U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _____ to _____
Commission file number 333-09991
Atlas-Energy for the Nineties-Public #5 Ltd.
(Name of small business issuer in its charter)
Pennsylvania 25-1795703
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
311 Rouser Road, Moon Township, Pennsylvania 15108
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (412) 262-2830
Securities registered under Section 12(b) of the Exchange Act
Title of each class Name of each exchange on which
registered
None None
Securities registered under Section 12(g) of the Exchange Act
None
(Title of Class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year. -0-
State the aggregate market value of the voting stock held by non-
affiliates of the Registrant. Not Applicable.
Transitional Small Business Disclosure Format (check one):
Yes X No _____
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PART I
Item 1. Description of Business
Atlas-Energy for the Nineties-Public #5 Ltd. (the "Partnership") was
formed under the Pennsylvania Revised Uniform Limited Partnership Act on
July 26, 1996, with Atlas Resources, Inc. ("Atlas") as Managing General
Partner. The Partnership offered a maximum of 800 Units. The
Partnership had its initial and final closing on December 31, 1996, and
was funded with subscriptions of 800 Units ($7,992,240 excluding
accountable due diligence fees, sales commissions and marketing expenses
of $902,833 reimbursed to registered broker-dealers) from 378 investors
thus reaching its required minimum aggregate Capital Contributions of
$1,000,000. Eight investors subscribed for 11.2 Units ($112,000) as
Limited Partners and the remaining 370 investors subscribed for 788.8
Units ($7,880,240) as Investor General Partners. Also, on the closing,
the Managing General Partner was credited with a total capital
contribution of $1,592,068 because of certain expenditures it made on
behalf of the Partnership and certain prospects it contributed to the
Partnership. The Managing General Partner paid the organization and
offering costs of the Partnership in the amount of $1,198,836. In
addition, the Managing General Partner contributed 35.91 prospects to the
Partnership at its cost of $3,600 per prospect (proportionately reduced
to the extent less than 100% of the working interest is acquired) for a
total credit of $129,276. Finally, under the Partnership Agreement the
Managing General Partner paid 14% ($264,226) of the Partnership's
tangible costs.
The Partnership has not filed bankruptcy nor has the Partnership been
involved in any material reclassification, merger, consolidation,
receivership or similar proceeding or purchase or sale of a significant
amount of assets not in the ordinary course of business.
The Partnership was funded to drill natural gas development wells with
the objective being the discovery and production of natural gas in
commercially marketable quantities. Because the initial and final
closing date was December 31, 1996, the Partnership did not conduct any
drilling activities in 1996; however, the Partnership did prepay the
drilling and operating agreement on December 31, 1996, in an amount equal
to $6,391,298, in order to claim a 1996 deduction for intangible drilling
and development costs of wells to be drilled in 1996. In this regard, on
December 31, 1996, the Partnership, which has no employees, entered into
the drilling and operating agreement with Atlas to drill 35.91
development wells to the Clinton/Medina geological formation. All of the
prospects selected by Atlas for drilling are located in Mercer, Lawrence
and Butler Counties, Pennsylvania. Atlas and its affiliates had
sufficient leasehold inventory to provide all of the prospects to be
developed by the Partnership. See "Description of Property".
Under the drilling and operating agreement Atlas was responsible for
drilling and completing (or plugging) the Partnership wells. All of the
wells have been or will be drilled to depths sufficient to test
thoroughly the Clinton/Medina formation. The Partnership paid its
proportionate share of the cost of drilling and completing the
Partnership's wells as follows: for each well, 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. The footage price
included all ordinary costs of drilling, testing and completing such well
and installing gathering lines and other necessary facilities for the
production of natural gas, including the cost of a second completion and
Frac where Atlas considered it justified.
For the next twelve months management believes that the Partnership
has adequate capital in order to develop its wells. The Partnership had
sufficient capital resources from the closing to drill and develop
approximately 35.91 net wells. No other wells will be drilled and
therefore no additional funds will be required. The Partnership also
anticipates that the payment of operation and maintenance costs will not
begin until the Partnership wells begin to generate revenue. Although
management does not anticipate that the Partnership will have to do so,
any additional funds which may be required will be obtained from
production revenues from Partnership wells or from borrowings by the
Partnership from Atlas or its affiliates, although Atlas is not
contractually committed to make such a loan. No borrowings will be
obtained from third parties. The amount that may be borrowed by the
Partnership from Atlas and its affiliates, if any amounts are borrowed,
may not at any time exceed 5% of the Partnership subscription.
With respect to operating and maintenance costs, the Partnership's
commitments pursuant to the drilling and operating agreement are expected
to be fulfilled through revenues generated from the sale of gas and oil.
During producing operations Atlas, as operator, will receive a monthly
well supervision fee of $275 (proportionately reduced to the extent less
than 100% of the working interest was acquired) for each producing well
for which it has responsibility under the drilling and operating
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.
As operator Atlas will charge the Partnership at cost for third party
services and materials provided for each well which has been placed in
operation, and a reasonable charge for services performed directly by
Atlas or its affiliates. The drilling and operating agreement also gives
the operator the right at any time after three years from the date a
Partnership well has been placed into production to retain $200 per month
to cover future plugging and abandonment of such well.
Natural gas and any oil produced by the wells developed by the
Partnership must be marketed in order for the Partnership to realize
revenues from such production. The Partnership did not purchase and does
not anticipate selling, any producing wells. 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.
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". The Partnership
believes the amendments ultimately will have a beneficial effect on
natural gas markets and prices.
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 1996 Atlas received an average selling price of $2.29 per MCF
for gas sold in the Mercer County area after deducting all expenses,
including transportation expenses. On occasion, Atlas has reduced the
amount of production it normally sells on the spot market until the spot
market price increased.
In the Mercer County area, 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
were 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 anticipates that Carbide Graphite will purchase approximately 20%
of the Partnership's gas production through September, 1997, pursuant to
a gas contract between Carbide Graphite and an affiliate of Atlas. Atlas
does not believe that any other purchaser of the Partnership's gas
production will account for 10% of the Partnership's gas sales revenues
in 1997. See "Financial Statements".
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. 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 is utilizing financial
instruments to hedge the price risks 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.
Any crude oil produced from the wells will 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 the
crude oil. 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 $21.50 per barrel in December, 1996, from
Quaker State for oil produced in the Mercer County area.
There are many companies, partnerships and individuals engaged in
natural gas exploration, development and operations in the areas where
the Partnership is conducting its activities. The industry is highly
competitive in all of its phases, including acquiring suitable
properties for development and the marketing of natural gas and oil.
With respect to the marketing of the Partnership's gas and oil the
Partnership should, through the use of Atlas' distribution system and
Atlas' experienced marketing staff, be able to sell the Partnership's
gas.
The Partnership has not and will not devote any funds to research and
development activities. There are no new products or services and the
Partnership does not have any patents, trademarks, licenses, franchises,
concessions, royalty agreements or labor contracts.
Oil and gas operations are regulated in Pennsylvania by the
Department of Environmental Resources, Division of Oil and Gas, which
imposes 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. 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. Atlas does not expect that such regulations
will have a material adverse impact upon the operations of the
Partnership, and the Partnership believes it has complied in all material
respects with applicable state regulations and will continue to do so.
The Federal Energy Regulatory Commission ("FERC") regulates the
interstate transportation of natural gas and the pricing of natural gas
sold for resale interstate; and under the Natural Gas Policy Act of 1978
("NEPA") the price of intrastate gas. However, price controls for
natural gas production from new wells were deregulated on December 31,
1992, and such deregulated gas production may be sold at market prices
determined by supply, demand, BTU content, pressure, location of the
wells, and other factors.
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 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 which should provide a benefit to
the Partnership.
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. The Partnership expects to sell only
small quantities of oil, if any.
From time to time there are a number of proposals being 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.
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 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 government 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 the Partnership is unable
to predict the ultimate costs of complying with present and future
environmental laws and regulations, although it does not believe such
costs will be substantial. The Partnership is unable to obtain insurance
to protect against many environmental claims.
Item 2. Description of Property
The Partnership was closed on December 31, 1996, and 35.91 prospects
were designated by the Managing General Partner on that date. Based on
drilling results, 9 prospects originally designated by Atlas to be
drilled by the Partnership (Babyak, Byler #15, Doolin #1, Dye #2,
Fletcher #2, Gott #4, Kelly #1, Kingerski #1 and McCurdy #1) were
replaced with the following 9 prospects: Barber #2, Byler #11, Clark #5,
Harris #3, Hostetler #3, Kingerski #2, McDowell #14, McEwen #1 and
Reuberger #1. The Partnership will not acquire any additional prospects.
For purposes of the Drilling Activity table and the Productive Wells
table set forth below, a "gross well" is one in which the Partnership has
a working interest and a "net well" is a gross well multiplied by the
Partnership's working interest to which it is entitled under its drilling
agreement. The Partnership owns 100% of the working interest in 35 wells
and expects to own approximately 91% of the working interest in one well.
See "Productive Wells," below. All of the wells are subject to a 12.5%
landowner's royalty and have an 87.5% net revenue interest. Thirty-one
of the wells are each situated on a prospect of approximately 50 acres
and the prospect acreage for the remaining 5 wells ranges from
approximately 18 acres to 65 acres.
Drilling Activity. The following table sets forth the results from
July 26, 1996, (date of formation) to March 17, 1997, of the
Partnership's drilling activities. All of the wells in Mercer, Butler,
and Lawrence Counties, Pennsylvania. Currently, 33 wells have been spudded,
and no dry holes have been drilled.
Development Wells
Gross Net
Productive Dry Total Productive Dry Total
Period Ended March 17, 1997 33 0 33 33 0 33
The Partnership has not participated, and will not participate, in any
exploratory wells.
Present Activities. As of March 17, 1997, 18 of the wells were in
production, 11 of the wells were capable of production but not yet on line,
4 of the wells were spudded and were in the process of being drilled and
completed and the drilling of the remaining 2.91 wells was expected to be
commenced by March 30, 1997.
Productive Wells. The following table summarizes the Partnership's total
gross and net interest in productive natural gas wells at March 17, 1997.
Name of Well State County Gross Net
1. Babcock #1 Pennsylvania Mercer 1 1
2. Barber #2 Pennsylvania Mercer 1 1
3. Black #2 Pennsylvania Mercer 1 1
4. Byler #11 Pennsylvania Lawrence 1 1
5. Byler #14 Pennsylvania Lawrence 1 1
6. Carrier #1 Pennsylvania Mercer 1 1
7. Clark #5 Pennsylvania Mercer 1 1
8. Coast #1 Pennsylvania Butler 1 1
9. Court #1 Pennsylvania Mercer 1 1
10. Dye #1 Pennsylvania Mercer 1 1
11. Hall #1 Pennsylvania Mercer 1 1
12. Hissom #1 Pennsylvania Mercer 1 1
13. Hostetler #3 Pennsylvania Lawrence 1 1
14. Kelly #2 Pennsylvania Mercer 1 1
15. Kingerski #2 Pennsylvania Mercer 1 1
16. Kloos #4 Pennsylvania Mercer 1 1
17. Kurtek #1 Pennsylvania Mercer 1 1
18. Kurtz #2 Pennsylvania Lawrence 1 1
19. McCullough #11 Pennsylvania Mercer 1 1
20. McDowell #11 Pennsylvania Mercer 1 1
21. McDowell #14 Pennsylvania Mercer 1 1
22. McEwen #1 Pennsylvania Mercer 1 1
23. Morley Unit #1 Pennsylvania Mercer 1 1
24. Myers #2 Pennsylvania Butler 1 1
25. Peterka #2 Pennsylvania Mercer 1 1
26. Rains #1 Pennsylvania Mercer 1 1
27. Reuberger #1 Pennsylvania Mercer 1 1
28. Sines #3 Pennsylvania Mercer 1 1
29. Steele #1 Pennsylvania Mercer 1 1
30. Tait #3 Pennsylvania Mercer 1 1
31. Vernam #1 Pennsylvania Mercer 1 1
32. Vogan #3 Pennsylvania Mercer 1 1
33. Winger #1 Pennsylvania Mercer 1 1
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TOTAL 33 33.00
The name of each well is the same as the name of the Prospect. The
Partnership has begun selling production from 18 of the wells; however,
revenues are not anticipated until June, 1997. The remaining wells
should go on-line shortly. (See "Description of Business".) Although
there has been production from 18 of the wells, no reserve estimate on
such wells has been obtained from an independent petroleum engineer.
Item 3. Directors, Executive Officers and Significant Employees
Responsibilities of Atlas. The Partnership has no employees and
relies on Atlas as Managing General Partner of the Partnership. Atlas
also serves as driller/operator of the wells. Atlas has complete and
exclusive discretion and control over the operations and activities of
the Partnership and will make all of the Partnership's decisions
affecting the wells developed by the Partnership. Atlas will provide
continuing review and analysis of all wells developed by the Partnership
and will monitor all expenditures and commitments made on behalf of the
Partnership. In addition, Atlas will perform administrative services
relating to the funding and operation of the Partnership, Participant
reporting, financial budgeting and recordkeeping.
Business of Atlas. Atlas, a Pennsylvania corporation, was
incorporated in 1979 and Atlas Energy Group, Inc. ("Atlas Energy"), an
Ohio corporation, was incorporated in 1973. Atlas and Atlas Energy are
wholly owned subsidiaries of AIC, Inc., a corporation formed in July,
1995, which is a wholly owned subsidiary of The Atlas Group, Inc.,
("Atlas Group") that was formerly known as AEG Holdings, Inc., a
corporation which was also formed in July, 1995. As of December 31,
1996, Atlas and its affiliates operated approximately 1,172 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 1,611 natural gas wells, approximately 1,562 of which were
capable of production in commercial quantities. Atlas' primary offices
are located at 311 Rouser Road, Moon Township, Pennsylvania 15108.
Atlas and its affiliates employ a total of approximately ninety-nine
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.
The other subsidiaries of AIC, Inc. are: (i) Atlas Gas Marketing,
Inc., a gas marketing company; (ii) Mercer Gas Gathering, Inc., a gas
gathering company which gathers gas from wells in Mercer County,
Pennsylvania, and delivers such gas directly to industrial end-users or
to interstate pipelines and local distribution companies; (iii)
Pennsylvania Industrial Energy, Inc., which sells natural gas to
industrial end-users in Pennsylvania; (iv) Transatco, Inc., which owns a
50% interest in Topico which operates a pipeline in Ohio; (v) Atlas
Energy Corporation, which serves as managing general partner of
exploratory programs and driller and operator; and (vi) Anthem
Securities, Inc., which is registering as a broker-dealer and becoming a
member firm of the NASD. 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 Atlas Group, 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 600
miles of gas transmission lines and produce in excess of twelve billion
cubic feet of natural gas annually from wells they operate. In addition,
Atlas Gas Marketing, Inc. (an affiliate) purchases for resale an
additional nine billion cubic feet of natural gas annually from third
party producers locally and in the south/southwest United States which is
marketed as described in "Description of Business."
ORGANIZATIONAL DIAGRAM
The Atlas Group, Inc.
|
AIC, Inc.
|
- -------------------------------------|
|
|--Atlas Resources, Inc. (Managin General Partner of Development Drilling
| Programs, Driller and Operator in Pennsylvania)
| |
| ARD Investments, Inc.
|
|--Mercer Gas Gathering, Inc. (Gas Gathering Company)
|
|--Pennsylvania Industrial Energy, Inc. ("PIE") (Sells Gas to Pennsylvania
| Industry)
|
|--Atlas Energy Corporation (Managing General Partner of Exploratory Drilling
| Programs and Driller and Operator)
|
|--Transatco, Inc., which owns 50% of Topico (Operates Pipeline in Ohio)
|
|--Atlas Gas Marketing, Inc. (Markets Natural Gas)
|
|--Anthem Securities Inc. (In the Process of Registering as a Broker-Dealer)
|
|--Atlas Energy Group, Inc. (Driller and Operator in Ohio)
|
AED Investments, Inc.
Directors, Executive Officers and Significant Employees of Atlas.
The executive officers, directors and significant employees of Atlas who
are also officers, directors and significant employees of Atlas Group and
Atlas Energy are as follows:
Name Age Positions or Office
Charles T. Koval 63 Chairman of the Board and a Director
James R. O'Mara 53 President, Chief Executive Officer and a Director
Bruce M. Wolf 48 General Counsel, Secretary and a Director
James J. Kritzo 62 Vice President of the Land Department
Donald P. Wagner 55 Vice President of Operations
Frank P. Carolas 37 Vice President of Geology
Tony C. Banks 42 Vice President of Finance and Chief Financial Officer
Barbara J. Krasnicki 52 Vice President of Administration
Jacqueline B. Poloka 46 Controller
John A. Ranieri 37 Director of Gas Marketing
Joseph R. Sadowski 66 Director
Charles T. Koval. Chairman of the Board and a director. He co-
founded Atlas Energy. Mr. Koval is serving and has served as a director
of Imperial Harbors since 1980.
James R. O'Mara. President, chief executive officer and a director.
Mr. O'Mara joined Atlas Energy in 1975. He is the President of Mercer
Gas Gathering, Inc.
Bruce M. Wolf. General Counsel, Secretary and a director. Mr. Wolf
joined Atlas Energy in January, 1980. 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
joined the Land Department of Atlas Energy in 1979.
Donald P. Wagner. Vice President of Operations. Mr. Wagner joined
Atlas Energy in 1979.
Frank P. Carolas. Vice President of Geology. Mr. Carolas joined
Atlas Energy in 1981.
Tony C. Banks. Vice President of Finance and Chief Financial
Officer. Mr. Banks joined Atlas in December, 1994. Prior to Mr. Banks
joining Atlas he had been with affiliates of Consolidated Natural Gas
Company ("CNG") since 1974. Mr. Banks 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.
Barbara J. Krasnicki. Vice President of Administration, Ms.
Krasnicki has been with Atlas Energy since its inception in 1971.
Jacqueline B. Poloka. Controller. Ms. Poloka joined Atlas Energy in
1980.
John A. Ranieri. Director of Gas Marketing for Atlas Gas Marketing,
Inc. Mr. Ranieri was promoted to Gas Procurement Manager of Columbia Gas
of Pennsylvania in 1984 and remained with that organization until joining
Atlas in July, 1990.
Joseph R. Sadowski. A director. He co-founded Atlas Energy. Mr.
Sadowski has served as a director of Dixon Ticonderoga since 1987.
Item 4. Remuneration of Directors and Officers
The Partnership, as previously stated, has no employees. The
following table, however, sets forth all cash compensation paid by Atlas
(which has complete and exclusive discretion and control over the
operations and activities of the Partnership) during Atlas' fiscal year
ended July 31, 1996, to the three most highly compensated persons who are
executive officers or directors and to all executive officers and
directors of Atlas as a group, for services in all capacities while
acting as executive officers or directors of Atlas:
Name of individual
or identity of Capacities in which Cash
group (3) remuneration was received(4) Compensation (1)(2)
James R. O'Mara President, Chief Executive Officer $ 305,300
and a Director
Charles T. Koval Chairman of the Board $ 296,500
and a Director
Bruce M. Wolf General Counsel, Secretary $ 217,150
and a Director
Executive Officers $ 1,383,530
as a Group
(8 persons)
(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.
(2) Atlas has an "ESOP" retirement plan, described below, and has a
401(K) plan which allowed employees to contribute the lesser of 15%
of their compensation or $9,500 for the calendar year 1996 or $9,240
for the calendar year 1995. Atlas contributed an amount equal to 50%
and 30% of each employee's contribution for the calendar years July
31, 1996 and 1995, respectively.
(3) There were no stock options granted or exercised during the fiscal
year ended July 31, 1996, to the above individuals.
(4) During the fiscal year ended July 31, 1996, each director was paid a
director's fee of $12,000 for the year. There are no other
arrangements for remuneration of directors.
Item 5. Security Ownership of Management and Certain Securityholders
As of December 31, 1996, the Partnership had issued and outstanding
800 Units. No officer or director of Atlas owns any Units, and no
partner beneficially owns more than 10% of the outstanding Units of the
Partnership.
Atlas Group owns 100% of the common stock of AIC, Inc. which owns
100% of the common stock of Atlas and Atlas Energy. The following table
sets forth, as of December 31, 1996, information as to the beneficial
ownership of common stock of Atlas Group by each person known to Atlas
Group to own beneficially 5% or more of the outstanding common stock of
Atlas Group, by directors and nominees, naming them individually, and by
all directors and officers of Atlas Group as a group:
Shares of Common Percent of Class
Charles T. Koval . . . . 109,391 26.445%
Joseph R. Sadowski . . 109,142 26.384%
James R. O'Mara . . . . 95,164 (1) 23.005%
Bruce M. Wolf . . . . . . . . 44,710 (2) 10.808%
Directors and Officers as
Group (9 persons) 377,654 (1)(2) 91.344%
(1) Includes 22,164 shares of Atlas Group issuable upon the exercise
of stock options held by Mr. O'Mara.
(2) Includes 14,210 shares of Atlas Group issuable upon the exercise
of stock options held by Mr. Wolf.
Atlas Group 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 Atlas
Group. Atlas Group anticipates that it will contribute approximately
3,000 shares of its stock to the ESOP each year.
Pursuant to agreements entered into between Atlas Group and its
shareholders to accommodate the desire of Messrs. Sadowski and Koval to
gradually liquidate a majority of their stock ownership in Atlas Group in
preparation for their respective retirement from Atlas Group it is
anticipated that by the year 2003 the stock ownership of Atlas Group 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 require Atlas Group 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 Atlas
Group. These promissory notes are totally subordinated to Atlas Group's
obligations to banks, the ESOP and any and all other debts or obligations
of Atlas Group, including its indemnification obligations and Atlas'
drilling obligation to the Partnership. If Atlas Group defaults on a
promissory note, Messrs. Koval and Sadowski are entitled to purchase up
to approximately an additional 1,500,000 shares of Atlas Group to regain
management control.
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 Atlas Group, renewable for an additional five
year term and on an annual basis after the first ten years. In this
regard, Mr. Sadowski retired other than as a director in 1996. The terms
and provisions of the employment agreement with Mr. Koval are subject to
negotiation at the time of each renewal and currently such agreement does
not provide for any severance payments. Also, during the terms of the
promissory notes Messrs. Koval and Sadowski have the right to serve as
directors of Atlas Group and as one of the two trustees of the ESOP.
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 lapsed with respect to 25% of the shares on
November 14, 1990, 1991, 1992 and 1993. The Stock Option Agreement and
the outstanding stock options have been converted from Atlas Energy to
Atlas Group. The shareholders are also subject to a Shareholders
Agreement which provides, among other things, that such shareholders may
not transfer their shares in Atlas Group unless the shares have first
been offered to Atlas Group and the other shareholders.
Item 6. Interest of Management and Others in Certain Transactions
Oil and Gas Revenues. The Managing General Partner was 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.
Leases. The Managing General Partner contributed (at the lower of
fair market value or the Managing General Partner's cost of such
prospects) 36 undeveloped prospects to the Partnership to drill
approximately 35.91 net wells. With respect to the prospects
contributed for these wells, Atlas received a credit in the amount of
$129,276.
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, proportionately reduced if
less than 100% of the working interest in a well is acquired. With
respect to the net wells, Atlas will receive $32,319 for the
Partnership's first twelve months of operations.
Direct Costs. The Managing General Partner and its affiliates will
be reimbursed for all direct costs expended on behalf of the Partnership.
Drilling Contracts. On December 31, 1996, the Partnership entered
into a drilling contract with Atlas to drill and complete 35.91 net
wells. The Partnership paid Atlas for drilling and completing the
Partnership wells an amount equal to $37.39 per foot to the depth of the
well at its deepest penetration, proportionately reduced if less than
100% of the working interest in a well is acquired. With respect to the
net wells the total amount received by Atlas was $8,256,466.
Per Well Charges. As the wells commence 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. With respect to the net wells, Atlas will receive
$118,503 for the Partnership's first twelve months of operations. The
well supervision fees are proportionately reduced to the extent the
Partnership acquires less than 100% of the Working Interest in a well.
As operator Atlas charges the Partnership at cost for third party
services and materials provided for each well which has been placed in
operation.
Transportation and Marketing Fees. The Partnership will pay a
combined transportation and marketing charge at a competitive rate, which
is currently 29 cents per MCF, to affiliates of Atlas, with respect to
natural gas produced by the Partnership.
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 Atlas or the affiliate 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.
The following discussion relates solely to certain relationships and
related transactions with respect to Atlas and does not relate to the
Partnership. The following discussion has been included because Atlas
has been granted by the Partnership Agreement and the drilling and
operating agreement the exclusive right, power and authority to control
the operations and activities of the Partnership.
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 Atlas Group has
loaned to its officers and directors amounts in excess of $60,000 from
time to time as necessary for participation in such wells. Prior to
1996, such loans were either non-interest bearing or accrued interest at
variable rates, but since 1995 all new loans for such purpose are
required to bear interest. Currently no such loans are outstanding.
- ---------------------------------------------------------------------------
PART II
Item 7. Market for Registrant's Common Equity and Related Stockholder
Matters
Market Information. There is no established public trading market
for the Investor General Partner interests or the Limited Partner
interests and it is not anticipated that such a market will develop. The
Partnership interests may be transferred only in accordance with the
provisions of Article 6 of the Partnership Agreement. The principal
restrictions on transferability are as follows:
(1) no transfer may be made which would result in materially adverse
tax consequences to the Partnership or the violation of federal or
state securities laws; and
(2) the consent of the Managing General Partner is required.
An assignee may become a substituted Limited Partner or Investor
General Partner only upon meeting certain further conditions, which
include:
(1) the assignor gives the assignee such right;
(2) the Managing General Partner consents to such substitution, which
consent shall be in the Managing General Partner's absolute
discretion;
(3) the assignee pays to the Partnership all costs and expenses
incurred in connection with such substitution; and
(4) 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 rights attributable to full ownership of the assigned Units,
including the right to vote.
Holders. As of December 31, 1996, there were 378 investors.
Dividends. It is not anticipated that the Managing General Partner
will distribute revenues from the sale of production until June, 1997.
Thereafter, 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 may only be made in conjunction with distributions to
Participants and only out of funds properly allocated to the Managing
General Partner's account.
Item 8. Legal Proceedings
None.
Item 9. Changes in and Disagreements on Accounting and Financial
Disclosure
None.
Item 10. Submission of Matters to a Vote of Securities Holders
None.
Item 11. Compliance with Section 16(a) of the Exchange Act
There are no equity securities registered pursuant to Section 12 of
the Exchange Act.
Item 12. Reports on Form 8-K
The registrant filed no reports on Form 8-K during the last quarter
of the period covered by this report.
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PART F/S
Item 13. Financial Statements
The Partnership's Financial Statements for the last fiscal year,
together with the opinion of the accountants thereon, are on pages 17
through 21 hereof.
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PART III
Item 14. Exhibits
(a) Exhibits
See Below
- --------------------------------------------------------------------------
EXHIBIT INDEX
Description Location
4(a) Certificate of Limited Partnership for Certificate as filed
Atlas-Energy for the Nineties-Public #5 Ltd. with the Secretary of
the Commonwealth of
Pennsylvania, effective
July, 26 1996.
4(b) Amended and Restated Certificate and Agreement See attached File
of Limited Partnership for Atlas-Energy for the
Nineties-Public #5 Ltd. dated December 31, 1996
10(a) Drilling and Operating Agreement with exhibit See attached File
23(a) Consent of McLaughlin & Courson See attached File
- --------------------------------------------------------------------------
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Atlas-Energy for the Nineties-Public #5 Ltd.
By: (Signature and Title): Atlas Resources, Inc., Managing General
Partner
By (Signature and Title):
/s/James R. O'Mara, President, Chief Executive Officer
and a Director
Date: March 27, 1997
In accordance with the Exchange Act, this report has been signed by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By (Signature and Title):
/s/Charles T. Koval, Chairman of the Board and a
Director
Date: March 27, 1997
By (Signature and Title):
/s/James R. O'Mara, President, Chief Executive Officer
and a Director
Date: March 27, 1997
By (Signature and Title):
/s/Bruce M. Wolf, General Counsel, Secretary and a
Director
Date: March 27, 1997
By (Signature and Title):
/s/Tony C. Banks, Vice President of Finance and Chief
Financial Officer
Date: March 27, 1997
Supplemental information to be Furnished
With Reports Filed Pursuant to Section 15(d)
of the Exchange Act by Non-reporting Issuers
An annual report will be furnished to security holders subsequent to the
filing of this report.
- --------------------------------------------------------------------------
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Atlas-Energy for the Nineties-Public #5 Ltd.
By: (Signature and Title): Atlas Resources, Inc., Managing General
Partner
By (Signature and Title): /s/ James R. O'Mara
James R. O'Mara, President, Chief Executive Officer
and a Director
Date: March 27, 1997
In accordance with the Exchange Act, this report has been signed by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By (Signature and Title): /s/ Charles T. Koval
Charles T. Koval, Chairman of the Board and a
Director
Date: March 27, 1997
By (Signature and Title): /s/ James R. O'Mara
James R. O'Mara, President, Chief Executive Officer
and a Director
Date: March 27, 1997
By (Signature and Title): /s/ Bruce M. Wolf
Bruce M. Wolf, General Counsel, Secretary and a
Director
Date: March 27, 1997
By (Signature and Title): /s/ Tony C. Banks
Tony C. Banks, Vice President of Finance and Chief
Financial Officer
Date: March 27, 1997
Supplemental information to be Furnished
With Reports Filed Pursuant to Section 15(d)
of the Exchange Act by Non-reporting Issuers
An annual report will be furnished to security holders subsequent to the
filing of this report.
============================================================================
Page 17 - 21 Financial Information
AUDITED FINANCIAL STATEMENTS
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
A PENNSYLVANIA LIMITED PARTNERSHIP
JULY 26, 1996 (DATE OF FORMATION) TO DECEMBER 31, 1996
- -----------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Partners
Atlas-Energy for the Nineties-Public #5 Ltd.
A Pennsylvania Limited Partnership
We have audited the accompanying balance sheet of Atlas-Energy for
the Nineties-Public #5 Ltd., A Pennsylvania Limited Partnership as of
December 31, 1996 and the related statements of income and changes in
partners' capital accounts and cash flows for the period July 26, 1996
(date of formation) to December 31, 1996. These financial statements
are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements
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
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 audit provides 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 Atlas-
Energy for the Nineties-Public #5 Ltd., A Pennsylvania Limited
Partnership as of December 31, 1996 and the results of its operations,
changes in partners' capital accounts and cash flows for the period
July 26, 1996 (date of formation) to December 31, 1996 in conformity
with generally accepted accounting principles.
/s/McLaughlin & Courson
McLaughlin & Courson
Pittsburgh, Pennsylvania
February 11, 1997
- ----------------------------------------------------------------------------
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
A PENNSYLVANIA LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
Cash $ 21,639
Oil and gas well drilling contracts and leases 8,385,742
Organizational and syndication costs 1,198,836
$9,606,217
LIABILITIES AND PARTNERS' CAPITAL
Partners' capital $9,606,217
STATEMENT OF INCOME AND CHANGES IN PARTNERS' CAPITAL ACCOUNTS
FROM JULY 26, 1996 (DATE OF FORMATION) TO DECEMBER 31, 1996
MANAGING
GENERAL OTHER
PARTNER PARTNERS TOTAL
REVENUE
Interest income $ -0- $ 21,639 $ 21,639
PARTNERS' CAPITAL CONTRIBUTIONS
Cash -0- 7,992,240 7,992,240
Organizational and syndications costs 1,198,836 -0- 1,198,836
Tangible costs 264,226 -0- 264,226
Leasehold costs 129,276 -0- 129,276
PARTNERS' CAPITAL AT END OF YEAR $1,592,338 $8,013,879 $9,606,217
See notes to financial statements
=-------------------------------------------------------------------------=
STATEMENT OF CASH FLOWS
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
A PENNSYLVANIA LIMITED PARTNERSHIP
FROM JULY 26, 1996 (DATE OF FORMATION) to DECEMBER 31, 1996
Increase (Decrease) In Cash)
Cash flows from operating activities:
Interest $ 21,639
Cash flows used in investing activities:
Oil and gas well drilling contracts (7,992,240)
Cash flows from financing activities:
Partners' capital contributions 7,992,240
Cash at December 31, 1996 $ 21,639
Supplemental cash flow information:
Assets contributed by Managing General Partner:
Tangible costs $ 264,226
Organizational and syndication costs 1,198,836
Lease costs 129,276
$1,592,338
See notes to financial statements
- ----------------------------------------------------------------------------
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 includes Atlas Resources, Inc.
("Atlas"), of Pittsburgh, Pennsylvania, as Managing General Partner and
Operator, and 378 other investors as either Limited Partners or Investor
General Partners. The Partnership was funded to drill and operate gas wells
located primarily in Mercer County, Pennsylvania.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial statements are 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 has entered 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 of $8,000,000 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.
EXHIBIT 4(b)
AMENDED AND RESTATED CERTIFICATE
AND
AGREEMENT OF LIMITED PARTNERSHIP
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #5 LTD.
TABLE OF CONTENTS
- ----------------------------------------------------------------------------
Pg.27
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
- --------------------------------------------------------------------------
Pg.28
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
December 31, 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.
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Pg.30
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.
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Pg.31
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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Pg.32
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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Pg.33
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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Pg.34
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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Pg.35
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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Pg.36
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 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.
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Pg.37
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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Pg.38
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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Pg.39
(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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Pg.40
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).
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.
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Pg.41
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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Pg.42
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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Pg43
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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Pg.44 (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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Pg.45 (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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Pg.46 (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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Pg.47(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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Pg.48(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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Pg.49(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 supply agreement. Further, the Partnership shall not
receive any interest in Atlas' and its Affiliates' pipeline or gathering
system or compression facilities.
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Pg.50 (Page 23)
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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Pg.51(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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Pg.52(Page 25)
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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Pg53
(Page 26)
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 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.
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Pg.55(Page 28)
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 (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.
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Pg.56(Page 29)
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
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:
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Pg57(Page30)
(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.
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.
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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.
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Pg.58
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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(Page 31)
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.
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Pg59 (Page32)
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.
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(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:
By:/s/Bruce M. Wolf
Bruce M. Wolf (SEAL) Secretary
ATLAS RESOURCES, INC.
Managing General Partner
By:/s/J.R. O'Mara
James R. O'Mara, President
EXHIBIT 10(a)
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-36 Maps of Initial Well Locations
Exhibit B Form of Assignment
Exhibit C Form of Addendum
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Pg.1
DRILLING AND OPERATING AGREEMENT
THIS AGREEMENT made this 31 day of December, 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 Thirty-six (36) initial well
locations identified on the maps attached hereto as Exhibits A-l through
A-36(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
Thirty-six (36) 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-36. 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.
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Pg.2
(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 Thirty-six (36) natural gas
wells on the Thirty-six (36) 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
Thirty-six (36) 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
Thirty-six (36) 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 Thirty-six (36)
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 Thirty-six (36) Initial Well Locations.
(c) The Thirty-six (36) 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.
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Pg.3
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.
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Pg.4
(b) In order to enable Operator to commence site preparation for
Thirty-six (36) 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 Thirty-six (36)
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.
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Pg.5
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.
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Pg.6
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.
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Pg.7
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.
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Pg.8
(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.
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Pg.9
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
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Pg.10
(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.
ATLAS RESOURCES, INC.
Attest
BY:/s/ Bruce M. Wolf
Bruce M. Wolf
Secretary [Corporate Seal]
By:/s/James R. O'Mara
James R. O'Mara
President
ATLAS-ENERGY FOR NINETIES-PUBLIC #5 LTD.
By its Managing General Partner:
ATLAS RESOURCES, INC.
By:/s/ Bruce M. Wolf
Bruce M. Wolf
Secretary [Corporate Seal]
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EXHIBIT (A)
Page 1
DESCRIPTION OF LEASES AND INITIAL WELL LOCATIONS
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-1.
(c) Title Opinion of ______, ______, ______, ______, dated ______.
(d) The Developer's interest in the leashold 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 Interest.
--------------- --------------------- -----------------
EXHIBIT A
ATLAS ENERGY FOR THE NINETIES PUBLIC #5 LTD.
Prospect Effective Expiration L/O Net Net Acres to be
Name Co. Date Date Roy. Rev Acres Asgnd. to
Int. Partnership
===========================================================================
Andrews Unit #1 Mercer 5/17/94 5/17/99 12.50% *84.375% 18 18
Babcock #1 Mercer 8/17/95 8/17/98 12.50% 87.50% 89 50
Barber #2 Mercer 7/18/95 7/18/98 12.50% 87.50% 104 50
Black #2 Mercer 5/18/95 5/18/98 12.50% 87.50% 40 40
Byler #11 Lawrence 10/16/96 10/16/97 12.50% 87.50% 80
Byler #14 Lawrence 9/27/96 9/27/97 12.50% 87.50% 145 50
Carrier #1 Mercer 6/19/96 6/19/99 12.50% 87.50% 79 50
Clark #5 Mercer 8/12/96 8/12/99 12.50% 87.50% 94 50
Coast #1 Butler 11/2/94 11/2/99 12.50% 87.50% 70 50
Court #1 Mercer 3/3/95 3/3/98 12.50% 87.50% 70 50
Donley #1 Mercer 6/13/96 6/13/99 12.50% 87.50% 60 50
Dye Unit #1 Mercer 4/10/95 4/10/98 12.50% 87.50% 65 50
Hall #1 Mercer 11/13/95 11/13/98 12.50% 87.50% 52 52
Harris #3 Lawrence 11/6/96 11/6/99 12.50% 87.50% 151 50
Hissom #1 Mercer 5/23/96 5/23/99 12.50% 87.50% 78 50
Hostetler #3 Lawrence 10/16/96 10/16/97 12.50% 87.50% 75 50
Kelly #2 Mercer 2/11/96 2/11/99 12.50% 87.50% 135 50
Kingerski #2 Mercer 5/26/95 5/26/98 12.50% 87.50% 98 50
Kloos #4 Mercer HBP HBP 12.50% 87.50% 225 50
Kurtek #1 Mercer 4/21/93 4/21/98 12.50% 87.50% 65 50
Kurtz #2 Lawrence 9/27/96 9/27/97 12.50% 87.50% 88 50
McCullough #11 Mercer 4/21/94 4/21/97 12.50% 87.50% 50 50
McDowell #11 Mercer 3/29/96 3/29/99 12.50% 87.50% 145 145
McDowell #14 Mercer 10/20/96 10/20/99 12.50% 87.50% 126 50
McEwen #1 Mercer 4/20/95 4/20/98 12.50% 87.50% 62 50
Morley Unit #1 Mercer 7/25/96 7/25/99 12.50% 87.50% 42 42
Myers #2 Butler 8/3/94 8/3/99 12.50% 87.50% 145 50
Peterka #2 Mercer HBP HBP 12.50% 87.50% 190 50
Rains #1 Mercer 7/25/95 7/25/98 12.50% 87.50% 35 35
Rueberger Ut#1 Mercer 10/22/96 10/22/99 12.50% 87.50% 55 55
Sines #3 Mercer 5/6/96 5/6/99 12.50% 87.50% 40 40
Steele #1 Mercer 8/17/95 8/17/98 12.50% 87.50% 63 50
Tait #3 Mercer 6/27/95 6/27/98 12.50% 87.50% 100 50
Vernam Unit #1 Mercer 9/25/94 9/25/97 12.50% 87.50% 57 57
Vogan #3 Mercer 7/11/95 7/11/98 12.50% 87.50% 271 50
Winger #1 Mercer 3/10/93 3/10/98 12.50% 87.50% 46 46
- - * 3.125% Overriding Royalty Interest to a third party.
- - HPB - Held by Production
EXHIBIT A
ATLAS ENERGY FOR THE NINETIES PUBLIC #5 LTD.
Prospect Capable of
Name Production State County Gross Net
===========================================================================
Andrews Unit #1 Pennsylvania Mercer 1 1
Babcock #1 * Pennsylvania Mercer 1 1
Barber #2 Pennsylvania Mercer 1 1
Black #2 * Pennsylvania Mercer 1 1
Byler #11 * Pennsylvania Lawrence 1 1
Byler #14 * Pennsylvania Lawrence 1 1
Carrier #1 Pennsylvania Mercer 1 1
Clark #5 * Pennsylvania Mercer 1 1
Coast #1 * Pennsylvania Butler 1 1
Court #1 * Pennsylvania Mercer 1 1
Donley #1 * Pennsylvania Mercer 1 .91
Dye Unit #1 * Pennsylvania Mercer 1 1
Hall #1 * Pennsylvania Mercer 1 1
Harris #3 Pennsylvania Lawrence 1 1
Hissom #1 * Pennsylvania Mercer 1 1
Hostetler #3 * Pennsylvania Lawrence 1 1
Kelly #2 * Pennsylvania Mercer 1 1
Kingerski #2 * Pennsylvania Mercer 1 1
Kloos #4 * Pennsylvania Mercer 1 1
Kurtek #1 * Pennsylvania Mercer 1 1
Kurtz #2 * Pennsylvania Lawrence 1 1
McCullough #11 * Pennsylvania Mercer 1 1
McDowell #11 * Pennsylvania Mercer 1 1
McDowell #14 Pennsylvania Mercer 1 1
McEwen #1 * Pennsylvania Mercer 1 1
Morley Unit #1 Pennsylvania Mercer 1 1
Myers #2 * Pennsylvania Butler 1 1
Peterka #2 Pennsylvania Mercer 1 1
Rains #1 * Pennsylvania Mercer 1 1
Rueberger Unit #1 Pennsylvania Mercer 1 1
Sines #3 * Pennsylvania Mercer 1 1
Steele #1 * Pennsylvania Mercer 1 1
Tait #3 * Pennsylvania Mercer 1 1
Vernam Unit # * Pennsylvania Mercer 1 1
Vogan #3 Pennsylvania Mercer 1 1
Winger #1 Pennsylvania Mercer 1 1
============================================================================
TOTAL 26 36 35.91
EXHIBIT "A"
========================= ========================
---------------------------------------------------------------------------
EXHIBIT "B"
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 right, 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.
In Witness Whereof, the undersigned owner(s) and assignor(s) has signed
and sealed this instrument this ____ day of __________________________.
Signed and acknowledged in
presence of:
____________________________________ ______________________________
____________________________________ ______________________________
- ----------------------------------------------------------------------
EXHIBIT "B"
- ---------------------------------------------------------------------
EXHIBIT "C"
ADDENDUM NO. ______________
TO DRILLING AND OPERATING AGREEMENT
DATED ________________, 19__
THIS ADDENDUM NO. _____ made and entered into this ____ day of ____________
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 ____________ Initial Well Locations in Mercer County,
Pennsylvania, identified on the maps attached as Exhibits A-1 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 1(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 1(c) of the aforesaid Agreement, the Developer
hereby authorizes Operator to drill, complete (or plug) and operate,
upon the terms and conditions as 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 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 and leased premises in accordance with the provisions of
Section 5 of the Agreement.
4. The drilling and operation of said ____ additional 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
- ---------------------------------------------------------------------
CONSENT OF INDEPENDENT AUDITOR
FOR 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 February 11, 1997 on the balance sheet of
Atlas-Energy for the Nineties-Public #5 Ltd., a Pennsylvania Limited
Partnership as of December 31, 1996, and the related statements of income,
changes in partners' capital accounts and cash flows for the period July
26, 1996 (date of formation) to December 31, 1996, in the U.S. Securities
and Exchange Commission Form 10-KSB and any amendments thereto for Atlas-
Energy for the Nineties-Public #5 Ltd.
McLaughlin & Courson
Certified Public
Accountants
March 25, 1997
Pittsburgh, Pennsylvania
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 21,639
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,539
<PP&E> 8,385,742
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,606,217
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,605,217
<SALES> 0
<TOTAL-REVENUES> 21,639
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 21,639
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,639
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</TABLE>
