well Location is an undivided % Working Interest to
those oil and gas rights from the surface to the bottom of the
Medina/Whirlpool Formation, subject to the landowner's royalty
interest and Overriding Royalty Interests.
Exhibit A
(Page 1)
INSERT ASSIGNMENT OF OIL AND GAS LEASE AS EXHIBIT B
ADDENDUM NO. __________
TO DRILLING AND OPERATING AGREEMENT
DATED ___________________ , 1996
THIS ADDENDUM NO. __________ made and entered into this ______ day of
________________, 1996, by and between ATLAS RESOURCES, INC., a
Pennsylvania corporation (hereinafter referred to as "Operator"),
and
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD., a Pennsylvania limited
partnership, (hereinafter referred to as the Developer).
WITNESSETH THAT:
WHEREAS, Operator and the Developer have entered into a Drilling and
Operating Agreement dated ___________________, 1996, (the "Agreement"),
which Agreement relates to the drilling and operating of
________________ (______) natural gas wells on the ________________
(______) Initial Well Locations in Mercer County, Pennsylvania,
identified on the maps attached as Exhibits A-l through A-______ to said
Agreement, and provides for the development upon the terms and
conditions therein set forth of such Additional Well Locations as the
parties may from time to time designate; and
WHEREAS, pursuant to Section l(c) of said Agreement, Operator and
Developer presently desire to designate ________________ Additional
Well Locations hereinafter described to be developed in accordance with
the terms and conditions of said Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Pursuant to Section l(c) of the aforesaid Agreement, the Developer
hereby authorizes Operator to drill, complete (or plug) and operate,
upon the terms and conditions set forth in said Agreement and this
Addendum No.__________, ________________ additional natural gas wells on
the ________________ Additional Well Locations described on Exhibit A
hereto and on the maps attached hereto as Exhibits A-______ through
A-______.
2. Operator, as Developer's independent contractor, agrees to drill,
complete (or plug) and operate said additional natural gas wells on said
Additional Well Locations in accordance with the terms and conditions of
said Agreement and further agrees to use its best efforts to commence
drilling the first such additional well within thirty (30) days after
the date hereof and to commence drilling all said ________________
additional wells on or before March 31, 1997.
3. Developer hereby acknowledges that Operator has furnished Developer
with the title opinions identified on Exhibit A hereto, and such other
documents and information which Developer or its counsel has requested
in order to determine the adequacy of the title to the aforesaid
Additional Well Locations. The Developer hereby accepts the title to the
aforesaid Additional Well Locations and leased premises in accordance
with the provisions of Section 5 of the Agreement.
4. The drilling and operation of said ________________ additional
natural gas wells on the aforesaid ________________ Additional Well
Locations shall be in accordance with and subject to the terms and
conditions set forth in the aforesaid Agreement as supplemented by this
Addendum No. __________ and except as previously supplemented, all terms
and conditions of the aforesaid Agreement shall remain in full force and
effect as originally written.
5. This Addendum No. __________ shall be legally binding upon, and
shall inure to the benefit of, the parties hereto and their respective
heirs, personal representatives, successors and assigns.
Exhibit C
(Page 1)
WITNESS the due execution hereof on the day and year first above
written.
Attest: ATLAS RESOURCES, INC.
________________________________________ By
____________________________________________
Secretary President
[Corporate Seal]
ATLAS ENERGY FOR THE NINETIES-PUBLIC
#5 LTD.
By its Managing General Partner:
Attest: ATLAS RESOURCES, INC.
_____________________________________________ By
____________________________________________
Secretary President
[Corporate Seal]
STATE OF )
) ASSIGNMENT OF OIL AND GAS LEASE
COUNTY OF )
KNOW ALL MEN BY THESE PRESENTS
THAT the undersigned
(hereinafter called Assignor), for and in consideration of One Dollar
and other valuable consideration ($1.00 ovc), the receipt whereof is
hereby acknowledged, does hereby sell, assign, transfer and set over
unto
(hereinafter called Assignee), an undivided
in, and to, the oil and gas lease described as follows:
together with the rights incident thereto and the personal property
thereto, appurtenant thereto, or used, or obtained, in connection
therewith.
And for the same consideration, the assignor covenants with the said
assignee his or its heirs, successors, or assigns that assignor is the
lawful owner of said lease and rights and interest thereunder and of the
personal property thereon or used in connection therewith; that the
undersigned ___________________________ good right and authority to
sell and convey the same, and that said rights, interest and property
are free and clear from all liens and incumbrances, and that all rentals
and royalties due and payable thereunder have been duly paid.
In Witness Whereof, The undersigned owner________________ and
assignor ha____ signed and sealed this instrument the _________ day
of ____________________, 19_____.
Signed and acknowledged in presence of
________________________________________
ACKNOWLEDGEMENT BY INDIVIDUAL
STATE OF )
) BEFORE ME, a Notary Public, in and for said
COUNTY OF )
County and State, on this day personally appeared
who acknowledged to me that __he did sign the foregoing instrument and
that the same is ____________________free act and deed.
In Testimony Whereof, I have hereunto set my hand and offical seal,
at ______________________________. This _____ day of
____________________________, A.D. 19____.
____________________________________
Notary Public
CORPORATION ACKNOWLEDGEMENT
STATE OF )
) BEFORE ME, a Notary Public, in and for said
COUNTY OF )
County and State, on this day personally appeared known to me
to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged that the same was the act of the said
a corporation, and he executed the same as the act of such corporation
for the purposes and consideration therein expressed, and in the
capacity therein stated.
In Testimony Whereof, I have herewith set my hand and offical seal,
at ______________________________. This _____ day of
____________________________, A.D. 19____.
____________________________________
Notary Public
This instrument prepared by:
EXHIBIT (B)
SPECIAL SUITABILITY REQUIREMENTS
AND DISCLOSURES TO INVESTORS
SPECIAL SUITABILITY REQUIREMENTS AND DISCLOSURES TO INVESTORS
Prospective investors, if a resident of one of the following states,
must meet that state's qualification and suitability standards as
follows:
SUBSCRIBERS TO LIMITED PARTNER UNITS.
If a Michigan or North Carolina resident (1) a net worth of not less
than $225,000 (exclusive of home, furnishings and automobiles), or (2) a
net worth of not less than $60,000 (exclusive of home, furnishings and
automobiles) and estimated current year taxable income as defined in
Section 63 of the Internal Revenue Code of 1986 of $60,000 or more
without regard to an investment in the Partnership. In addition, a
resident of Michigan or Ohio shall not make an investment in the
Partnership in excess of 10% of his net worth (exclusive of home,
furnishings and automobiles).
If a resident of California (1) a net worth of not less than $250,000
(exclusive of home, furnishings and automobiles) and expects to have
gross income in the current year of $65,000 or more, or (2) a net worth
of not less than $500,000 (exclusive of home, furnishings and
automobiles), or (3) a net worth of not less than $1,000,000, or (4)
expects to have gross income in the current year of not less than
$200,000.
SUBSCRIBERS TO INVESTOR GENERAL PARTNER UNITS.
If a resident of California: (1) a net worth of not less than $250,000
(exclusive of home, furnishings and automobiles) and expects to have
annual gross income in the current year of $120,000 or more; or (2) a
net worth of not less than $500,000 (exclusive of home, furnishings and
automobiles); or (3) a net worth of not less than $1,000,000; or (4)
expects to have gross income in the current year of not less than
$200,000.
If a resident of Alabama, Maine, Massachusetts, Minnesota, Mississippi,
New Mexico, North Carolina, Pennsylvania, Tennessee, Texas, or
Washington, (1) an individual or joint net worth with my spouse of
$225,000 or more, without regard to the investment in the Partnership,
(exclusive of home, home furnishings and automobiles) and a combined
gross income of $100,000 or more for the current year and for the two
previous years; or (2) an individual or joint net worth with my spouse
in excess of $1,000,000, inclusive of home, home furnishings and
automobiles; or (3) an individual or joint net worth with my spouse in
excess of $500,000, exclusive of home, home furnishings and automobiles;
or (4) a combined "gross income" as defined in Section 61 of the
Internal Revenue Code of 1986, as amended, in excess of $200,000 in the
current year and the two previous years.
If a resident of Arizona, Indiana, Iowa, Kentucky, Michigan, Missouri,
Ohio, Oklahoma, South Dakota, or Vermont, (1) an individual or joint net
worth with my spouse of $225,000 or more, without regard to the
investment in the Partnership, (exclusive of home, home furnishings and
automobiles) and a combined "taxable income" of $60,000 or more for the
previous year and expects to have a combined "taxable income" of $60,000
or more for the current year and for the succeeding year; or (2) an
individual or joint net worth with my spouse in excess of $1,000,000,
inclusive of home, home furnishings and automobiles; or (3) an
individual or joint net worth with my spouse in excess of $500,000,
exclusive of home, home furnishings and automobiles; or (4) a combined
"gross income" as defined in Section 61 of the Internal Revenue Code of
1986, as amended, in excess of $200,000 in the current year and the two
previous years. In addition, a resident of Michigan or Ohio shall not
make an investment in the Partnership in excess of 10% of his net worth
(exclusive of home, furnishings and automobiles).
If a resident of New Hampshire: a minimum of $400,000 net worth,
exclusive of home, home furnishings, and automobiles, or $200,000 net
worth, exclusive of home, home furnishings, and automobiles, and $75,000
in annual taxable income.
If a resident of Missouri, I am aware that:
THESE SECURITIES ARE NOT ELIGIBLE FOR ANY TRANSACTIONAL EXEMPTION UNDER THE
MISSOURI UNIFORM SECURITIES ACT (SECTION 409.402(B), R.S.MO.(1978).
UNLESS THESE
SECURITIES ARE AGAIN REGISTERED UNDER THE ACT, THEY MAY NOT BE REOFFERED FOR
SALE OR RESOLD IN THE STATE OF MISSOURI (SECTION 409.301, R.S.MO.(1978)).
If a resident of California, I am aware that:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
As a condition of qualification of the Units for sale in the State of
California, the following rule is hereby delivered to each California
purchaser.
CALIFORNIA ADMINISTRATIVE CODE, TITLE 10, CH. 3,
RULE 260.141.11. RESTRICTION ON
TRANSFER.
(a) The issuer of any security upon which a restriction on transfer
has been imposed pursuant to Sections 260.102.6, 260.141.10 and
260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate
evidencing the security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate
a sale or transfer of such security, or any interest therein,
without the prior written consent of the Commissioner (until this
condition is removed pursuant to Section 260.141.12 of these
rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor's
ancestors, descendants or spouse, or to a transferee by a
trustee or custodian for the account of the transferee or the
transferee's ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign
state, territory or country who is neither domiciled in this
state to the knowledge of the broker-dealer, nor actually
present in this state if the sale of such securities is not in
violation of any securities law of the foreign state, territory
or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting
syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the
security for which the Commissioner's written consent is
obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113
or 25121 of the Code, of the securities to be transferred,
provided that no order under Section 25140 or Subdivision (a)
of Section 25143 is in effect with respect to such
qualification;
(11) by a corporation or wholly-owned subsidiary of such
corporation, or by a wholly-owned subsidiary of a corporation
to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112
or 25113 of the Code, provided that no order under Section
25140 or Subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property
Law or to the administrator of the unclaimed property law of
another state;
(15) by the State Controller pursuant to the Unclaimed Property
Law or by the administrator of the unclaimed property law of
another state if, in either such case, such person (i)
discloses to potential purchasers at the sale that transfer of
the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the
securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification
requirement of Section 25110 of the Code but exempt from that
qualification requirement by subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any
certificate evidencing the security issued to such transferee
shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such
a restriction on transfer, whether upon initial issuance or upon
any transfer thereof, shall bear on their face a legend,
prominently stamped or printed thereon in capital letters of not
less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES."
IF A RESIDENT OF NORTH CAROLINA, I AM AWARE THAT:
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE
TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE
SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES
COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TABLE OF CONTENTS
Page
Summary of the Offering 1
Risk Factors 8
Capitalization and Source of Funds and Use of
Proceeds 15
Compensation 17
Estimate of Administrative Costs and Direct
Costs to be Borne by the Partnership 19
Terms of the Offering 19
Conflicts of Interest 23
Fiduciary Responsibility of the Managing Gen-
eral Partner 30
Prior Activities 31
Management 38
Investment Objectives 43
Proposed Activities 44
Competition, Markets and Regulation 75
Participation in Costs and Revenues 77
Tax Aspects 80
Definitions 93
Summary of Partnership Agreement 98
Summary of Drilling and Operating Agreement 100
Reports to Investors 101
Repurchase Obligation 101
Transferability of Units 103
Plan of Distribution 104
Sales Material 104
Legal Opinions 104
Experts 104
Litigation 105
Additional Information 105
Financial Information Concerning the Man-
aging General Partner, AEGH and
the Partnership 105
EXHIBIT (A) - Amended and Restated Certificate
and Agreement of Limited Partnership
EXHIBIT (I-A) - Managing General Partner Signa-
ture Page
EXHIBIT (I-B) - Subscription Agreement
EXHIBIT (II) - Drilling and Operating Agreement
EXHIBIT (B) - Special Suitability Requirements and
Disclosures to Investors
No dealer, salesman or other person has been authorized to give any
information or make any representations other than those contained in
this Prospectus in connection with this offering, and if given or made,
such information or representations must not be relied upon as having
been authorized by the Managing General Partner. The delivery of this
Prospectus at any time does not imply that the information herein is
correct as of any time subsequent to its date of issue. This Prospectus
does not constitute an offer to buy any of these securities in any
State to any person to whom it is unlawful to make such offer or
solicitation in such State.
ATLAS-ENERGY FOR
THE NINETIES -
PUBLIC #5 LTD.
PROSPECTUS
_______________, 1996
Until December 31, 1996, all dealers effecting transactions in the
registered securities, whether or not participating in this
distribution, may be required to deliver a prospectus. This is in
addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 22. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 1410 of the Pennsylvania Business Corporation Law provides for
indemnification of officers, directors, employees and agents by a
corporation subject to certain limitations.
Under Section 4.05 of the Amended and Restated Certificate and Agreement
of Limited Partnership, the Participants, within the limits of their
Capital Contributions, and the Partnership, agree under certain
circumstances and subject to certain conditions to indemnify and hold
the Managing General Partner harmless from claims of liability to any
third party arising out of operations of the Partnership and agree to
exonerate the Managing General Partner for claims of liability arising
out of the activities of the Partnership.
Paragraph 11 of the Soliciting Dealer Agreement provides for the
indemnification of Atlas, the Partnership and control persons under
specified conditions by the Soliciting Dealers.
ITEM 23. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be incurred in connection with the issuance and
distribution of the securities to be registered, other than underwriting
discounts, commissions and expense allowances, are estimated to be as
follows:
Accounting $ 2,000.00 *
Legal Fees (including Blue Sky) 50,000.00 *
Printing 95,000.00 *
SEC Registration Fee 2,758.40
Blue Sky Filing Fees (excluding legal fees) 21,000.00 *
NASD Filing Fee 1,300.00
Miscellaneous 187,941.60*
Total $360,000.00 *
*Estimated
ITEM 24. RECENT SALES OF UNREGISTERED SECURITIES.
None by the Registrant.
Atlas Resources, Inc. ("Atlas"), an Affiliate of the Registrant, has
made sales of unregistered and registered securities within the last
three years. See the section of the Prospectus captioned "Prior
Activities" regarding the sale of limited and general partner interests.
In the opinion of Atlas, the foregoing unregistered securities in each
case have been and/or are being offered and sold in compliance with
exemptions from registration provided by the Securities Act of 1933, as
amended, including the exemptions provided by Section 4(2) of that Act
and certain rules and regulations promulgated thereunder. The
securities in each case have been and/or are being offered and sold to a
limited number of persons who had the sophistication to understand the
merits and risks of the investment and who had the financial ability to
bear such risks. The units of limited and general partner interests
were sold to persons who were Accredited Investors, as that term is
defined in Regulation D (17 CFR 230.501(a)), or who had, at the time of
purchase, a net worth of at least $225,000 (exclusive of home,
furnishings and automobiles) or a net worth (exclusive of home,
furnishings and automobiles) of at least $125,000 and gross income of at
least $75,000.
ITEM 25. EXHIBITS.
1(a) Proposed form of Soliciting Dealer Agreement
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 #5 Ltd.
4(b) Amended and Restated Certificate and Agreement of Limited
Partnership for Atlas-Energy for the Nineties-Public #5 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) Proposed Form of Escrow Agreement
10(b) 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
ITEM 26. UNDERTAKINGS.
(a) As required by Item 512(a) of Regulation S-B and Rule 415, the
undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a Post-Effective Amendment to this Registration
Statement to:
(i) include any Prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement
(or of the most recent Post-Effective Amendment thereof)
which, individually or together, represent a fundamental
change in the information set forth in the Registration
Statement; and
(iii) include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such Post-Effective Amendment
shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof; and
(3) To remove from registration by means of a Post-Effective
Amendment any of the securities being registered which
remain unsold at the termination of the offering.
(e) The undersigned Registrant undertakes:
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to Atlas
and its directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, Atlas and the
Registrant have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by
Atlas and its directors, officers and controlling persons in
the successful defense of any action, suit or proceeding) is
asserted by such party in connection with the securities
being registered, Registrant will unless in the opinion of
its counsel the matter has been settled by controlling
precedent submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Act, and will be governed
by final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that
it meets all of
the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in Moon Township, Pennsylvania, on the 29th day of July, 1996.
ATLAS-ENERGY
FOR THE NINETIES-
PUBLIC #5 LTD.
(Registrant)
By: Atlas Resources,
Inc.,
Managing
General Partner
James R. O'Mara and Bruce M. Wolf, By: /s/ James R. O'Mara
pursuant to the Registration Statement, James R. O'Mara, President, Chief
Executive
have been granted Power of Attorney and are Officer and Director
signing on behalf of the names shown below,
in the capacities indicated. By: /s/ Bruce M. Wolf
Bruce M.
Wolf, General Counsel, Secretary
and Director
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature
Charles T. Koval
Joseph R. Sadowski
James R. O'Mara
Bruce M. Wolf
Donald P. Wagner
James J. Kritzo
Tony C. Banks
Frank P. Carolas
Barbara J. Krasnicki
Title
Co-Chairman of the Board
and a Director
Co-Chairman of the Board
and a Director
President, Chief Executive
Officer and a Director
General Counsel, Secretary
and a Director
Vice President of Operations
Vice President of the Land
Department
Vice President of Finance
and Chief Financial Officer
Vice President of Geology
Vice President of
Administration
Date
July 29, 1996
July 31, 1996
July 29, 1996
July 31, 1996
July 29, 1996
July 29, 1996
July 31, 1996
July 29, 1996
July 29, 1996
As filed with the Securities and Exchange Commission on August 9, 1996
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
(Exact name of Registrant as Specified in its Charter)
JAMES R. O'MARA, PRESIDENT
ATLAS RESOURCES, INC.
311 ROUSER ROAD, MOON TOWNSHIP, PENNSYLVANIA 15108
(412) 262-2830
(Name, Address and Telephone Number of Agent for Service)
Copies to:
WALLACE W. KUNZMAN, JR., ESQ. JAMES R. O'MARA
KUNZMAN & BOLLINGER, INC. ATLAS RESOURCES, INC.
5100 N. BROOKLINE, SUITE 600 311 ROUSER ROAD
SIXTH FLOOR MOON TOWNSHIP, PENNSYLVANIA 15108
OKLAHOMA CITY, OKLAHOMA 73112
EXHIBIT INDEX
Exhibit No.
1(a)
3(a)
3(b)
4(a)
4(b)
4(c)
5
8
10(a)
10(b)
24(a)
24(b)
24(c)
25
Description
Proposed form of Soliciting Dealer Agreement
Articles of Incorporation of Atlas Resources, Inc.
Bylaws of Atlas Resources, Inc.
Certificate of Limited Partnership for Atlas-Energy for the
Nineties-Public #5 Ltd.
Amended and Restated Certificate and Agreement of Limited Partnership
for Atlas-Energy for the Nineties-Public #5 Ltd.
(See Exhibit (A) to Prospectus)
Release from Shareholders
Opinion of Kunzman & Bollinger, Inc.
as to the legality of the Units registered hereby
Opinion of Kunzman & Bollinger, Inc. as to tax matters
Proposed form of Escrow Agreement
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)
Consent of McLaughlin & Courson
Consent of United Energy Development Consultants, Inc.
Consent of Kunzman & Bollinger, Inc. (See Exhibits 5 and 8)
Power of Attorney
PROPOSED FORM OF
SOLICITING DEALER AGREEMENT
Exhibit
1(a)
SOLICITING DEALER AGREEMENT
(Best Efforts)
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
________________________
________________________
________________________
________________________
Gentlemen:
The undersigned, Atlas Resources, Inc. ("Atlas"), on behalf of
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD., hereby confirms its
agreement with you as follows:
1. Description of Units. Atlas, as Managing General Partner, has formed
a limited partnership known as Atlas-Energy for the Nineties-Public
#5 Ltd. (the "Partnership"), and will issue and sell Units of
Participation in the Partnership (the "Units") at a price of $10,000
per Unit. The minimum Partnership Subscription is 100 Units
($1,000,000), excluding any optional subscription by the Managing
General Partner. No subscriptions to the Partnership will be accepted
after receipt of the maximum Partnership Subscription of $7,000,000
(which may be increased to $8,000,000 in Atlas' discretion) or
December 31, 1996, 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") under the Securities Act
of 1933 (the "Act"), as amended.
(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. 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 a Soliciting Dealer for the
Partnership and gives you the non-exclusive right to solicit
subscriptions for the Units, on a "best efforts" basis, subject to
the terms and conditions set forth herein.
4. Compensation and Fees.
(a) As compensation for this Agreement and for services rendered
hereunder, you shall receive a Sales Commission in an amount
equal to 7.5% and shall be entitled to reimbursement of your
bona fide accountable due diligence expenses in an amount equal
to .5% of each Unit sold by you and accepted by the Managing
General Partner. Subject to receipt and acceptance of the
minimum Partnership Subscription of 100 Units ($1,000,000), such
payments will be made to you approximately every two weeks until
the Offering Termination Date and all of your remaining fees
shall be paid by Atlas no later than 14 days after the Offering
Termination Date.
(b) Pending receipt of the minimum Partnership Subscription
($1,000,000), 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 one hundred (100)
Units ($10,000 per Unit) are sold by all duly authorized parties
on or before December 31, 1996, 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 in connection with the offering of the Units.
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
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 Soliciting Dealer. You, as a
Soliciting Dealer, 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 National
Association of Securities Dealers, Inc. (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 Soliciting Dealer, you shall
conduct all your activities hereunder to comply with all of the
provisions of the Act, insofar as the Act applies to you and
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 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, 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, and to keep file memoranda
indicating to whom each supplement or amendment was delivered.
(i) You agree to advise Atlas in writing of each state in which you
propose to offer or sell the Units and you agree not 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 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 will not provide any written information, statements or
sales literature other than the Prospectus, 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.
(k) 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) 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 with the requirements
of Sections (b)(2)(B) and (b)(3)(D) of Rule 2810 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 to act as a
broker-dealer with respect to the Units in any such jurisdiction.
Atlas will provide to you 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 as a
broker-dealer under the laws of such states.
8. Expense of Sale. Atlas will 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. You will pay the fees and expenses of your own counsel and
accountants.
9. Conditions of Your Duties. Your obligations provided herein shall be
subject to the accuracy, as of the date hereof and at the Offering
Termination Date (as if made at the Offering Termination 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 Offering Termination Date (as if made at the Offering
Termination 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 Offering Termination Date, the following documents:
(a) a fully executed Subscription Agreement for each prospective
purchaser;
(b) certification to Atlas that you are registered as required by
Section 6(d) and that such registrations were, during the term
of the offering and through the Offering Termination Date, in
full force and effect; and
(c) a certificate from you, dated at the Offering Termination Date,
to the effect that your representations and warranties made
herein are true and correct as if made at the Offering
Termination Date and that you have fulfilled all your
obligations hereunder.
11. Indemnification. You 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 breach of any of your
duties and obligations, representations, or warranties under the
terms or provisions of this Agreement and you will reimburse such
parties for any legal or other expenses reasonably incurred in
connection with investigating or defending such loss, claim, damage,
liability or action.
Atlas 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 Atlas' breach of any of its
duties and obligations, representations, or warranties under the
terms or provisions of this Agreement and Atlas will reimburse you
for any legal or other expenses reasonably incurred in connection
with investigating or defending such loss, claim, damage, liability
or action.
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.
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.
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 the Offering
Termination Date:
(a) if Atlas shall have failed, refused, or been unable at or prior
to the Offering Termination 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 the Offering Termination 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 the Soliciting Dealer agree that
all subscribers will be instructed to make their checks payable
solely to "National City Bank, Escrow Agent, Atlas Public #5 Ltd." as
agent for the Partnership. Any Soliciting Dealer receiving a check
not conforming to the foregoing instructions shall return such check
directly to such subscriber not later than noon of the next business
day following its receipt. Checks received by the Soliciting Dealer
which conform to the foregoing instructions shall be transmitted for
deposit by the Soliciting Dealer pursuant to Section 16 "Transmittal
Procedures," below. The Soliciting Dealer represents that it has
executed Appendix II to the Escrow Agreement and agrees that it is
bound by the terms of the Escrow Agreement executed by Atlas, a copy
of which is attached hereto as Exhibit "A".
16. Transmittal Procedures. Atlas and the Soliciting Dealer agree that
transmittal of received investor funds will be made in accordance
with the following procedures:
Pending receipt of the minimum Partnership Subscription of
$1,000,000, the Soliciting Dealer shall promptly, upon receipt of any
and all checks, drafts, and money orders received from prospective
purchasers of Units, transmit same together with a copy of the
executed Subscription Agreement to the Escrow Agent by noon of the
second business day after the Managing General Partner receives the
subscription documents for purposes of a suitability determination,
which documents, together with a copy of the check, draft or money
order, were forwarded to the Managing General Partner by noon of the
next business day following receipt of the check, draft or money
order by the Soliciting Dealer.
Upon receipt by the Soliciting Dealer of notice from Atlas that the
minimum Partnership Subscription has been received, Atlas and the
Soliciting Dealer agree that all subscribers thereafter may be
instructed, in Atlas' sole discretion, to make their checks payable
solely to "Atlas Public #5 Ltd." and that received investor funds
shall be promptly transmitted by the Soliciting Dealer to Atlas as
Managing General Partner on behalf of the Partnership by noon of the
next business day following receipt of the check by the Soliciting
Dealer, together with the executed Subscription Agreement.
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.
, 1996
Date
ATTEST:
(SEAL) Secretary
Very truly yours,
ATLAS RESOURCES, INC.,
a Pennsylvania corporation
By:
J. R. O'Mara, President
, 1996
Date
ATTEST:
(SEAL) Secretary
PARTNERSHIP
ATLAS-ENERGY FOR THE NINETIES-
PUBLIC #5 LTD.
By: Atlas Resources, Inc.
Managing General Partner
By:
J. R. O'Mara, President
, 1996
Date
ATTEST:
(SEAL) Secretary
SOLICITING DEALER
a ______________________
corporation,
By:
[Print Name, Title and Address]
Wholesaler [Print Name]
TO BE COMPLETED BY BROKER/DEALER
Please list states in which broker/dealer is registered:
ARTICLES OF INCORPORATION
OF ATLAS RESOURCES, INC.
Exhibit 3(a)
COMMONWEALTH OF PENNSYLVANIA
688825
Department of State
To All to Whom These Presents Shall Come, Greeting:
WHEREAS, Under the provisions of the Business Corporation Law, approved
the 5th day of May, Anno Domini one thousand nine hundred and
thirty-three, P. L. 364, as amended, the Department of State is
authorized and required to issue a
CERTIFICATE OF INCORPORATION
evidencing the incorporation of a business corporation
organized under the terms of that law, and
WHEREAS, The stipulations and conditions of that law have been
fully complied with by the persons desiring to incorporate as
ATLAS RESOURCES, INC.
THEREFORE, KNOW YE, That subject to the Constitution of this
Commonwealth and under the authority of the Business Corporation Law,
I do by these presents, which I have caused to be sealed with the
Great Seal of the Commonwealth, create, erect, and in-corporate the
incorporators of and subscribers to the shares of the proposed
corporation named above, their associates and successors, and also those
who may thereafter become subscribers or holders of the shares of
such corporation, into a body politic and corporate in deed and in
law by the name chosen hereinbefore specified, which shall exist
perpetually and shall be invested with and have
and enjoy all the powers, privileges, and franchises incident to a
business corporation and be subject to all the duties, requirements,
and restrictions specified and enjoined in and by the Business
Corporation Law and all other applicable laws of this Commonwealth.
GIVEN under my Hand and the Great Seal of the
Common-wealth, at the City of Harrisburg, this
9th
day of July in the year of
our Lord one thousand nine hundred and seventy-nine
and of the Commonwealth the two hundred
and fourth
/s/ Ethel D. Allen, D.O.
Secretary of the Commonwealth
Filed this 9th
day of _____
July
, 1979.
Commonwealth of
Pennsylvania
Department of
State
/s/ Ethel D.
Allen, D.O.
Secretary of the
Commonwealth
79:37 617
DSCB:BCL-204(Rev. 8-72)
Filing Fee: $75 AIB-7 688825
Articles of
Incorporation-- COMMONWEALTH OF PENNSYLVANIA
Domestic Business Corporation DEPARTMENT OF STATE
CORPORATION BUREAU
In compliance with the requirements of section 204 of the
Business Cor-poration Law, act of May 5, 1933 (P.L. 364) (15
P. S. .1204) the undersigned desiring to be incorporated as a
business corporation, hereby certifies
(certify) that:
1. The name of the corporation is ATLAS RESOURCES, INC.
2. The location and post office address of the initial registered
office of
the corporation in this Commonwealth is: 311 Rouser Road, Coraopolis,
Pennsylvania 15108
3. The corporation is incorporated under the Business Corporation Law of
the Commonwealth of Pennsylvania for the following purpose or purposes:
To engage in and do any lawful act concerning any or all lawful
business
for which corporations may be incorporated under this act.
4. The term for which the corporation is to exist is perpetual.
5. The aggregate number of shares which the corporation shall have
authority
to issue is: Five Hundred (500) shares of capital stock without
par value.
79:37 618
6. The name and post office address of each incorporator and the
number
and class of shares subscribed by such incorporator(s) is
(are):
Number and
Name Address Class of Shares
Ira S. Pimm, Jr. 2225 Land Title Building 1
Philadelphia, PA 19110
IN TESTIMONY WHEREOF, the incorporator(s) has (have) signed
and sealed
these Articles of Incorporation this 5th day of July , 1979.
_________________________(SEAL) /s/ Ira S. Pimm, Jr. (SEAL)
______________________(SEAL)
RECEIVED
`79 JUL 9 AM 9:09
DEPARTMENT
OF
STATE
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
CORPORATION BUREAU
Articles of Incorporation
Domestic Business Corporation
In compliance with the requirements of section 204 of
the Business Corporation Law, act of May 5, 1993 (P. L. 364)
( 15 P. S. S1204) the undersigned, desiring to be incorporated
as a business corporation, hereby certifies that:
1. The name of the corporation is
ATLAS RESOURCES, INC.
2. The location and post office address of the initial
registered office of the corporation in this Commonwealth is:
311 Rouser Road, Coraopolis, Pennsylvania 15108
3. The corporation is incorporated under the Business
Corporation Law of the Commonwealth of Pennsylvania for the
following purpose or purposes: To engage in and do any law-
ful act concerning any or all lawful business for which cor-
porations may be incorporated under this act.
4. The term for which the corporation is to exist is
perpetual.
5. The aggregate number of shares which the corporation
shall have authority to issue is: Five Hundred (500)
shares
of capital stock without par value.
6. The name and post office address of each incorporator
and the number and class of shares subscribed by such incor-
porator is:
Name Address Number and
Class of shares
Ira S. Pimm, Jr. 2225 Land Title Building 1
Philadelphia, PA 19110
IN TESTIMONY WHEREOF, the incorporator has signed and
sealed these Articles of Incorporation this 5th day of
July, 1979.
IRA S. PIMM, JR. (SEAL)
Filed this 9th day of July, 1979.
Commonwealth of Pennsylvania
Department of State
ETHEL D. ALLEN, D.O.
Secretary of the Commonwealth
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
TO ALL TO WHOM THESE PRESENTS SHALL COME, GREETING:
WHEREAS, Under the provisions of the Business Corpora-
tion Law, approved the 5th day of May, Anno Domini one thou-
sand nine hundred and thirty - three, P. L. 364, as
amended, the
Department of State is authorized and required to issue a
CERTIFICATE OF INCORPORATION
evidencing the incorporation of a business corporation organ-
ized under the terms of that law.
AND WHEREAS, The stipulations and conditions of that law
have been fully complied with by the persons desiring to
incorporate as ATLAS RESOURCES, INC.
THEREFORE, KNOW YE, That subject to the Constitution of
this Commonwealth and under the authority of the Business
Corporation Law, I do by these presents, which I have caused
to be sealed with the Great Seal of the Commonwealth, create,
erect, and incorporate the incorporators of and the subscribers
to the shares of the proposed corporation named above, their
associates and successors, and also those who may thereafter become
subscribers or holders of the shares of such corpora-
tion, into a body politic and corporate in deed and in law
by the name chosen hereinbefore specified, which shall exist
perpetually and shall be invested with and have and enjoy
all the powers, privileges, and franchises incident to a
business corporation and be subject to all the duties, re-
quirements and restrictions specified and enjoined in and by
the Business Corporation Law and all other applicable laws
of this Commonwealth.
GIVEN under my Hand and the Great Seal
of the Commonwealth, at the City
SEAL OF THE STATE OF of Harrisburg, this 9th day of
PENNSYLVANIA July, in the year of our Lord
one thousand nine hundred and
seventy-nine and of the Common-
wealth the two hundred and
fourth.
ETHEL D. ALLEN, D.O.
Secretary of the Commonwealth
BYLAWS OF ATLAS RESOURCES, INC.
Exhibit 3(b)
ATLAS RESOURCES, INC.
BY-LAWS
ARTICLE I - OFFICES
1. Registered Office. The registered office of the Corporation
shall be located within the Commonwealth of Pennsylvania, at such place
as the Board of Directors shall, from time to time, determine.
2. Other Offices. The Corporation may also have offices at such
other places as the Board of Directors may from time to time, determine.
ARTICLE II - SHAREHOLDERS' MEETINGS
1. Place of Shareholders' Meetings. Meetings of Shareholders shall
be held at such place within or without the Commonwealth of Pennsylvania
as shall be fixed by the Board of Directors from time to time. If no
such place is fixed by the Board of Directors, meetings of the
Shareholders shall be held at the registered office of the Corporation.
2. Annual Meeting. A meeting of the Shareholders of the Corporation
shall be held in each calendar year, commencing with the year 1980, on
the
at o'clock M., if not a
legal holiday, and if such day is a legal holiday, then such meeting
shall be held on the next business day.
At such annual meeting, there shall be held an election for a Board
of Directors to serve for the ensuing year and until their successors
shall be duly elected.
Unless the Board of Directors shall deem it advisable, financial
reports of the Corporation's business need not be sent to the
Shareholders and need not be presented at the annual meeting. If any
report is deemed advisable by the Board of Directors, such report may
contain such information as the Board of Directors shall determine and
need not be certified by a Certified Public Accountant unless the Board
of Directors shall so direct.
3. Special Meetings. Special meetings of the Shareholders may be
called at any time.
(a) By the President of the Corporation; or
(b) By a majority of the Board of Directors; or
(c) By the holders of not less than one-fifth of all the shares
outstanding and entitled to vote.
Upon the written request of any person entitled to call a special
meeting, which request shall set forth the purpose for which the meeting
is desired, it shall be the duty of the Secretary to give notice of such
meeting to be held at such time, not less than ten (10) nor more than
sixty (60) days after the receipt of such request, as the Secretary may
fix. If the Secretary shall neglect or refuse to give such notice
within ten (10) days after receipt of such request, the person or
persons making such request may do so.
4. Notices of Shareholders' Meetings. Except as otherwise
specifically provided by law, at least five days' written notice shall
be given of the annual meeting and any special meeting of the
Shareholders. Such notices shall be given in the name of the Secretary
or the Assistant Secretary.
5. Quorum. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares entitled to vote shall constitute a
quorum. The Shareholders present at a duly organized meeting can
continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. If a
meeting cannot be organized because of the absence of a quorum, those
present may, except as otherwise provided by law, adjourn the meeting to
such time and place as they may determine. In the case of any meeting
for the election of Directors, those Shareholders who attend the second
of such adjourned meetings, although less than a quorum as fixed in this
section, shall nevertheless constitute a quorum for the purpose of
electing Directors.
6. Voting. The officer or agent having charge of the transfer books
of the Corporation shall make, at least five days before any meeting of
Shareholders, a complete list of the Shareholders entitled to vote at
such meeting, arranged in alphabetical order, with the address of and
the number of shares held by each, which list shall be kept on file at
the registered office of the Corporation and shall be subject to
inspection by any Shareholder at any time during usual business hours.
Such list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any Shareholder
during the whole time of the meeting.
At all Shareholders' meetings, Shareholders entitled to vote may
attend and vote either in person or by proxy. All proxies shall be in
writing and shall be filed with the Secretary of the Corporation. No
unrevoked proxy shall be valid after eleven months from the date of
execution, unless a longer time is expressly provided therein; but in no
event shall a proxy, unless coupled with an interest, be valid after
three years after the date of its execution.
Except as otherwise specifically provided by law, all matters coming
before the meeting shall be determined by a vote by shares. Such vote
may be taken by voice unless a Shareholder demands that it be taken by
ballot, in which event the vote shall be taken by written ballot, and
the Judge or Judges of Election or, if none, the Secretary of the
meeting, shall tabulate and certify the results of such vote.
7. Informal Action by Shareholders. Any action which may be taken
at a meeting of the Shareholders may be taken without a meeting, if a
consent in writing, setting forth the action so taken, shall be signed
by all of the Shareholders who would be entitled to vote at a meeting
for such purpose and shall be filed with the Secretary of the
Corporation.
ARTICLE III - BOARD OF DIRECTORS
1. Number. The business and affairs of the Corporation shall be
managed by a Board of two Directors.
2. Place of Meeting. Meetings of the Board of Directors may be held
at such place within the Commonwealth of Pennsylvania, or elsewhere, as
a majority of the Directors may from time to time appoint, or as may be
designated in the notice calling the meeting.
3. Regular Meetings. A regular meeting of the Board of Directors
shall be held annually, immediately following the annual meeting of
Shareholders at the place where such meeting of the Shareholders is held
or at such other place, date and hour as a majority of the newly elected
Directors may designate. At such meeting the Board of Directors shall
elect officers of the Corporation. In addition to such regular meeting,
the Board of Directors shall have the power to fix by resolution the
place, date and hour of other regular meetings of the Board.
4. Special Meetings. Special meetings of the Board of Directors
shall be held whenever ordered by the President or by a majority of the
Directors in office.
5. Notices of Meetings of Board of Directors.
(a) Regular Meetings. No notice shall be required to be given
of any regular meeting, unless the same be held at other than the time
or place for holding such meetings as fixed in accordance with Article
III, Paragraph 3 of these By-Laws, in which event one day's notice shall
be given of the time and place of such meeting.
(b) Special Meetings. At least one days notice shall be given
of the time when, place where, and purpose for which any special meeting
of the Board of Directors is to be held.
6. Quorum. A majority of the Directors in office shall be necessary
to constitute a quorum for the transaction of business, and the acts of
a majority of the Directors present at a meeting at which a quorum is
present shall be the acts of the Board of Directors. If there be less
than a quorum present, the majority of those present may adjourn the
meeting from time to time and place to place and shall cause notice of
each such adjourned meeting to be given to all absent Directors.
7. Informal Action by the Board of Directors. If all the Directors
shall severally or collectively consent in writing to any action to be
taken by the Corporation, such action shall be as valid corporate action
as though it had been authorized at a meeting of the Board of Directors.
8. Powers.
(a) General Powers. The Board of Directors shall have all the
power and authority granted by law to the Board, including all powers
necessary or appropriate to the management of the business and affairs
of the Corporation.
(b) Specific Powers. Without limiting the general powers
conferred by the last preceding clause and the powers conferred by the
Articles and By-Laws of the Corporation, it is hereby expressly declared
that the Board of Directors shall have the following powers:
(1) To confer upon any officer or officers of the Corporation,
the power to choose, remove or suspend assistant officers, agents or
servants.
(2) To appoint any person, firm or corporation to accept and
hold in trust for the Corporation any property belonging to the
Corporation, or in which it is interested, and to authorize any such
person, firm or corporation to execute any documents and perform any
duties that may be requisite in relation to any such trust.
(3) To appoint a person or persons to vote shares of another
corporation held and owned by the Corporation.
(4) By resolution adopted by a majority of the whole Board of
Directors, to delegate two or more of its number to constitute an
executive committee which, to the extent provided in such resolution,
shall have and exercise the authority of the Board of Directors in the
management of the business of the corporation.
(5) To fix the place, time and purpose of meetings of
Shareholders.
(6) To determine who shall be authorized on the Corporation's
behalf to sign bills, notes, receipts, acceptances, endorsements,
checks, releases, contracts and documents.
9. Compensation of Directors. Compensation of Directors, if any,
shall be as determined from time to time by resolution of the Board of
Directors.
10. Removal of Directors by Shareholders. The entire Board of
Directors or any individual Director may be removed from office without
assigning any cause by a majority vote of the holders of the outstanding
shares entitled to vote at an election of Directors. In case the Board
of Directors or any one or more Directors be so removed, new Directors
may be elected at the same time. Unless the entire Board of Directors
be removed, no individual Director shall be removed in case the votes of
a sufficient number of shares are cast against the resolution for his
removal which, if voted at an election of the full Board of Directors,
would be sufficient to elect one or more Directors.
11. Vacancies. Vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of Directors, shall
be filled by a majority of the remaining members of the Board of
Directors through less than a quorum, and each person so elected shall
be a Director until his successor is elected by the Shareholders, who
may make such election at the next annual meeting of the Shareholders or
at any special meeting duly called for that purpose and held prior
thereto.
ARTICLE IV - OFFICERS
1. Election and Office. The Corporation shall have a President, a
Secretary and a Treasurer, who shall be elected by the Board of
Directors. The Board of Directors may elect as additional officers, a
Chairman of the Board of Directors, one or more Vice-Presidents, and one
or more assistant officers. Any two or more offices may be held by the
same person.
2. Term. The President, the Secretary and the Treasurer shall each
serve for a term of one year and until their respective successors are
duly elected and qualified, unless removed from office by the Board of
Directors during their respective tenures. The term of office of any
other officer shall be as specified by the Board of Directors.
3. Powers and Duties of the President. Unless otherwise determined
by the Board of Directors, the President shall have the usual duties of
an executive officer with general supervision over and direction of the
affairs of the Corporation. In the exercise of these duties and subject
to the limitations of the laws of the Commonwealth of Pennsylvania,
these By-Laws, and the actions of the Board of Directors, he may
appoint, suspend and discharge employees and agents, shall preside at
all meetings of the Shareholders at which he shall be present, and
unless there is a Chairman of the Board of Directors, shall preside at
all meetings of the Board of Directors and shall be a member of all
committees. He shall also do and perform such other duties as from time
to time may be assigned to him by the Board of Directors.
Unless otherwise determined by the Board of Directors, the President
shall have full power and authority on behalf of the Corporation, to
attend and to act and to vote at any meeting of the Shareholders of any
corporation in which the Corporation may hold stock, and, at any such
meeting, shall possess and may exercise any and all the rights and
powers incident to the ownership of such stock and which, as the owner
thereof, the Corporation might have possessed and exercised.
4. Powers and Duties of the Secretary. Unless otherwise determined
by the Board of Directors, the Secretary shall keep the minutes of all
meetings of the Board of Directors, Shareholders and all committees, in
books provided for that purpose, and shall attend to the giving and
serving of all notices for the Corporation. He shall have charge of the
corporate seal, the stock certificate books, transfer books and stock
ledgers, and such other books and papers as the Board of Directors may
direct. He shall perform all other duties ordinarily incident to the
office of Secretary and shall have such other powers and perform such
other duties as may be assigned to him by the Board of Directors.
5. Powers and Duties of the Treasurer. Unless otherwise determined
by the Board of Directors, the Treasurer shall have charge of all the
funds and securities of the Corporation which may come into his hands.
When necessary or proper, unless otherwise ordered by the Board of
Directors, he shall endorse for collection on behalf of the Corporation,
checks, notes and other obligations, and shall deposit the same to the
credit of the Corporation in such banks or depositories as the Board of
Directors may designate and shall sign all receipts and vouchers for
payments made to the Corporation. He shall enter regularly, in books of
the Corporation to be kept by him for the purpose, full and accurate
account of all moneys received and paid by him on account of the
Corporation. Whenever required by the Board of Directors, he shall
render a statement of the financial condition of the Corporation. He
shall at all reasonable times exhibit his books and accounts to any
Director of the Corporation, upon application at the office of the
Corporation during business hours. He shall have such other powers and
shall perform such other duties as may be assigned to him from time to
time by the Board of Directors. He shall give such bond, if any, for
the faithful performance of his duties as shall be required by the Board
of Directors and any such bond shall remain in the custody of the
President.
6. Powers and Duties of the Chairman of the Board of Directors.
Unless otherwise determined by the Board of Directors, the Chairman of
the Board of Directors, if any, shall preside at all meetings of
Directors and shall serve ex officio as a member of every committee of
the Board of Directors. He shall have such other powers and perform
such further duties as may be assigned to him by the Board of Directors.
7. Powers and Duties of Vice-Presidents and Assistant Officers.
Unless otherwise determined by the Board of Directors, each Vice-
President and each assistant officer shall have the powers and perform
the duties of his respective superior officer. Vice-Presidents and
Assistant officers shall have such rank as shall be designated by the
Board of Directors and each, in the order of rank, shall act for such
superior officer in his absence or upon his disability or when so
directed by such superior officer or by the Board of Directors. The
President shall be the superior officer of the Vice-Presidents. The
Treasurer and Secretary shall be the superior officers of the Assistant
Treasurers and Assistant Secretaries, respectively.
8. Delegation of Office. The Board of Directors may delegate the
powers or duties of any officer of the Corporation to any other officer
or to any Director from time to time.
9. Vacancies. The Board of Directors shall have the power to fill
any vacancies in any office occurring from whatever reason.
ARTICLE V - CAPITAL STOCK
1. Share Certificates. Every share certificate shall be signed by
the President or a Vice-President and by the Treasurer, Assistant
Treasurer, Secretary or Assistant Secretary and sealed with the
corporate seal, which may be a facsimile, engraved or printed, but where
such certificate is signed by a transfer agent or by a transfer clerk
and a registrar, the signature of any corporate officer upon such
certificate may be a facsimile, engraved or printed.
2. Transfer of Shares. Transfers of shares shall be made on the
books of the Corporation only upon surrender of the share certificate,
duly endorsed and otherwise in proper form for transfer, which
certificate shall be cancelled at the time of the transfer.
3. Determination of Shareholders of Record and Closing Transfer
Books. The Board of Directors may fix a time, not more than fifty days
prior to the date of any meeting of Shareholders, or the date fixed for
the payment of any divided or distribution, or the date for the
allotment of rights, or the date when any change or conversion or
exchange of shares will be made or go into effect, as a record date for
the determination of the Shareholders entitled to notice of or to vote
at any such meeting, or entitled to receive payment of any such dividend
or distribution, or to receive any such allotment of rights, or to
exercise the rights in respect to any such change, conversion or
exchange of shares or otherwise. In such case, only such Shareholders
as shall be Shareholders of record on the date so fixed shall be
entitled to notice of or to vote at such meeting, or to receive payment
of such dividend, or to receive such allotment of rights, or to exercise
such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after any record date fixed as
aforesaid. The Board of Directors may close the books of the
Corporation against transfers of shares during the whole or any part of
such period, and in such case written or printed notice thereof shall be
mailed at least ten (10) days before the closing thereof to each
Shareholder of record at the address appearing on the records of the
Corporation or supplied by him to the Corporation for the purpose of
notice. While the stock transfer books of the Corporation are closed,
no transfer of shares hall be made thereon. Unless a record date is
fixed by the Board of Directors for the determination of Shareholders
entitled to receive notice of or vote at, a Shareholders' Meeting,
transferees of shares which are transferred on the books of the
corporation within ten (10) days next preceding the date of such meeting
shall not be entitled to notice of or to vote at such meeting. The
Corporation may treat the registered owner of each share of stock as the
person exclusively entitled to vote, to receive notifications and
otherwise, to exercise all the rights and powers of the owner thereof.
4. Lost Share Certificates. Unless waived in whole or in part by
the Board of Directors from time to time, any person requesting the
issuance of a new certificate in lieu of an alleged lost, destroyed,
mislaid or wrongfully taken certificate, shall (1) make an affidavit or
affirmation of the facts and circumstances surrounding the same; (2)
advertise such facts to the extent and in such manner as the Board of
Directors may require; (3) give the Corporation a bond of indemnity in
form, and with one or more sureties satisfactory to the Board, in an
amount to be determined by the Board, whereupon the proper officers may
issue a new certificate.
ARTICLE VI - NOTICES
1. Contents of Notice. Whenever any notice of a meeting is required
to be given pursuant to these By-Laws or the Articles, or otherwise, the
notice shall specify the place, day and hour of the meeting and, in the
case of a special meeting or where otherwise required by law, the
general nature of the business to be transacted at such meeting.
2. Method of Notice. All notices shall be given to each person
entitled thereto, either personally or be sending a copy thereof through
the mail or by telegraph, charges prepaid, to his address appearing on
the books of the Corporation, or supplied by him to the Corporation for
the purpose of notice. If notice is sent by mail or telegraph, it shall
be deemed to have been given to the person entitled thereto when
deposited in the United States Mail or with the telegraph office for
transmission. If no address for a Shareholder appears on the books of
the Corporation and such Shareholder has not supplied the Corporation
with an address for the purpose of notice, notice deposited in the
United States Mail addressed to such shareholder, care of General
Delivery in the City in which the Registered Office of the Corporation
is located, shall be sufficient.
3. Waiver of Notice. Whenever any written notice is required to be
given by the Articles or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Except in the case of a special meeting, neither
the business to be transacted at nor the purpose of the meeting need be
specified in the waiver of notice of such meeting.
ARTICLE VII - INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS.
1. Each Director and each officer and former Directors or officers,
and any person who may have served, at its request, as a Director or
officer of another corporation in which is owns shares of capital stock
or of which it is a creditor, shall be indemnified by the Corporation
against expenses actually and necessarily incurred by them in connection
with the defense of any action, suit or proceeding in which they, or any
of them are made parties or a party by reason of being or having been
directors or officers or a Director or officer of the Corporation or of
such other corporation, except in relations to matters as to which any
such Director or officer or former Director or officer or person shall
be adjudged, in such action, suit, or proceeding, to be liable for
negligence or misconduct in the performance of duty. Such
indemnification shall not be deemed exclusive of any other rights to
which those indemnified may be entitled under any By-Law, Agreement,
vote of Shareholders, or otherwise.
ARTICLE VIII - FISCAL YEAR
1. The Board of Directors shall have the power by resolution to fix
the fiscal year of the Corporation. If the Board of Directors shall
fail to do so, the President shall fix the fiscal year.
ARTICLE IX - AMENDMENTS
1. The Shareholders entitled to vote thereon shall have the power to
alter, amend or repeal these By-Laws, by a majority of those voting, at
any regular or special meeting, duly convened after notice to the
Shareholders of such purpose. The Board of Directors, by a majority
vote of those voting, shall have the power to alter, amend and repeal
these By-Laws, at any regular or special meeting duly convened after
notice of such purpose, subject always to the power of the Shareholders
to change such action.
CERTIFICATE OF LIMITED PARTNERSHIP
FOR ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
Exhibit 4(a)
Microfilm Number Filed with the
Department of State on July 26, 1996
Entity Number 2707198
Secretary of the Commonwealth
CERTIFICATE OF LIMITED PARTNERSHIP
DSCB:15-8511 (Rev 90)
In compliance with the requirements of 15 Pa.C.S. . 8511 (relating
to certificate of limited partnership), the undersigned, desiring to
form a limited partnership, hereby certifies that:
1. The name of the limited partnership is: Atlas-Energy for the
Nineties-Public #5 Ltd.
2. The (a) address of this limited partnership's initial registered
office in this Commonwealth or (b) name of its commercial registered
office provider and the county of venue is:
(a) 311 Rouser Road Moon Township
Pennsylvania 15108 Allegheny
Number and Street City
State
Zip County
(b)c/o N/A
Name of Commercial Registered Office Provider
County
For a limited partnership represented by a commercial registered
office provider, the county in (b) shall be deemed the county in
which the limited partnership is located for venue and official
publication purposes.
3. The name and business address of each general partner of the
partnership is:
Name Address
Atlas Resources, Inc.
311 Rouser Road, Moon Township, Pennsylvania 15108
4. (Check, and if appropriate complete, one of the following):
X The formation of the limited partnership shall be be
effective upon filing this Certificate of Limited Partnership in the
Department of State.
The formation of the limited partnership shall be
effective on: at
Date Hour
IN TESTIMONY WHEREOF, the undersigned general partner(s) of the
limited partnership has (have) executed this Certificate of Limited
Partnership this 22nd day of July, 1996.
Atlas Resources, Inc.
/s/ J.R. O'Mara
(Signature) J.R. O'Mara (Signature)
RELEASE FROM SHAREHOLDERS
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
OPINION OF KUNZMAN & BOLLINGER, INC.
AS TO THE LEGALITY OF THE
UNITS REGISTERED HEREBY
Exhibit 5
August 9, 1996
Atlas Resources, Inc.
311 Rouser Road
Moon Township, Pennsylvania 15108
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
Gentlemen:
You have requested our opinion on certain issues pertaining to
Atlas-Energy for the Nineties-Public #5 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,
/s/ Kunzman & Bollinger, Inc.
KUNZMAN & BOLLINGER, INC.
OPINION OF KUNZMAN & BOLLINGER, INC.
AS TO TAX MATTERS
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
August 9, 1996
Atlas Resources, Inc.
311 Rouser Road
Moon Township, Pennsylvania 15108
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
Gentlemen:
You have requested our opinions on the material federal income tax
issues pertaining to Atlas-Energy for the Nineties-Public #5 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 #5 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.
(3) The Partnership will own record or legal title to the
Working Interest in all of its Prospects.
(4) The Managing General Partner will be independent of the
Participants and will not be merely a "dummy" acting as
an agent for the Participants. The Managing General
Partner has and will continue to have at all times
during the existence of the Partnership a substantial
net worth (excluding its interest in the Partnership and
any other limited partnerships).
(5) 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."
(6) The Partnership will elect to deduct currently all
intangible drilling and development costs.
(7) The Partnership will have a calendar year taxable year.
(8) 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.
(9) 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.
(10) 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.
(11) 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 1996 most, if not all,
of the intangible drilling and development costs related to Partnership
Wells the drilling of which will be commenced in 1997. 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
1996 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 1996 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, 1997, 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 "- 1996 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 Taxation
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. .706a). 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. In the event
the Partnership were treated as an association taxable as a corporation,
the income and deductions of the Partnership would be reported by the
Partnership as if it were a corporation, and not by each Partner. The
Partnership would be taxed directly on its income at corporate tax
rates, and distributions to Partners would be treated as taxable
dividends to shareholders to the extent of current and accumulated
earnings and profits of the Partnership.
Partnership Classification
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. This opinion is based in part on the
conclusion that the Partnership will not have at least three of the four
corporate characteristics used in the Treasury Regulations (the
"regulations") as a basis for distinguishing an association taxable as a
corporation from a partnership. Treas. Reg. .301.7701-2 (a)(1),(2) and
(3) and Treas. Reg. .301.7701-3(b).
The regulations provide that limited partnerships formed pursuant to
a statute corresponding to the original or revised Uniform Limited
Partnership Act (the "ULPA") normally do possess the corporate
characteristic of centralized management if substantially all the
interests in the partnership are owned by the limited partners. Treas.
Reg. .301.7701-2(c)(4). The Partnership Agreement allocates certain
costs and revenues in a ratio different from the ratio of the Partners'
Capital Contributions. This may or may not be interpreted as affecting
the overall ownership of interests in the Partnership for purposes of
the regulation. The Partnership was formed pursuant to the Revised
Uniform Limited Partnership Act of Pennsylvania which substantially
corresponds to the ULPA for this purpose. Rev. Rul. 94-10, 1994-6 IRB
12. However, assuming that the Partnership may possess centralized
management, the Partnership will not have the corporate characteristic
of continuity of life because under the regulations a limited
partnership organized under a statute corresponding to the ULPA lacks
the corporate characteristic of continuity of life.
The corporate characteristic of limited liability exists if the
general partner "has no substantial assets (other than his interest in
the partnership) which could be reached by a creditor of the
organization and when he is merely a `dummy' acting as the agent of the
limited partners." Treas. Reg. .301.7701-2(d)(2). The Partnership should
not have limited liability, because in our opinion the Managing General
Partner currently has a substantial net worth and because the Managing
General Partner has represented that it will not be a "dummy" acting as
an agent of the Participants. (See "Financial Information Concerning the
Managing General Partner, AEGH and the Partnership" in the Prospectus.)
However, the tax status of the Partnership as a partnership could be
adversely affected should the net worth of Atlas materially diminish, or
should the contingent liabilities of Atlas materially increase.
The regulations provide that the corporate characteristic of free
transferability of interests will exist if the members of the
partnership have the power, without the consent of the other members of
the partnership, to substitute a person who is not a member of the
partnership in their place. Treas. Reg. .301.7701-2(e)(1). The
Partnership will not have free transferability of interests, because
under the Partnership Agreement, ..6.01(a), and 6.02(a)(3), a
Participant's assignee may not become a substituted Participant without
the consent of the Managing General Partner, and the Managing General
Partner may not transfer its interest without the consent of a majority
in interest of the Participants.
The IRS requires a number of conditions to be met before a private
ruling will be issued regarding the classification of a limited
partnership as a partnership for federal income tax purposes. While
these conditions are not rules to be applied on audited tax returns,
they do indicate items of concern of the IRS. Revenue Procedure 89-12,
1989-7 I.R.B. 22, in general, requires that corporate general partners
of a proposed limited partnership must have a net worth, based on
current fair market value of their assets less the value of their
interests in a particular limited partnership, equal to at least 10% of
the total contributions to each limited partnership for which they so
serve. If this test is not met, it must be demonstrated either that a
general partner (or all general partners in the aggregate) has
substantial assets (other than the partner's interest in the
partnership) that could be reached by a creditor of the partnership or
that the general partners individually and collectively will act
independently of the limited partners. (See "Financial Information
Concerning the Managing General Partner, AEGH and the Partnership" in
the Prospectus.)
Another requirement under the Revenue Procedure is that the general
partners, in the aggregate, must maintain a minimum capital account
balance equal to either 1% of total positive capital account balances
for the partnership or $500,000, whichever is less, unless at least one
general partner will contribute substantial services in its capacity as
a partner, apart from services for which guaranteed payments under
.707(c) of the Code are made. In addition, the partnership agreement
must expressly provide that upon dissolution and termination of the
partnership the general partners will contribute to the partnership an
amount equal to: (a) the deficit balances, if any, in their capital
accounts; or (b) the excess of 1.01% of the total capital contributions
of the limited partners over the capital previously contributed by the
general partners; or (c) the lesser of (a) or (b). The Managing General
Partner is required to maintain a Capital Account balance in compliance
with the Revenue Procedure and to restore any deficit balance in its
Capital Account upon termination of the Partnership. (See .3.04(b)(1) of
the Partnership Agreement.)
The Revenue Procedure also states that the partnership agreement may
not permit less than a majority in interest of limited partners to elect
a new general partner to continue the partnership, or the IRS will not
rule that the partnership lacks continuity of life. Under the
Partnership Agreement, a majority vote of Participants is required for
this purpose. (See .4.04(a)(3) of the Partnership Agreement.)
The Revenue Procedure also requires that the general partners, in the
aggregate, share at all times during the existence of the partnership in
at least 1% of each material item of partnership income, gain, loss,
deduction or credit (including interests owned as limited partners).
This requirement will not be satisfied by the Partnership. (See .5.01 of
the Partnership Agreement.)
Although the Partnership will not satisfy all of the requirements set
forth above, the IRS has stated regarding this Revenue Procedure:
"...The provisions of this revenue procedure are not intended to be
substantive rules for the determination of partner and partnership
status and are not to be applied upon audit of taxpayers' returns." Rev.
Proc. 89-12, 1989-7, I.R.B. 22. Special Counsel believes that the
requirements of Revenue Procedure 89-12 are not applicable because an
advance ruling is not being sought and such criteria are not
requirements for classification as a partnership for federal income tax
purposes, but merely requirements for obtaining an advance ruling.
If the operations of the Partnership are continued under a successor
or amended limited partnership following the removal or resignation of
the Managing General Partner, the tax classification of the Partnership
as a partnership could be adversely affected. This would depend upon the
new general partner having substantial assets in addition to its
interest in the partnership and the new general partner's relationship
to the Participants. New standards, if adopted, could be applied
retroactively and possibly could have an adverse effect on the
classification of the Partnership as a partnership.
AN ADVANCE TAX RULING CONFIRMING THE PARTNERSHIP'S STATUS AS A
PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES HAS NOT BEEN OBTAINED FROM
THE IRS AND THE MANAGING GENERAL PARTNER DOES NOT INTEND TO APPLY FOR
SUCH AN ADVANCE RULING. SUCH A RULING WOULD NOT BE ISSUED IF SOUGHT, AND
NO GUARANTY CAN BE GIVEN THAT THE IRS WILL NOT TAKE THE POSITION THAT
THE PARTNERSHIP SHOULD BE CLASSIFIED FOR TAX PURPOSES AS AN ASSOCIATION
TAXABLE AS A CORPORATION RATHER THAN A PARTNERSHIP.
The following discussion assumes that the Partnership will be treated
as a partnership for federal income tax purposes.
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. Similar rules apply with respect to tax
credits. I.R.C. .469.
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 a year-round active 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 1997.
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
1996 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%.
1996 Expenditures
It is anticipated that all of the Partnership's subscription proceeds
will be expended in 1996 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 1996
most, if not all, of its intangible drilling and development costs for
wells the drilling of which will be commenced in 1997. The deductibility
in 1996 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 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 to intangible drilling and development costs. 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, 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. Under the
footage drilling contracts, Atlas anticipates that it will have
reimbursement of general and administrative overhead of $3,600 per well
and a profit of approximately 11% to 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 1996 most, if not
all, of the intangible drilling and development costs for drilling
activities that will be conducted in 1997. 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 1996 intangible drilling and development costs for
specified wells the drilling of which will be commenced in 1997.
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 within 90 days 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, 1997. 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,
1997, will actually be commenced by such date. In that event, deductions
claimed in 1996 for prepaid intangible drilling and development costs
would be disallowed and deferred to the 1997 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
20%. (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
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 at the partnership level
for each taxable year is $17,500. 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 pro rata nonliquidating distribution from a partnership
to its partners will result in gain being recognized by the partners
only to the extent that any money distributed exceeds the adjusted basis
of such partner's interest in the partnership immediately before the
distribution. 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, each Participant may use
his share of the Partnership's losses to offset income from other
sources. (See "- Limitations on Passive Activities," 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 in the event any
Partnership Wells are situated in areas of the Appalachian Basin other
than Mercer County, Pennsylvania. Currently, there is no similar tax
liability in Mercer County, Pennsylvania.
Tax Consequences to Qualified Plans and IRAs
It is anticipated that the Partnership's net income will be
attributable entirely to ownership of Working Interests in the Leases
and will constitute unrelated business taxable income upon which a tax
may be imposed if received by certain tax-exempt organizations.
Prospective Participants that are otherwise exempt from federal income
tax pursuant to .501(a) of the Code generally will be required to take
into account their share (whether distributed or not) of the gross
income of the Partnership and their share of Partnership deductions and
credits directly connected with such gross income in computing their
unrelated business taxable income. Trusts otherwise exempt from tax will
be subject to a tax on their unrelated business taxable income computed
in generally the same manner as tax is computed with regard to trusts
that are not tax-exempt as provided in .1(e) of the Code. I.R.C.
.511(b). Other organizations otherwise exempt from tax will be subject
to a tax on their unrelated business taxable income computed in
generally the same manner as tax is computed with regard to corporations
that are not tax-exempt as provided in .11 of the Code. I.R.C. .51l(a).
Quarterly payments of estimated tax on unrelated business taxable income
are required. I.R.C. .6154(h). However, an additional specific deduction
of $1,000 will generally be allowed. I.R.C. .512(b)(12).
There may be alternative minimum tax liability for tax preference
items. I.R.C. .511(d). Any interest or royalty income of the Partnership
generally will not constitute unrelated business taxable income unless a
Participant's interest in the Partnership, or the Partnership's interest
in a Prospect, is financed by "acquisition indebtedness" and certain
additional tests are met, which is not anticipated. I.R.C. ..512(b)(1)
and (2), 514.
PROSPECTIVE PARTICIPANTS THAT ARE EXEMPT FROM FEDERAL INCOME TAX
SHOULD CAREFULLY CONSIDER WHETHER AN INVESTMENT IN THE PARTNERSHIP IS
APPROPRIATE AND SHOULD CONSULT WITH THEIR OWN TAX ADVISORS PRIOR TO THE
INVESTMENT. (See "Terms of the Offering - Subscriptions by IRAs, Keogh
Plans and Other Qualified Plans" in the Prospectus.)
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 1996 the
ceiling for social security tax of 12.4% is $62,700 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,
/s/ Kunzman & Bollinger, Inc.
KUNZMAN & BOLLINGER, INC.
PROPOSED FORM OF ESCROW AGREEMENT
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
ESCROW AGREEMENT
THIS AGREEMENT, made to be effective as of the ______ day of
___________________, 1996, by and between Atlas Resources, Inc., a
Pennsylvania corporation (hereinafter referred to as "Atlas"), National
City Bank of Pennsylvania, Pittsburgh, Pennsylvania, as escrow agent
(hereinafter referred to as the "Escrow Agent"), and the Soliciting
Dealers (hereinafter defined).
WITNESSETH:
WHEREAS, Atlas intends to offer publicly for sale to qualified
investors (the "Investors") up to 800 limited partnership interests in a
Pennsylvania limited 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 commissions
and wholesaling fees set forth below (the "Subscription Proceeds"); and
WHEREAS, Atlas intends to sell the Units on a "best efforts" all or
none basis for 100 Units and on a best efforts basis for the remaining
Units; and
WHEREAS, Atlas will enter into a Soliciting Dealer Agreement with
registered broker-dealers which are members in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") at a 7.5%
sales commission, plus reimbursement of their bona fide accountable due
diligence expenses of .5%, to participate in the offering of the Units
(hereinafter referred to as the "Soliciting Dealers") and will utilize
the services of wholesalers at a wholesaling fee of 2.5%; and
WHEREAS, under the terms of the Soliciting Dealer Agreements the
Subscription Proceeds are required to be held in escrow subject to the
receipt and acceptance by Atlas of the minimum Subscription Proceeds of
100 Units, excluding any optional subscription by the Managing General
Partner; and
WHEREAS, no subscriptions to the Partnership will be accepted after
receipt of the maximum Subscription Proceeds of $7,000,000 (which may be
increased to $8,000,000 in Atlas' discretion) or December 31, 1996,
whichever event occurs first (the "Offering Termination Date"); and
WHEREAS, to facilitate compliance with the terms of the Soliciting
Dealer Agreements, Atlas desires 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 hereby appoints Escrow Agent as
the escrow agent to receive and to hold the Subscription Proceeds
deposited with Escrow Agent by the Soliciting Dealers 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 100 Units, Atlas agrees that all monies received
from subscribers for the payment of the Units will be forwarded by the
Soliciting Dealers to the Escrow Agent by noon of the second business day
after Atlas received the subscription documents for purposes of a
suitability determination, which documents were forwarded to Atlas by
noon of the next business day following receipt of the monies by the
Soliciting Dealer, for deposit in the Escrow Account. Payment for each
subscription for Units shall be in the form of a check made payable to
"National City Bank, Escrow Agent, Atlas Public #5 Ltd." The Escrow Agent
shall deliver a receipt to Atlas for each deposit of Subscription
Proceeds made pursuant hereto.
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 100 Units have been received and
accepted by Atlas, and (b) determines that Subscription Proceeds for at
least 100 Units 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. Distributions to Subscribers.
(a) In the event that the Partnership will not be funded as
contemplated because less than the minimum aggregate subscriptions of 100
Units have been received and accepted by Atlas by twelve p.m. (noon),
local time, on December 31, 1996, 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.
6. 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 100 Units 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.
7. 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.
8. 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 either of 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.
9. Resignation or Removal of Escrow Agent. The Escrow Agent may resign
as such following the giving of thirty days' prior written notice to
Atlas. Similarly, the Escrow Agent may be removed and replaced following
the giving of thirty days' prior written notice to the Escrow Agent by
Atlas. 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 Atlas as evidenced by a written notice filed with the Escrow
Agent. If Atlas 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 acknowledgement 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.
10. 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.
11. 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
Any party may designate any other address to which notices and
instructions shall be sent by notice duly given in accordance herewith.
12. 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
APPENDIX I TO ESCROW AGREEMENT
Compensation for Services of Escrow Agent
Escrow Agent annual fee per year or any part thereof $3,000.00
APPENDIX II TO ESCROW AGREEMENT
Soliciting Dealer Execution Page
The undersigned Soliciting Dealer hereby executes this Soliciting Dealer
Execution Page for the purpose of becoming a party to the Escrow
Agreement for Atlas-Energy for the Nineties-Public #5 Ltd. entered into
by and among Atlas Resources, Inc., National City Bank of Pennsylvania,
Pittsburgh, Pennsylvania ("Escrow Agent") and the remaining Soliciting
Dealers, and agrees to all of the terms and conditions of said Escrow
Agreement.
, 1996
ATTEST:
(SEAL) Secretary
SOLICITING DEALER
a corporation
By:
(Print Name, Title and Address)
CONSENT OF MCLAUGHLIN & COURSON
CONSENT OF INDEPENDENT AUDITOR
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
The firm, as Independent Certified Public Accountants, hereby consents
to the use of the audit report dated July 31, 1996, on the balance sheet
of Atlas-Energy for the Nineties-Public #5 Ltd., the audit report dated
October 24, 1995, on the consolidated statements of financial position
for the years ending July 31, 1995 and 1994, 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 October 24,
1995, on the audited balance sheets as of July 31, 1995 and 1994 of
Atlas Resources, Inc. in the Registration Statement, and any supplements
thereto, including post-effective amendments, for Atlas-Energy for the
Nineties-Public #5 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
/s/ McLaughlin & Courson
August __4__, 1996
Pittsburgh, Pennsylvania
CONSENT OF UNITED ENERGY DEVELOPMENT CONSULTANTS, INC.
CONSENT OF UNITED ENERGY DEVELOPMENT CONSULTANTS, INC.
INDEPENDENT PETROLEUM ENGINEERING & GEOLOGICAL CONSULTING FIRM
UEDC, as an independent petroleum engineering and geological consulting
firm, hereby consents to the use of it's Geologic Evaluation, dated July
_19__, 1996, in the Registration Statement and any supplements thereto,
including post-effective amendments, for Atlas-Energy for the Nineties-
Public #5, Ltd., and to all references to UEDC as having prepared such
report and as an expert concerning such report.
UEDC, Inc.
/s/ Isaias Ortiz
Isaias Ortiz August _8__, 1996
President Ambridge, PA
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE AUDITED FINANCIAL STATEMENT OF
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
A PENNSYLVANIA PARTNERSHIP
AS OF JULY 26, 1996
ITEM NUMBER ITEM DESCRIPTION AMOUNT
5-02(1) Cash and cash items $ 0
5-02(2) Marketable securities 0
5-02(3)(a)(1) Notes and accounts receivable-trade 100
5-02(4) Allowances for doubtful accounts 0
5-02(6) Inventory 0
5-02(9) Total current assets 0
5-02(13) Property, plant and equipment 0
5-02(14) Accumulated depreciation 0
5-02(18) Total assets 0
5-02(21) Total current liabilities 0
5-02(22) Bonds, mortgages and similar debt 0
5-02(28) Preferred stock-mandatory redemption 0
5-02(29) Preferred stock-no mandatory redemption 0
5-02(30) Common stock 0
5-02(31) Other stockholders' equity 100
5-02(32) Total liabilities and stockholders' equity 0
5-03(b)1(a) Net sales of tangible products 0
5-03(b)1 Total revenues 0
5-03(b) 2(a) Cost of tangible goods sold 0
5-02(b) 2 Total costs & expenses applicable to sales & revenues 0
5-03(b) 3 Other costs and expenses 0
5-03(b) 5 Provision for doubtful accounts and notes 0
5-03(b)(8) Interest and amortization of debt discount 0
5-03(b)(10) Income before taxes and other items 0
5-03(b)(11) Income tax expense 0
5-03(b)(14) Income/loss continuing operations 0
5-03(b)(15) Discontinued operations 0
5-03(b)(17) Extraordinary items 0
5-03(b)(18) Cumulative effect-changes in accounting principles 0
5-03(b)(19) Net income or loss 0
5-03(b)(20) Earnings per share-primary 0
5-03(b)(20) Earnings per share-fully diluted 0
POWER OF ATTORNEY
Exhibit 25
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 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 #5 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 29, 1996 /s/ Charles T. Koval
Charles T. Koval, Co-Chairman of the Board and a
Director
Dated: July 31, 1996 /s/ Joseph R. Sadowski
Joseph R. Sadowski, Co-Chairman of the Board and
a Director
Dated: July 29, 1996 /s/ James R. O'Mara
James R. O'Mara, President, Chief Executive
Officer and a Director
Dated: July 31, 1996 /s/ Bruce M. Wolf
Bruce M. Wolf, General Counsel, Secretary and a
Director
Dated: July 29, 1996 /s/ Donald P. Wagner
Donald P. Wagner, Vice President of Operations
Dated: July 29, 1996 /s/ James J. Kritzo
James J. Kritzo, Vice President of the Land
Department
Dated: July 31, 1996 /s/ Tony C. Banks
Tony C. Banks, Vice President of Finance and
Chief Financial Officer
Dated: July 29, 1996 /s/ Frank P. Carolas
Frank P. Carolas, Vice President of Geology
Dated: July 29, 1996 /s/ Barbara J. Krasnicki
Barbara J. Krasnicki, Vice President of
Administration
