<PAGE>
As filed with the Securities and Exchange Commission on July 7, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------------------
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
(Exact name of Registrant as Specified in its Charter)
311 ROUSER ROAD
MOON TOWNSHIP, PENNSYLVANIA 15108
(412) 262-2830
(Address and Telephone Number of
Principal Executive Offices and
Principal Place of Business)
----------------------------
JAMES R. O'MARA, PRESIDENT
ATLAS RESOURCES, INC.
311 ROUSER ROAD, MOON TOWNSHIP, PENNSYLVANIA 15108
(412) 262-2830
(Name, Address and Telephone Number of Agent for Service)
----------------------------
Copies to:
WALLACE W. KUNZMAN, JR., ESQ. JAMES R. O'MARA
KUNZMAN & BOLLINGER, INC. ATLAS RESOURCES, INC.
5100 N. BROOKLINE 311 ROUSER ROAD
SUITE 600 MOON TOWNSHIP, PENNSYLVANIA 15108
OKLAHOMA CITY, OKLAHOMA 73112
----------------------------
Approximate Date of Commencement of Proposed Sale to the Public;
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: /X/
----------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Title of Each Dollar Maximum Maximum Amount of
Class of Securities Amount Offering Aggregate Registration
to be Registered to be Registered Price per Unit Offering Price Fee
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units (1) $18,000,000 $10,000 $18,000,000 $5,310.00
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) "Units" means the Limited Partner interests and the Investor General
Partner interests offered to Participants in the Partnership.
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
CROSS REFERENCE SHEET
PURSUANT TO RULE 404
<TABLE>
<CAPTION>
Item of Form SB-2 Caption in Prospectus
------------------ ---------------------
<C> <S> <S>
1. Front of Registration Statement and Outside Front
Cover of Prospectus.................................... Front Page of Registration Statement and Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus......................................... Inside Front and Outside Back Cover Pages of Prospectus
3. Summary Information and Risk Factors................... Summary of the Offering; Risk Factors
4. Use of Proceeds........................................ Summary of the Offering; Capitalization and Source of Funds
and Use of Proceeds
5. Determination of Offering Price........................ Not Applicable
6. Dilution............................................... Not Applicable
7. Selling Security Holders............................... Not Applicable
8. Plan of Distribution................................... Summary of the Offering; Plan of Distribution
9. Legal Proceedings...................................... Litigation
10. Directors, Executive Officers, Promoters and Control
Persons................................................ Management
11. Security Ownership of Certain Beneficial Owners and
Management............................................. Management
12. Description of Securities.............................. Summary of the Offering; Terms of the Offering; Summary of
Partnership Agreement
13. Interest of Named Experts and Counsel.................. Legal Opinions; Experts
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities......................... Fiduciary Responsibilities of the Managing General Partner
15. Organization Within Last Five Years.................... Management
16. Description of Business................................ Proposed Activities; Management
17. Management's Discussion and Analysis or Plan of
Operation.............................................. Proposed Activities
18. Description of Property................................ Proposed Activities
A. Issuers Engaged or to Be Engaged in Significant
Mining Operations............................... Not Applicable
B. Supplementing Financial Information about Oil
and Gas Producing Activities.................... Not Applicable
19. Certain Relationships and Related Transactions......... Compensation; Management; Conflicts of Interest
20. Market for Common Equity and Related Stockholder
Matters................................................ Not Applicable
21. Executive Compensation................................. Management
22. Financial Statements................................... Financial Information Concerning the Managing General
Partner and the Partnership
23. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure.................... Not Applicable
</TABLE>
<PAGE>
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus not an offer
to sell these securities and its is not soliciting an offer to buy these
securities in any state where the offer or sale in not permitted.
Preliminary Prospectus (Subject to Completion) Dated ____________, 1999
Prospectus
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
- General and Limited Partner Interests at $10,000 per Unit
- $1,000,000 (1,000 Units) Minimum Aggregate Capital Contributions
- $14,000,000 (1,400 Units) Maximum Aggregate Capital Contributions
(IF SUBSCRIPTIONS FOR ALL 1,400 UNITS BEING OFFERED ARE OBTAINED, THE MANAGING
GENERAL PARTNER MAY INCREASE THE MAXIMUM AGGREGATE SUBSCRIPTIONS TO NOT MORE
THAN $18,000,000 (1,800 UNITS))
- - This Prospectus describes an offering of
general and limited partner interests in
Atlas-Energy for the Nineties-Public #8
Ltd., a limited partnership which was
formed by Atlas Resources, Inc. ("Atlas")
of Pittsburgh, Pennsylvania. Atlas serves
as Managing General Partner of the
Partnership. If you invest in the
Partnership you will be admitted either as
an Investor General Partner or a Limited
Partner depending upon your election. See
"Summary of the Offering - Description of
Units" for a description of the differences
between the general and limited partners
interests.
- - The Partnership will be funded to drill
Development Wells which are located
primarily in the Mercer County area of
Pennsylvania. A Development Well means a
well drilled within the proved area of an
oil or gas reservoir to the depth of a
stratigraphic horizon known to be
productive. The Managing General Partner
anticipates that all the wells will be
classified as gas wells. The Partnership
is expected to generate significant tax
deductions.
- - The Offering
<TABLE>
<CAPTION>
Total Total
Per Unit Minimum (1) Maximum
-------- ----------- -------
<S> <C> <C> <C>
Public Price $10,000 $1,000,000 $18,000,000
Dealer-Manager $1,050 $ 105,000 $ 1,890,000
Fee, Sales
Commissions, and
Reimbursements
(2)
Proceeds to $10,000 $1,000,000 $18,000,000
Partnership
</TABLE>
- -------------
(1) If subscriptions for $1,000,000 are not received by December 31, 1999,
then your subscription will be returned to you from the escrow account
with interest.
(2) Anthem Securities, Inc., an Affiliate of the Managing General Partner,
will act as Dealer-Manager in all states other than Minnesota and New
Hampshire. The Units will be offered on a "best efforts" "minimum-maximum"
basis by the Dealer-Manager and other selected broker-dealers which are
NASD members. The Dealer-Manager and broker-dealers must sell the minimum
number of securities offered (1,000 Units) if any are sold. The
Dealer-Manager and broker-dealers are required to use only their best
efforts to sell the maximum number of securities offered (1,800 Units).
See "Plan of Distribution" for details.
------------------------------------------
THESE SECURITIES ARE SPECULATIVE AND ARE SUBJECT TO CERTAIN RISKS INCLUDING
THOSE SET FORTH BELOW.
- - THE PARTNERSHIP'S DRILLING AND COMPLETION OPERATIONS TO DEVELOP GAS
RESERVES INVOLVE THE POSSIBILITY OF A PARTIAL LOSS OF YOUR INVESTMENT,
WHICH MAY BE SUBSTANTIAL, BECAUSE OF WELLS WHICH ARE PRODUCTIVE BUT DO NOT
PRODUCE ENOUGH REVENUE TO RETURN THE INVESTMENT MADE (I.E., WELLS WHICH DO
NOT PAYOUT) AND FROM TIME TO TIME DRY HOLES.
- - THE PARTNERSHIP'S REVENUES ARE DIRECTLY RELATED TO THE ABILITY TO MARKET
THE NATURAL GAS AND ITS PRICE WHICH IS UNSTABLE AND CANNOT BE PREDICTED.
IF GAS PRICES DECREASE, THEN YOUR INVESTMENT RETURN WILL DECREASE.
- - IF YOU CHOOSE TO INVEST AS AN INVESTOR GENERAL PARTNER, THEN YOU WILL HAVE
UNLIMITED LIABILITY FOR PARTNERSHIP OBLIGATIONS UNTIL YOU CONVERT TO A
LIMITED PARTNER.
- - LACK OF LIQUIDITY OR A MARKET FOR THE UNITS.
- - LACK OF CONFLICT OF INTEREST RESOLUTION PROCEDURES, THUS, CONFLICTS OF
INTEREST BETWEEN YOU AND THE MANAGING GENERAL PARTNER MAY NOT NECESSARILY
BE RESOLVED IN YOUR BEST INTERESTS.
- - TOTAL RELIANCE ON MANAGING GENERAL PARTNER AND ITS AFFILIATES.
- - AUTHORIZATION OF SUBSTANTIAL FEES TO MANAGING GENERAL PARTNER AND ITS
AFFILIATES.
- - YOU AND THE MANAGING GENERAL PARTNER WILL SHARE IN COSTS
DISPROPORTIONATELY TO YOUR SHARING OF REVENUES.
- - NO GUARANTY OF CASH DISTRIBUTIONS EVERY QUARTER.
(See "Risk Factors," Page 9.)
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
i
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY OF THE OFFERING........................................................1
Forward Looking Statements and Associated Risks............................1
The Partnership............................................................1
Description of Units.......................................................1
Investment Objectives......................................................2
Investment Features........................................................3
Terms of the Offering......................................................3
Suitability Standards - Long Term Investment...............................4
Application of Proceeds....................................................4
Participation in Costs and Revenues........................................4
Prior Activities...........................................................4
Risk Factors...............................................................5
Actions to be Taken by Managing General Partner
to Reduce Risks of Additional Payments by
Investor General Partners...............................................6
Compensation to the Managing General Partner,
the Operator and Their Affiliates.......................................7
Conflicts of Interest......................................................8
Distribution...............................................................8
Partnership Agreement and Reports..........................................8
RISK FACTORS...................................................................9
Special Risks of the Partnership...........................................9
Risk of Loss Because of Speculative Nature of
Gas Business.........................................................9
Risk That a Completed Well Does Not Payout..............................9
Dry Hole Risk in Development Drilling...................................9
Risks of Loss Because of Decrease in the
Price of Gas........................................................10
Risks Regarding Marketing of Gas.......................................10
Risk of Possible Delays in Production and
Shut-In Wells.......................................................10
Risk of Loss Because of Unlimited Liability
of Investor General Partners........................................11
Risk of Loss From Drilling Hazards.....................................12
Risk of Pollution and Environmental Liabilities........................12
Risk Created by Your Required
Reliance upon the Managing General Partner..........................12
Risk Created Because the Managing General
Partner's Liquid Net Worth Is Not
Guaranteed..........................................................12
Risk Created Because the Management
Obligations of the Managing General Partner
Are Not Exclusive...................................................12
Risks Created Because the Units Are Not
Readily Transferable................................................13
Diversification Depends Upon the Amount of
Subscription Proceeds...............................................13
Risk Regarding the Unspecified Location of a
Portion of the Prospects............................................13
No Guarantee of Data Regarding Currently
Proposed Prospects..................................................13
Managing General Partner's Subordination
is not a Guarantee..................................................13
Risk That Borrowings by the Managing
General Partner Could Reduce Funds
Available for Its Subordination Obligation..........................14
Managing General Partner Will Receive
Benefit from Development of
Partnership Prospects...............................................14
Compensation and Fees to the Managing General
Partner Regardless of Success of the
Activities..........................................................14
Possibility of Reduction or Unavailability
of Insurance........................................................14
Disproportionate Costs Borne by Participants...........................14
Partnership Borrowings May Reduce or
Delay Distributions.................................................14
Risk of Other Circumstances Causing
Distributions To Be Reduced or Delayed..............................15
Risk That Costs May Increase...........................................15
Risk of Unpredictable Government Regulations
and Legislation Adversely Affecting
the Partnership.....................................................15
Risks Arising From Conflicts of Interest Between
Managing General Partner and the Partnership........................15
Risks That Presentment Obligation May Not
Be Funded and Repurchase Price May Not
Reflect Full Value..................................................15
Risk Regarding Participation with Third Parties........................16
Risk of Prepayment to Managing General
Partner.............................................................16
Possible Nonperformance by Subcontractors..............................16
Possible Leasehold Defects.............................................16
Year 2000 Risks........................................................16
Risk That Dissolution of the Partnership or
Withdrawal or Removal of the Managing
General Partner May Have Adverse Effects............................16
Risk Created by the Managing General Partner
Buying Units........................................................16
Risk of Reduced Distributions If the Managing
General Partner Is Indemnified......................................17
Risk of Limited Partner Liability for
Repayment of Certain Distributions..................................17
Possible Participation in Roll-Up......................................17
Risk of Unauthorized Acts of Investor
General Partners....................................................17
Tax Risks.................................................................17
Tax Consequences May Vary Depending on
Individual Circumstances............................................17
Risk of Changes in the Law.............................................17
No Advance Ruling from the IRS on Tax
Consequences........................................................17
Possible Taxes in Excess of Cash Distributions.........................17
1999 Tax Deductions Are Subject to Challenge
by the IRS in the Event of an Audit.................................18
"Passive Activity" Loss Limitation Rules...............................18
Possible Alternative Minimum Tax Liability.............................18
Investment Interest Deductions May Be
Limited.............................................................18
Lack of Tax Shelter Registration.......................................18
State and Local Taxes May Apply........................................18
Partnership Allocations Are Subject to Challenge
by the IRS in the Event of an Audit.................................19
CAPITALIZATION AND SOURCE OF FUNDS
AND USE OF PROCEEDS...........................................................19
In General................................................................19
Source of Funds...........................................................19
Use of Proceeds...........................................................19
Subsequent Source of Funds and Borrowings.................................21
COMPENSATION..................................................................21
Oil and Gas Revenues......................................................21
Lease Costs...............................................................21
Administrative Costs......................................................22
Drilling Contracts........................................................22
Per Well Charges..........................................................23
Gathering Fees............................................................23
Dealer-Manager Fees.......................................................23
Other Compensation........................................................23
Estimate of Administrative Costs and Direct Costs
to be Borne by the Partnership.........................................23
TERMS OF THE OFFERING.........................................................24
Subscription to the Partnership...........................................24
Partnership Closings and Escrow...........................................24
Acceptance of Subscriptions...............................................25
Drilling Period...........................................................25
Suitability Standards.....................................................26
CONFLICTS OF INTEREST.........................................................27
In General................................................................27
Conflicts Regarding Transactions with the Managing
General Partner and its Affiliates.....................................28
Conflict Regarding the Drilling and Operating
Agreement..............................................................28
Conflicts Regarding Sharing of Costs and Revenues.........................28
Conflicts Regarding Tax Matters Partner...................................29
Conflicts Regarding Other Activities of the
Managing General Partner, the Operator and
Their Affiliates.......................................................29
Conflicts Involving the Acquisition of Leases.............................29
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Conflicts Between Participants............................................32
Lack of Independent Underwriter and Due
Diligence Investigation................................................32
Conflicts Concerning Legal Counsel........................................32
Conflicts Regarding Presentment Feature...................................32
Other Conflicts...........................................................32
Procedures to Reduce Conflicts of Interest................................33
Policy Regarding Roll-Ups.................................................34
Certain Transactions......................................................36
FIDUCIARY RESPONSIBILITY OF THE
MANAGING GENERAL PARTNER......................................................36
In General................................................................36
Limitations on Managing General Partner Liability
as Fiduciary...........................................................37
Limitations on Managing General Partner
Indemnification........................................................37
PRIOR ACTIVITIES..............................................................38
MANAGEMENT....................................................................45
Managing General Partner and Operator.....................................45
Recent Merger of Managing General Partner's
Parent Company, Atlas Group............................................45
Organizational Diagram....................................................46
Officers, Directors and Key Personnel.....................................46
Remuneration..............................................................48
Security Ownership of Certain Beneficial Owners...........................48
Transactions with Management and Affiliates...............................49
INVESTMENT OBJECTIVES.........................................................49
PROPOSED ACTIVITIES...........................................................50
In General................................................................50
Intended Areas of Operations..............................................50
Acquisition of Leases.....................................................51
Interests of Parties......................................................53
Title to Properties.......................................................53
Formation of the Partnership and Powers of the
Managing General Partner...............................................53
Drilling and Completion Activities; Operation
of Producing Wells.....................................................53
Sale of Oil and Gas Production............................................56
Insurance.................................................................57
Use of Consultants and Subcontractors.....................................58
Information Regarding Currently Proposed
Prospects..............................................................58
COMPETITION, MARKETS AND REGULATION...........................................87
Competition and Markets...................................................87
Crude Oil Regulation......................................................88
Federal Gas Regulation....................................................88
State Regulations.........................................................88
Environmental Regulation..................................................89
Proposed Regulation.......................................................89
PARTICIPATION IN COSTS AND REVENUES...........................................89
In General................................................................89
Costs.....................................................................90
Revenues..................................................................90
Subordination of Portion of Managing General
Partner's Net Revenue Share............................................91
Table of Participation in Costs and Revenues..............................91
Allocation and Adjustment Among Participants..............................92
Distributions.............................................................92
Liquidation...............................................................92
TAX ASPECTS...................................................................93
Summary of Tax Opinion....................................................93
Partnership Classification................................................95
Limitations on Passive Activities.........................................95
Taxable Year..............................................................96
1999 Expenditures.........................................................96
Availability of Certain Deductions........................................96
Intangible Drilling and Development Costs.................................96
Drilling Contracts........................................................97
Depletion Allowance.......................................................98
Depreciation - Modified Accelerated Cost
Recovery System ("MACRS")..............................................98
Leasehold Costs and Abandonment...........................................98
Tax Basis of Participants' Interests......................................99
"At Risk" Limitation for Losses...........................................99
Distributions from a Partnership..........................................99
Sale of the Properties....................................................99
Disposition of Partnership Interests......................................99
Minimum Tax - Tax Preferences............................................100
Limitations on Deduction of Investment Interest..........................100
Allocations..............................................................100
Partnership Borrowings...................................................101
Partnership Organization and Syndication Fees............................101
Tax Elections............................................................101
Disallowance of Deductions under Section 183
of the Code...........................................................101
Termination of a Partnership.............................................101
Lack of Registration as a Tax Shelter....................................101
Tax Returns and Audits...................................................102
Penalties and Interest...................................................102
State and Local Taxes....................................................103
Severance, Franchise, and Ad Valorem (Real
Estate) Taxes.........................................................103
Social Security Benefits and Self-Employment Tax.........................103
Foreign Partners.........................................................103
Estate and Gift Taxation.................................................103
DEFINITIONS..................................................................104
SUMMARY OF PARTNERSHIP AGREEMENT.............................................111
Responsibility of Managing General Partner...............................111
Liabilities of General Partners, Including Investor
General Partners......................................................111
Liability of Limited Partners............................................111
Amendments...............................................................112
Notice...................................................................112
Voting Rights and Access to Records......................................112
Withdrawal of Managing General Partner...................................113
SUMMARY OF DRILLING AND OPERATING
AGREEMENT....................................................................113
REPORTS TO INVESTORS.........................................................114
PRESENTMENT FEATURE..........................................................115
TRANSFERABILITY OF UNITS.....................................................116
Restrictions on Transfer Imposed by the Securities
and Tax Law ..........................................................116
Transfer Provisions......................................................116
PLAN OF DISTRIBUTION.........................................................117
Commissions..............................................................117
Indemnification..........................................................118
SALES MATERIAL...............................................................118
LEGAL OPINIONS...............................................................118
EXPERTS......................................................................118
LITIGATION...................................................................119
ADDITIONAL INFORMATION.......................................................119
FINANCIAL INFORMATION CONCERNING THE MANAGING GENERAL PARTNER AND
THE PARTNERSHIP..........................................................119
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS
Exhibits
Exhibit (A) Amended and Restated Certificate
and Agreement of Limited Partnership
Exhibit (I-A) Managing General Partner
Signature Page
Exhibit (I-B) Subscription Agreement
Exhibit (II) Drilling and Operating Agreement
Exhibit (B) Special Suitability Requirements
and Disclosures to Investors
iv
<PAGE>
SUMMARY OF THE OFFERING
This summary highlights some information in this Prospectus. You should read
"Definitions," which defines the capitalized terms used throughout this
Prospectus.
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
Statements, other than statements of historical facts, included in this
Prospectus and its exhibits address activities, events or developments that
the Managing General Partner and the Partnership anticipate will or may occur
in the future. These forward-looking statements include such things as
business strategy, estimated future capital expenditures, competitive
strengths and goals, references to future success, and other similar matters.
These statements are based on certain assumptions and analyses made by the
Partnership and the Managing General Partner in light of their experience and
their perception of historical trends, current conditions and expected future
developments. However, whether actual results will conform with these
expectations is subject to a number of risks and uncertainties, many of which
are beyond the control of the Partnership, including general economic, market
or business conditions, changes in laws or regulations, the risk that the
wells are productive but do not produce enough revenue to return the
investment made, Dry Holes, uncertainties concerning the price of gas and
other risks. (See "Risk Factors.")
Thus, all of the forward-looking statements made in this Prospectus and its
exhibits are qualified by these cautionary statements. There can be no
assurance that actual results will conform with the Managing General
Partner's and the Partnership's expectations.
THE PARTNERSHIP
Atlas-Energy for the Nineties-Public #8 Ltd. (the "Partnership"), is a
Pennsylvania limited partnership. Atlas Resources, Inc. ("Atlas"), 311 Rouser
Road, Moon Township, Pennsylvania 15108, (412) 262-2830, serves as Managing
General Partner and Operator of the wells to be drilled. You may elect to
subscribe to Units either as a Limited Partner or an Investor General
Partner. See " - Description of Units," below, for a description of the
differences between the Units. Limited Partners and Investor General Partners
will be referred to collectively as "Participants."
The Partnership will drill Development Wells, primarily in the Mercer County
area of Pennsylvania, which will test the Clinton/Mercer geological
formation. The Managing General Partner, however, has reserved the right to
use up to 20% of the Partnership Subscription to drill Development Wells in
other areas of the United States (primarily in the Appalachian Basin). A
Development Well means a well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic Horizon known to be productive. The
Managing General Partner anticipates that all the wells will be classified as
gas wells which may produce a small amount of oil. For a description of the
Prospects which are currently proposed see "Proposed Activities - Information
Regarding Currently Proposed Prospects."
DESCRIPTION OF UNITS
You may purchase either:
- Investor General Partner Units; or
- Limited Partner Units.
Regardless of which type of Unit you buy, costs, revenues and cash
distributions will be allocated between you and the other investors pro rata
based upon the amount of your Agreed Subscriptions. There are, however,
material differences in the federal income tax effects and liability
associated with each Unit.
1
<PAGE>
INVESTOR GENERAL PARTNER UNITS.
- TAX EFFECT. If you invest as an Investor General Partner, then
your share of the Partnership's 1999 deduction for Intangible
Drilling Costs will not be subject to the passive activity
limitations. This means that generally you may deduct
approximately 85% of your Agreed Subscription as described in
"Investment Objectives" below.
- LIABILITY. If you invest as an Investor General Partner, then
you will have unlimited liability regarding Partnership
activities. This means if the insurance proceeds, the Managing
General Partner's indemnification, and Partnership assets were
not sufficient to satisfy a Partnership liability for which you
and the other Investor General Partners were also liable, then
the Managing General Partner would call upon you and the other
Investor General Partners to make additional Capital
Contributions to the Partnership (from your personal assets) to
satisfy the liability. You and the other Investor General
Partners do not have an option to refuse to make this
additional Capital Contribution. In addition, you and the other
Investor General Partners have Joint and Several Liability
which means generally a liability in which a claimant, at its
option, may sue all or any one or more of the co-obligors for
the entire amount of the liability. (See " - Actions to be
Taken by Managing General Partner to Reduce Risks of Additional
Payments by Investor General Partners," below, and "Risk
Factors - Special Risks of the Partnership - Risk of Loss
Because of Unlimited Liability of Investor General Partners.")
LIMITED PARTNER UNITS.
- TAX EFFECT. If you invest as a Limited Partner, then your use
of Partnership losses generally will be limited to net passive
income from "passive" trade or business activities, which
generally includes the Partnership and other limited
partnership investments. This means that you will not be able
to deduct your share of the Partnership's Intangible Drilling
Costs in 1999 unless you have passive income from investments
other than the Partnership. (See "Tax Aspects - Limitations on
Passive Activities.")
- LIABILITY. If you invest as a Limited Partner, then you will
have limited liability and generally will not be liable for
amounts beyond your initial investment and your share of
undistributed net profits. (See "Summary of Partnership
Agreement.")
INVESTMENT OBJECTIVES
Except for the historical information contained herein, the matters discussed
below are forward-looking statements that involve risks and uncertainties,
including the risk that the wells are productive but do not produce enough
revenue to return the investment made, Dry Holes, uncertainties concerning
the price of gas, and the other risks detailed below. The actual results that
the Partnership achieves may differ materially from the objectives set forth
below due to such risks and uncertainties. The Partnership's principal
investment objectives are to invest the Partnership Subscription in natural
gas Development Wells which will:
- Provide quarterly cash distributions to you until the wells are
depleted, (historically 20+ years) with a preferred annual cash
flow of 10% during the first five years based on your original
subscription amount. (See "Risk Factors - Special Risks of the
Partnership - Risk That a Completed Well Does Not Payout," "Prior
Activities," and "Participation in Costs and Revenues -
Subordination of Portion of Managing General Partner's Net Revenue
Share.")
- Obtain tax deductions in 1999 from intangible drilling and
development costs and depreciation of Tangible Costs to offset a
portion of your taxable income (subject to the passive activity
rules if you invest as a Limited Partner). One Unit will produce a
1999 tax deduction of $8,500 (85%) against ordinary income if you
invest as an Investor General Partner and against passive income
if you invest as a Limited Partner. If you are in either the 39.6%
or 36% tax bracket, then one Unit will save you $3,366 or $3,060
respectively in federal taxes this year. Most states also allow
this type of a deduction against the state income tax.
- Offset a portion of any taxable income generated by the
Partnership with tax deductions from percentage depletion, which
is 24% in 1999 (estimated to be 26% on net revenue). The Managing
General Partner estimates that this feature should reduce your
effective tax rate from 39.6% to 29.3% (I.E., 74% of 39.6%) on
Partnership net revenues.
2
<PAGE>
- Obtain tax deductions of the remaining 15% of the initial
investment from 2000 through 2007. You will receive an additional
$1,500 tax deduction per Unit generated through the remaining
depreciation over a seven-year cost recovery period of the
Partnership's equipment costs for the wells.
ATTAINMENT OF THE PARTNERSHIP'S INVESTMENT OBJECTIVES WILL DEPEND ON MANY
FACTORS, INCLUDING THE ABILITY OF THE MANAGING GENERAL PARTNER TO SELECT
SUITABLE PROSPECTS WHICH WILL BE PRODUCTIVE AND PRODUCE ENOUGH REVENUE TO
RETURN THE INVESTMENT MADE. THE SUCCESS OF THE PARTNERSHIP DEPENDS LARGELY ON
FUTURE ECONOMIC CONDITIONS, ESPECIALLY THE FUTURE PRICE OF NATURAL GAS WHICH
IS VOLATILE.
THERE CAN BE NO GUARANTEE THAT THE FOREGOING OBJECTIVES WILL BE ATTAINED.
INVESTMENT FEATURES
PREFERRED 10% CASH RETURN (CUMULATIVE 5 YEARS). The Partnership is structured
to provide you with preferred cash distributions equal to a minimum of 10% of
your Agreed Subscription in each of the first five 12-month periods of
Partnership operations. To help insure the Partnership achieves this
investment feature, the Managing General Partner will subordinate up to 40%
of its 29% share of Partnership Net Production Revenues (i.e., up to 11.6% of
the Partnership Net Production Revenues). (Partnership Net Production
Revenues means gross revenues after deduction of the related Operating Costs,
Direct Costs, Administrative Costs and all other Partnership costs not
specifically allocated.) If the Partnership does not provide the 10% return
as described above, then this feature allows you to receive a greater
percentage of cash distributions.
As of January 15, 1999, all of the Managing General Partner's previous seven
public limited partnerships are achieving or exceeding the 10% preferred
12-month cash distributions. The Managing General Partner has subordinated
from time to time its Partnership revenues in all the public partnerships.
(See "Risk Factors - Special Risk of the Partnership - Risk That Borrowings by
the Managing General Partner Could Reduce Funds Available for Its
Subordination Obligation" and "Participation in Costs and Revenues -
Subordination of Portion of Managing General Partner's Net Revenue Share.")
PRESENTMENT FEATURE. Beginning in 2004, you may present your interests to the
Managing General Partner for repurchase. The presentment is subject to
certain conditions, including the financial ability of the Managing General
Partner to purchase the Units. As of April 1, 1999, fewer than 10 Units have
been presented to the Managing General Partner for repurchase in its previous
seven public limited partnerships. (See "Risk Factors - Special Risk of the
Partnership - Risk That Presentment Obligation May Not Be Funded and
Repurchase Price May Not Reflect Full Value" and "Presentment Feature.")
INVESTOR INTEREST FEATURE. You will receive interest on your Agreed
Subscription from the time it is deposited in either the escrow account or
the Partnership account (if the minimum Partnership Subscription has been
received) until the Offering Termination Date. The interest will be paid to
you approximately eight weeks after the Offering Termination Date.
TERMS OF THE OFFERING
Units are offered to you at $10,000 per Unit. The minimum subscription is one
Unit; however, the Managing General Partner, in its discretion, may accept
one-half Unit ($5,000) subscriptions. Larger subscriptions will be accepted
in $1,000 increments. Agreed Subscriptions are payable 100% in cash at the
time of subscribing.
The maximum amount of subscriptions to be accepted from you and the other
investors will be $14,000,000 (1,400 Units), and the minimum amount of
subscriptions will be $1,000,000 (100 Units). However, if subscriptions for
all 1,400 Units being offered are obtained, then the Managing General
Partner, in its sole discretion, may offer up to 400 additional Units and
increase the maximum aggregate subscriptions with which the Partnership may
be funded to not more than $18,000,000 (1,800 Units). If the minimum
Partnership Subscription is not received on or before December 31, 1999, then
your subscription will be refunded in full with interest.
Subscription proceeds will be deposited in an interest bearing escrow account
at National City Bank of Pennsylvania until the receipt of the minimum
Partnership Subscription. Subsequent subscription proceeds will be paid
directly to the Partnership account. For a full discussion of the various
terms of the offering, see "Terms of the Offering."
3
<PAGE>
SUITABILITY STANDARDS - LONG TERM INVESTMENT
The Managing General Partner has instituted strict suitability standards for
investment in the Partnership. Because of the high degree of investment risk,
the restrictions on the resale of the Units, the lack of a market for the
Units, and the tax consequences of the resale of the Units, you should invest
in the Partnership only if you are able to hold the Units on a long-term
basis. Subscriptions will not be accepted from IRAs, Keogh plans and
qualified retirement plans because the Partnership's income would be
unrelated business taxable income. (See "Terms of the Offering - Suitability
Standards.")
APPLICATION OF PROCEEDS
The Partnership Subscription will be expended by the Partnership for the
purposes and in the percentages shown below assuming the minimum number of
Units is sold.
EXPENDITURE OF THE PARTNERSHIP SUBSCRIPTION
<TABLE>
<CAPTION>
MINIMUM PARTNERSHIP
SUBSCRIPTION ($1,000,000) PERCENTAGE
------------------------ ----------
<S> <C> <C>
Organization and Offering Costs................................... $ -0- -0-
Lease Acquisition Costs........................................... -0- -0-
Intangible Drilling Costs......................................... 850,000 85%
Tangible Costs.................................................... 150,000 15%
---------- ----
TOTAL $1,000,000 100%
---------- ----
---------- ----
</TABLE>
For a more complete discussion of how the Partnership will apply the proceeds
of this offering, see "Capitalization and Source of Funds and Use of
Proceeds." If the Partnership requires additional funds, which the Managing
General Partner does not anticipate, then these funds will have to be
provided by either borrowings or Partnership revenues.
PARTICIPATION IN COSTS AND REVENUES
The following table sets forth the participation in Partnership costs and
revenues between the Managing General Partner and you and the other
Participants after deducting from the Partnership's gross revenues the
Landowner Royalties and any other Lease burdens. (See "Proposed Activities -
Interests of Parties" and "Participation in Costs and Revenues.")
<TABLE>
<CAPTION>
MANAGING
GENERAL
PARTNER PARTICIPANTS (1)
-------- ----------------
<S> <C> <C>
PARTNERSHIP COSTS
Organization and Offering Costs.................................................... 100% 0%
Lease Costs........................................................................ 100% 0%
Intangible Drilling Costs.......................................................... 0% 100%
Tangible Costs..................................................................... 43.75% 56.25%
Operating Costs, Administrative Costs, Direct Costs and All Other Costs............ (1) (1)
PARTNERSHIP REVENUES
Equipment Proceeds................................................................. 43.75% 56.25%
All other Revenues including Production Revenues (2)............................... 29% 71%
</TABLE>
- ----------------
(1) These costs will be charged to the parties in the same ratio as the
related production revenues are being credited.
(2) See "Participation in Costs and Revenues - Subordination of Portion of
Managing General Partner's Net Revenue Share" for a description of the
Managing General Partner's subordination obligation.
PRIOR ACTIVITIES
The Managing General Partner has previously sponsored 7 public and 25 private
Development Drilling Programs formed since 1985 to conduct natural gas
drilling and development activities in Pennsylvania and Ohio. With respect to
these prior Programs since 1985, 29 of the 32 Programs have not yet returned
to the investor 100% of his capital contributions without taking tax savings
into account. However, all the Programs are continuing to make cash
distributions and 27 of the Programs
4
<PAGE>
were formed in 1990 or subsequent years. (See "Risk Factors - Special Risks
of the Partnership - Risk of Loss Because of Speculative Nature of Gas
Business," "Prior Activities," and "Proposed Activities.")
Also, as of January 15, 1999, the annual return on investment (ROI) for the
prior 28 Programs which have a full 12 months of gas sales from all of their
wells has averaged 11.03%, and has ranged from 6% to 18% without taking tax
savings into account. The average return for the Programs was calculated by
adding their "Average Yearly Returns" as set forth in Table 3 of "Prior
Activities" and dividing by 28 (the number of Programs). All of these
distributions of sales proceeds may be considered to include a return to the
investors of their investment in the Program (I.E., return of capital) until
they have received 100% of their investment. (See "Risk Factors - Special
Risks of the Partnership - Risk of Loss Because of Speculative Nature of Gas
Business.")
The Managing General Partner and its Affiliates have drilled more than 1,650
Development Wells over the 27 year period from 1972 to 1999 and during this
time approximately 97% of the wells have been completed and produced
commercial quantities of gas. In the current area of primary interest in
Mercer County, Pennsylvania, approximately 97% of more than approximately 810
wells drilled have been completed and produced commercial quantities of gas.
(See "Prior Activities" and "Proposed Activities - Information Regarding
Currently Proposed Prospects.")
RISK FACTORS
This offering involves numerous risks, including the risks of oil and gas
drilling, the risks associated with investments in oil and gas drilling
programs, and tax risks. (See "Risk Factors.") You should carefully consider
a number of significant risk factors inherent in and affecting the business
of the Partnership and this offering, including the following.
SPECIAL RISKS OF THE PARTNERSHIP:
The Partnership's drilling activities involve the possibility of a
partial loss of your investment in the Partnership, which may be
substantial, because of:
- wells which are productive but do not produce enough revenue
to return the investment made (I.E., wells which do not
payout); and
- from time to time Dry Holes (which means a well which was
not productive).
The revenues of the Partnership are directly related to the ability to
market the natural gas and the price of natural gas which is unstable
and cannot be predicted. If gas prices decrease or the Partnership is
unable to market its gas, then your investment return will decrease.
The Managing General Partner will have the exclusive management and
control of all aspects of the business of the Partnership.
If you invest as an Investor General Partner, then you will have
unlimited Joint and Several Liability for all obligations and
liabilities to creditors and claimants arising from the conduct of
Partnership operations. If these liabilities exceed the Partnership's
assets and insurance, and the assets of the Managing General Partner
(which has agreed to indemnify the Investor General Partners), then you
could incur liability in excess of your Agreed Subscription.
Lack of liquidity or a market for the Units, which requires you to make
a long-term investment commitment.
Lack of asset diversification and concentration of investment risk
should less than the Greenshoe maximum Partnership Subscription be
raised and thus fewer wells drilled. Depending on the amount of the
Partnership Subscription and certain other factors, the Partnership may
acquire less than 100% of the Working Interest in a well. The Managing
General Partner anticipates that approximately 4.96 wells will be
drilled if only the minimum Partnership Subscription of $1,000,000 is
received, and approximately 89.35 wells will be drilled if the
Greenshoe maximum Partnership Subscription of $18,000,000 is received.
Certain conflicts of interest between the Managing General Partner and
you and lack of procedures to resolve the conflicts.
Oil and gas operations in the United States are subject to extensive
government regulation. Future pollution and environmental laws could
have an adverse effect on the Partnership.
5
<PAGE>
The Managing General Partner and its Affiliates can be expected to
profit from the Partnership even if Partnership activities result in
little or no profit, or a loss, to you.
You and the Managing General Partner will share in costs
disproportionately to your sharing of revenues.
The currently proposed Prospects described in "Proposed Activities -
Information Regarding Currently Proposed Prospects" represent
approximately 66% of the Greenshoe maximum. Thus, not all of the
Prospects may be specified. Also, the Managing General Partner has the
right to substitute the Partnership's Prospects, and up to 20% of the
Partnership Subscription may be used to drill Prospects which are
located in other areas of the United States. Thus, you will not be able
to review the relevant geological and production data related to the
additional and/or substituted Prospects.
The Managing General Partner's subordination of a portion of its share
of Partnership Net Production Revenues is not a guarantee by the
Managing General Partner. If the wells produce small gas volumes and/or
gas prices decrease, then even with subordination your cash flow may be
very small and you may not receive a return of your entire investment.
If revenues are used for Partnership operations or reserves, or if
production is reduced because gas prices decrease, then your quarterly
cash distributions may be deferred
Subject to certain conditions, beginning in 2004 you may present your
interests to the Managing General Partner for repurchase. There is a
risk that the Managing General Partner will either not have the
necessary cash flow or be able to arrange financing for these purposes
on reasonable terms as determined by the Managing General Partner. If
either of these events happen, then the Managing General Partner is
able to suspend the presentment feature.
TAX RISKS:
If the Partnership is audited, then there is a risk that the IRS will
challenge the deductions claimed by the Partnership.
Possible allocation of taxable income to you in excess of your cash
distributions from the Partnership.
Alternative minimum taxable income of "independent producers," which
includes most investors, cannot be reduced by more than 40% by reason
of the repeal of the preference item for intangible drilling and
development costs.
Should the IRS successfully challenge the allocation provisions
contained in the Partnership Agreement, you could incur a greater tax
liability. (See "Tax Aspects - Allocations.")
ACTIONS TO BE TAKEN BY MANAGING GENERAL PARTNER TO REDUCE RISKS OF ADDITIONAL
PAYMENTS BY INVESTOR GENERAL PARTNERS
If you invest as an Investor General Partner the Managing General Partner
will attempt to conduct the operations of the Partnership in a manner
designed to reduce the risk that you could be required to make additional
payments to the Partnership. The Managing General Partner will take the
following actions:
- INSURANCE. Fifty million dollars of liability coverage during
drilling operations and eleven million dollars thereafter as
described in "Proposed Activities - Insurance."
- CONVERSION OF INVESTOR GENERAL PARTNER UNITS TO LIMITED PARTNER
INTERESTS. Your Investor General Partner Units in the Partnership
will be automatically converted to Limited Partner interests after
substantially all of the Partnership Wells have been drilled and
completed. Conversion is anticipated to be in late summer of 2000.
After conversion you will have the lesser liability of a limited
partner under Pennsylvania law for obligations and liabilities
arising after the conversion. However, you will continue to have
the responsibilities of a general partner for Partnership
liabilities and obligations incurred before the effective date of
the conversion. Thus, you might become liable for Partnership
obligations (in excess of your Agreed Subscription) during the
time the Partnership is engaged in drilling activities and for
environmental claims that arose during drilling activities but
were not discovered until after conversion.
6
<PAGE>
- NONRECOURSE DEBT. The Partnership will be permitted to borrow
funds only from the Managing General Partner or its Affiliates
without recourse against your non-Partnership assets. Thus, if
there is a default under this loan arrangement you cannot be
required to contribute funds to the Partnership. Any borrowings
will be repaid from Partnership revenues.
The amount that may be borrowed at any one time may not exceed an
amount equal to 5% of the Partnership Subscription. Because you do
not bear the risk of repaying these borrowings with
non-Partnership assets, the borrowings will not increase the
extent to which you are allowed to deduct your individual shares
of Partnership losses. (See "Tax Aspects - Tax Basis of
Participants' Interests" and "- `At Risk' Limitation For Losses.")
To further protect you, during producing operations all third
party goods and services will be acquired by the Managing General
Partner and its Affiliates, and the Partnership will then acquire
the goods and services from the Managing General Partner and its
Affiliates at their Cost.
- INDEMNIFICATION. The Managing General Partner will indemnify you
from any liability incurred in connection with the Partnership
which is in excess of:
- your interest in the undistributed net assets of the
Partnership; and
- insurance proceeds, if any.
The Managing General Partner's indemnification obligation,
however, will not eliminate your potential liability if the
insurance is not sufficient or available to cover a liability and
the Managing General Partner's assets are insufficient to satisfy
its indemnification obligation. There can be no assurance that the
Managing General Partner's assets, including its liquid assets,
will be sufficient to satisfy its indemnification obligation. (See
"Risk Factors - Special Risks of the Partnership - Risk Created
Because the Managing General Partner's Liquid Net Worth Is Not
Guaranteed" and "Financial Information Concerning the Managing
General Partner and the Partnership.")
COMPENSATION TO THE MANAGING GENERAL PARTNER, THE OPERATOR AND THEIR
AFFILIATES
The following is a tabular presentation of the items of compensation and
reimbursement to be received by the Managing General Partner and its
Affiliates from the Partnership which are discussed more fully in
"Compensation."
<TABLE>
<CAPTION>
Form of Compensation and/or Reimbursement Amount
- ----------------------------------------- ------
<S> <C>
Partnership Interest 29% of the Partnership
revenues in return for paying
Organization and Offering Costs
equal to 15% of the Partnership
Subscription, 43.75% of Tangible
Costs and contributing all the
Leases to the Partnership. (1)
Contract drilling rates Competitive Industry Rates. The
Managing General Partner
anticipates that it will have a
profit of approximately 15% per
well if the well is drilled to a
depth of 5,950 feet in the
Mercer County area of the
Appalachian Basin. (1)
Operator's Per-Well Charges Competitive industry rates,
currently $275 per well per
month in the Appalachian Basin.
(1)
Direct Costs Reimbursement at Cost.(1)
Administrative Costs Unaccountable, fixed payment
reimbursement of the Managing
General Partner's administrative
overhead which the Managing
General Partner has set at $75
per well per month. (1)
Gathering Fee Competitive industry rate. (1)
Dealer-Manager Fees The Dealer-Manager will receive
certain fees from the Managing
General Partner on each Unit
sold. (2)
</TABLE>
7
<PAGE>
- -------------------
(1) Cannot be quantified at the present time because the number of wells that
will be drilled and the amount of gas that will be produced from the
wells cannot be predicted.
(2) Cannot be quantified at the present time because the amount of money to
be raised in the offering cannot be predicted.
CONFLICTS OF INTEREST
The Managing General Partner has a fiduciary duty to exercise good faith and
to deal fairly with you in handling the affairs of the Partnership.
Nevertheless, there are various conflicts of interest between the Managing
General Partner and you with respect to the Partnership. The conflicts of
interest include, but are not limited to, the following:
- the Managing General Partner has determined which services it and its
Affiliates will provide to the Partnership and the amount paid for
these services;
- the Managing General Partner will determine which Leases will be
acquired by the Partnership and which will be acquired by its other
Programs, and the terms upon which the acquisitions will be made; and
- the Managing General Partner will determine the allocation of its
management time, services and other functions among the Partnership
and its other Programs.
Other than certain guidelines set forth in "Conflicts of Interest," the Managing
General Partner has no established procedures to resolve a conflict of interest.
Thus, conflicts of interest may not necessarily be resolved in your best
interest.
DISTRIBUTION
Anthem Securities, a member of the NASD and an Affiliate of the Managing General
Partner, will serve as Dealer-Manager in all states other than Minnesota and New
Hampshire. Bryan Funding, Inc., a member of the NASD, will serve as
Dealer-Manager in the states of Minnesota and New Hampshire. The Units will be
offered on a "best efforts" basis by the Dealer-Manager and other selected
broker-dealers, which are members of the NASD, acting as Selling Agents. Best
efforts means that the Dealer-Manager and Selling Agents will not guarantee the
sale of a certain amount of Units.
The Dealer-Manager will manage and oversee the offering of the Units as
described above and will receive from the Managing General Partner on each
Unit sold to investors the following:
- a 2.5% Dealer-Manager fee;
- a 7% Sales Commission;
- a .5% reimbursement of marketing expenses; and
- a .5% reimbursement of the Selling Agents' bona fide accountable due
diligence expenses.
All or a portion of the Sales Commissions, reimbursement of marketing
expenses, and reimbursement of the Selling Agents' bona fide accountable due
diligence expenses will be reallowed to the Selling Agents.
The Managing General Partner is also using the services of three wholesalers
who are employees of the Managing General Partner and associated with Anthem
Securities. The 2.5% Dealer-Manager fee will be reallowed to the wholesalers
for Agreed Subscriptions obtained through the wholesalers' effort. (See
"Conflicts of Interest - Lack of Independent Underwriter and Due Diligence
Investigation.")
See "Plan of Distribution" for a discussion of the sale of Units to a
Registered Investment Advisor and its clients, the Managing General Partner,
its directors, officers, Affiliates, and the Selling Agents.
PARTNERSHIP AGREEMENT AND REPORTS
The Partnership is a Pennsylvania limited partnership and will be governed by
the Partnership Agreement, the form of which is included as Exhibit (A) to
this Prospectus, as well as the provisions of the Pennsylvania Revised
Uniform Limited Partnership Act. Among other matters, the Partnership
Agreement provides for the conduct of Partnership business and operations.
The following information and reports will be provided to you:
8
<PAGE>
- status reports detailing the progress of drilling activities;
- audited financial statements within 120 days after the end of each
calendar year; and
- annual tax information for the Partnership's operations by March 15 of
the following year. (See "Summary of Partnership Agreement - Voting
Rights and Access to Records" and "Reports to Investors.")
THE FOREGOING SUMMARY IS NOT COMPLETE. YOU AND YOUR ADVISERS SHOULD CAREFULLY
READ THE ENTIRE PROSPECTUS AND ALL ATTACHED EXHIBITS BEFORE MAKING AN
INVESTMENT IN THE PARTNERSHIP.
RISK FACTORS
An investment in the Partnership involves a high degree of risk and is suitable
only if you have substantial financial means and no need of liquidity in your
investment.
SPECIAL RISKS OF THE PARTNERSHIP
RISK OF LOSS BECAUSE OF SPECULATIVE NATURE OF GAS BUSINESS. Gas exploration is
an inherently speculative activity. Before the drilling of a well the Managing
General Partner cannot predict with any certainty the following:
- the amount of gas recoverable from the well to be drilled;
- the time it will take to recover the gas; or
- the price at which the gas will be sold.
There is always the risk that drilling activity will result in wells which do
not produce gas in sufficient quantities to return the investment made (I.E.,
payout), and from time to time Dry Holes (I.E., a well which was not
productive). There is also a substantial risk that the price of gas will be
volatile and may decrease.
You will be able to recover your investment only through Partnership
distributions of sales proceeds from the production of its gas reserves from
productive wells. Production of oil and gas from a well generally declines over
time until it is no longer economical to produce from the well, at which time it
is plugged and abandoned. All of these distributions of sales proceeds may be
considered to include a return to you of your investment in the Partnership
(I.E., return of capital) until you have received 100% of your investment. There
is a risk that you will not recover all of your investment or if you do recover
your investment that you will not receive a rate of return on your investment
which is competitive with other types of investment.
(See "Proposed Activities.")
RISK THAT A COMPLETED WELL DOES NOT PAYOUT. There is a risk that even if a well
is completed by the Partnership and produces gas in commercial quantities it
will not payout. For example, the Clinton/Medina geologic formation in
Pennsylvania and Ohio is characterized by geological characteristics which may
reduce the profit potential of a well completed to this geologic formation. A
Development Well drilled to the Clinton/Medina geologic formation or other
geologic formations in the United States may be completed and productive, but
not produce enough revenue to return the investment made even if tax
consequences are considered.
With respect to the Managing General Partner's prior partnerships since 1985, 29
of the 32 partnerships have not yet returned to the investor 100% of his capital
contributions without taking tax savings into account. However, all the
partnerships are continuing to make cash distributions and 27 of the
partnerships were formed in 1990 or subsequent years. (See "Prior Activities"
and "Proposed Activities.")
DRY HOLE RISK IN DEVELOPMENT DRILLING. Although the Dry Hole risk associated
with drilling Development Wells is reduced, there is a risk that the Partnership
will drill some Dry Holes (which means a well which was not productive). If one
or more of the Partnership Wells are Dry Holes, then the productive Development
Wells may not produce enough revenues to offset
9
<PAGE>
the loss of investment in the Dry Hole(s). (See " - Diversification Depends
Upon the Amount of Subscription Proceeds," below, and "Prior Activities.")
RISKS OF LOSS BECAUSE OF DECREASE IN THE PRICE OF GAS. There is a risk that low
gas prices will adversely affect your investment return. There is no assurance
of the price at which any gas produced from the Partnership Wells will be sold
and the price will depend on supply and demand factors largely beyond the
control of the Partnership. During most of the 1980's and 1990's gas prices have
been volatile and there is a risk that gas prices could decrease in the future.
If gas prices decrease, then your share of Partnership revenues will decrease
accordingly. (See "Proposed Activities - Sale of Oil and Gas Production.")
There is a further risk that the price of gas may decrease from time to time for
extended periods. This decrease in gas prices could occur during the period of
the wells' greatest level of production which would have the greatest adverse
affect on Partnership revenues. See the model decline curve included in the
geological report prepared by United Energy Development Consultants, Inc.
("UEDC") in "Proposed Activities - Information Regarding Currently Proposed
Prospects."
RISKS REGARDING MARKETING OF GAS. The Managing General Partner estimates that
approximately 10% to 15% of the Partnership's gas production in the Mercer
County area, which is the primary area of interest, will be transported through
the Managing General Partner's and its Affiliates' own pipeline system and sold
directly to an industrial end-user situated in the area where the wells will be
drilled. The remainder of the Partnership's gas from the Mercer County area,
with certain exceptions, will be sold to an Affiliate of First Energy
Corporation (Northeast Ohio Gas Marketing, Inc.) under a 10-year contract and
transported through the Managing General Partner's and its Affiliates' pipeline
system to the interconnection points maintained with interstate pipelines and
local distribution companies. Generally, the revenues received by the
Partnership will be less the farther the gas is transported because of the
increased transportation costs. (See "Proposed Activities - Sale of Oil and Gas
Production.")
Selling gas to industrial end-users, however, can create risks relating to the
credit worthiness of the industrial end-user. If the industrial end-user does
not pay, or delays payment, then the Partnership may not be paid or may
experience delays in receiving payment for natural gas that has already been
delivered. For example, after Sharon Steel Corporation filed Chapter 11
bankruptcy in 1987, it continued to purchase most of the Managing General
Partner's and its Affiliates' natural gas production in the Mercer County area
until it filed a second Chapter 11 bankruptcy in 1992. At that time, the
Managing General Partner and various Programs lost approximately $2,400,000, for
approximately 77 days of gas sales, of which approximately $600,000 was owed to
the Managing General Partner and the balance was owed to the various Programs.
There also can be no assurance that the terms of a gas supply agreement will
continue to be favorable over the life of the wells. Most gas supply agreements,
including the agreement with First Energy Corporation's Affiliate (the "First
Energy Agreement"), provide that prices may be adjusted upward or downward in
accordance with market conditions. The First Energy Agreement provides that the
initial gas price is determined by a formula tied to the spot market based on
the location of each delivery point. Even if the gas supply agreement did not
provide for the price adjustment, in the past low gas prices have resulted in
some purchasers renegotiating existing agreements to reduce the price paid for
delivered gas, and other difficulties in the marketing of production. Also, when
the gas supply agreements expire the buyer may negotiate lower prices. In this
regard, the First Energy agreement provides for the negotiation of the gas price
annually after either the first or second year depending upon the delivery
point. See "Proposed Activities - Sale of Oil and Gas Production."
The Partnership will also encounter competition in the sale of the gas produced
from the wells. Generally, the greater the competition in the sale of the gas
from the wells, the lower the price to be received or the more difficult it is
to market the gas. In this regard, risks are presented by the Managing General
Partner's obligation to market the gas production of other Programs sponsored by
it as well as the Partnership's gas production. In order to reduce this risk,
the Managing General Partner calculates a weighted average selling price for all
of the gas sold in a geographic area such as the Mercer County area. Thus, the
various Programs, including the Partnership, receive the same sales price for
their gas production in the same geographic area.
RISK OF POSSIBLE DELAYS IN PRODUCTION AND SHUT-IN WELLS. There is a risk that
production from the wells may be reduced or Shut-In because of seasonal
marketing demands (I.E., the demand for gas is usually greater in the winter
months because of residential heating requirements than the summer months).
There is also a risk that from time to time the Managing General Partner will
curtail production awaiting a better price for the gas. If the Managing General
Partner determines curtailment of
10
<PAGE>
production would be in the best interests of its Programs, then production will
be curtailed to the same degree in all the wells in the same geographic area.
However, the Managing General Partner has not voluntarily restricted its gas
production within the last two years because of a lack of a profitable market
price. On the other hand, if the Managing General Partner has not decided to
curtail production, but all the gas produced cannot be sold because of limited
demand for the gas which increases pipeline pressure, then the production that
is sold will be from those wells which are best able to feed into the pipeline,
regardless of which Programs own the wells. In this regard, the Partnership will
have the benefit of the First Energy Agreement to buy all of the gas produced by
the Managing General Partner and its Affiliates, including the Partnership,
other than gas being supplied directly to industrial end-users. (See "Proposed
Activities - Sale of Oil and Gas Production.")
Production from wells drilled in certain areas may also be delayed for up to
several months until construction of the necessary pipelines and production
facilities is completed. However, these delays are not anticipated by the
Managing General Partner with respect to any of the wells currently proposed for
the Partnership. The quantities of gas to be delivered by the Partnership may
also be affected by factors beyond its control such as the inability of the
wells to deliver gas at pipeline quality and pressure, premature exhaustion of
reserves, and changes in governmental regulations affecting the production. (See
"Competition, Markets and Regulation.")
RISK OF LOSS BECAUSE OF UNLIMITED LIABILITY OF INVESTOR GENERAL PARTNERS. If you
invest as an Investor General Partner, then under Pennsylvania law you will have
unlimited Joint and Several Liability for the Partnership's activities. (A Joint
and Several Liability means a liability in which a claimant, at its option, may
sue all or any one or more of the co-obligors for the entire amount of the
liability, whereas a joint liability is one in which a claimant must sue all
co-obligors.) This could result in you being required to make payments (in
addition to your original investment) in amounts which are impossible to
determine because of their uncertain nature. Also, the Partnership may own less
than 100% of the Working Interest in some of the wells and you and the other
Investor General Partners may then have Joint and Several Liability with the
other third party owners of the well.
Under the terms of the Partnership Agreement, if you are an Investor General
Partner you agree to be responsible for and pay your proportionate share of the
Partnership's obligations and liabilities. This agreement, however, does not
eliminate your Joint and Several Liability to third parties if another Investor
General Partner does not pay his proportionate share of the Partnership's
obligations and liabilities. The same is true if a court holds you and the other
third party owners of the Working Interest to be Jointly and Severally Liable
for the development and operation of a well under a "mining partnership" theory
and the third party Working Interest owner does not pay its proportionate share
of the obligations and liabilities. (See "Risk of Loss From Drilling Hazards"
and " - Risk of Pollution and Environmental Liabilities.")
In addition to the other actions which are set forth in "Summary of the
Offering" to reduce your risk of an additional payment, the Managing General
Partner has agreed to indemnify you and the other Investor General Partners from
any liability incurred in connection with the Partnership which is in excess of
your pro rata share of Partnership assets. However, there is a risk that the
Managing General Partner's assets, including its liquid assets, will not be
sufficient to satisfy its indemnification obligation. This risk is increased
because the Managing General Partner has made and will make similar financial
commitments in other Programs. (See " - Risk Created Because the Managing
General Partner's Liquid Net Worth Is Not Guaranteed," below.)
The Partnership will also have the benefit of general and excess liability
insurance of $50,000,000 during drilling operations and $11,000,000 thereafter,
per occurrence and in the aggregate. Nevertheless, as an Investor General
Partner you may become subject to the following:
- contract liability which is not covered by insurance;
- tort liability in excess of the amounts insured under the policies
(see " - Risk of Loss From Drilling Hazards," below); and
- liability for pollution, abuses of the environment and other damages
against which the Managing General Partner cannot insure because
coverage is not available or against which it may elect not to insure
because of high premium costs or other reasons. (See " - Risk of
Pollution and Environmental Liabilities," below.)
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If the insurance proceeds, Partnership assets, and the Managing General
Partner's indemnification of you and the other Investor General Partners were
not sufficient to satisfy the liability, then your personal assets could be
required to be used to satisfy the liability. If this occurs, then you will not
have an option to refuse to contribute the additional funds called for by the
Managing General Partner to pay Partnership liabilities. (See "Summary of
Partnership Agreement - Liabilities of General Partners, Including Investor
General Partners.")
RISK OF LOSS FROM DRILLING HAZARDS. There are numerous natural hazards involved
in the drilling of wells. These include well blowouts, craterings, explosions,
uncontrollable flows of natural gas or well fluids, fires, formations with
abnormal pressures, pipeline ruptures or spills, pollution, releases of toxic
gas, accidental leakages, and other environmental hazards and risks. Any of
these hazards may cause damage to property and third parties such as surface
damage, bodily injury, damage to and loss of equipment, reservoir damage, and
loss of reserves. If there are uninsured liabilities, then this will reduce the
funds available to the Partnership and may result in the loss of Partnership
properties. Also, if you invest as an Investor General Partner, then you may be
liable for these claims. (See "Proposed Activities - Insurance.")
RISK OF POLLUTION AND ENVIRONMENTAL LIABILITIES. The Partnership may be subject
to liability for pollution and environmental damage as described above in " -
Risk of Loss from Drilling Hazards." Thus, if you invest as an Investor General
Partner you might become liable for environmental claims that arose during
drilling activities, including claims that were not discovered until after you
converted to Limited Partner status. Also, most environmental claims will not be
covered by insurance.
Although the Managing General Partner will not transfer any Lease to the
Partnership if it has actual knowledge that there is an existing potential
environmental liability on the Lease, there will not be an independent
environmental audit of the Leases before they are transferred to the
Partnership. Thus, there can be no guarantee that the Leases will not have any
existing potential environmental liability. However, you will not have liability
for any non-environmental events on the Lease which occurred before its transfer
to the Partnership.
Environmental regulatory matters also could increase substantially the cost of
doing business for the Partnership, may cause delays in producing natural gas
from the Partnership's wells, or require modifying operations in certain areas.
(See "Competition, Markets and Regulation.")
RISK CREATED BY YOUR REQUIRED RELIANCE UPON THE MANAGING GENERAL PARTNER. The
Managing General Partner will have the exclusive right to control the
Partnership's activities. You should purchase Units only if you are willing to
entrust all aspects of Partnership management to the Managing General Partner.
Nevertheless, as a Participant you will have the right at any time to obtain
complete information regarding the business and financial condition of the
Partnership and, if necessary, to sue for an accounting. (See "Conflicts of
Interest," "Management," and "Summary of Partnership Agreement.")
RISK CREATED BECAUSE THE MANAGING GENERAL PARTNER'S LIQUID NET WORTH IS NOT
GUARANTEED. The Managing General Partner is primarily responsible for the
conduct of the Partnership's affairs. The Managing General Partner has made
specific commitments to you and the other investors regarding indemnification
and repurchasing the Units. A significant financial reversal for the Managing
General Partner could adversely affect the Managing General Partner's ability to
honor these obligations. This would affect the Partnership and the value of the
Units. Also, even if the Managing General Partner could honor its obligations, a
significant financial reversal for the Managing General Partner could still
divert the Managing General Partner's time and attention away from the
Partnership, including the operation of the wells and the marketing of the
Partnership's gas, or cause staff reductions.
The net worth of the Managing General Partner is based primarily on the
estimated value of its producing gas properties. However, the net worth is not
available in cash without borrowings or a sale of the properties. Also, gas
prices are volatile. If gas prices decrease, then this will directly reduce the
estimated value of the properties and the net worth of the Managing General
Partner. There is no assurance that the Managing General Partner will have the
necessary net worth, either currently or in the future, to meet its financial
commitments under the Partnership Agreement. These risks are increased because
the Managing General Partner has made and will make similar financial
commitments in other Programs. (See "Financial Information Concerning the
Managing General Partner and the Partnership.")
RISK CREATED BECAUSE THE MANAGEMENT OBLIGATIONS OF THE MANAGING GENERAL PARTNER
ARE NOT EXCLUSIVE. The Managing General Partner must devote the amount of time
to the Partnership's affairs that it determines is reasonably necessary.
However, the Managing General Partner and its Affiliates will be engaged in
other oil and gas activities and other
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unrelated business ventures for their own account or for the account of
others during the term of the Partnership, including other Programs. Thus,
there is a risk that the Managing General Partner will not devote the
necessary time to the Partnership. (See "Conflicts of Interest - Conflicts
Regarding Other Activities of the Managing General Partner, the Operator and
Their Affiliates.")
RISKS CREATED BECAUSE THE UNITS ARE NOT READILY TRANSFERABLE. If you invest in
the Units, then you must assume the risks of an illiquid investment. The Units
cannot be readily liquidated, and there is no market for the sale of the Units.
Also, a sale of your Units could create adverse tax and economic consequences
for you. (See "Tax Aspects - Disposition of Partnership Interests" and " -
Termination of a Partnership.")
The transferability of the Units is limited by the Partnership Agreement and the
state and federal securities laws. Under the Partnership Agreement, your Units
are transferable only if the Managing General Partner consents. In addition, an
assignee of a Unit cannot become a substituted Participant with the right to
vote unless certain procedures are met as described in "Transferability of
Units." Also, under the federal securities laws Units are transferable only if
they are registered under the 1933 Act, which the Managing General Partner does
not intend, or there is an exemption.
DIVERSIFICATION DEPENDS UPON THE AMOUNT OF SUBSCRIPTION PROCEEDS. If all of the
Units offered are not sold, then fewer wells will be drilled which decreases the
Partnership's ability to spread the risks of drilling. The Managing General
Partner anticipates that approximately 4.96 wells will be drilled if the minimum
Partnership Subscription of $1,000,000 is received, and approximately 89.35
wells will be drilled if the offering is increased to $18,000,000.
On the other hand, to the extent more than the minimum Partnership Subscription
is received the number of wells drilled by the Partnership will increase,
thereby increasing the diversification of the Partnership. Nevertheless, as the
number of wells drilled increases, the Partnership's overall investment return
may decrease if the Managing General Partner is unable to find enough suitable
Prospects to be drilled. In this regard, there is competition between the
Managing General Partner and independent third parties for the most desirable
Prospects. Generally, the greater the competition for the Prospects the more the
Managing General Partner has had or will have to pay to acquire the Prospects.
Also, in a large Partnership greater demands will be placed on the management
capabilities of the Managing General Partner. (See "Proposed Activities.")
RISK REGARDING THE UNSPECIFIED LOCATION OF A PORTION OF THE PROSPECTS. The
currently proposed Prospects described in "Proposed Activities - Information
Regarding Currently Proposed Prospects" represent approximately 66% of the
Greenshoe maximum. Thus, not all of the Prospects may be specified. The
currently proposed Prospects are all situated in the Mercer County area of
Pennsylvania, however, the Managing General Partner has reserved the right to
use up to 20% of the Partnership Subscription to drill Development Wells in
other areas of the United States which are not described herein. The Partnership
also will acquire additional Prospects which are not described if the
Partnership acquires less than 100% of the Working Interest in one or more
Prospects. Further, the Managing General Partner has the right to delete any
Prospect which it deems to be inappropriate for the Partnership because of
adverse events or for which insufficient funds are available. Thus, you do not
have any geological, economic, or other information to evaluate any additional
and/or substituted Prospects. Instead, you must rely entirely on the Managing
General Partner to select those Prospects.
Also, the Partnership does not have the right of first refusal in the selection
of Prospects from the inventory of the Managing General Partner and its
Affiliates, and they may sell their Prospects to other Programs, companies,
joint ventures or other persons at any time. (See "Proposed Activities -
Acquisition of Leases" and " - Information Regarding Currently Proposed
Prospects.")
NO GUARANTEE OF DATA REGARDING CURRENTLY PROPOSED PROSPECTS. The data
included in "Proposed Activities - Information Regarding Currently Proposed
Prospects" has been prepared by the Managing General Partner from sources
which it believes are reliable. However, there is a risk that the data does
not reflect all the wells drilled in the area or that the amount of gas
production is always accurate. Also, the production information for some of
the wells is incomplete. For example, if the wells are being operated by
third parties, then the information is unavailable to the Managing General
Partner. Also, some of the wells which have been drilled by the Managing
General Partner's other Programs do not have any production information or
limited production information because they have been producing for only a
short period of time, or are not yet completed or on-line. (See "Proposed
Activities - Information Regarding Currently Proposed Prospects.")
MANAGING GENERAL PARTNER'S SUBORDINATION IS NOT A GUARANTEE. If your cash
distributions are less than the 10% return for the first five 12-month periods
as set forth in "Investment Objectives," then the Managing General Partner has
agreed to
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subordinate a portion of its share of Partnership Net Production Revenues.
However, if the wells produce only a small amount of gas, and/or gas prices
decrease, then even with subordination your cash flow may be very small and
you may not receive a return of your entire investment. As of January 15,
1999, all but five of the Managing General Partner's previous limited
partnerships which have the subordination feature are achieving or exceeding
the 10% preferred 12-month cash distributions. The Managing General Partner
has subordinated from time to time its Partnership revenues in all of the
partnerships which have this subordination feature. (See " - Risk That
Borrowings by the Managing General Partner Could Reduce Funds Available for
Its Subordination Obligation," below, and "Participation in Costs and
Revenues - Subordination of Portion of Managing General Partner's Net Revenue
Share.")
RISK THAT BORROWINGS BY THE MANAGING GENERAL PARTNER COULD REDUCE FUNDS
AVAILABLE FOR ITS SUBORDINATION OBLIGATION. The Managing General Partner
anticipates that it will pledge either its Partnership interest and/or an
undivided interest in the assets of the Partnership equal to its Partnership
interest to secure borrowings for its own corporate purposes. If there was a
default to the lender under this pledge arrangement, then this would reduce the
Managing General Partner's Net Production Revenues available for its
subordination obligation. (See "Capitalization and Source of Funds and Use of
Proceeds.") Also, the Managing General Partner is not obligated to secure any
similar financing for you or the other Participants.
MANAGING GENERAL PARTNER WILL RECEIVE BENEFIT FROM DEVELOPMENT OF PARTNERSHIP
PROSPECTS. The Managing General Partner will contribute all the Leases to the
Partnership. The Leases will be contributed at the Cost of the Leases, or fair
market value if the Managing General Partner has cause to believe Cost is
materially more than fair market value. Cost is a defined term and includes a
portion of the Managing General Partner's expenses for geological, geophysical,
engineering, legal, and other like services allocated to the Partnership's
Leases determined using industry guidelines. Also, the development of wells on
this acreage may provide the Managing General Partner with offset sites by
allowing it to ascertain at the Partnership's expense the value of adjacent
acreage in which the Partnership would not have any right to participate in
developing. The Managing General Partner will receive a benefit from these
transactions. (See "Compensation," "Conflicts of Interest - Conflicts Involving
the Acquisition of Leases," and "Proposed Activities.")
COMPENSATION AND FEES TO THE MANAGING GENERAL PARTNER REGARDLESS OF SUCCESS OF
THE ACTIVITIES. The Managing General Partner and its Affiliates can be expected
to profit from the Partnership even if Partnership activities result in little
or no profit, or a loss to you. (See "Compensation.")
POSSIBILITY OF REDUCTION OR UNAVAILABILITY OF INSURANCE. It is possible that
some or all of the insurance coverage which the Partnership has available may
become unavailable or prohibitively expensive. If this occurs, then the Investor
General Partners who elect to remain Investor General Partners after notice that
the insurance is being reduced could be exposed to additional financial risk.
Also, both Investor General Partners and Limited Partners would be subject to
greater risk of loss of their Partnership investment. (See " - Risk of Loss From
Drilling Hazards," "Proposed Activities - Insurance," and "Tax Aspects -
Limitations on Passive Activities.")
DISPROPORTIONATE COSTS BORNE BY PARTICIPANTS. Under the cost and revenue sharing
provisions of the Partnership Agreement, you and the Managing General Partner
will share in costs disproportionately to your sharing of revenues. The Managing
General Partner will pay 100% of Organization and Offering Costs and 43.75% of
the Tangible Costs and contribute the Leases to the Partnership. The Managing
General Partner's Capital Contributions must equal at least 22.15% of all
Capital Contributions to the Partnership. In return, the Managing General
Partner will receive 29% of the Partnership's production revenues and pay 29% of
the Partnership's Operating Costs, Administrative Costs, Direct Costs and all
other costs not specifically allocated.
You and the other Participants will pay 100% of Intangible Drilling Costs and
56.25% of Tangible Costs for total Capital Contributions of 77.85% of all
Capital Contributions to the Partnership. In return, you and the other
Participants will receive 71% of the Partnership's production revenues and pay
71% of the Partnership's Operating Costs, Administrative Costs, Direct Costs and
all other costs not specifically allocated. (See "Participation in Costs and
Revenues.")
PARTNERSHIP BORROWINGS MAY REDUCE OR DELAY DISTRIBUTIONS. Although the Managing
General Partner does not anticipate that the Partnership will borrow any funds,
the Managing General Partner is authorized to increase the working capital of
the Partnership by making advances to the Partnership. Borrowings by the
Partnership can result in delayed or reduced cash distributions to you while the
loan is being repaid. (See " - Tax Risks - Possible Taxes in Excess of Cash
Distributions," below, and "Capitalization and Source of Funds and Use of
Proceeds.")
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RISK OF OTHER CIRCUMSTANCES CAUSING DISTRIBUTIONS TO BE REDUCED OR DELAYED.
Although the Managing General Partner intends to distribute the cash quarterly,
distributions may be deferred to the extent Partnership revenues are used for
the following:
- costs related to completing and Fracturing some of the wells in a
third zone;
- remedial work to improve a well's producing capability; or
- if a productive gas well is Shut-In for an indeterminate time awaiting
an acceptable market for the production.
In addition, the Drilling and Operating Agreement grants the right after three
years to withhold well revenues of up to $200 per month to establish a reserve
for the estimated costs of eventually plugging and abandoning the well.
Historically, however, the Managing General Partner has never done so after only
three years.
Thus, there is a risk that you will not receive quarterly cash distributions.
There is also a risk that your cash distributions will be less than your income
tax liability associated with your share of Partnership income. (See "- Tax
Risks - Possible Taxes in Excess of Cash Distributions.")
RISK THAT COSTS MAY INCREASE. There is a risk that over the term of the
Partnership there will be fluctuating or increasing costs in doing business.
This would directly affect the Managing General Partner's ability to operate the
Partnership's wells at acceptable price levels. (See "Competition, Markets and
Regulation.")
RISK OF UNPREDICTABLE GOVERNMENT REGULATIONS AND LEGISLATION ADVERSELY AFFECTING
THE PARTNERSHIP. Oil and gas operations in the United States, including lease
acquisitions and other energy-related activities, are subject to extensive
government regulation. They are also subject to interruption or termination by
governmental authorities because of ecological and other considerations.
Proposals concerning the regulation and taxation of the oil and gas industry are
constantly before Congress. It is impossible to predict which proposals, if any,
will be enacted into law and, if enacted, their effect on the Partnership. (See
"Competition, Markets and Regulation.")
RISKS ARISING FROM CONFLICTS OF INTEREST BETWEEN MANAGING GENERAL PARTNER AND
THE PARTNERSHIP. There are conflicts of interest between you and the Managing
General Partner and its Affiliates including, but not limited to, the following:
- the Managing General Partner has determined the terms of the offering
and the amount of compensation paid to it by the Partnership; and
- the Managing General Partner will determine which Leases will be
acquired by the Partnership and which will be acquired by its other
Programs, and the terms upon which the acquisitions will be made.
Other than certain guidelines set forth in "Conflicts of Interest," the Managing
General Partner has no established procedures to resolve a conflict of interest.
RISKS THAT PRESENTMENT OBLIGATION MAY NOT BE FUNDED AND REPURCHASE PRICE MAY NOT
REFLECT FULL VALUE. Subject to certain conditions, beginning in 2004 you may
present your Units to the Managing General Partner for purchase. The Managing
General Partner anticipates purchasing the interests primarily through cash flow
and secondarily through corporate borrowings secured by the interests purchased.
There is a risk that the Managing General Partner will not have the necessary
cash flow or be able to arrange financing for these purposes on reasonable terms
as determined by the Managing General Partner in its sole discretion. In either
event the Managing General Partner is able to suspend the presentment feature.
The risk is further increased because Managing General Partner has and will
incur similar presentment obligations in connection with other Programs.
Because of the difficulty in accurately estimating oil and gas reserves, the
presentment price may not reflect the full value of the Partnership property to
which it relates. The estimates are merely appraisals of value and may not
correspond to realizable value. Also, there can be no assurance that the
presentment price paid for the interest and any revenues received by you before
the presentment will be equal to the purchase price of the Units. You might
realize a greater return if you retain the Units, which you may elect, rather
than selling the Units to the Managing General Partner. (See "Conflicts of
Interest - Conflicts Regarding Presentment Feature" and "Presentment Feature.")
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RISK REGARDING PARTICIPATION WITH THIRD PARTIES. It is anticipated that the
Partnership will own 100% of the Working Interest in the wells. However, the
Partnership has reserved the right to take as little as 25% of the Working
Interest and it is possible that other Working Interest owners will participate
with the Partnership in drilling some of the wells. Additional financial risks
exist when the cost of drilling, equipping, completing and operating wells is
shared by more than one person. If the Partnership pays its share of the costs
but another Working Interest owner does not, then the Partnership would have to
pay the costs of the defaulting party. (See "- Risk of Loss Because of Unlimited
Liability of Investor General Partners," above, and "Proposed Activities -
Acquisition of Leases.")
RISK OF PREPAYMENT TO MANAGING GENERAL PARTNER. Under the Drilling and Operating
Agreement the Partnership will be required to immediately pay the Managing
General Partner the Participants' share of the entire contract price for
drilling the Partnership Wells. Thus, these funds could be subject to claims of
the Managing General Partner's creditors. Currently, however, the Managing
General Partner is not aware of any existing creditors of it or its Affiliates
which would have a claim to prepaid Partnership funds. (See "Financial
Information Concerning the Managing General Partner and the Partnership.")
POSSIBLE NONPERFORMANCE BY SUBCONTRACTORS. The Managing General Partner, as
Operator and general drilling contractor, will subcontract some of the services
required to drill the wells to subcontractors. There is a risk that if the
subcontractors fail to pay for materials or services on the wells, then the
Partnership could incur excess costs. To reduce this risk the Managing General
Partner will attempt to use only subcontractors that have previously performed
similar activities for the Managing General Partner in a satisfactory manner,
endeavor to ascertain the financial condition of the subcontractors, and attempt
to secure lien releases from the various subcontractors. (See "Proposed
Activities - Drilling and Completion Activities; Operation of Producing Wells.")
POSSIBLE LEASEHOLD DEFECTS. The Working Interests in the Leases to be assigned
to the Partnership by the Managing General Partner will be assigned without
title insurance. There is a risk of title failure. (See "Proposed Activities -
Title to Properties.")
YEAR 2000 RISKS. The "year 2000 issue" is the result of computer programs being
written using two digits, rather than four digits, to identify the year in a
date field. Any computer programs using such a system, and which have date
sensitive software, will not be able to distinguish between the year 2000 and
the year 1900. This could result in miscalculations or an inability to process
transactions, send invoices or engage in similar normal business activities.
Actions are being taken by the Managing General Partner to respond to year 2000
remediation requirements. There can be no assurance that those actions will be
successful or adequate or that any additional year 2000 problems that exist will
be discovered or remedied in sufficient time. The Managing General Partner and
the Partnership are also vulnerable to potential losses of revenue, goods or
services caused by failures of suppliers and customers or other persons to
remedy their year 2000 problems.
RISK THAT DISSOLUTION OF THE PARTNERSHIP OR WITHDRAWAL OR REMOVAL OF THE
MANAGING GENERAL PARTNER MAY HAVE ADVERSE EFFECTS. After 10 years (and the
Partnership's primary drilling activities), the Managing General Partner may
voluntarily withdraw as Managing General Partner without the consent of you and
the other Participants upon giving 120 days' written notice of withdrawal. In
addition, the Managing General Partner may be removed at any time upon 60 days'
advance written notice, by the affirmative vote of Participants whose Agreed
Subscriptions equal a majority of the Partnership Subscription. If the Managing
General Partner withdrew or was removed and you and the other Participants did
not elect to continue the Partnership and to designate a substituted Managing
General Partner, then the Partnership would terminate and dissolve.
If the Partnership was dissolved, then you could receive a distribution of
direct property interests and be responsible for the costs and liabilities
associated with the property interest. As a joint interest owner, you could have
Joint and Several Liability for the obligations or liabilities arising out of
joint owner operations. Also, obtaining insurance protection for your property
interest or disposing of your property interest might be difficult. Thus, the
Managing General Partner will attempt upon liquidation and dissolution to use
its best efforts to sell the Partnership's properties or to cause some type of
entity to be formed which would preserve your limited liability to hold title to
the Partnership's properties. However, even if the properties were transferred
to a liquidating trust, it might be difficult for the liquidating trust to deal
with the assets and realize their full value. The distributions may also have
adverse income tax consequences to you. (See "- Risk of Loss Because of
Unlimited Liability of Investor General Partners," above, and "Tax Aspects -
Disposition of Partnership Interests.")
RISK CREATED BY THE MANAGING GENERAL PARTNER BUYING UNITS. The Managing General
Partner, its officers, directors, and Affiliates may buy up to 10% of the Units.
To the extent they purchase Units the voting power of you and the other
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Participants will be diluted and there may be a conflict with respect to certain
matters. (See "Summary of Partnership Agreement - Voting Rights and Access to
Records.")
RISK OF REDUCED DISTRIBUTIONS IF THE MANAGING GENERAL PARTNER IS INDEMNIFIED.
Under the Partnership Agreement the Managing General Partner and its Affiliates
may be indemnified by the Partnership for losses or liabilities incurred in
connection with the activities of the Partnership. Use of Partnership funds or
assets for indemnification would reduce amounts available for Partnership
operations or for distribution to you and the other Participants. (See
"Fiduciary Responsibility of the Managing General Partner.")
RISK OF LIMITED PARTNER LIABILITY FOR REPAYMENT OF CERTAIN DISTRIBUTIONS. Under
the Pennsylvania Revised Uniform Limited Partnership Act (the "Partnership
Act"), the liability of a Limited Partner for Partnership obligations will
generally be limited to his investment and his share of any undistributed net
profits. However, there is a risk that for a period of two years a Limited
Partner may be required to repay to the Partnership any Capital Contribution
"wrongfully" returned to him in violation of the Partnership Agreement or
Pennsylvania law. There is also a risk that a Limited Partner will be liable for
the obligations of the Partnership if he takes part in the control of the
Partnership's business or invests as an Investor General Partner. (See "Summary
of Partnership Agreement - Liability of Limited Partners.")
POSSIBLE PARTICIPATION IN ROLL-UP. There is a risk that at some indeterminate
time in the future the Partnership will become involved in a "Roll-Up"
transaction. If there is a Roll - Up transaction, then there could be changes in
your rights, preferences, and privileges in the Partnership. See "Conflicts of
Interest - Policy Regarding Roll-Ups" for certain protections which are provided
to you and the other Participants.
RISK OF UNAUTHORIZED ACTS OF INVESTOR GENERAL PARTNERS. Under the Partnership
Act a general partner may bind the partnership by his action, unless the partner
in fact has no authority to act for the partnership and the person with whom he
is dealing has knowledge that he has no authority. Under the Partnership Act,
knowledge may be actual knowledge of the lack of authority or knowledge of other
facts which in the circumstances would show bad faith. Although there is a risk
that an Investor General Partner might bind the Partnership by his acts, the
Managing General Partner believes it will have exclusive control over the
conduct of the business of the Partnership and it is unlikely a third party, in
the absence of bad faith, would deal with an Investor General Partner concerning
the Partnership's business.
TAX RISKS
TAX CONSEQUENCES MAY VARY DEPENDING ON INDIVIDUAL CIRCUMSTANCES. There are
various risks associated with the federal income tax aspects of an investment in
the Partnership. You are urged to consult your own tax advisor concerning the
tax consequences of an investment in the Partnership. (See "Tax Aspects.")
RISK OF CHANGES IN THE LAW. You and the Partnership could be adversely affected
by changes in the tax laws that may result through future Congressional action,
Tax Court or other judicial decisions, or interpretations by the IRS. (See "Tax
Aspects.")
NO ADVANCE RULING FROM THE IRS ON TAX CONSEQUENCES. The Managing General Partner
has received an opinion of counsel that, more likely than not, the Partnership
will be classified as a partnership for federal income tax purposes and not as a
corporation or a publicly traded partnership. However, no advance ruling on this
or any other tax consequence of an investment in the Partnership will be
requested from the IRS. (See "Tax Aspects - Partnership Classification" and " -
Limitations on Passive Activities.") Nevertheless, Special Counsel's tax opinion
includes its opinion that the significant tax benefits of the Partnership, in
the aggregate, more likely than not will be realized as contemplated by this
Prospectus. The opinion of counsel is not binding on the IRS and is based upon
certain factual assumptions which may or may not prove to be true. (See "Tax
Aspects - Summary of Tax Opinion.")
POSSIBLE TAXES IN EXCESS OF CASH DISTRIBUTIONS. There is a risk that you may
become subject to income tax liability in excess of cash actually received from
the Partnership. For example:
- if the Partnership borrows money from the Managing General Partner
or its Affiliates your share of Partnership revenues used to pay
principal on the loan will be included in your taxable income from
the Partnership and will not be deductible;
- under the Partnership Agreement, taxable income or gain may be
allocated to you if there is a deficit in your Capital Account even
though you do not receive a corresponding distribution of
Partnership revenues;
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- Partnership revenues may be retained by the Managing General
Partner for Partnership costs or to establish a reserve for future
estimated costs, including production revenues retained by the
Managing General Partner, as Operator, beginning three years after
the wells are placed in production to establish a reserve for the
estimated costs of eventually plugging and abandoning the wells,
although historically the Managing General Partner has never done
this after only three years; and
- the taxable disposition of Partnership property or your Units may
result in income tax liability in excess of cash distributions.
(See "Tax Aspects - Allocations," " - Sale of the Properties" and " -
Disposition of Partnership Interests.")
However, to the extent the Partnership has cash available for distribution it is
the Managing General Partner's policy that Partnership distributions will not be
less than the Managing General Partner's estimate of the Participants' income
tax liability with respect to Partnership income. In the Managing General
Partner's history its Programs have been able to distribute cash equal to at
least the investor's income tax liability on his income from the Programs.
1999 TAX DEDUCTIONS ARE SUBJECT TO CHALLENGE BY THE IRS IN THE EVENT OF AN
AUDIT. The Managing General Partner anticipates that all of the Partnership
Subscription will be expended in 1999, and that your share of income and
deductions generated thereby will be reflected on your tax returns for that
period. There is no guarantee that if the Partnership is audited the IRS will
not challenge the deductions claimed by the Partnership. The time for
assessment of tax resulting from adjustments to the Partnership's information
tax returns may extend beyond the time for other assessments. (See "Tax
Aspects - 1999 Expenditures," "- Availability of Certain Deductions," " -
Intangible Drilling and Development Costs," " - Drilling Contracts," - Tax
Returns and Audits," and " Penalties and Interest.")
Depending primarily on when the Partnership Subscription is received, the
Managing General Partner anticipates that the Partnership will prepay in 1999
most, if not all, of its Intangible Drilling Costs for wells the drilling of
which will be commenced in 2000. The deductibility in 1999 of any advance
payments cannot be guaranteed. (See "Tax Aspects - Drilling Contracts.")
"PASSIVE ACTIVITY" LOSS LIMITATION RULES. The Managing General Partner
anticipates that the Partnership will incur a net loss in 1999 as a result of
its deductions for Intangible Drilling Costs. Any net loss of the Partnership
allocable to a Limited Partner (but not an Investor General Partner) generally
will be subject to the "passive activity" loss limitation rules which may limit
the use of the loss to offset income from other sources.
(See "Tax Aspects - Limitations on Passive Activities.")
POSSIBLE ALTERNATIVE MINIMUM TAX LIABILITY. Alternative minimum taxable income
of "independent producers," which includes most investors, cannot be reduced by
more than 40% by reason of the repeal of the preference item for intangible
drilling and development costs. (See "Tax Aspects - Minimum Tax - Tax
Preferences.")
INVESTMENT INTEREST DEDUCTIONS MAY BE LIMITED. Interest paid to acquire or carry
investment assets is deductible only to the extent of net investment income.
This rule applies to investments, such as the Partnership in the case of
Investor General Partners, which are not passive activities and in which the
taxpayer does not materially participate. Therefore, losses from the Partnership
will reduce the investment income of an Investor General Partner and may
adversely affect the deductibility of the Investor General Partner's investment
interest expense, if any. (See "Tax Aspects - Limitations on Deduction of
Investment Interest.")
LACK OF TAX SHELTER REGISTRATION. The Managing General Partner believes that the
Partnership will not be a tax shelter required to register with the IRS and does
not intend to cause the Partnership to register as such with the IRS. If it is
subsequently determined by the IRS that the Partnership was required to be
registered with the IRS as a tax shelter, you would be liable for a $250 penalty
for failure to include the tax registration number of the Partnership on your
tax return, unless such failure was due to reasonable cause. However, based on
the representations of the Managing General Partner, Special Counsel has
expressed the opinion that the Partnership, more likely than not, is not
required to be registered with the IRS as a tax shelter. (See "Tax Aspects -
Lack of Registration as a Tax Shelter.")
STATE AND LOCAL TAXES MAY APPLY. You may incur tax liability with respect to
Partnership income in the state and locality in which you reside as well as the
states and localities where the Partnership's Development Wells are situated.
You should consult with your own tax advisor concerning the state and local tax
consequences of an investment in the Partnership. (See "Tax Aspects - State and
Local Taxes.")
18
<PAGE>
PARTNERSHIP ALLOCATIONS ARE SUBJECT TO CHALLENGE BY THE IRS IN THE EVENT OF AN
AUDIT. The allocations of Partnership costs, revenues and related tax items
between the Managing General Partner and you and the other Participants are
subject to Treasury Regulations. Should the IRS successfully challenge the
allocation provisions contained in the Partnership Agreement, you could incur a
greater tax liability. However, assuming the effect of the allocations set forth
in the Partnership Agreement is substantial in light of your tax attributes that
are unrelated to the Partnership, in Special Counsel's opinion it is more likely
than not that such allocations will govern your distributive share to the extent
they do not cause or increase deficit balances in your Capital Account. (See
"Tax Aspects - Allocations.")
CAPITALIZATION AND SOURCE OF FUNDS AND USE OF PROCEEDS
IN GENERAL
The drilling of the wells is expected to be funded entirely through the
Partnership Subscription and the Capital Contributions of the Managing General
Partner. If the Partnership requires additional funds for completing and
Fracturing some of the wells in a third zone, or additional development or
remedial work is subsequently required for a well, then these funds may be
provided by borrowings as discussed below in "- Subsequent Source of Funds and
Borrowings" or by the retention of Partnership revenues. The Managing General
Partner, however, does not anticipate that any borrowings will be required
before there are production revenues.
Generally, the Units are not subject to assessment, and the Partnership will not
call upon you for additional amounts of capital beyond your Agreed Subscription.
However, there is an exception if you invest as an Investor General Partner and
the insurance proceeds, Partnership assets, and the Managing General Partner's
indemnification of the Investor General Partners were not sufficient to satisfy
Partnership liabilities for which you and the other Investor General Partners
were also liable. In this event the Managing General Partner could call upon you
and the other Investor General Partners to make additional Capital Contributions
to the Partnership from your personal assets to satisfy these liabilities.
SOURCE OF FUNDS
Upon completion of the offering the Capital Contributions to the Partnership of
you and the other Participants will range from $1,000,000 (100 Units) to
$14,000,000 (1,400 Units) unless the Managing General Partner in its sole
discretion offers up to 400 additional Units and increases the offering to not
more than $18,000,000 (1,800 Units).
The Capital Contributions of the Managing General Partner will be not less than
22.15% of all Capital Contributions to the Partnership and will range from:
- $284,436 if 100 Units are sold;
- to $3,983,457 if 1,400 Units are sold; and
- to $5,121,742 if 1,800 Units are sold. See the "- Managing General
Partner Capital" table below for a breakout of the costs paid by
the Managing General Partner.
The total amount of Capital Contributions available to the Partnership from both
the Managing General Partner and you and the other Participants will range from:
- $1,284,436 if 100 Units are sold;
- to $17,983,457 if 1,400 Units are sold; and
- to $23,121,742 if 1,800 Units are sold.
USE OF PROCEEDS
The following tables present information concerning the Partnership's use of the
proceeds provided by both the Participants and the Managing General Partner.
Substantially all of the proceeds available to the Partnership will be expended
for the following purposes and in the following manner:
19
<PAGE>
PARTICIPANT CAPITAL
<TABLE>
<CAPTION>
ENTITY
RECEIVING 100 UNITS 1,400 UNITS 1,800 UNITS
PAYMENT NATURE OF PAYMENT SOLD % (1) SOLD % (1) SOLD % (1)
- --------- ---------------- ---- ---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL PARTICIPANT CAPITAL $1,000,000 100% $14,000,000 100% $18,000,000 100%
LESS: ORGANIZATION AND OFFERING EXPENSES
Broker-Dealers Dealer-Manager fee, Sales - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Commissions, reimbursement of
marketing expenses, and
reimbursement for bona fide
accountable due diligence
expenses
Various Organization Costs - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
AMOUNT AVAILABLE FOR INVESTMENT:
The Managing General Capital available for drilling $1,000,000 100% $14,000,000 100% $18,000,000 100%
Partner and completion costs
The Managing General Leases - 0 - - 0 - - 0 - - 0 - - 0 - - 0 -
Partner
</TABLE>
- ----------------
(1) The percentage is based upon total Participants' Agreed Subscriptions and
excludes the Managing General Partner's Capital Contribution.
MANAGING GENERAL PARTNER CAPITAL
<TABLE>
<CAPTION>
ENTITY
RECEIVING 100 UNITS 1,400 UNITS 1,800 UNITS
PAYMENT NATURE OF PAYMENT SOLD % (1) SOLD % (1) SOLD % (1)
- ------- ----------------- ---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
TOTAL MANAGING GENERAL PARTNER CAPITAL $284,436 100% $3,983,457 100% $5,121,742 100%
LESS: ORGANIZATION AND OFFERING EXPENSES
Broker-Dealers Dealer-Manager fee, Sales $105,000 36.9% $1,470,000 36.9% $1,890,000 36.9%
Commissions, reimbursement of
marketing expenses, and
reimbursement for bona fide
accountable due diligence
expenses (2)
Various Organization Costs (2) $45,000 15.8% $630,000 15.8% $810,000 15.8%
AMOUNT AVAILABLE FOR INVESTMENT:
Managing General Partner Tangible Costs $116,580 41.0% $1,633,293 41.0% $2,100,082 41.0%
Managing General Partner Leases $17,856 6.3% $250,164 6.3% $321,660 6.3%
</TABLE>
- ----------------
(1) The percentage is based upon the Managing General Partner's Capital
Contribution and excludes the Participants' Agreed Subscriptions.
(2) All Organization and Offering Costs will be paid by the Managing General
Partner. The Managing General Partner, however, will not be credited with
the payment of Organization and Offering Costs in excess of 15% of the
Partnership Subscription towards its required Capital Contribution.
(3) Instead of making a contribution in cash for the Leases, the Leases will
be assigned to the Partnership by the Managing General Partner. The
Managing General Partner will then be credited with a Capital
Contribution for each Lease valued
20
<PAGE>
at its Cost or fair market value if the Managing General Partner has
cause to believe Cost is materially more than fair market value. In the
Mercer County area, which is the Partnership's primary area of
interest, the Managing General Partner's Cost is approximately $3,600
per Prospect. If all the Prospects are situated in the Mercer County
area, then the Managing General Partner will contribute approximately
4.96 Prospects if 100 Units are sold, 69.49 Prospects if 1,400 Units
are sold, and 89.35 Prospects if 1,800 Units are sold.
SUBSEQUENT SOURCE OF FUNDS AND BORROWINGS
As indicated above, it is anticipated that substantially all the Partnership's
initial capital will be committed or expended following the offering. Any
additional funds which may subsequently be required will be withheld from
Partnership production revenues or borrowings by the Partnership from the
Managing General Partner or its Affiliates. The Managing General Partner,
however, is not contractually committed to loan money to the Partnership. There
will be no borrowings from third parties.
The amount that may be borrowed by the Partnership from the Managing General
Partner and its Affiliates may not at any time exceed 5% of the Partnership
Subscription and must be without recourse to you and the other Participants. The
Partnership's repayment of any borrowings would be from Partnership production
revenues and would reduce or delay your cash distributions. See "Conflicts of
Interest - Procedures to Reduce Conflicts of Interest," paragraph (9), for the
terms of any loan with the Managing General Partner.
Currently, the Managing General Partner maintains a $40.0 million credit
facility at PNC Bank ("PNC"). The credit facility is divided into two principal
parts: a revolving credit facility and a term loan facility. The revolving
credit facility has a term ending in 2001. The term loan facility has a term
ending in 2003.
The credit facility contains certain financial covenants of the Managing General
Partner, including maintaining a current ratio of .75 to 1.0, a ratio of fixed
charges to earnings of 2.0 to 1.0, and a leverage ratio (essentially a ratio of
debt to equity) of not less than 3.75 to 1.0, reducing to 3.50 to 1.0 in January
1999, 3.25 to 1.0 in October 1999 and 3.0 to 1.0 in March 2000. The credit
facility also imposes the following limits:
- the Managing General Partner's exploration expense can be no more
than 20% of capital expenditures plus exploration expense, without
PNC's consent;
- sales, leases or transfers of property by the Managing General
Partner are limited to $1.0 million without PNC's consent; and
- the Managing General Partner cannot incur debt in excess of $2.0
million to lenders other than PNC without PNC's consent.
As of September 30, 1998, there was $20.0 million outstanding under the
revolving credit facility and $7.0 million outstanding under the term loan
facility.
COMPENSATION
A narrative presentation of the items of compensation paid to the Managing
General Partner and its Affiliates from the Partnership is set forth below.
Following the narrative presentation is a tabular presentation of the estimated
Administrative Costs and Direct Costs to be borne by the Partnership.
OIL AND GAS REVENUES
The Managing General Partner will be allocated 29% of the oil and gas revenues
of the Partnership in return for paying Organization and Offering Costs equal to
15% of the Partnership Subscription, 43.75% of Tangible Costs and contributing
all Leases to the Partnership. (See "Participation in Costs and Revenues.")
LEASE COSTS
The Managing General Partner will contribute to the Partnership all the
undeveloped Leases necessary to drill the Partnership's wells. The Managing
General Partner will receive a credit to its Capital Account equal to the Cost
of the Leases, or fair market value if the Managing General Partner has cause to
believe that Cost is materially more than fair market value. The Cost of the
Leases will include a portion of the Managing General Partner's reasonable,
necessary and actual expenses for:
21
<PAGE>
- geological, geophysical and engineering expenses;
- interest expense;
- legal expense; and
- expenses for other like services allocated to the Partnership's
Leases determined using industry guidelines.
The Managing General Partner will not retain any Overriding Royalty Interest for
itself from the Leases. Assuming all the Leases are situated in the Mercer
County area and the Partnership acquires 100% of the Working Interest, the
Managing General Partner estimates that its credit for Lease costs will be:
- $17,856 if the minimum Partnership Subscription of $1,000,000 is
received (4.96 wells at $3,600 per Prospect);
- $250,164 if $14,000,000 is received (69.49 wells at $3,600 per
Prospect); and
- $321,660 if the offering is increased to $18,000,000 (89.35 wells
at $3,600 per Prospect).
The development of wells on the acreage may provide the Managing General Partner
with offset drill sites by allowing it to ascertain at the Partnership's expense
the value of adjacent acreage in which the Partnership would not have any right
to participate in developing. (See "Conflicts of Interest - Conflicts Involving
the Acquisition of Leases" and "Proposed Activities.")
ADMINISTRATIVE COSTS
The Managing General Partner and its Affiliates will receive an unaccountable,
fixed payment reimbursement for their Administrative Costs which has been
determined by the Managing General Partner to be $75 per well per month. This
fee will be proportionately reduced to the extent the Partnership acquires less
than 100% of the Working Interest in the well, and will not be received for
plugged and abandoned wells. See " - Estimate of Administrative Costs and Direct
Costs to be Borne by the Partnership," below, for an estimate of those costs in
the first 12 months.
DRILLING CONTRACTS
The Partnership will enter into a drilling contract with the Managing General
Partner to drill and complete the Partnership Wells at a competitive industry
rate. For each well completed and placed into production in the Appalachian
Basin, the Partnership will pay the Managing General Partner an amount equal to
$37.81 per foot to the depth of the well at its deepest penetration. For each
well which the Partnership elects not to complete, the Partnership will pay the
Managing General Partner an amount equal to $20.60 per foot to the depth of the
well.
The footage contract will cover all costs other than the cost of a pumping unit
for an oil well, which is not anticipated, and the cost of a third completion
and Frac. "Frac" means, in general, treating a potentially productive geological
formation in an attempt to enhance the gas production from the well. (See
"Definitions.") These costs will be charged at Cost plus 10% if provided by
third parties and at competitive rates in the area if provided by the Managing
General Partner or its Affiliates. The cost of the well will be proportionately
reduced to the extent the Partnership acquires less than 100% of the Working
Interest. (See the Drilling and Operating Agreement, Exhibit (II) to the
Partnership Agreement.)
The amount of compensation which the Managing General Partner could earn as a
result of these arrangements is dependent upon many factors, including the
actual cost of the wells and the number of wells drilled. The Managing General
Partner anticipates that in the Mercer County area of the Appalachian Basin it
will have reimbursement of general and administrative overhead of $3,600 per
well and a profit of approximately 15% ($33,206) per well for a well drilled to
a depth of 5,950 feet. Assuming all the wells are situated in the Mercer County
area, drilled and completed to a depth of 5,950 feet, and the Partnership
acquires 100% of the Working Interest, it is estimated that the Managing General
Partner's general and administrative overhead reimbursement and profit will be:
- $182,558 if $1,000,000 is received (4.96 wells at $36,806 profit
and overhead per well);
- $2,557,649 if $14,000,000 is received (69.49 wells at $36,806
profit and overhead per well); and
- $3,288,616 if the offering is increased to $18,000,000 (89.35 wells
at $36,806 profit and overhead per well).
22
<PAGE>
PER WELL CHARGES
When the wells begin producing the Managing General Partner, 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 at a competitive rate. In the Appalachian
Basin the competitive rate is currently $275 per well per month subject to an
annual adjustment for inflation. The well supervision fees will be
proportionately reduced to the extent the Partnership acquires less than 100% of
the Working Interest in the well. Assuming all the wells are drilled and
completed in the Appalachian Basin and the Partnership acquires 100% of the
Working Interest, the Managing General Partner estimates that it will receive
for the Partnership's first 12 months of operations:
- $16,368 if the minimum Partnership Subscription of $1,000,000 is
received (4.96 wells at $275 per well per month);
- $229,317 if $14,000,000 is received (69.49 wells at $275 per well
per month); and
- $294,855 if the offering is increased to $18,000,000 (89.35 wells
at $275 per well per month).
GATHERING FEES
The Managing General Partner and its Affiliates, which may include a limited
partnership Sponsored by an Affiliate of AAI, will gather and deliver natural
gas produced by the Partnership to either industrial end-users in the area or
interstate pipeline systems and local distribution companies. The Partnership
will pay a gathering charge at a competitive rate, which is currently 29 cents
per MCF. The actual amount to be paid cannot be quantified because the amount of
gas that will be produced from the wells cannot be predicted. (See "Proposed
Activities - Sale of Oil and Gas Production.")
DEALER-MANAGER FEES
The Dealer-Manager will receive on each Unit sold to an investor a 2.5%
Dealer-Manager fee, a 7% Sales Commission, a .5% reimbursement of marketing
expenses, and a .5% reimbursement of the Selling Agents' bona fide accountable
due diligence expenses. The Dealer-Manager will receive:
- $105,000 if $1,000,000 is received;
- $1,470,000 if $14,000,000 is received; and
- $1,890,000 if $18,000,000 is received.
All or a portion of the Sales Commissions, reimbursement of marketing expenses,
and reimbursement of the Selling Agents' bona fide accountable due diligence
expenses will be reallowed to the Selling Agents. The 2.5% Dealer-Manager fee
will be reallowed to the three wholesalers who are associated with Anthem
Securities for Agreed Subscriptions obtained through the wholesalers' effort.
OTHER COMPENSATION
The Managing General Partner or an Affiliate will be reimbursed by the
Partnership for any loan it or an Affiliate may make to or on behalf of the
Partnership and will have the right to charge a competitive rate of interest on
any loan. If the Managing General Partner provides equipment, supplies and other
services to the Partnership, then it may do so at competitive industry rates.
(See "Conflicts of Interest.")
Estimate of Administrative Costs and Direct Costs to be Borne by the Partnership
The Managing General Partner estimates that the unaccountable, fixed payment
reimbursement for Administrative Costs allocable to the Partnership's first 12
months of operation will not exceed approximately $4,464 if the minimum
Partnership Subscription is received (4.96 wells at $75 per well per month),
$62,541 if $14,000,000 is received (69.49 wells at $75 per well per month), and
$80,415 if the offering is increased to $18,000,000 (89.35 wells at $75 per well
per month).
23
<PAGE>
<TABLE>
<CAPTION>
Minimum Maximum If Managing General
Partnership Partnership Partner Increases
Subscription Subscription Offering
($1,000,000) ($14,000,000) ($18,000,000)
------------ ------------- ------------------
<S> <C> <C> <C>
Unaccountable, fixed payment reimbursement for Administrative Costs $4,464 $62,541 $80,415
</TABLE>
Direct Costs will be billed directly to and paid by the Partnership to the
extent practicable. The anticipated Direct Costs set forth below for the
Partnership's first 12 months of operation may vary from the estimates shown for
numerous reasons which cannot accurately be predicted. These reasons include the
number of Participants, the number of wells drilled, the Partnership's degree of
success in its activities, the extent of any production problems, inflation and
various other factors involving the administration of the Partnership.
<TABLE>
<CAPTION>
Minimum Maximum If Managing General
Partnership Partnership Partner Increases
Subscription Subscription Offering
($1,000,000) ($14,000,000) ($18,000,000)
------------ ------------- --------------------
<S> <C> <C> <C>
DIRECT COSTS
External Legal....................................................... $ 6,000 $ 6,000 $6,000
Accounting Fees...................................................... 2,500 6,000 6,000
Independent Engineering Reports...................................... 1,500 3,000 3,000
------- ------- -------
TOTAL ............................................................... $10,000 $15,000 $15,000
------- ------- -------
------- ------- -------
</TABLE>
TERMS OF THE OFFERING
SUBSCRIPTION TO THE PARTNERSHIP
The Partnership will offer a minimum of 100 Units and a maximum of 1,400 Units.
However, if subscriptions for all 1,400 Units being offered are obtained, then
the Managing General Partner, in its sole discretion, may offer not more than
400 additional Units and increase the maximum aggregate subscriptions with which
the Partnership may be funded to not more than 1,800 Units ($18,000,000) (the
"Greenshoe").
Units in the Partnership are offered at a subscription price of $10,000 per
Unit. Your minimum subscription is one Unit. However, the Managing General
Partner, in its discretion, may accept one-half Unit ($5,000) subscriptions from
you at any time. Larger Agreed Subscriptions will be accepted in $1,000
increments. You must pay your Agreed Subscription 100% in cash at the time of
subscribing.
The Managing General Partner will have exclusive management authority for the
Partnership. You will have the election to purchase Units as either an Investor
General Partner or a Limited Partner. See "Summary of the Offering - Description
of Units" for a discussion of the differences in the Units. Regardless of
whether you invest as an Investor General Partner or Limited Partner you will
serve as a Participant of the Partnership. See "Participation in Costs and
Revenues - Allocation and Adjustment Among Participants" regarding your share of
revenues, gains, costs, credits, expenses, losses and other charges and
liabilities.
The Managing General Partner has elected for the Partnership to be governed by
the partnership laws of Pennsylvania and has filed the Certificate of Limited
Partnership. The Managing General Partner will take all other necessary actions
to qualify the Partnership to do business as a limited partnership or cause the
limited partnership status of the Partnership to be recognized in other
jurisdictions.
PARTNERSHIP CLOSINGS AND ESCROW
The offering period will begin on the date of this Prospectus, and will end on a
date to be determined by the Managing General Partner, in its sole discretion.
Subject to the receipt of the minimum Partnership Subscription of $1,000,000,
the Managing
24
<PAGE>
General Partner may close the offering period on or before December 31, 1999
(the "Offering Termination Date"). No subscriptions to the Partnership will
be accepted after receipt of the maximum Partnership Subscription (including
the additional 400 Units which may be offered) or the Offering Termination
Date, whichever event occurs first.
If subscriptions for $1,000,000 are not received by December 31, 1999, then the
sums deposited in the escrow account will be returned to you and the other
subscribers with interest. Although the Managing General Partner and its
Affiliates may buy up to 10% of the Units, they do not currently anticipate
purchasing any Units. If they do buy Units those Units will not be applied
towards the minimum Partnership Subscription required for the Partnership to
begin operations. (See "Conflicts of Interest - Conflicts Between
Participants.")
Subscription proceeds will be held in a separate interest bearing escrow account
at National City Bank of Pennsylvania until receipt of the minimum Partnership
Subscription. Subject to the receipt of the minimum partnership Subscription,
there will be two closings which are tentatively set for November 1, 1999
("Initial Closing Date"), and December 31, 1999. The Partnership will begin all
activities, including drilling, after the Initial Closing Date, however, it is
not anticipated there will be any gas production before the Offering Termination
Date. After the Initial Closing Date the Partnership funds and additional
subscription payments will be paid directly to the Partnership account and will
continue to earn interest until the Offering Termination Date.
You will receive interest on your Agreed Subscription up until the Offering
Termination Date at the market rate paid by National City Bank of Pennsylvania.
The interest will be paid to you approximately eight weeks after the Offering
Termination Date.
Subscription proceeds will be invested during the escrow period only in
institutional investments comprised of or secured by securities of the United
States government. The funds in the Partnership account, pending their use for
Partnership operations, may be temporarily invested in income producing
short-term, highly liquid investments, in which there is appropriate safety of
principal, such as U.S. Treasury Bills. If the Managing General Partner
determines that the Partnership may be deemed an investment company under the
Investment Company Act of 1940, then the investment activity will cease.
Subscriptions will not be commingled with the funds of the Managing General
Partner or its Affiliates nor will subscriptions be subject to the claims of
their creditors.
ACCEPTANCE OF SUBSCRIPTIONS
Your execution of the Subscription Agreement constitutes your binding offer to
buy Units and to hold the offer open until your Agreed Subscription is accepted
or rejected by the Managing General Partner (I.E., once you subscribe you will
not have any revocation rights). Your Agreed Subscription will be accepted or
rejected by the Partnership within 30 days of its receipt. Acceptance of
subscriptions is discretionary with the Managing General Partner. The Managing
General Partner may reject any subscription for any reason it deems appropriate
and will not incur any liability to you for this decision. If your Agreed
Subscription is rejected, then all funds will be returned to you.
If your Agreed Subscription is accepted before the first closing, then you will
be admitted as a Participant not later than 15 days after the release from
escrow of the investors' funds to the Partnership. If your Agreed Subscription
is accepted after the first closing, then you will be admitted into the
Partnership not later than the last day of the calendar month in which your
Agreed Subscription was accepted by the Partnership.
Your execution of the Subscription Agreement and the Managing General Partner's
acceptance also constitutes the execution of the Partnership Agreement and your
agreement to be bound by its terms as a Participant. This includes your grant of
a special power of attorney to the Managing General Partner to file Amended
Certificates of Limited Partnership, governmental reports and certifications,
and other matters. (See the Partnership Agreement, Exhibit (A) to this
Prospectus.)
DRILLING PERIOD
Although it is anticipated that the Partnership will spend the entire
Partnership Subscription soon after the Offering Termination Date, the
Partnership will have a period of one year from the end of the Offering
Termination Date to use or commit funds to drilling activities. If, within the
one year period, the Partnership has not used, or committed for use, the net
subscription proceeds, then the Managing General Partner will cause the
remainder of the net subscription proceeds to be distributed pro rata to you and
the other Participants as a return of capital. The Managing General Partner will
also reimburse you and the other Participants for selling or other offering
expenses allocable to the return of capital.
25
<PAGE>
SUITABILITY STANDARDS
IN GENERAL. It is the obligation of persons selling the Units to make every
reasonable effort to assure that the Units are suitable for you. This
suitability determination will be based on your investment objectives and
financial situation, regardless of your income or net worth. Subscriptions
will not be accepted from IRAs, Keogh plans and qualified retirement plans
because the Partnership's income would be unrelated business taxable income.
Additionally, the Managing General Partner will not accept your subscription
until it has reviewed your apparent qualifications. The decision to accept or
reject your subscription will be made by the Managing General Partner, in its
sole discretion, and is final. The Managing General Partner will maintain
during the term of the Partnership and for at least six years thereafter a
record of your suitability.
Units will be sold to you only if you have:
- a minimum net worth of $225,000; or
- a minimum net worth of $60,000 and had during the last tax year or
estimate that you will have during the current tax year "taxable
income" as defined in Section 63 of the Code of at least $60,000
without regard to an investment in the Units.
Net worth will be determined exclusive of home, home furnishings and
automobiles.
Notwithstanding the foregoing, if you are a resident of the states set forth
below, then additional suitability requirements are applicable to you. (See "-
Purchasers of Limited Partner Units" and "- Purchasers of Investor General
Partner Units," below.)
PURCHASERS OF LIMITED PARTNER UNITS. If you are a resident of California and
you purchase Limited Partner Units, then you must:
- have a net worth of not less than $250,000 (exclusive of home,
furnishings, and automobiles) and expect to have gross income in
the current tax year of $65,000 or more; or
- have a net worth of not less than $500,000 (exclusive of home,
furnishings, and automobiles); or
- have a net worth of not less than $1,000,000; or
- expect to have gross income in the current tax year of not less
than $200,000.
If you are a resident of Michigan or North Carolina and you purchase Limited
Partner Units, then you must:
- have a net worth of not less than $225,000 (exclusive of home,
furnishings, and automobiles); or
- have a net worth of not less than $60,000 (exclusive of home,
furnishings, and automobiles) and estimated current tax year
taxable income as defined in Section 63 of the Internal Revenue
Code of 1986 of $60,000 or more without regard to an investment in
the Partnership.
In addition, if you are a resident of Michigan, Ohio or Pennsylvania, then you
must not make an investment in the Partnership in excess of 10% of your net
worth (exclusive of home, furnishings and automobiles).
PURCHASERS OF INVESTOR GENERAL PARTNER UNITS. If you are a resident of Alabama,
Massachusetts, Minnesota, North Carolina, Ohio, Pennsylvania, Tennessee or Texas
and you purchase Investor General Partner Units, then you must:
- have an individual or joint net worth with your spouse of $225,000
or more, without regard to the investment in the Partnership
(exclusive of home, furnishings, and automobiles), and a combined
gross income of $100,000 or more for the current year and for the
two previous years; or
- have an individual or joint net worth with your spouse in excess of
$1,000,000, inclusive of home, home furnishings and automobiles; or
- have an individual or joint net worth with your spouse in excess of
$500,000, exclusive of home, home furnishings, and automobiles; or
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- have a combined "gross income" as defined in Code Section 61 in
excess of $200,000 in the current year and the two previous years.
If you are a resident of Arizona, Indiana, Iowa, Kansas, Kentucky, Michigan,
Mississippi, Missouri, New Hampshire, New Mexico, Oklahoma, Oregon, South
Dakota, Vermont or Washington and you purchase Investor General Partner Units,
then you must:
- have an individual or joint net worth with your spouse of $225,000
or more, without regard to the investment in the Partnership
(exclusive of home, furnishings, and automobiles), and a combined
"taxable income" of $60,000 or more for the previous year and
expect to have a combined "taxable income" of $60,000 or more for
the current year and for the succeeding year; or
- have an individual or joint net worth with your spouse in excess of
$1,000,000, inclusive of home, home furnishings and automobiles; or
- have an individual or joint net worth with your spouse in excess of
$500,000, exclusive of home, home furnishings, and automobiles; or
- have a combined "gross income" as defined in Code Section 61 in
excess of $200,000 in the current year and the two previous years.
In addition, if you are a resident of Michigan, Ohio or Pennsylvania, then you
must not make an investment in the Partnership in excess of 10% of your net
worth (exclusive of home, furnishings and automobiles).
If you are a resident of California and you purchase Investor General Partner
Units, then you must:
- have a net worth of not less than $250,000 (exclusive of home,
furnishings, and automobiles) and expect to have gross income in
the current tax year of $120,000 or more; or
- have a net worth of not less than $500,000 (exclusive of home,
furnishings, and automobiles); or
- have a net worth of not less than $1,000,000; or
- expect to have gross income in the current tax year of not less
than $200,000.
MISCELLANEOUS. In the case of sales to fiduciary accounts, all the suitability
standards set forth above must be met by the beneficiary, the fiduciary account,
or by the donor or grantor who directly or indirectly supplies the funds to
purchase the Units if the donor or grantor is the fiduciary. Generally, you are
required to execute your own Subscription Agreement. The Managing General
Partner will not accept any Subscription Agreement that has been executed by
someone other than you unless you have given someone else the legal power of
attorney to sign on your behalf and you meet all of the conditions herein. The
Managing General Partner may not complete a sale of Units to you until at least
five business days after the date you receive a final Prospectus. In addition,
the Managing General Partner will send you a confirmation of purchase. Your
ability to resell or otherwise transfer your Units in the Partnership is limited
as described in "Transferability of Units."
CONFLICTS OF INTEREST
IN GENERAL
Conflicts of interest are inherent in oil and gas drilling programs involving
non-industry participants because the transactions are entered into without
arms' length negotiation. Your interests and those of the Managing General
Partner and its Affiliates may be inconsistent in some respects or in certain
instances, and the Managing General Partner's actions may not be the most
advantageous to you. The following discussion describes certain possible
conflicts of interest that may arise for the Managing General Partner and its
Affiliates in the course of the Partnership, and certain limitations which are
designed to reduce, but which will not eliminate, the conflicts. The following
discussion, however, is not intended to be inclusive and other transactions or
dealings may arise in the future that could result in conflicts of interest for
the Managing General Partner and its Affiliates. (See "Fiduciary Responsibility
of the Managing General Partner.")
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CONFLICTS REGARDING TRANSACTIONS WITH THE MANAGING GENERAL PARTNER AND ITS
AFFILIATES
Although the Managing General Partner believes that the compensation and
reimbursement that it and its Affiliates will receive in connection with the
Partnership are reasonable, the compensation has been determined solely by the
Managing General Partner and is not the result of any negotiation with any
unaffiliated third party dealing at arms' length. The Managing General Partner
will be entitled to receive compensation and reimbursement from the Partnership
even if the Partnership's activities result in little or no profit, or a loss to
you and the other Participants.
If the Managing General Partner and any Affiliate provide services or equipment
to the Partnership, then the fees charged must be competitive with the fees
charged by unaffiliated persons in the same geographic area engaged in similar
businesses. The Managing General Partner or its Affiliates providing the
services or equipment, however, can be expected to profit from the transactions,
and it may be in the Managing General Partner's best interest to enter into
contracts with itself and its Affiliates rather than unaffiliated parties even
if the contract terms, or skill and experience, offered by the unaffiliated
third parties is comparable.
The Managing General Partner and any Affiliate will not render to the
Partnership any oil field, equipage or other services nor sell or lease to the
Partnership any equipment or related supplies unless the following two
conditions are met:
- the Managing General Partner and any Affiliate must be engaged,
independently of the Partnership and as an ordinary and ongoing
business, in the business of rendering the services or selling or
leasing the 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 must be competitive with
the compensation, price or rental of other persons in the area
engaged in the business of rendering comparable services or selling
or leasing comparable equipment and supplies which could reasonably
be made available to the Partnership.
If the Managing General Partner and any Affiliate is not engaged in such a
business, then the compensation, price or rental will be its Cost of the
services, equipment or supplies or the competitive rate which could be obtained
in the area, whichever is less.
Any services not otherwise described in this Prospectus for which the Managing
General Partner or an Affiliate is to be compensated must be set forth in a
written contract which precisely describes the services to be rendered and the
compensation to be paid. The compensation, if any, will be reported to you in
the Partnership's annual and semiannual reports and a copy of the contract will
be provided to you upon request. The contracts are cancelable without penalty
upon 60 days written notice by Participants whose Agreed Subscriptions equal a
majority of the Partnership Subscription. 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 regarding any transactions between the
Partnership and the Managing General Partner or its Affiliates, and their Units
will not be included for purposes of determining a majority of the Partnership
Subscription with respect to the contracts.
CONFLICT REGARDING THE DRILLING AND OPERATING AGREEMENT
It is anticipated that all the wells developed by the Partnership will be
drilled and operated pursuant to the Drilling and Operating Agreement. The
Managing General Partner will be required to monitor and enforce, on behalf of
the Partnership, its own compliance with the provisions of the Drilling and
Operating Agreement, which creates a continuing conflict of interest. (See
"Proposed Activities.")
CONFLICTS REGARDING SHARING OF COSTS AND REVENUES
The Managing General Partner's interest in the Partnership will be "Carried"
because the percentage of the Managing General Partner's total Capital
Contributions will be less than the percentage of the Partnership's revenues
which it will receive. This may create a conflict of interest between the
Managing General Partner and you and the other Participants regarding the
determination of which wells will be drilled by the Partnership and the profit
potential associated with the wells.
In addition, the allocation of all the Intangible Drilling Costs to you and the
other Participants and a portion of the Tangible Costs to the Managing General
Partner creates conflicts of interest between the Managing General Partner and
you and the other Participants. For example, the completion of a marginally
productive well might prove beneficial to you and the other Participants but not
to the Managing General Partner. When a completion decision is made you and the
other Participants will have already paid the majority of your costs so you will
want to complete the well if there is any opportunity to recoup any of the
costs. On the other hand, the Managing General Partner will not have paid any
money before this time and it will only want
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to pay the costs if it is reasonably certain of recouping its money and
making a profit. Based upon its past experience, however, the Managing
General Partner anticipates that all Partnership Wells in the Clinton/Medina
geological formation will be required to be completed before a determination
can be made as to the well's productivity. In any event, the Managing General
Partner will not cause any Partnership well to be plugged and abandoned
without a completion attempt unless it makes the decision in accordance with
generally accepted oil and gas field practices in the geographic area of the
well location.
CONFLICTS REGARDING TAX MATTERS PARTNER
The Managing General Partner will serve as the Partnership's "Tax Matters
Partner." The Managing General Partner will have broad authority to act on
behalf of you and the other Participants in any administrative or judicial
proceeding involving the IRS, and this authority may involve conflicts of
interest. These potential conflicts include whether or not to expend Partnership
funds to contest a proposed adjustment by the IRS, if any, to the amount of the
Partnership's deduction for Intangible Drilling Costs, which is allocated 100%
to you and the other Participants, or to contest a proposed decrease by the IRS,
if any, in the amount of the Managing General Partner's credit to its Capital
Account for contributing the Leases to the Partnership which would decrease the
Managing General Partner's Distribution Interest in the Partnership. Also, there
may be conflicts with respect to the Managing General Partner's reimbursement of
expenses incurred in its role as the Partnership's Tax Matters Partner. (See
"Tax Aspects.")
CONFLICTS REGARDING OTHER ACTIVITIES OF THE MANAGING GENERAL PARTNER, THE
OPERATOR AND THEIR AFFILIATES
The Managing General Partner will be required to devote to the Partnership
the time and attention which it considers necessary for the proper management
of the Partnership's activities. The Managing General Partner will determine
the allocation of its management time, services and other functions on an
as-needed basis consistent with its fiduciary duties among the Partnership
and its other Programs. The Managing General Partner, however, has sponsored
and continues to manage other Programs (see "Prior Activities"), which may be
concurrent. Additionally, the Managing General Partner and its Affiliates
will engage in other oil and gas activities and other unrelated business
activities, either for their own account or on behalf of other Programs,
partnerships, joint ventures, corporations or other entities in which they
have an interest. Thus, they will have conflicts of interest in allocating
management time, services and other activities.
Subject to its fiduciary duties, the Managing General Partner will not be
restricted in any manner from participating in other businesses or activities,
even if these other businesses or activities are competitive with the
Partnership's activities and operate in the same areas as the Partnership.
Notwithstanding, the Managing General Partner and its Affiliates may pursue
business opportunities that are consistent with the Partnership's investment
objectives for their own account only after they have determined that the
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.
CONFLICTS INVOLVING THE ACQUISITION OF LEASES
The Managing General Partner will select, in its sole discretion, the Prospects
to be drilled by the Partnership. Conflicts of interest may arise concerning
which Prospects will be drilled by to the Partnership, and which will be drilled
by the Managing General Partner's other Programs to be organized by it or in
which it serves as driller/operator. It may be in the Managing General Partner's
or its Affiliates' advantage to have the Partnership bear the costs and risks of
drilling a particular Prospect rather than another Program. These potential
conflicts of interest will be increased if the Managing General Partner
organizes and allocates Prospects to more than one Program at a time including a
year-end Program in which Affiliates of the Managing General Partner invest. To
lessen this conflict of interest the Managing General Partner generally takes a
similar interest in other Programs when it serves as Managing General Partner
and/or driller/operator.
In Pennsylvania and Ohio the assignments of the Leases will be limited to a
depth of from the surface through the Clinton/Medina geological feature to the
top of the Queenston geological formation. Because the Managing General Partner
will retain the drilling rights below the Clinton/Medina geological formation
this may create a conflict of interest between the Partnership and the Managing
General Partner. The Managing General Partner, however, believes that the
Partnership's drilling to the Clinton/Medina geological formation will not
provide any geological information that would prove up or assist in evaluating
drilling to formations deeper than the Clinton/Medina geological formation.
Further, the amount of the credit the Managing General Partner receives for the
Partnership Leases does not include any value allocable to the deep drilling
rights retained by it.
No procedures, other than the guidelines set forth below and in " - Procedures
to Reduce Conflicts of Interest," have been established by the Managing General
Partner to resolve any of the conflicts which may arise. The Managing General
Partner, however, owes a fiduciary duty to you and the other Participants in the
operation and management of the Partnership and is
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restricted from engaging in certain transactions with Affiliates and others
under the terms of the Partnership Agreement. The Managing General Partner,
its Affiliates and the Partnership will abide by the guidelines set forth
below.
(1) FAIR AND REASONABLE. Neither the Managing General Partner nor any
Affiliate will sell, transfer, or convey any property to or purchase any
property from the Partnership, directly or indirectly, except pursuant to
transactions that are fair and reasonable, nor take any action with
respect to the assets or property of the Partnership which does not
primarily benefit the Partnership.
(2) TRANSFERS AT COST. All Leases will be acquired from the Managing General
Partner or its Affiliates and will be credited towards the Managing
General Partner's required Capital Contribution at the Cost of the Lease,
unless the Managing General Partner has cause to believe that Cost is
materially more than the fair market value of the property, in which case
the credit for the 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. This opinion and
any associated supporting information must be maintained in the
Partnership's records for at least six years.
(3) LIMITATIONS ON ACTIVITIES OF THE MANAGING GENERAL PARTNER AND ITS
AFFILIATES ON LEASES ACQUIRED BY THE PARTNERSHIP. During a period of five
years from the Offering Termination Date of the Partnership, if the
Managing General Partner or any of its Affiliates (excluding another
Program in which the interest of the Managing General Partner or its
Affiliates is substantially similar to or less than their interest in the
Partnership) proposes to acquire an interest from an unaffiliated person,
in a Prospect in which the Partnership possesses an interest or in a
Prospect in which the Partnership's interest has been terminated without
compensation within one year preceding the proposed acquisition, the
following conditions shall apply:
- 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
- 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 owns 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) TRANSFER OF LESS THAN THE MANAGING GENERAL PARTNER'S AND ITS AFFILIATE'S
ENTIRE INTEREST. A sale, transfer or a conveyance to the Partnership of
less than all of the ownership of the Managing General Partner or an
Affiliate (excluding another Program in which the interest of the
Managing General Partner or its Affiliates is substantially similar to or
less than their interest in the Partnership) in any Prospect will not be
made unless:
- the interest retained by the Managing General Partner or the
Affiliate is a proportionate Working Interest;
- the respective obligations of the Managing General Partner or its
Affiliates and the Partnership are substantially the same after the
sale of the interest by the Managing General Partner or its
Affiliates; and
- the Managing General Partner's interest in revenues does not exceed
the amount proportionate to its retained Working Interest.
Neither the Managing General Partner nor any Affiliate will retain any
Overriding Royalty Interests or other burdens on an interest sold by it
to the Partnership. With respect to its retained interest the Managing
General Partner will not Farmout a Lease for the primary purpose of
avoiding payment of its costs relating to drilling the Lease. This
paragraph does not prevent the Managing General Partner or its Affiliates
from subsequently dealing with their retained interest as they may choose
with unaffiliated parties or Affiliated partnerships.
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(5) EQUAL PROPORTIONATE INTEREST. When 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, transfer or convey 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 the well will be drilled by the
Partnership:
- if the geological feature to which the well will be drilled contains
Proved Reserves; and
- the drilling or spacing unit protects against drainage.
With respect to an oil and gas Prospect located in Ohio and Pennsylvania
on which a well will be drilled by the Partnership to test the
Clinton/Medina geologic formation, a Prospect shall be deemed to consist
of the drilling and spacing unit if it meets the test in the preceding
sentence.
It is anticipated that most of the Prospects developed by the Partnership
will develop the Clinton/Medina geologic formation. The drilling of wells
on the acreage may provide the Managing General Partner with offset sites
by allowing it to ascertain at the Partnership's expense the value of
adjacent acreage in which the Partnership would not have any right to
participate in developing. See the Production Map in "Proposed Activities
- Information Regarding Currently Proposed Prospects" for the acreage
owned by the Managing General Partner in the area surrounding the
currently proposed Prospects. To lessen this conflict of interest neither
the Managing General Partner nor its Affiliates may drill any well within
1,650 feet of an existing Partnership Well in the Clinton/Medina
formation in Pennsylvania, or within 1,100 feet of an existing
Partnership Well in Ohio, within five years of the drilling of the
Partnership Well. If the Partnership abandons its interest in a well,
then this restriction will continue for one year following the
abandonment.
(6) SUBSEQUENTLY ENLARGING PROSPECT. If the area constituting the
Partnership's Prospect is subsequently enlarged to encompass any area
wherein the Managing General Partner or an Affiliate (excluding another
Program in which the interest of the Managing General Partner or its
Affiliates is substantially similar to or less than their interest in the
Partnership) owns a separate property interest and the activities of the
Partnership were material in establishing the existence of Proved
Undeveloped Reserves which are attributable to the separate property
interest, then the separate property interest or a portion thereof will
be sold, transferred or conveyed to the Partnership in accordance with
Sections 2, 4 and 5, above.
Notwithstanding the foregoing, Prospects in the Clinton/Medina geological
formation will not be enlarged or contracted if the Prospect was limited
to the drilling or spacing unit because the well was being drilled to
Proved Reserves in the Clinton/Medina geological formation and the
drilling or spacing unit protected against drainage.
(7) NO SALE OF LEASES TO THE MANAGING GENERAL PARTNER. The Managing General
Partner and its Affiliates will not purchase any producing or
non-producing oil and gas properties from the Partnership.
(8) NO TRANSFER OF LEASES BETWEEN AFFILIATED LIMITED PARTNERSHIPS. The
Partnership will not purchase properties from or sell properties to any
other Affiliated partnership. This prohibition, however, does not apply
to joint ventures among Affiliated partnerships, provided that:
- the respective obligations and revenue sharing of all parties to the
transaction are substantially the same and the compensation
arrangement or any other interest or right of either the Managing
General Partner or its Affiliates is the same in each Affiliated
partnership; or
- if different, the aggregate compensation of the Managing General
Partner or the Affiliate is reduced to reflect the lower
compensation arrangement.
(9) NO FARMOUTS. The Partnership will not Farmout its Leases.
(10) LEASES WILL BE ACQUIRED ONLY FOR STATED PURPOSE OF THE PARTNERSHIP. The
Partnership will acquire only Leases reasonably expected to meet the
stated purposes of the Partnership. No Leases will 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.
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CONFLICTS BETWEEN PARTICIPANTS
The Managing General Partner, its officers, directors, and Affiliates may
subscribe for up to 10% of the Units on the same basis as you and the other
Participants, except that they are not required to pay the Dealer-Manager fee,
Sales Commissions, reimbursement of marketing expenses, and reimbursement of
bona fide accountable due diligence expenses. Although the Managing General
Partner and its Affiliates may buy up to 10% of the Units (which will not be
applied towards the minimum Partnership Subscription required for the
Partnership to begin operations) it is not anticipated they will purchase any
Units.
Any subscription by the Managing General Partner, its officers, directors, or
Affiliates will dilute the voting rights of you and the other Participants and
there may be a conflict with respect to certain matters. The Managing General
Partner and its officers, directors and Affiliates, however, are prohibited from
voting with respect to certain matters. (See "Summary of Partnership Agreement -
Voting Rights and Access to Records.")
LACK OF INDEPENDENT UNDERWRITER AND DUE DILIGENCE INVESTIGATION
The terms of this offering, the Partnership Agreement and the Drilling and
Operating Agreement were determined by the Managing General Partner without
arms' length negotiations. You and the other Participants have not been
separately represented by legal counsel, who might have negotiated more
favorable terms for you and the other Participants in the offering and the
agreements.
Also, there was not an extensive in-depth "due diligence" investigation of the
existing and proposed business activities of the Partnership and the Managing
General Partner which would be provided by independent underwriters. Although
Anthem Securities, which is affiliated with the Managing General Partner, serves
as Dealer-Manager and will receive reimbursement of accountable due diligence
expenses for certain due diligence investigations conducted by the Selling
Agents which will be reallowed to the Selling Agents, its due diligence
examination concerning this offering cannot be considered to be independent.
However, Anthem Securities has contracted with Nationwide Financial Network, a
due diligence entity, to prepare and maintain an independent due diligence
report for their network of independent broker-dealers which may request it.
(See "Plan of Distribution.")
CONFLICTS CONCERNING LEGAL COUNSEL
It is anticipated that legal counsel to the Managing General Partner will also
serve as legal counsel to the Partnership and that this dual representation will
continue in the future. If a future dispute arises between the Managing General
Partner and you and the other Participants, then the Managing General Partner
will cause you and the other Participants to retain separate counsel. Also, if
counsel advises the Managing General Partner that counsel reasonably believes
its representation of the Partnership will be adversely affected by its
responsibilities to the Managing General Partner, then the Managing General
Partner will cause you and the other Participants to retain separate counsel.
CONFLICTS REGARDING PRESENTMENT FEATURE
You and the other Participants' have the right to present your Units to the
Managing General Partner for repurchase beginning in 2004. This creates a
conflict of interest between you and the Managing General Partner in the
suspension of the presentment feature and in arriving at the amount which will
be paid by the Managing General Partner for the Units.
If the Managing General Partner does not have the necessary cash flow or it
cannot borrow the funds on terms which it deems reasonable, then the Managing
General Partner may suspend the presentment feature. Both of these
determinations are subjective and will be made in the Managing General Partner's
sole discretion.
The Managing General Partner will also determine the repurchase price based upon
a reserve report that it prepares and is reviewed by an Independent Expert. The
Independent Expert, however, will be chosen by the Managing General Partner.
Also, the formula for arriving at the repurchase price has subjective
determinations that are within the discretion of the Managing General Partner.
(See "Presentment Feature.")
OTHER CONFLICTS
With respect to the Managing General Partner's subordination obligation a
conflict of interest is created with you and the other Participants by the
Managing General Partner's right to hypothecate its interest or withdraw an
interest in the Partnership Wells. A further conflict of interest is created by
the Managing General Partner's right to determine the order of priority and the
construction of pipelines which may be required in order to connect certain
wells into the Managing General Partner's pipeline network. (See "Risk Factors -
Special Risks of the Partnership - Risk That Borrowings by the Managing General
Partner Could
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Reduce Funds Available for Its Subordination Obligation" and "Summary of
Partnership Agreement - Withdrawal of Managing General Partner.")
PROCEDURES TO REDUCE CONFLICTS OF INTEREST
In addition to the procedures set forth in " - Conflicts Involving the
Acquisition of Leases," the Managing General Partner has adopted the following
procedures to reduce some of the conflicts of interest between it and you and
the other Participants. The Managing General Partner does not have any other
conflict of interest resolution procedures. Thus, conflicts of interest between
the Managing General Partner and you and the other Participants may not
necessarily be resolved in your best interests. However, the Managing General
Partner believes that its significant Capital Contribution to the Partnership
will reduce the conflicts of interest.
(1) NO COMMINGLING. Partnership funds will be kept in separate accounts and
will not be commingled with the funds of the Managing General Partner,
any Affiliate or any other entity.
(2) NO COMPENSATING BALANCES. Neither the Managing General Partner nor any
Affiliate will use the Partnership's funds as compensating balances for
its own benefit.
(3) FUTURE PRODUCTION. Neither the Managing General Partner nor any Affiliate
will commit the future production of a well developed by the Partnership
exclusively for its own benefit.
(4) MARKETING ARRANGEMENTS. All benefits from marketing arrangements or other
relationships affecting property of the Managing General Partner or its
Affiliates and the Partnership will be fairly and equitably apportioned
according to the respective interests of each in the property. The
Managing General Partner will 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 the gas sold in a geographic area by taking all
money received from the sale of all 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 these contracts on their own
behalf, and the Partnership will not be a party to these contracts. The
Managing General Partner and its Affiliates also have a substantial
interest in pipeline facilities and compression facilities, which the
Managing General Partner anticipates will be used to transport the
Partnership's gas production as well as Affiliated partnership and
third-party gas production, and the Partnership will not receive any
interest in the Managing General Partner's and its Affiliates' pipeline
or gathering system or compression facilities. (See "Proposed
Activities - Sale of Oil and Gas Production.")
(5) ADVANCE PAYMENTS. Advance payments by the Partnership to the Managing
General Partner and its Affiliates are prohibited except when advance
payments are required to secure tax benefits of prepaid drilling costs
and for a business purpose. These payments, if any, will not include
nonrefundable payments for completion costs before the time a decision is
made that the well or wells warrant a completion attempt.
(6) NO PROFIT IN CONTRAVENTION OF FIDUCIARY DUTY. The Managing General
Partner will not profit by drilling in contravention of its fiduciary
obligation to the Participants.
(7) DISCLOSURE. Any agreement or arrangement which binds the Partnership must
be fully disclosed in the Prospectus.
(8) NO LOANS FROM THE PARTNERSHIP. The Partnership will not loan money to the
Managing General Partner or any Affiliate.
(9) LOANS TO THE PARTNERSHIP. Neither the Managing General Partner nor any
Affiliate will loan money to the Partnership:
- if the interest to be charged exceeds the Managing General Partner's
or the Affiliate's interest cost; or
- if 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.
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Further, neither the Managing General Partner nor any Affiliate will
receive points or other financing charges or fees, regardless of the
amount, although the actual amount of the charges incurred from
third-party lenders may be reimbursed to the Managing General Partner or
the Affiliate.
(10) NO REBATES. No rebates or give-ups may be received by the Managing
General Partner or any Affiliate nor may the Managing General Partner or
any Affiliate participate in any reciprocal business arrangements which
would circumvent these guidelines.
(11) SALE OF ASSETS. The sale of all or substantially all of the assets of the
Partnership (including without limitation, Leases, wells, equipment and
production) can only be made with the consent of Participants whose
Agreed Subscriptions equal a majority of the Partnership Subscription.
(12) PARTICIPATION IN OTHER PARTNERSHIPS. If the Partnership participates in
other partnerships or joint ventures (multi-tier arrangements), then the
terms of any such arrangements will not result in the circumvention of
any of the requirements or prohibitions contained in the Partnership
Agreement, including the following:
- there will be no duplication or increase in organization and
offering expenses, the Managing General Partner's compensation,
Partnership expenses or other fees and costs;
- there will be no substantive alteration in the fiduciary and
contractual relationship between the Managing General Partner and
the Participants; and
- there will be no diminishment in the Participant voting rights.
(13) INVESTMENTS. Partnership funds may not be invested in the securities of
another person except in the following instances:
- investments in Working Interests or undivided Lease interests made
in the ordinary course of the Partnership's business;
- temporary investments in income producing short-term highly liquid
investments, in which there is appropriate safety of principal, such
as U.S. Treasury Bills;
- multi-tier arrangements meeting the requirements of (12) above;
- investments involving less than 5% of the Partnership Subscription
which are a necessary and incidental part of a property acquisition
transaction; and
- investments in entities established solely to limit the
Partnership's liabilities associated with the ownership or operation
of property or equipment, provided, in such instances duplicative
fees and expenses shall be prohibited.
POLICY REGARDING ROLL-UPS
It is possible at some indeterminate time in the future that the Partnership
will become involved in a "Roll-Up." The complete definition of "Roll-Up" is set
forth in "Definitions." In general, a Roll-Up means a transaction involving the
acquisition, merger, conversion, or consolidation of the Partnership with or
into another partnership, corporation or other entity (the "Roll-Up Entity") and
the issuance of securities by the Roll-Up Entity to you and the other
Participants. A Roll-Up will also include any change in the rights, preferences,
and privileges of you and the other Participants in the Partnership. These
changes could include the following:
- increasing the compensation of the Managing General Partner;
- amending the voting rights of the Participants;
- listing the Units on a national securities exchange or on NASDAQ;
- changing the fundamental investment objectives of the Partnership;
or
34
<PAGE>
- materially altering the duration of the Partnership.
The Partnership Agreement provides various policies if a Roll-Up should occur in
the future. These policies include:
- an appraisal of all Partnership assets will be acquired from a
competent Independent Expert, and a summary of the appraisal will be
included in a report to you and the other Participants in connection
with a proposed Roll-Up;
- if you vote "no" on the Roll-Up proposal, then you will be offered a
choice of:
(a) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up;
(b) remaining a Participant in the Partnership and preserving
your interests in the Partnership on the same terms and
conditions as existed previously; or
(c) receiving cash in an amount equal to your pro-rata share of
the appraised value of the Partnership's net assets; and
- the Partnership will not participate in a proposed Roll-Up:
(a) which is not approved by Participants whose Agreed
Subscriptions equal 75% of the Partnership Subscriptions;
(b) which would result in the diminishment of your voting rights
under the Roll-Up Entity's chartering agreement;
(c) in which your right of access to the records of the Roll-Up
Entity would be less than those provided by the Partnership
Agreement; or
(d) in which any of the costs of the transaction would be borne
by the Partnership if the proposed Roll-Up is not approved
by Participants whose Agreed Subscriptions equal 75% of the
Partnership Subscription.
35
<PAGE>
CERTAIN TRANSACTIONS
As of January 15, 1999, previous limited partnerships sponsored by the Managing
General Partner and its Affiliates had made payments to the Managing General
Partner and its Affiliates as set forth below.
<TABLE>
<CAPTION>
Cumulative
Leasehold Reimbursement of
Drilling and Cumulative General and
Investor Non-recurring Completion Operator's Administrative
Program Subscriptions Management Fee Costs (1) Charges Overhead
- ------- ------------- -------------- ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C>
Atlas L.P. #1-1985 $ 600,000 0 $ 600,000 $172,076 $ 38,000
A.E. Partners 1986 631,250 0 631,250 130,440 54,244
A.E. Partners 1987 721,000 0 721,000 138,563 54,863
A.E. Partners 1988 617,050 0 617,050 111,867 51,120
A.E. Partners 1989 550,000 0 550,000 95,551 49,354
A.E. Partners 1990 887,500 0 887,500 150,717 54,066
A.E. Nineties-10 2,200,000 0 2,200,000 333,165 53,711
A.E. Nineties-11 750,000 0 761,802 (2) 129,842 82,041
A.E. Partners 1991 868,750 0 867,500 121,977 68,050
A.E. Nineties-12 2,212,500 0 2,272,017 (2) 368,849 79,368
A.E. Nineties-JV 92 4,004,813 0 4,157,700 (2) 559,501 121,415
A.E. Partners 1992 600,000 0 600,000 70,358 32,175
A.E. Nineties-Public #1 2,988,960 0 3,026,348 (2) 275,996 67,204
A.E. Nineties-1993 Ltd. 3,753,937 0 3,480,656 (2) 406,896 79,243
A.E. Partners 1993 700,000 0 689,940 77,993 24,338
A.E. Nineties-Public #2 3,323,920 0 3,324,668 (2) 279,209 54,133
A.E. Nineties-14 9,940,045 0 9,512,015 (2) 926,407 180,127
A.E. Partners 1994 892,500 0 892,500 55,015 23,811
A.E. Nineties-Public #3 5,799,750 0 5,799,750 376,743 76,249
A.E. Nineties-15 10,954,715 0 9,859,244 (2) 686,256 139,355
A.E. Partners 1995 600,000 0 600,000 34,104 6,638
A.E. Nineties-Public #4 6,991,350 0 6,991,350 388,460 72,791
A.E. Nineties-16 10,955,465 0 10,955,465 428,689 71,309
A.E. Partners 1996 800,000 0 800,000 35,060 6,264
A.E. Nineties-Public #5 7,992,240 0 7,992,240 270,858 47,854
A.E. Nineties-17 8,813,488 0 8,813,488 193,163 34,596
A.E. Partners 1997 506,250 0 506,250 7,588 1,200
A.E. Nineties-Public #6 9,901,025 0 9,901,025 154,050 21,615
A.E. Nineties-18 11,391,673 0 11,391,673 12,010 2,925
A.E. Nineties-1998 1,740,000 0 1,740,000 0 0
A.E. Nineties-Public #7 11,988,350 0 11,988,350 0 0
</TABLE>
- ---------
(1) Excluding the Managing General Partner's Capital Contributions.
(2) Includes additional drilling costs paid with production revenues.
FIDUCIARY RESPONSIBILITY OF THE MANAGING GENERAL PARTNER
IN GENERAL
The Managing General Partner has the power and authority to manage the
Partnership and its assets. It is accountable to you as a fiduciary and it must
exercise good faith and deal fairly with you and the other Participants in
conducting the affairs of the Partnership. If the Managing General Partner
breaches its fiduciary responsibilities, then you are entitled to an accounting
and the recovery of any economic loss caused by the breach.
The Managing General Partner has a fiduciary responsibility for the
safekeeping and use of all funds and assets of the Partnership whether or not
in the Managing General Partner's possession or control. Also, the Managing
General Partner may not employ, or permit another to employ, the funds or
assets in any manner except for the exclusive benefit of the Partnership.
Neither the Partnership Agreement nor any other agreement between the
Managing General Partner and the Partnership may contractually limit any
fiduciary duty owed to the Participants by the Managing General Partner under
applicable law except as set forth in Sections 4.01, 4.02, 4.04, 4.05 and
4.06 of the Partnership Agreement. This is a rapidly expanding and changing
area of the law and if you have questions concerning the duties of the
Managing General Partner you should consult your own counsel.
36
<PAGE>
LIMITATIONS ON MANAGING GENERAL PARTNER LIABILITY AS FIDUCIARY
Under the terms of the Partnership Agreement, the Managing General Partner, the
Operator, and their Affiliates will not be liable to the Partnership or you and
the other Participants for any loss suffered by the Partnership or you and the
other 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 the 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
- the course of conduct did not constitute negligence or misconduct of
the Managing General Partner, the Operator, or their Affiliates.
Thus, you and the other Participants may have a more limited right of action
than you would have had absent these limitations in the Partnership Agreement.
These limitations, however, do not apply to Participants' rights under the
federal securities laws, and Participants whose Agreed Subscriptions equal a
majority of the Partnership Subscription may vote to remove the Managing General
Partner and/or the Operator. (See "Summary of Partnership Agreement - Voting
Rights and Access to Records.")
In addition, the Partnership Agreement provides for indemnification of the
Managing General Partner, the Operator, and their Affiliates by the Partnership
against any losses, judgements, liabilities, expenses and amounts paid in
settlement of any claims sustained by them in connection with the Partnership
provided that:
- the Managing General Partner, the Operator, and their Affiliates
determined in good faith that the course of conduct which caused the
loss or liability was in the best interest of the Partnership;
- the Managing General Partner, the Operator, and their Affiliates
were acting on behalf of, or performing services for, the
Partnership; and
- the course of conduct was not the result of negligence or misconduct
of the Managing General Partner, the Operator, or their Affiliates.
Payments arising from the indemnification or agreement to hold harmless are
recoverable only out of the tangible net assets of the Partnership including
insurance proceeds.
Notwithstanding the above, the Managing General Partner, the Operator, and their
Affiliates and any person acting as a broker-dealer may not be indemnified for
any losses, liabilities, or expenses arising from or out of an alleged violation
of federal or state securities laws unless:
- there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to a particular
indemnitee;
- the claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to a particular indemnitee; or
- a court of competent jurisdiction approves a settlement of the
claims as to a particular indemnitee and finds that indemnification
of the settlement and related costs should be made, and the court
considering the request for indemnification has been advised of the
position of the Securities and Exchange Commission, the states which
are specifically set forth in the Partnership Agreement, and the
position of any state securities regulatory authority in which the
plaintiff claims he was offered or sold Partnership Units, with
respect to the issue of indemnification for violation of securities
laws.
LIMITATIONS ON MANAGING GENERAL PARTNER INDEMNIFICATION
To the extent that any indemnification provision in the Partnership Agreement
purports to include indemnification for liabilities arising under the 1933 Act,
as amended, you should be aware that, in the opinion of the Securities and
Exchange Commission, this indemnification is contrary to public policy and
therefore unenforceable. In any event, you and your advisers should review
closely the provisions of the Partnership Agreement concerning exculpation and
indemnification of the Managing General Partner and consult your own attorneys
if you have any questions.
37
<PAGE>
The Partnership will not pay the cost of the portion of any insurance which
insures any party against any liability for which the party is prohibited from
being indemnified.
The advancement of Partnership funds to the Managing General Partner, the
Operator, or their Affiliates for legal expenses and other costs incurred as a
result of any legal action for which indemnification is being sought is
permissible only if the Partnership has adequate funds available and the
following conditions are satisfied:
- the legal action relates to acts or omissions with respect to the
performance of duties or services on behalf of the Partnership;
- the legal action is initiated by a third party who is not a
Participant, or the legal action is initiated by a Participant and
a court of competent jurisdiction specifically approves the
advancement; and
- the Managing General Partner, the Operator, or their Affiliates
undertake to repay the advanced funds to the Partnership, together
with the applicable legal rate of interest thereon, if the party is
found not to be entitled to indemnification.
PRIOR ACTIVITIES
The following tables, other than Table 5, reflect certain historical data with
respect to 25 private drilling Programs which raised a total of $75,690,936, and
7 public drilling Programs which raised a total of $48,985,595, which the
Managing General Partner has sponsored.
FOR SEVERAL REASONS, INCLUDING DIFFERENCES IN PROGRAM STRUCTURE, PROPERTY
LOCATIONS, PROGRAM SIZE AND ECONOMIC CONSIDERATIONS, IT SHOULD NOT BE ASSUMED
THAT YOU AND THE OTHER PARTICIPANTS WILL EXPERIENCE RETURNS, IF ANY, COMPARABLE
TO THOSE EXPERIENCED BY INVESTORS IN THE PRIOR DRILLING PROGRAMS. THE RESULTS OF
THE PRIOR DRILLING PROGRAMS SHOULD BE VIEWED ONLY AS A MEASURE OF THE LEVEL OF
ACTIVITY AND EXPERIENCE OF THE MANAGING GENERAL PARTNER WITH RESPECT TO DRILLING
PROGRAMS.
38
<PAGE>
Table 1 sets forth certain sales information of previous Development Drilling
Programs sponsored by the Managing General Partner and its Affiliates.
TABLE 1
EXPERIENCE IN RAISING FUNDS
As of January 15, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Date of
Com- Years
mence- Date of Wells
Number Investor Atlas ment of First In
of Subscrip- Invest- Total Opera- Distri- Produc- Previous
Program Investors tions ment Capital tions butions tion Assessments
- ------- --------- -------- ------- ------- ----- ------- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Atlas L.P. #1-1985 19 $ 600,000 $ 114,800 $ 714,800 12/31/85 07/02/86 13.05 -0-
A.E. Partners 1986 24 631,250 120,400 751,650 12/31/86 04/02/87 12.05 -0-
A.E. Partners 1987 17 721,000 158,269 879,269 12/31/87 04/02/88 11.05 -0-
A.E. Partners 1988 21 617,050 135,450 752,500 12/31/88 04/02/89 10.05 -0-
A.E. Partners 1989 21 550,000 120,731 670,731 12/31/89 04/02/90 9.05 -0-
A.E. Partners 1990 27 887,500 244,622 1,132,122 12/31/90 04/02/91 8.05 -0-
A.E. Nineties-10 60 2,200,000 484,380 2,684,380 12/31/90 03/31/91 7.83 -0-
A.E. Nineties-11 25 750,000 268,003 1,018,003 09/30/91 01/31/92 7.00 -0-
A.E. Partners 1991 26 868,750 318,063 1,186,813 12/31/91 04/02/92 6.83 -0-
A.E. Nineties-12 87 2,212,500 791,833 3,004,333 12/31/91 04/30/92 6.75 -0-
A.E. Nineties-JV 92 155 4,004,813 1,414,917 5,419,730 10/28/92 04/05/93 5.58 -0-
A.E. Partners 1992 21 600,000 176,100 776,100 12/14/92 07/02/93 6.08 -0-
A.E. Nineties-Public #1 221 2,988,960 528,934 3,517,894 12/31/92 07/15/93 5.33 -0-
A.E. Nineties-1993 Ltd. 125 3,753,937 1,264,183 5,018,120 10/08/93 02/10/94 5.00 -0-
A.E. Partners 1993 21 700,000 219,600 919,600 12/31/93 07/02/94 4.75 -0-
A.E. Nineties-Public #2 269 3,323,920 587,340 3,911,260 12/31/93 06/15/94 4.50 -0-
A.E. Nineties-14 263 9,940,045 3,584,027 13,524,072 08/11/94 01/10/95 4.00 -0-
A.E. Partners 1994 23 892,500 231,500 1,124,000 12/31/94 07/02/95 3.75 -0-
A.E. Nineties-Public #3 391 5,799,750 928,546 6,728,296 12/31/94 06/05/95 3.75 -0-
A.E. Nineties-15 244 10,954,715 3,435,936 14,390,651 09/12/95 02/07/96 2.92 -0-
A.E. Partners 1995 23 600,000 244,725 844,725 12/31/95 01/02/96 2.50 -0-
A.E. Nineties-Public #4 324 6,991,350 1,287,752 8,279,102 12/31/95 07/08/96 2.75 -0-
A.E. Nineties-16 274 10,955,465 1,643,320 12,598,785 07/31/96 01/12/97 2.08 -0-
A.E. Partners 1996 21 800,000 367,416 1,167,416 12/31/96 07/02/97 1.75 -0-
A.E. Nineties-Public #5 378 7,992,240 1,654,740 9,646,980 12/31/96 06/08/97 1.75 -0-
A.E. Nineties-17 217 8,813,488 1,133,917 9,947,405 08/29/97 12/12/97 1.17 -0-
A.E. Partners 1997 13 506,250 231,050 737,300 12/31/97 07/02/98 0.75 -0-
A.E. Nineties-Public #6 393 9,901,025 1,950,345 11,851,370 12/31/97 06/08/98 0.58 -0-
A.E. Nineties-18 225 11,391,673 1,767,949 13,159,622 07/31/98 01/07/99 0.08 -0-
A.E. Partners 1998 26 1,740,000 495,360 2,235,360 12/31/98 1999 N/A -0-
A.E. Nineties-Public #7 366 11,988,350 3,852,439 15,840,789 12/31/98 1999 N/A -0-
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
Table 2 reflects the drilling activity of previous Development Drilling Programs
sponsored by the Managing General Partner and its Affiliates. All the wells were
Development Wells. You should not assume that the past performance of prior
programs is indicative of the future results of the Partnership.
TABLE 2
WELL STATISTICS - DEVELOPMENT WELLS
As of January 15, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Gross Wells(l) Net Wells(2)
------------------------------- ------------------------------------
Program Oil Gas Dry (3) Oil Gas Dry (3)
- ------- --- --- ------- --- --- -------
<S> <C> <C> <C> <C> <C> <C>
Atlas L.P. #1-1985 (4) 0 7 1 0 3.15 0.25
A.E. Partners 1986 0 8 0 0 3.50 0.00
A.E. Partners 1987 0 9 0 0 4.10 0.00
A.E. Partners 1988 0 9 0 0 3.80 0.00
A.E. Partners 1989 0 10 0 0 3.30 0.00
A.E. Partners 1990 0 12 0 0 5.00 0.00
A.E. Nineties-10 0 12 0 0 11.50 0.00
A.E. Nineties-11 0 14 0 0 4.30 0.00
A.E. Partners 1991 0 12 0 0 4.95 0.00
A.E. Nineties-12 0 14 0 0 12.50 0.00
A.E. Nineties-JV 92 0 52 0 0 24.44 0.00
A.E. Partners 1992 0 7 0 0 3.50 0.00
A.E. Nineties-Public #1 0 14 0 0 14.00 0.00
A.E. Nineties-1993 Ltd. (4) 0 20 2 0 19.40 2.00
A.E. Partners 1993 0 8 0 0 4.00 0.00
A.E. Nineties-Public #2 0 16 0 0 15.31 0.00
A.E. Nineties-14 (4) 0 55 1 0 55.00 1.00
A.E. Partners 1994 (4) 0 12 0 0 5.00 0.00
A.E. Nineties-Public #3 0 27 0 0 26.00 0.00
A.E. Nineties-15 (4) 0 61 0 0 55.50 0.00
A.E. Partners 1995 0 6 0 0 3.00 0.00
A.E. Nineties-Public #4 0 31 0 0 30.50 0.00
A.E. Nineties-16 (4) 0 57 0 0 47.50 0.00
A.E. Partners 1996 0 13 0 0 4.84 0.00
A.E. Nineties-Public #5 0 36 0 0 35.91 0.00
A.E. Nineties-17 (4) 0 52 2 0 38.00 1.50
A.E. Partners 1997 0 6 0 0 2.81 0.00
A.E. Nineties-Public #6 0 55 0 0 44.45 0.00
A.E. Nineties-18 0 63 0 0 58.00 0.00
A.E. Partners 1998 0 0 0 0 0.00 0.00
A.E. Nineties-Public #7 0 0 0 0 0.00 0.00
--- --- --- --- ------ ----
TOTALS 0 698 6 0 543.26 4.75
--- --- --- --- ------ ----
--- --- --- --- ------ ----
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A "gross well" is one in which a leasehold interest is owned.
(2) A "net well" equals the actual leasehold interest owned in one gross well
divided by one hundred. Example: a 50% leasehold interest in a well is one
gross well, but a .50 net well.
(3) For purposes of this Table only, a "Dry Hole" means a well which is plugged
and abandoned without a completion attempt because the Operator has
determined that it will not be productive of gas and/or oil in commercial
quantities.
(4) (i) Atlas L.P. #1-1985 had 1 gross well (.25 net well) which was completed
but non-commercial; (ii) A.E. Nineties-1993 Ltd. had 1 gross well (1 net
well) which was completed but non-commercial; (iii) A.E. Nineties-14 had 2
gross wells (2 net wells) which were completed but non-commercial; (iv) A.E.
Partners-1994 had 1 gross well (.25 net well) which was completed but
non-commercial; (v) A.E. Nineties-15 had 1 gross well (1 net well) which was
completed but non-commercial; (vi) A.E. Nineties-16 had 5 gross wells (4.5
net wells) which were completed but non-commercial; and (vii) A.E.
Nineties-17 had 3 gross wells (2.5 net wells) which were completed but
non-commercial.
40
<PAGE>
Table 3 provides information concerning the operating results of previous
Development Drilling Programs sponsored by the Managing General Partner and its
Affiliates. YOU SHOULD NOT ASSUME THAT THE PAST PERFORMANCE OF PRIOR PROGRAMS IS
INDICATIVE OF THE FUTURE RESULTS OF THE PARTNERSHIP.
TABLE 3
INVESTOR OPERATING RESULTS - INCLUDING EXPENSES
As of January 15, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Cash
Total Costs -on- Average Latest Quarterly
------------------------------ Cash Cash Yearly Cash Distribution
Program Capitalization(1) Operating Admin. Direct Distributions(2) Return Return As of Date of Table
- ------- ----------------- --------- ------ ------ ---------------- ------ ------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Atlas L.P. #1-1985 $ 600,000 $144,544 $ 31,920 $ 6,970 $1,285,745 214% 16% $ 9,835
A.E. Partners 1986 631,250 109,569 45,565 5,872 608,431 96% 8% 5,237
A.E. Partners 1987 721,000 107,552 42,585 5,993 501,239 70% 6% 1,624
A.E. Partners 1988 617,050 84,616 38,667 5,583 455,232 74% 7% 2,755
A.E. Partners 1989 550,000 78,352 40,470 4,400 600,273 109% 12% 4,453
A.E. Partners 1990 887,500 113,037 54,066 5,147 745,095 84% 10% 11,411
A.E. Nineties-10 2,200,000 249,874 53,711 19,190 1,319,682 60% 8% 16,698
A.E. Nineties-11 750,000 90,889 57,429 32,483 799,329 107% 15% 11,535
A.E. Partners 1991 868,750 91,483 68,050 13,273 788,510 91% 13% 14,762
A.E. Nineties-12 2,212,500 258,194 55,557 101,020 1,510,809 68% 10% 21,136
A.E. Nineties-JV 92 4,004,813 374,866 81,348 189,235 2,795,173 (3) 70% 13% 86,999
A.E. Partners 1992 600,000 52,769 32,175 3,365 551,535 92% 15% 9,212
A.E. Nineties-Public #1 2,988,960 209,757 51,075 73,688 1,610,199 54% 10% 30,184
A.E. Nineties-1993 Ltd. 3,753,937 284,827 55,470 27,852 1,730,647 46% 9% 26,063
A.E. Partners 1993 700,000 58,495 24,338 2,775 596,673 85% 18% 15,268
A.E. Nineties-Public #2 3,323,920 212,199 41,141 32,698 1,384,411 42% 9% 35,849
A.E. Nineties-14 9,940,045 620,693 120,685 16,921 3,720,641 37% 9% 127,274
A.E. Partners 1994 892,500 41,261 23,811 2,153 528,576 59% 16% 24,980
A.E. Nineties-Public #3 5,799,750 282,557 57,187 36,739 2,241,446 39% 10% 76,218
A.E. Nineties-15 10,954,715 480,379 97,549 14,115 3,739,100 34% 12% 133,663
A.E. Partners 1995 600,000 25,578 6,638 1,593 218,442 36% 15% 6,221
A.E. Nineties-Public #4 6,991,350 291,345 54,593 26,981 1,674,416 24% 9% 71,529
A.E. Nineties-16 10,955,465 336,521 55,978 28,057 2,148,028 20% 9% 213,707
A.E. Partners 1996 800,000 26,295 6,264 38,648 144,665 18% 10% 17,791
A.E. Nineties-Public #5 7,992,240 203,143 35,891 15,782 1,385,828 17% 10% 142,054
A.E. Nineties-17 8,813,488 141,975 25,428 86,268 1,160,367 13% 11% 226,498
A.E. Partners 1997 506,250 5,691 1,200 24,745 28,607 6% 10% 12,455
A.E. Nineties-Public #6 9,901,025 115,537 16,211 8,189 770,940 8% 10% 303,970
A.E. Nineties-18 11,391,673 8,227 2,004 329 92,193 1% 10% 92,193
A.E. Partners 1998 1,740,000 0 0 0 0 0% 0% 0
A.E. Nineties-Public #7 11,988,350 0 0 0 0 0% 0% 0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) There have been no Partnership borrowings other than from the Managing
General Partner. The approximate principal amounts of such borrowings
were as follows: (i) A.E. Nineties-10 - $330,000; (ii) A.E. Nineties-11 -
$112,500; and (iii) A.E. Nineties-12 - $331,875. A portion of each
program's cash distributions was used to repay that program's loan.
(2) All cash distributions were from the sale of gas, and not sales of
properties.
(3) A portion of the cash distributions was used to drill three reinvestment
wells at a cost of $333,860 in accordance with the terms of the offering.
41
<PAGE>
Table 3A provides information concerning the operating results of previous
Development Drilling Programs sponsored by the Managing General Partner and its
Affiliates.
TABLE 3A
MANAGING GENERAL PARTNER
OPERATING RESULTS - INCLUDING EXPENSES
As of January 15, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Cash
Total Costs -on- Latest Quarterly
-------------------------------- Cash Cash Cash Distribution
Program Capitalization Operating Admin. Direct Distributions(1) Return As of Date of Table
- ------- -------------- --------- ------ ------ ---------------- ------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Atlas L.P. #1-1985 $ 114,800 $ 27,532 $ 6,080 $ 1,328 $ 243,453 212% $ 1,873
A.E. Partners 1986 120,400 20,870 8,679 1,118 116,220 97% 998
A.E. Partners 1987 158,269 31,010 12,278 1,728 126,784 80% 468
A.E. Partners 1988 135,450 27,251 12,453 1,798 112,347 83% 887
A.E. Partners 1989 120,731 17,199 8,884 966 137,398 114% 977
A.E. Partners 1990 244,622 37,679 0 0 287,214 117% 4,404
A.E. Nineties-10 484,380 83,291 0 0 464,194 96% 6,116
A.E. Nineties-11 268,003 38,953 24,612 8,863 335,844 125% 4,943
A.E. Partners 1991 318,063 30,494 0 0 343,792 108% 5,771
A.E. Nineties-12 791,833 110,655 23,810 17,787 647,489 82% 9,058
A.E. Nineties-JV 92 1,414,917 184,635 40,067 11,666 794,372 56% 0
A.E. Partners 1992 176,100 17,590 0 0 264,445 150% 3,521
A.E. Nineties-Public #1 528,934 66,239 16,129 11,463 440,664 83% 9,532
A.E. Nineties-1993 Ltd. 1,264,183 122,069 23,773 8,354 317,836 25% 0
A.E. Partners 1993 219,600 19,498 0 0 220,394 100% 5,389
A.E. Nineties-Public #2 587,340 67,010 12,992 10,326 272,151 46% 11,321
A.E. Nineties-14 3,584,027 305,714 59,442 8,334 1,113,680 31% 1,938
A.E. Partners 1994 231,500 13,754 0 0 185,492 80% 8,795
A.E. Nineties-Public #3 928,546 94,186 19,062 12,246 747,149 80% 25,406
A.E. Nineties-15 3,435,936 205,877 41,807 6,049 1,602,370 47% 57,284
A.E. Partners 1995 244,725 8,526 0 0 61,438 25% 2,299
A.E. Nineties-Public #4 1,287,752 97,115 18,198 8,994 492,165 38% 12,623
A.E. Nineties-16 1,643,320 92,168 15,332 2,879 422,624 26% (45,489)
A.E. Partners 1996 367,416 8,765 0 0 63,192 17% 6,241
A.E. Nineties-Public #5 1,654,740 67,714 11,964 5,261 439,660 27% 25,068
A.E. Nineties-17 1,133,917 51,188 9,168 1,759 447,708 39% 81,663
A.E. Partners 1997 231,050 1,897 0 0 18,184 8% 7,665
A.E. Nineties-Public #6 1,950,345 38,512 5,404 2,730 256,980 13% 174,574
A.E. Nineties-18 1,767,949 3,783 921 151 42,395 2% 42,395
A.E. Partners 1998 495,360 0 0 0 0 0% 0
A.E. Nineties-Public #7 3,852,439 0 0 0 0 0% 0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All cash distributions were from the sale of gas and not sales of
properties.
42
<PAGE>
Table 4 sets forth the aggregate cash distributions and estimated federal tax
savings to investors in the Managing General Partner's prior Development
Drilling Programs, based on the maximum marginal tax rate in each year, as
reported in the partnerships' tax returns and such share of tax deductions as a
percentage of their subscriptions. YOU ARE URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS CONCERNING YOUR SPECIFIC TAX SITUATION AND SHOULD NOT ASSUME THAT THE
PAST PERFORMANCE OF PRIOR PROGRAMS IS INDICATIVE OF THE FUTURE RESULTS OF THE
PARTNERSHIP.
TABLE 4
SUMMARY OF INVESTOR TAX BENEFITS AND CASH DISTRIBUTION RETURNS
As of January 15, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Estimated Federal Tax Savings From (1):
--------------------------------------------
1st Year Eff. 1st Year
Investor Tax Tax I.D.C. Depletion
Program Capital Deduct(2) Rate Deduct (3) Allowance (3) Depreciation (3)
- ------- -------- --------- ----- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Atlas L.P. #1-1985 $ 600,000 99.0% 50.0% $ 298,337 $109,251 N/A
A.E. Partners 1986 631,250 99.0% 50.0% 312,889 58,666 N/A
A.E. Partners 1987 721,000 99.0% 38.5% 356,895 43,088 N/A
A.E. Partners 1988 617,050 99.0% 33.0% 244,351 38,870 N/A
A.E. Partners 1989 550,000 99.0% 33.0% 179,685 54,468 N/A
A.E. Partners 1990 887,500 99.0% 33.0% 275,125 69,725 N/A
A.E. Nineties-10 2,200,000 100.0% 33.0% 726,000 127,070 N/A
A.E. Nineties-11 750,000 100.0% 31.0% 232,500 73,616 N/A
A.E. Partners 1991 868,750 100.0% 31.0% 269,313 80,940 N/A
A.E. Nineties-12 2,212,500 100.0% 31.0% 685,875 152,236 N/A
A.E. Nineties-JV 92 4,004,813 92.5% 31.0% 1,322,905 243,071 N/A
A.E. Partners 1992 600,000 100.0% 31.0% 186,000 61,099 N/A
A.E. Nineties-Public #1 2,988,960 80.5% 36.0% 877,511 156,090 211,416
A.E. Nineties-1993 Ltd. 3,753,937 92.5% 39.6% 1,378,377 159,360 N/A
A.E. Partners 1993 700,000 100.0% 39.6% 273,216 58,280 N/A
A.E. Nineties-Public #2 3,323,920 78.7% 39.6% 1,036,343 120,785 222,534
A.E. Nineties-14 9,940,045 95.0% 39.6% 3,739,445 319,177 N/A
A.E. Partners 1994 892,500 100.0% 39.6% 353,430 44,117 N/A
A.E. Nineties-Public #3 5,799,750 76.2% 39.6% 1,752,761 199,611 371,833
A.E. Nineties-15 10,954,715 90.0% 39.6% 3,904,261 340,946 N/A
A.E. Partners 1995 600,000 100.0% 39.6% 237,600 13,393 N/A
A.E. Nineties-Public #4 6,991,350 80.0% 39.6% 2,214,860 139,953 372,541
A.E. Nineties-16 10,955,465 86.8% 39.6% 3,361,289 168,993 492,710
A.E. Partners 1996 800,000 100.0% 39.6% 316,800 14,610 N/A
A.E. Nineties-Public #5 7,992,240 84.9% 39.6% 2,530,954 111,196 185,032
A.E. Nineties-17 8,813,488 85.2% 39.6% 2,966,366 98,161 169,029
A.E. Partners 1997 506,250 100.0% 39.6% 200,475 4,194 N/A
A.E. Nineties-Public #6 9,901,025 85.1% 39.6% 3,166,406 61,261 108,333
A.E. Nineties-18 11,391,673 90.0% 39.6% 4,030,884 7,084 10,417
A.E. Partners 1998 1,740,000 100.0% 39.6% 689,040 0 N/A
A.E. Nineties-Public #7 11,988,350 85.0% 39.6% 4,043,670 0 0
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Cumulative
Cash Percent of
Distribution Total Cash Cash Dist.
As of Dist. and and Tax
Section 29 Date of Tax Savings to
Program Tax Credit (4) Total Table (5) Savings Date
- ------- -------------- ----- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Atlas L.P. #1-198 $ 55,915 $ 463,503 $1,285,745 $1,749,248 292%
A.E. Partners 1986 13,507 385,062 608,431 993,493 157%
A.E. Partners 1987 N/A 399,983 501,239 901,222 125%
A.E. Partners 1988 N/A 283,221 455,232 738,453 120%
A.E. Partners 1989 N/A 234,153 600,273 834,426 152%
A.E. Partners 1990 204,974 549,824 745,095 1,294,919 146%
A.E. Nineties-10 377,382 1,230,452 1,319,682 2,550,134 116%
A.E. Nineties-11 242,570 548,686 799,329 1,348,015 180%
A.E. Partners 1991 227,733 577,986 788,510 1,366,496 157%
A.E. Nineties-12 451,939 1,290,050 1,510,809 2,800,859 127%
A.E. Nineties-JV 92 658,181 2,224,157 2,795,173 5,019,330 125%
A.E. Partners 1992 169,353 416,452 551,535 967,987 161%
A.E. Nineties-Public #1 N/A 1,245,017 1,610,199 2,855,216 96%
A.E. Nineties-1993 Ltd. N/A 1,537,737 1,730,647 3,268,384 87%
A.E. Partners 1993 N/A 331,496 596,673 928,169 133%
A.E. Nineties-Public #2 N/A 1,379,662 1,384,411 2,764,073 83%
A.E. Nineties-14 N/A 4,058,622 3,720,641 7,779,263 78%
A.E. Partners 1994 N/A 397,547 528,576 926,123 104%
A.E. Nineties-Public #3 N/A 2,324,205 2,241,446 4,565,651 79%
A.E. Nineties-15 N/A 4,245,207 3,739,100 7,984,307 73%
A.E. Partners 1995 N/A 250,993 218,442 469,435 78%
A.E. Nineties-Public #4 N/A 2,727,354 1,674,416 4,401,770 63%
A.E. Nineties-16 N/A 4,022,992 2,148,028 6,171,020 56%
A.E. Partners 1996 N/A 331,410 144,665 476,075 60%
A.E. Nineties-Public #5 N/A 2,827,182 1,385,828 4,213,010 53%
A.E. Nineties-17 N/A 3,233,556 1,160,367 4,393,923 50%
A.E. Partners 1997 N/A 204,669 28,607 233,276 46%
A.E. Nineties-Public #6 N/A 3,336,000 770,940 4,106,940 41%
A.E. Nineties-18 N/A 4,048,385 92,193 4,140,578 36%
A.E. Partners 1998 N/A 689,040 0 689,040 40%
A.E. Nineties-Public #7 N/A 4,043,670 0 4,043,670 34%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These columns reflect the savings in taxes which would have been paid by an
investor, assuming full use of deductions available to the investor.
(2) It is anticipated that approximately 85% of an Investor General Partner's
subscription to the Partnership will be deductible in 1999.
(3) The I.D.C. Deductions, Depletion Allowance and MACRS depreciation deductions
have been reduced to credit equivalents.
(4) The Section 29 tax credit is not available with respect to wells drilled
after December 31, 1992. N/A means not applicable.
(5) These distributions were all from production revenues. See footnotes 1
and 3 of Table 3.
43
<PAGE>
Table 5 sets forth programs in which the Managing General Partner and Atlas
Energy served as operator and/or drilling contractor for third party general
partners as well as the partnerships in which Atlas served as managing general
partner. The table includes the Managing General Partner's share of costs and
revenues set forth in Table 3A, above. The Managing General Partner and its
Affiliates have drilled more than 1,650 wells over the 27-year period from 1972
to 1999. In the current primary area of interest in Mercer County the Managing
General Partner and its Affiliates have completed 97% of approximately 810 wells
drilled. These results are summarized below.
TABLE 5
ATLAS RESOURCES, INC. AND ITS AFFILIATES' HISTORICAL PRODUCTION RECORD
As of January 15, 1999 (4)
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
Last 3 Mo.
Year Wells Total Total Amount Total Distribution
Were Placed Total MCF's Invested In Amount Cum % Return Ending As of
Into Production Wells(l) Produced Wells(2) Returned(2) Cash-On-Cash(3) Date of Table
- ---------------- -------- -------- ----------- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1973 6 2,509,236 $ 576,000 $ 4,015,217 697% $ 17,511
1974 18 2,946,593 2,387,200 3,912,076 164% 14,114
1975 21 4,216,675 2,814,200 6,646,801 236% 23,861
1976 14 2,886,085 1,819,200 4,371,213 240% 10,801
1977 26 9,249,096 3,912,600 16,290,635 416% 68,048
1978 78 7,908,916 12,399,900 19,089,393 154% 63,033
1979 46 9,254,567 7,404,000 19,743,042 267% 73,953
1980 41 5,784,913 6,561,100 13,659,970 208% 49,642
1981 77 6,393,648 15,382,850 17,131,621 111% 34,003
1982 63 2,483,831 12,438,500 5,795,400 47% 7,885
1983 22 1,296,607 6,725,480 3,036,981 45% 19,580
1984 47 4,709,058 10,663,250 10,323,461 97% 54,893
1985 39 4,913,152 8,971,200 10,264,820 114% 60,477
1986 45 5,632,560 9,649,100 10,735,876 111% 70,547
1987 12 1,559,947 2,425,800 2,713,796 112% 11,405
1988 37 3,865,839 7,688,386 6,926,354 90% 42,001
1989 48 3,969,740 9,967,768 7,005,989 70% 59,191
1990 46 5,051,865 9,038,238 9,111,581 101% 58,587
1991 79 8,590,676 16,034,382 15,741,230 98% 188,043
1992 64 8,015,782 14,250,032 14,383,556 101% 184,915
1993 107 10,318,207 21,958,681 17,077,751 78% 127,435
1994 94 6,432,284 20,418,366 10,413,865 51% 266,316
1995 105 6,466,579 22,350,889 10,936,284 49% 365,915
1996 114 4,744,470 25,396,708 8,092,130 32% 380,867
1997 102 2,785,785 20,678,334 4,886,603 24% 701,383
1998 111 1,160,369 23,270,358 1,921,602 8% 803,657
----- ------------ ------------- -------------- ------ -----------
TOTAL 1,462 133,146,480 $295,182,522 $254,227,247 86% $3,758,065
===== =========== ============ ============ ===== ==========
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The above numbers do not include information for: (i) 87 wells drilled
for General Motors from 1971 to 1973 which were subsequently purchased by
General Motors; (ii) 25 wells successfully drilled in 1981 and 1982 for
an industrial customer which requested that the wells be capped and not
placed into production; (iii) 127 wells drilled from 1980 to 1985 which
were sold in 1993 and are no longer operated by the Managing General
Partner; and (iv) wells which were drilled recently but are not yet in
production.
(2) (i) The column "Total Amount Invested in Wells" only includes funds
paid to the Managing General Partner or Atlas Energy as operator and/or
drilling contractor for drilling and completing the designated wells.
This column does not include all of the costs paid by investors to the
third party managing general partner and/or sponsor of the program
because such information is generally not available to the Managing
General Partner or Atlas Energy.
(ii) Similarly, the column "Total Amount Returned" only includes
amounts paid by the Managing General Partner or Atlas Energy as operator
of the wells to the third party managing general partner and/or sponsor
of the program. This column does not set forth the revenues which were
actually received by the investors from the third party managing general
partner and/or sponsor because such information is generally not
available to the Managing General Partner or Atlas Energy.
Notwithstanding, the columns "Total Amount Invested in Wells" and "Total
Amount Returned" also include the partnerships in which Atlas serves as
managing general partner and are presented on the same basis as the
third party partnerships.
(3) This column reflects total cash distributions beginning with the first
production from the well, as a percentage of the total amount invested in
the well, and includes the return of the investors' capital.
(4) THE RESULTS OF TABLE 5 SHOULD BE VIEWED ONLY AS A MEASURE OF THE LEVEL OF
ACTIVITY AND EXPERIENCE OF THE MANAGING GENERAL PARTNER WITH RESPECT TO
DEVELOPMENT DRILLING PROGRAMS.
44
<PAGE>
MANAGEMENT
MANAGING GENERAL PARTNER AND OPERATOR
The Managing General Partner, Atlas, a Pennsylvania corporation, was
incorporated in 1979, and Atlas Energy, an Ohio corporation, was incorporated in
1973. As of December 31, 1998, the Managing General Partner and Atlas Energy
operated approximately 1,242 oil or natural gas wells located in Ohio and
Pennsylvania. The Managing General Partner and Atlas Energy have acted as
operator with respect to the drilling of a total of approximately 1,685 gas
wells, approximately 1,624 of which were capable of production in commercial
quantities. The Managing General Partner and certain of its Affiliates' primary
offices are located at 311 Rouser Road, Moon Township, Pennsylvania 15108, near
the Pittsburgh International Airport.
The Managing General Partner has previously sponsored 7 public and 25 private
Programs formed since 1985 to conduct natural gas drilling and development
activities in Pennsylvania and Ohio. In addition, as operator, the Managing
General Partner acted as general contractor with respect to the drilling and
completion of the Programs' natural gas wells located in Pennsylvania and is
responsible for operating these wells. Atlas Energy acted in the same capacity
as operator of the Programs' wells located in Ohio. (See "Prior Activities.")
RECENT MERGER OF MANAGING GENERAL PARTNER'S PARENT COMPANY, ATLAS GROUP
On September 29, 1998, Atlas Group, the former parent company of the Managing
General Partner, merged into Atlas America, Inc. ("AAI"), a newly formed
wholly-owned subsidiary of Resource America, Inc. ("RAI"). The merger was
consummated pursuant to an Agreement and Plan of Merger dated July 13, 1998, as
amended by Amendment No. 1 thereto dated September 29, 1998 by and among RAI,
AAI, Atlas Group and certain shareholders of Atlas Group, (collectively, the
"Agreement"). RAI is a publicly-traded company principally engaged in real
estate finance, equipment leasing and energy and energy finance. (See " -
Transactions with Management and Affiliates," below.)
AAI will continue the existing business of Atlas Group. AAI will be
headquartered in Atlas Group's existing suburban Pittsburgh offices. As of
October 1, 1999, the Board of Directors for AAI includes the following:
<TABLE>
<CAPTION>
NAME AGE POSITION OR OFFICE
- ---- --- ------------------
<S> <C> <C>
Edward E. Cohen 60 Chairman of the Board
James R. O'Mara 56 Vice Chairman
Tony C. Banks 45 President, Chief Executive Officer, and a Director
Michael L. Staines 50 Secretary and a Director
Jonathan Cohen 29 Director
John S. White 57 Director
JoAnn Bagnell 70 Director
Charles T. Koval 65 Director
</TABLE>
See " - Officers, Directors and Key Personnel," below, for biographical
information on certain of these individuals who are also officers and/or
directors of the Managing General Partner. Biographic information on the other
directors will be provided by the Managing General Partner upon request. Also,
there may be changes in the future in the directors and executive officers of
the Managing General Partner. Additionally, it is anticipated that current RAI,
AAI and/or Resource Energy, Inc. ("Resource Energy") staff and directors of RAI
will assume a variety of new operating responsibilities in AAI. Although
Resource Energy will maintain its separate corporate existence, AAI will manage
the employees and assets of Resource Energy including sharing common employees.
The Managing General Partner and its Affiliates under AIC, Inc. employ a total
of approximately ninety-nine persons, consisting of three geologists (one of
whom is an exploration geologist), 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.
AAI has been a leading participant in the energy finance industry for more than
26 years, providing drilling, operating and supervisory services for more than
$380 million of independent investment now under AAI's management.
45
<PAGE>
AAI manages more than 85 partnerships and joint ventures, operates and holds
interests in more than 2,500 wells with proved, developed and producing reserves
of more than 53 billion cubic feet of natural gas equivalent to the company's
interest, owns and/or operates more than 1,250 miles of natural gas gathering
pipeline (See "Proposed Activities - Sale of Oil and Gas Production.") and holds
mineral rights underlying more than 406,000 acres of land.
ORGANIZATIONAL DIAGRAM (1)
(This Organizational Diagram does not include all of the subsidiaries
of Resource America, Inc.)
<TABLE>
<S> <S> <S> <S> <S> <S> <S> <S>
----------------------------------------
Resource America, Inc.
----------------------------------------
----------------------------------------
Atlas America, Inc.
----------------------------------------
----------------------------------------
AIC, Inc.
----------------------------------------
- ----------------- ------------- ------------- --------------- ------------- ------------- -------------- ----------------
Atlas Mercer Gas Pennsylvania Atlas Energy Transatco, Atlas Anthem Atlas Energy
Resources, Inc. Gathering, Industrial Corporation Inc., which Information Securities Group, Inc.
(Managing Inc. (Gas Energy, (Managing owns 50% of Management, Inc. (Driller and
General Gathering Inc. General Topico L.L.C. (Registered Operator in
Partner, Company) ("PIE") Partner of (Operates (Markets Broker-Dealer Ohio)
Driller and (Sells Gas Exploratory Pipeline in Information and
Operator in to Drilling Ohio) and Dealer-Manager)
Pennsylvania) Pennsylvania Programs and Technology
Industry) Driller and Services)
Operator)
- ----------------- ------------- ------------- --------------- ------------- ------------- -------------- ----------------
- ----------------- --------------
ARD Investments, AED
Inc. Investments,
Inc.
- ----------------- --------------
</TABLE>
- ---------------
(1) Resource Energy, Inc., a subsidiary of Resource America, Inc., is also
engaged in the oil and gas business.
The financial statements of the Managing General Partner are included in
"Financial Information Concerning the Managing General Partner and the
Partnership."
OFFICERS, DIRECTORS AND KEY PERSONNEL
The officers and directors of the Managing General Partner will serve until
their successors are elected. (See " - Recent Merger of Managing General
Partner's Parent Company, Atlas Group," above.) The officers, directors and key
personnel of the Managing General Partner are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION OR OFFICE
- ---- --- ------------------
<S> <C> <C>
Charles T. Koval 65 Chairman of the Board and a Director
James R. O'Mara 56 President, Chief Executive Officer and a Director
Tony C. Banks 45 Senior Vice President of Finance, Chief Financial Officer,
and a Director
Frank P. Carolas 40 Vice President of Land and Geology
Jeffrey C. Simmons 41 Vice President of Operations
Eric D. Koval 34 President of Anthem Securities, Inc.
</TABLE>
46
<PAGE>
CHARLES T. KOVAL. Chairman of the Board and a director. Mr. Koval is also a
director of AAI. From 1955 to 1963, Mr. Koval served as a pilot in the U.S.
Marine Corps and the Pennsylvania National Guard, attaining the rank of captain.
He co-founded Atlas Energy. Prior to the formation of Atlas Energy, he was
involved in the securities business initially with a national firm, Federated
Investors, and then with his own firm, Allegheny Planned Income, both
headquartered in Pittsburgh, Pennsylvania. Mr. Koval is serving and has served
as a director of Imperial Harbors since 1980. Mr. Koval received a Bachelor of
Science Degree from Pennsylvania State University in 1955.
JAMES R. O'MARA. President, chief executive officer and a director. Mr. O'Mara
served with the United States Army Security Agency (ASA) and is a Vietnam
veteran. Mr. O'Mara is a Certified Public Accountant and had been associated
with Coopers and Lybrand, a national accounting firm, and Teledyne, Inc., a
large conglomerate, before joining Atlas Energy in 1975. He is a member of the
Pennsylvania Institute of Certified Public Accountants, and received a Bachelor
of Science Degree in Accounting from Gannon University in 1968. Mr. O'Mara is
President, CEO, and a director of AAI and the President of Mercer Gas Gathering,
Inc. Effective October 1, 1999, Mr. O'Mara will serve as Vice Chairman of the
Managing General Partner and AAI and resign as President and Chief Executive
Officer.
TONY C. BANKS. Senior Vice President, Chief Financial Officer, and a director.
Mr. Banks has over twenty years of finance, accounting and administrative
experience in the oil and gas industry, all with various subsidiaries of
Consolidated Natural Gas Company. He started as an accounting clerk with CNG's
parent company in 1974 and progressed through various positions with CNG's
Appalachian producer, northeast gas marketer and southwest producer to his last
position as Treasurer of CNG's national energy marketing subsidiary. Mr. Banks
served on CNG's corporate-wide Financial Accounting and Planning, Energy Price
Risk and Information Services Steering committees and has chaired the Financial
Advisory and Accounting Research committees. In 1989, Mr. Banks was a seminar
instructor for the University of Tulsa, and over the years has given
presentations to industry groups on topics including energy derivatives,
accounting for Appalachian gas imbalances and post regulation credit review and
evaluation. He received a Bachelor of Science Degree in Accounting/Computers
from Point Park College in Pittsburgh and passed the Pennsylvania Certified
Public Accountant examination in 1988. Mr. Banks joined Atlas Group in 1995 and
is Vice President of AIC,Inc, ARD Investments, Inc. and AED Investments, Inc.
Mr. Banks is also Chief Financial Officer and a director of AAI. Effective
October 1, 1999, Mr. Banks will serve as President and Chief Executive Officer
of the Managing General Partner and AAI and resign as Senior Vice President of
Finance and Chief Financial Officer.
FRANK P. CAROLAS. Vice President of Land and Geology. Mr. Carolas is a certified
petroleum geologist and has been with Atlas Energy since 1981. He received a
Bachelor of Science Degree in Geology from Pennsylvania State University in 1981
and is an active member of the American Association of Petroleum Geologists.
JEFFREY C. SIMMONS. Vice President of Operations. Mr. Simmons is also Vice
President-Production of AAI. Mr. Simmons joined RAI in 1986 as Senior Petroleum
Engineer. From 1988 through 1994 he served as Director of Production and as
President of Resource Well Services, Inc., a subsidiary of RAI. He was then
promoted to Vice President of Resource Energy, Inc., the energy subsidiary of
RAI formed in 1993. In 1997 he was promoted to Executive Vice President, Chief
Operating Officer and Director of Resource Energy, Inc., a position he currently
holds. Prior to Mr. Simmons' career with RAI, he had worked with Core
Laboratories, Inc., of Dallas, Texas, and PNC Bank of Pittsburgh. Mr. Simmons
received his Petroleum Engineering degree from Marietta College and his Masters
Degree in Business Administration from Ashland University.
ERIC D. KOVAL. President of Anthem Securities, Inc. Mr. Koval graduated from
Pennsylvania State University with a degree in Petroleum and Natural Gas
Engineering in 1987. While attending Penn State, he was employed by Mobil Oil
Company in Oklahoma, and Union Oil of California (UNOCAL), offshore Santa
Barbara, California. His experience also includes working five years for
Marathon Oil Company (USX-Marathon) in various production and reservoir
engineering assignments in four different basins throughout the United States.
He has graduate credits from Ball State University, Indiana, and Bowling Green
State University, Ohio, in their Masters of Business Degree programs. Mr. Koval
joined Atlas in 1993 as a production engineer specializing in acquisitions and
dispositions. He subsequently moved into the Investor Relations Department in
1994. Mr. Koval is a registered Broker/Dealer Principal, member of the Society
of Petroleum Engineers, and lifetime member of Penn State Alumni Association.
Mr. Koval is the son of Charles Koval.
The officers and directors of AIC, Inc., which owns 100% of the common stock of
the Managing General Partner, are Tony C. Banks, Vice President, Secretary and a
director, and Norman J. Shuman, Vice President, Treasurer and a director. The
biography of Mr. Banks is set forth above.
47
<PAGE>
REMUNERATION
No officer or director of the Managing General Partner will receive any direct
remuneration or other compensation from the Partnership. These persons
willreceive compensation solely from the Managing General Partner and its
Affiliated companies.
The aggregate remuneration paid during the year ended September 30, 1998, to the
five most highly compensated persons who are executive officers of the Managing
General Partner and whose aggregate remuneration exceeded $100,000 and to all
executive officers of the Managing General Partner as a group, for services in
all capacities while acting as executive officers of the Managing General
Partner and its Affiliates, was as follows:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NAME OF INDIVIDUAL OR NUMBER CAPACITIES IN WHICH CASH COMPENSATION AGGREGATE OF
OF PERSONS IN GROUP (3) SERVED (4) COMPENSATION (1) PURSUANT TO CONTINGENT FORMS OF
PLANS (2) REMUNERATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James R. O'Mara President, Chief Executive $322,226 $5,000 --
Officer and a Director
Charles T. Koval Chairman of the Board and $306,468 $5,000 --
a Director
Tony C. Banks Senior Vice President, $144,280 $26,041 --
Chief Financial Officer,
and a Director
Frank P. Carolas Vice President of Land and $101,752 $22,521 --
Geology
Jeffrey C. Simmons Vice President of $92,442 $7,285 --
Operations
Executive Officers as a Group $1,032,172 $81,915 --
(6 persons)
</TABLE>
- ---------------
(1) The amounts indicated were composed of salaries and all cash bonuses for
services rendered to the Managing General Partner and its Affiliates,
including compensation that would have been paid in cash but was
deferred.
(2) Atlas Group and its Affiliates had an Employee Stock Ownership Plan
("ESOP") for the benefit of its employees, other than Messrs. Koval and
Joseph R. Sadowski (a retired founder), to which it contributed annually
approximately 6% of annual compensation in the form of shares of Atlas
Group, and a 401(K) plan which allowed employees to contribute the lesser
of 15% of their compensation or $10,000 for the calendar year 1998 or
$10,000 for the calendar year 1997. Atlas Energy contributed an amount
equal to 50% of each employee's contribution for the calendar years 1998
and 1997.
(3) In addition, to the compensation set forth in (C) and (D) in connection
with the merger, Mr. O'Mara exercised Atlas Group stock options resulting
in $1,503,508 and Mr. Bruce Wolf (a retired director) exercised Atlas
Group stock options resulting in $994,916. Also, under the terms of the
merger, the following stock options in RAI were issued at an option price
of $0.1069 per share:
<TABLE>
<CAPTION>
NAME STOCK OPTION
------------- ------------
<S> <C>
Tony C. Banks 13,106
</TABLE>
(4) Each director was paid a director's fee of $9,000 for the year. There
were no other arrangements for remuneration of directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
RAI owns 100% of the common stock of AAI, which owns 100% of the common stock of
AIC, Inc., which owns 100% of the common stock of the Managing General Partner.
See " - Transactions with Management and Affiliates" below regarding the stock
in RAI of the executive officers of the Managing General Partner.
48
<PAGE>
TRANSACTIONS WITH MANAGEMENT AND AFFILIATES
Pursuant to the Agreement (discussed in " - Recent Merger of Managing General
Partner's Parent Company, Atlas Group," above) the merger consideration paid to
the shareholders of Atlas was 2,063,486 shares of RAI's common stock (and in
addition options of 120,213), which were valued at $29,534,000 as of the date
the definitive merger agreement was entered into, cash of $7,814,000 and the
assumption of Atlas Group debt of $45,968,000. The exchange value of RAI stock
was based on a trading index using prices before the merger and did not reflect
the trading price of the stock on the merger date. Atlas Group shareholders
received certain "piggy-back" registration rights, effective during the period
from September 30, 1999 through September 29, 2000, with respect to the shares
of RAI's common stock received by them. Atlas Group shareholders are also
eligible to receive incentive compensation should Atlas Group's post-acquisition
earnings exceed a specified amount during the four years following the merger.
The incentive compensation is equal to 10% of Atlas Group's aggregate earnings
in excess of that amount equal to an annual (but uncompounded) return of 15% on
$63 million (increased to include any amount paid by RAI for any post-merger
energy acquisitions). Incentive compensation is payable, at RAI's option, in
cash or in shares of RAI's common stock, valued at the average closing price of
RAI's common stock for the 10 trading days preceding September 30, 2003.
In addition, in November, 1990, Atlas Group and its shareholders had entered
into agreements with Messrs. Sadowski and Koval to gradually liquidate a
majority of their stock ownership in Atlas Group. By the year 2003 the stock
ownership of Atlas Group by Messers. Koval and Sadowski was to be reduced
through a series of stock redemptions to approximately 15% each. The stock
redemptions required Atlas Group to execute promissory notes, from time to time,
in favor of Messrs. Koval and Sadowski. The first promissory notes had a
principal amount of $4,974,340 each, plus interest at 13.5%. Pursuant to the
merger, Atlas Group accelerated the promissory notes issued in the redemption,
together with notes issued in a prior redemption of shares owned by Messrs.
Koval and Sadowski, and these notes were paid in full at the time of closing of
the merger.
Also, the Managing General Partner and its officers, directors and Affiliates
have in the past invested, and may in the future invest, as participants in
Programs sponsored by the Managing General Partner on the same terms as
unrelated investors. The Managing General Partner, its officers, directors, and
Affiliates may also subscribe for Units in the Partnership. (See "Summary of
Partnership Agreement - Voting Rights and Access to Records.")
INVESTMENT OBJECTIVES
Except for the historical information contained herein, the matters discussed
below are forward-looking statements that involve risks and uncertainties,
including the risk that the wells are productive but do not produce enough
revenue to return the investment made, Dry Holes, uncertainties concerning the
price of gas, and the other risks detailed below. The actual results that the
Partnership achieves may differ materially from the objectives set forth below
due to such risks and uncertainties. The Partnership's principal investment
objectives are to invest the Partnership Subscription in natural gas Development
Wells which will:
- Provide quarterly cash distributions to you until the wells are
depleted, (historically 20+ years) with a preferred annual cash flow
of 10% during the first five years based on your original
subscription amount. (See "Risk Factors - Special Risks of the
Partnership - Risk That a Completed Well Does Not Payout," "Prior
Activities," and "Participation in Costs and Revenues -
Subordination of Portion of Managing General Partner's Net Revenue
Share.")
- Obtain tax deductions in 1999 from intangible drilling and
development costs and depreciation of Tangible Costs to offset a
portion of your taxable income (subject to the passive activity
rules if you invest as a Limited Partner). One Unit will produce a
1999 tax deduction of $8,500 (85%) against ordinary income if you
invest as an Investor General Partner and against passive income if
you invest as a Limited Partner. If you are in either the 39.6% or
36% tax bracket, then one Unit will save you $3,366 or $3,000
respectively in federal taxes this year. Most states also allow this
type of a deduction against the state income tax.
- Offset a portion of any taxable income generated by the Partnership
with tax deductions from percentage depletion, which is 24% in 1999
(estimated to be 26% on net revenue). The Managing General Partner
estimates that this feature should reduce your effective tax rate
from 39.6% to 29.3% (I.E., 74% of 39.6%) on Partnership net
revenues.
- Obtain tax deductions of the remaining 15% of the initial investment
from 2000 through 2007. You will receive an additional $1,500 tax
deduction per Unit generated through the remaining depreciation over
a seven-year cost recovery period of the Partnership's equipment
costs for the wells.
49
<PAGE>
ATTAINMENT OF THE PARTNERSHIP'S INVESTMENT OBJECTIVES WILL DEPEND ON MANY
FACTORS, INCLUDING THE ABILITY OF THE MANAGING GENERAL PARTNER TO SELECT
SUITABLE PROSPECTS WHICH WILL BE PRODUCTIVE AND PRODUCE ENOUGH REVENUE TO RETURN
THE INVESTMENT MADE. THE SUCCESS OF THE PARTNERSHIP DEPENDS LARGELY ON FUTURE
ECONOMIC CONDITIONS, ESPECIALLY THE FUTURE PRICE OF NATURAL GAS WHICH IS
VOLATILE AND MAY DECREASE.
THERE CAN BE NO GUARANTEE THAT THE FOREGOING OBJECTIVES WILL BE ATTAINED.
PROPOSED ACTIVITIES
IN GENERAL
The Partnership will be funded to drill Development Wells which are located
primarily in the Mercer County area of Pennsylvania. (A Development Well means a
well drilled within the proved area of an oil or gas reservoir to the depth of a
stratigraphic Horizon known to be productive.) The Managing General Partner has
also reserved the right to use up to 20% of the Partnership Subscription to
drill Development Wells in other areas of the United States primarily in the
Appalachian Basin. The Managing General Partner anticipates that all the
Partnership's wells will be classified as gas wells which may produce a small
amount of oil. (See "- Information Regarding Currently Proposed Prospects" and
"Prior Activities.")
The number of Development Wells drilled by the Partnership will depend on the
amount of the Partnership Subscription received and the Partnership's aggregate
percentage of the Working Interest in the wells. Assuming the Partnership
acquires 100% of the Working Interest in the wells and all wells are situated in
the Mercer County area, the Partnership would participate in drilling
approximately :
- 4.96 wells if the minimum Partnership Subscription of $1,000,000
is received;
- 69.49 wells if $14,000,000 is received; and
- 89.35 wells if the size of the offering is increased to $18,000,000.
The actual amount of the Working Interest in each well drilled by the
Partnership and the number of wells drilled by the Partnership may vary from
these estimates.
The Managing General Partner may not, without the 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.
INTENDED AREAS OF OPERATIONS
The Development Wells drilled by the Partnership will primarily test the
Clinton/Medina geological formation in Pennsylvania and Ohio. It is anticipated
that the Clinton/Medina formation to be tested by the Partnership will normally
be found between 5,900 to 6,800 feet in depth. Prospects located in Pennsylvania
and drilled to the Clinton/Medina geological formation will consist of
approximately 50 acres, subject to adjustment to take into account Lease
boundaries. Wells in Pennsylvania will not be drilled closer than approximately
1,650 feet to each other, which is greater than the minimum area permitted by
state law (660 feet) or local practice to protect against drainage from adjacent
wells. Prospects located in Ohio and drilled to the Clinton/Medina geological
formation will consist of approximately 40 acres, subject to adjustment to take
into account Lease boundaries. Wells in Ohio will not be drilled closer than
approximately 1,100 feet to each other.
The Lease assignments to the Partnership will be limited to a depth of from the
surface to the top of the Queenston geological formation, and the Managing
General Partner will retain the drilling rights below the Clinton/Medina
geological feature. The Partnership will not acquire the deep drilling rights
because it is a Development Drilling Program which will not allocate any money
to seismic activity or to drilling Exploratory Wells which would be the case
with Horizons deeper than the Clinton/Medina. Notwithstanding, in the future
seismic could be run on the Horizons below the Clinton/Medina geological feature
which might provide a basis for the Managing General Partner drilling an
Exploratory Well. The Partnership would not share in the profits, if any, from
these activities. (See "- Acquisition of Leases" and "- Information Regarding
Currently Proposed Prospects," below.)
The wells in Pennsylvania and Ohio will test the Clinton/Medina geological
formation, a blanket sandstone found throughout most of the northwestern edge of
the Appalachian Basin. The Clinton/Medina is described in petroleum industry
terms as a
50
<PAGE>
"tight" sandstone with porosity ranging from 6% to 12% and with very low
permeability. Porosity is the percentage of void space between sand grains
that is available for occupancy by either liquids or gases. Permeability is
the property of porous rock that allows fluids or gas to flow through it.
Geological features such as structure and faulting are not generally factors
in finding productive Clinton/Medina deposits. Instead, sand quality in terms
of net pay zone thickness, porosity, and the effectiveness of fracture
stimulation appear to be the governing factors in generating commercial
production. A well drilled in the Clinton/Medina usually requires hydraulic
Fracturing of the formation to stimulate productive capacity. Based on the
Managing General Partner's experience, it is anticipated that all the
Partnership's Wells will be completed and Fraced in two different zones of
the Clinton/Medina geological feature.
Generally, gas from Clinton/Medina wells is produced at rates which decline
rapidly during the first few years of operation. Although Clinton/Medina wells
can produce for many years, a proportionately larger amount of the production
can be expected within the first several years. See "- Information Regarding
Currently Proposed Prospects" and the model decline curve included in the
geological report prepared by United Energy Development Consultants, Inc.
("UEDC"), an independent geological and engineering firm, ("UEDC Geological
Report").
The Managing General Partner also has reserved the right to use up to 20% of the
Partnership Subscription to drill Development Wells in other areas of the United
States primarily in the Appalachian Basin.
ACQUISITION OF LEASES
The Managing General Partner will have the right, in its sole discretion, to
select the Prospects which the Partnership will drill. The currently proposed
Prospects are set forth in "- Information Regarding Currently Proposed
Prospects." It is anticipated that the Prospects will be transferred to the
Partnership, but not immediately recorded, beginning upon or after the Initial
Closing Date subject to the Managing General Partner's right of substitution of
the Prospects depending upon various considerations. These include:
- the amount of the Partnership Subscription;
- the latest geological data available;
- potential title problems;
- approvals by federal and state departments or agencies;
- agreements with other Working Interest owners;
- continuing review of other properties which may be available; and
- if no other circumstances occur which in the Managing General
Partner's opinion diminish the relative attractiveness of the
Prospects.
It is not anticipated that the Prospects will be selected in the order in which
they are set forth. The Managing General Partner has the right, in its sole
discretion, to substitute other unidentified Prospects, if they meet the same
general criteria for development potential as the currently proposed Prospects.
Most of the Partnership's Development Wells will have as their objective the
Clinton/Medina geological formation discussed in the UEDC Geological Report and
will be located in areas where the Managing General Partner or its Affiliates
have previously conducted drilling operations. However, the Managing General
Partner has reserved the right to use up to 20% of the Partnership Subscription
to drill wells in other areas of the United States.
If any of the currently proposed Prospects are substituted, the Partnership
takes a lesser percentage of the Working Interest in the Prospects, more than
1,200 Units are sold, and/or the Managing General Partner decides to drill in
other areas of the United States, then the Prospects will be selected by the
Managing General Partner primarily from Leases included in the existing
leasehold inventory of the Managing General Partner or its Affiliates. To a
lesser extent, the Managing General Partner would select Prospects from Leases
hereafter acquired by it or its Affiliates or from Leases owned by independent
third parties. Thus, for additional or substituted Prospects you and the other
prospective investors will not be able to evaluate for yourselves the relevant
geological, economic or other information regarding those Prospects. The
Managing General Partner has not authorized any person to make any
representations concerning the possible inclusion of any other Prospects in the
Partnership and you and the other prospective investors should rely only on the
information in this Prospectus.
51
<PAGE>
As of the date of this Prospectus, the Managing General Partner and its
Affiliates owned approximately:
- 70,241 net and gross acres of undeveloped leasehold acreage in
Pennsylvania and Ohio;
- 18,000 net acres and 20,000 gross acres of undeveloped lease acreage
in western West Virginia; and
- 14,300 net acres and 16,100 gross acres of undeveloped lease
acreage in eastern Kentucky.
Most, if not all, of the leases in eastern Kentucky and western West Virginia
are held by production. The Managing General Partner and its Affiliates are
continually engaged in acquiring additional leasehold acreage in Pennsylvania
and other areas of the United States. The Managing General Partner believes that
its and its Affiliates' leasehold inventory will be sufficient to provide all
the Prospects to be developed by the Partnership.
Before selecting a Prospect to be drilled by the Partnership, the Managing
General Partner will review all available geologic data including logs,
completion reports and plugging reports for wells located in the vicinity of the
proposed Prospect. The Managing General Partner has obtained the UEDC Geological
Report with respect to the development of the Clinton/Medina geological
formation in the primary area where the Partnership will conduct its activity.
It has been the Managing General Partner's experience that oil and gas
production from wells drilled to the Clinton/Medina geologic formation is
reasonably consistent within close proximity, although from time to time great
disparity in well performance can occur in wells located in close proximity.
(See "Conflicts of Interest Conflicts Involving the Acquisition of Leases.")
Production information relating to the wells which are in the general area of
the proposed Prospects is set forth in "- Information Regarding Currently
Proposed Prospects." The Managing General Partner believes that the production
information is reliable, although as to certain of the Prospects the production
information is incomplete because there was a third party operator and
production information is not available. Also, some of the wells which have been
drilled by the Managing General Partner's other Programs have only been
producing for a short period of time or are not yet completed or on-line. In
reviewing the production information, you and the other prospective investors
are cautioned to carefully read the general comments set forth in " -
Information Regarding Currently Proposed Prospects" regarding the production
information.
The Leases comprising each Prospect will be acquired from the Managing General
Partner or its Affiliates and credited to the Managing General Partner as a part
of its required Capital Contribution. The credit to the Managing General Partner
will be at the Managing General Partner's Cost unless it has cause to believe
that Cost is materially more than the fair market value of the property in which
case the credit will not exceed the fair market value of the property.
Generally, production and revenues from a well drilled on a Prospect in the
Mercer County area will be net of the applicable Landowner's Royalty Interest
(typically 1/8th (12.5%) of gross production) and any third-party Overriding
Royalty Interests. It is anticipated that the Partnership will have an 87.5% Net
Revenue Interest in each Lease, although the Partnership could have a lesser Net
Revenue Interest (typically 84.375%) if there were third-party Overriding
Royalty Interests. Neither the Managing General Partner nor its Affiliates will
receive any Royalty or Overriding Royalty Interest on any Prospect. (See " -
Interests of Parties.")
The Leases in other areas of the United States may be subject to greater
Overriding Royalty Interests, third party net profits interests, carried
interests, production payments, reversionary interests or other retained or
carried interests. There is no minimum Net Revenue Interest which the
Partnership is required to own before the drilling of a well in areas outside of
the Mercer County area. With respect to certain conflicts of interest between
the Managing General Partner and the Partnership with respect to the acquisition
of Leases, see "Conflicts of Interest - Conflicts Involving the Acquisition of
Leases."
Because the Managing General Partner will assign to the Partnership only the
number of Prospects which it believes are necessary for the drilling operations
of the Partnership, the Partnership will not Farmout any undeveloped Prospects.
52
<PAGE>
INTERESTS OF PARTIES
The Managing General Partner, unaffiliated third parties (including landowners)
and you and the other Participants will share the production revenues from the
Partnership Wells. The following chart expresses the interests in gross revenues
derived from the wells based on all currently proposed Prospects set forth below
in "- Information Regarding Currently Proposed Prospects." If the Partnership
acquires less than a 100% Working Interest, then the percentages available to
the Partnership will decrease proportionately.
<TABLE>
<CAPTION>
PARTNERSHIP THIRD PARTY 87.5% PARTNERSHIP
ENTITY INTEREST ROYALTY INTEREST NET REVENUE INTEREST(1)
- ------ -------------- -------------------- -----------------------
<S> <C> <C> <C>
Managing General Partner.................29% Partnership Interest 25.375%
Participants.............................71% Partnership Interest 62.125%
Third Party..........................................................12.500% Landowner Royalty Interest 12.500%
---------
100.000%
---------
---------
</TABLE>
- -----------------
(1) It is possible that substituted or additional Prospects in the Mercer
County area could have a Net Revenue Interest to the Partnership as low as
84.375% which would reduce the Participants' interest to 59.906%. Also,
there is no minimum Net Revenue Interest which the Partnership is required
to own before drilling a well in areas outside of the Mercer County area.
TITLE TO PROPERTIES
Title to all Leases acquired by the Partnership will be held in the name of the
Partnership. However, title to the Leases may initially be held in the name of
the Managing General Partner, its Affiliates, or any nominee designated by the
Managing General Partner, to facilitate the acquisition of the Leases. Title to
the Leases will be transferred to the Partnership from time to time after the
Initial Closing Date, and filed for record following drilling.
It is not the practice in the oil and gas industry to obtain title insurance on
Leases and the Managing General Partner will not obtain title insurance with
respect to the Working Interests in the Leases to be assigned to the
Partnership. Also, in the oil and gas industry leasehold assignments generally
do not contain a warranty as to the title to the leasehold. However, a favorable
formal title opinion with respect to the Working Interest in each Lease
composing the acreage on which the well is situated will be obtained before each
well is drilled. Nevertheless, if the title to the Working Interest in a Lease
is defective, then the Partnership will not have the right to recover against
the transferor (the Managing General Partner or its Affiliates) on a title
warranty theory.
There is no assurance that the Partnership will not experience losses from title
defects excluded from or not disclosed by the formal title opinion. The Managing
General Partner will take the steps it deems necessary to assure that the
Partnership has acceptable title for its purposes. The Managing General Partner,
however, may use its own judgment in waiving title requirements and will not be
liable for any failure of title of Leases transferred to the Partnership.
FORMATION OF THE PARTNERSHIP AND POWERS OF THE MANAGING GENERAL PARTNER
The Managing General Partner will serve as the Operator of the wells in
Pennsylvania, and the Managing General Partner or an Affiliate will serve as
Operator of any wells located in other areas of the United States. The Managing
General Partner's authority in conducting the affairs of the Partnership is
virtually unlimited, however, you and the other Participants are granted certain
rights. Also, certain restrictions are placed on the Managing General Partner by
the Partnership Agreement. As to the removal of the Managing General Partner and
the Operator, and the appointment of successors, see "Summary of Partnership
Agreement" and "Summary of Drilling and Operating Agreement."
DRILLING AND COMPLETION ACTIVITIES; OPERATION OF PRODUCING WELLS
Under the Drilling and Operating Agreements the responsibility for drilling and
completing (or plugging) Partnership Wells will be on the Managing General
Partner as the general drilling contractor on Prospects located in Pennsylvania,
and the Managing General Partner or an Affiliate on any Prospects located in
other areas of the United States. The Partnership will pay the drilling and
completion costs to the Managing General Partner or an Affiliate as incurred,
except that the Partnership is permitted to make advance payments to the
Managing General Partner or an Affiliate if necessary to secure tax benefits of
prepaid intangible drilling and development costs and there is a valid business
reason.
53
<PAGE>
Wells will be drilled at competitive industry rates to a depth sufficient to
test thoroughly the objective geological formation. The Partnership will bear
its proportionate share of the cost of drilling and completing or drilling and
abandoning the Partnership's Wells. In the Appalachian Basin the Partnership
will pay for each well completed and placed into production an amount equal to
the depth of the well in feet at its deepest penetration as recorded by the
drilling contractor multiplied by $37.81 per foot or, for each well which the
Partnership elects not to complete, an amount equal to $20.60 per foot
multiplied by the depth of the well, as specified above. To the extent that the
Partnership acquires less than 100% of a Prospect, its drilling and completion
costs of that well will be proportionately decreased. If the foregoing rates
exceed competitive rates available from other non-affiliated persons in the area
engaged in the business of rendering or providing comparable services or
equipment, then the rates will be adjusted to the competitive rate. The Managing
General Partner may not benefit by interpositioning itself between the
Partnership and the actual provider of drilling contractor services. (See
"Compensation.")
The footage price includes all ordinary costs of drilling, testing and
completing the well. This includes the cost of a second completion and Frac
which means, in general, treating a second potentially productive geological
formation in an attempt to enhance the gas production from the well. (See
"Definitions.") It also includes installing gathering lines and other necessary
facilities for the production of natural gas.
Although the following costs are possible, it is not anticipated that these
costs will be incurred, and the footage price will not include the cost of:
- completion procedures, equipment or any facilities necessary or
appropriate for the production and sale of oil or other liquids; and
- equipment or materials (except salt water collection tanks,
separators, siphon string and tubing, which are included) necessary
or appropriate to collect, lift or dispose of liquids for efficient
gas production.
The footage price will also not include the cost of a third completion and Frac.
These extra costs will be charged at:
- the Operator's standard charges for services performed directly by
it (exclusive of services in supervision of third party services);
or
- the Operator's invoice costs of third party services performed and
materials and equipment purchased plus 10% to cover supervisory
services and overhead.
Each additional Frac is anticipated to be approximately $8,000 and paid from the
Partnership Subscription and/or Partnership revenues. The Managing General
Partner expects to subcontract some of the actual drilling and completion of
Partnership Wells to third parties selected by it.
The Managing General Partner, as Operator, will determine whether or not to
complete each well. A well, however, may be completed only if the Managing
General Partner determines in good faith that there is a reasonable probability
of obtaining commercial quantities of gas. Based upon its past experience, the
Managing General Partner anticipates that all Partnership Wells drilled to the
Clinton/Medina geological formation will be required to be completed before a
determination can be made as to the well's productivity. If the Managing General
Partner determines that a well should not be completed, then the well will be
plugged and abandoned and the footage price will be adjusted.
The Managing General Partner's duties as Operator will include:
- making necessary arrangements for the drilling and completing of
Partnership Wells and related facilities for which it has
responsibility under the Drilling and Operating Agreement;
- managing and conducting all field operations in connection with the
drilling, testing, equipping, operating and producing of the wells;
- making technical decisions required in drilling, completing and
operating the wells;
54
<PAGE>
- maintaining the wells, equipment and facilities in good working
order during the useful life thereof; and
- performing necessary accounting and administrative functions.
During producing operations the Managing General Partner, as Operator, will
receive a monthly well supervision fee at competitive rates for each producing
well for which it has responsibility under the Drilling and Operating Agreement.
In the Appalachian Basin the well supervision fee will be $275 for each
producing well and will be proportionately reduced to the extent the Partnership
does not acquire 100% of the Working Interest. The fee may be adjusted on the
first day of January of each year beginning January 1, 2001, by an amount which
does not exceed the percentage increase since the previous adjustment date in
average earnings of oil and gas industry workers as published by a bureau of the
U.S. Department of Labor. If the foregoing rates exceed competitive rates
available from other non-affiliated persons in the area engaged in the business
of rendering or providing comparable services or equipment, then the rates will
be adjusted to the competitive rate. The Managing General Partner may not
benefit by interpositioning itself between the Partnership and the actual
provider of operator services. In no event will any consideration received for
operator services be duplicative of any consideration or reimbursement received
pursuant to the Partnership Agreement. (See "Compensation.")
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.
These costs will be billed at the invoice cost of the materials purchased or the
third party services performed. The Drilling and Operating Agreement contains a
number of other material provisions which should be carefully reviewed and
understood by you and the other prospective investors. (See "Summary of Drilling
and Operating Agreement.")
In the unlikely event that the Managing General Partner or an Affiliate is not
the actual operator of the well during producing operations, then the Managing
General Partner without receiving well supervision fees will review the
performance of the third party operator. This includes reviewing the costs and
expenses charged by the third party operator and monitoring the accounting and
production records for the Partnership. The actual operator will perform
services for each well which are customarily performed to operate a well in the
same general area as where the well is located. The third party operator will be
reimbursed for its direct costs and will receive either reimbursement of its
administrative overhead or well supervision fees pursuant to an operating
agreement. These fees will be subject to an annual adjustment for inflation and
will be proportionately reduced to the extent the Partnership does not acquire
100% of the Working Interest.
It is anticipated that the Partnership generally will own 100% of the Working
Interest in each Prospect, but the Partnership has reserved the right to own as
little as 25% of the Working Interest. Thus, the Partnership may engage in joint
activities on some of the Prospects with third parties. This will decrease the
Partnership's Working Interest in the well but increase the diversification of
the Partnership's drilling activities. Any other Working Interest owner in a
Prospect may have a separate agreement with the Managing General Partner with
respect to the drilling and operation of a well thereon with differing terms and
conditions from those contained in the Drilling and Operating Agreement.
However, the Managing General Partner will be the operator or have
55
<PAGE>
the right to replace the operator of most, if not all, Partnership Wells and
will control all drilling and producing operations on these wells.
SALE OF OIL AND GAS PRODUCTION
IN GENERAL. The Managing General Partner is responsible for selling the
Partnership's gas and oil production. The Managing General Partner's 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. The
Managing General Partner 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 customers is divided by the volume of all gas sold from the
wells in the area. For gas sold in the Mercer County area the Managing General
Partner received an average selling price after deducting all expenses,
including transportation expenses, of $2.29 per MCF in 1996, $2.39 per MCF in
1997, and $2.22 per MCF in 1998. On occasion, the Managing General Partner has
reduced the amount of production it normally sells on the spot market until the
spot market price increased. The Managing General Partner, however, has not
voluntarily restricted its gas production in the past two years because of a
lack of a profitable market.
With respect to the gathering of the Partnership's gas in Mercer County, it is
anticipated that the Managing General Partner or an Affiliate, which may include
a limited partnership sponsored by an Affiliate of AAI, will gather, transport
and compress the natural gas produced by the Partnership either directly to an
industrial end-user or into the various pipeline delivery points as discussed
below. The Partnership will pay a gathering charge for these services at a
competitive rate, which is currently 29 cents per MCF. The Managing General
Partner and its Affiliates are currently delivering an average 27,000 MCF of
natural gas per day from the Mercer County area and have the capacity of
delivering 33,000 MCF per day from the Mercer County area.
The Managing General Partner anticipates that approximately 10% to 15% of the
gas produced by the Partnership and the Managing General Partner's previous
Programs in the Mercer County area will be sold to Wheatland Tube, an industrial
end-user in the area where the wells will be drilled. The remainder of the
Partnership's gas, with certain exceptions, will be sold to Northeast Ohio Gas
Marketing, Inc. ("Northeast Ohio Gas Marketing"), an Affiliate of First Energy
Corporation ("First Energy"), a company listed on the New York Stock Exchange,
as discussed below.
AAI sold its gas marketing subsidiary, Atlas Gas Marketing, Inc., to an
Affiliate of First Energy. AAI's rationale for the sale was that energy
deregulation has resulted in fully integrated energy suppliers who provide
natural gas, electricity and other related products and services to end-use
customers. Although AAI believed that Atlas Gas Marketing was an effective
marketer of natural gas, it did not provide these other commodities, products
and services. For Atlas Gas Marketing to move into these other areas so that it
could compete with other energy suppliers would have been expensive and risky
for AAI. Thus, AAI believed the sale of Atlas Gas Marketing was the next logical
step in benefiting its Affiliated Programs.
As a part of the sale, Northeast Ohio Gas Marketing entered into an agreement
(the "Agreement") with the Managing General Partner and its Affiliates to buy
all of the gas produced by the Managing General Partner and its Affiliates,
including the Partnership and its Affiliated Programs, other than gas being sold
to Wheatland Tube, CSC and Warren Consolidated. The contracts with Wheatland
Tube, CSC and Warren Consolidated will continue to be serviced by the Managing
General Partner and its Affiliates including the Partnership and its Affiliated
Programs and currently provide for a higher price to be paid than under the
Agreement. However, the Managing General Partner does not anticipate that the
Partnership will benefit from the higher prices under the contracts with CSC and
Warrren Consolidated because they primarily buy gas in east Ohio. Wheatland
Tube, however, does buy gas from the Mercer County area where most, if not all,
of the Partnership's wells will be drilled.
The Agreement is for a 10-year term, beginning on April 1, 1999, and provides
that Northeast Ohio Gas Marketing must take all of the gas produced by the
Managing General Partner and its Affiliates. The Agreement may be suspended for
Force Majeure which means generally such things as an act of God, strike, war,
public riot, lightning, fire, storm, flood, and explosion. One act of Force
Majeure is if Carbide Graphite and/or Duferco Farrell Corporation, which the
Managing General Partner anticipates will purchase between 20% and 40% of the
gas from the Mercer County area from Northeast Ohio Gas Marketing, permanently
close their plants. If this happens, then Northeast Ohio Gas Marketing is not
required to continue to purchase the gas that would otherwise have been sold to
Carbide Graphite and/or Duferco Farrell Corporation.
The Agreement also sets the price to be paid for the gas at the delivery points
set forth below for either the first one or two years of the Agreement depending
upon the delivery point. If, at the end of the applicable period, the Managing
General Partner and its Affiliates and Northeast Ohio Gas Marketing cannot agree
to a new price for the gas, then the Managing General Partner and its Affiliates
may arrange to sell their gas to third parties. The Managing General Partner,
however, must first give Northeast
56
<PAGE>
Ohio Gas Marketing notice and an opportunity to match the price. Thereafter,
Northeast Ohio Gas Marketing and the Managing General Partner and its
Affiliates will set the prices annually each November 30 subject to the same
terms if there is no price agreement (I.E., the Partnership can sell to third
parties).
The initial gas price for each delivery point under the Agreement is determined
by a formula tied to the spot market price based on the location of the delivery
point. Each delivery point will have a different formula for calculating the
price to be paid by Northeast Ohio Gas Marketing for the gas. The delivery
points are East Ohio Gas, National Fuel Gas Distribution, National Fuel Gas
Supply, Peoples Natural Gas, Columbia Gas Transmission, and Tennessee Gas
Pipeline - Zone 4.
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. The Managing General Partner is utilizing
financial instruments to hedge the price risk of a portion of its Programs' gas
production, which would include the Partnership. To assure that the financial
instruments will be used solely for hedging price risks and not for speculative
purposes, the Managing General Partner has established an Energy Price Risk
Committee, whose responsibility will be to ascertain that all financial trading
is done in compliance with hedging policies and procedures. The Managing General
Partner does not intend to contract for positions that it cannot offset with
actual production.
MARKETING OF GAS PRODUCTION FROM WELLS IN OTHER AREAS OF THE UNITED STATES. For
wells drilled in areas of the United States other than the Mercer County area,
the Managing General Partner expects that gas produced from these wells will be
supplied to industrial end-users, local distribution companies and/or interstate
pipelines.
CRUDE OIL. 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.
Thus, crude oil does not present any transportation problem. The Managing
General Partner anticipates selling any oil produced by the wells in the Mercer
County area to Ergon and other purchasers in spot sales. Previously, the
Managing General Partner was receiving approximately $21.50 per barrel in
December, 1996, approximately $15.20 per barrel in December, 1997, and
approximately $13.00 per barrel in December, 1998, for oil produced in the
Mercer County area.
Over the past eight years, the price of oil has ranged from approximately $38 to
as low as $8 per barrel. There can be no assurance as to the price of oil during
the term of the Partnership.
INSURANCE
Since 1972, the Managing General Partner and its Affiliates have been involved
in the drilling of more than 1,600 wells in Ohio, Pennsylvania and other areas
of the Appalachian Basin. They have not incurred a blow-out, fire or similar
hazard with any of these wells, and thus have not made any insurance claims.
The Managing General Partner will obtain and maintain for the benefit of itself
and the Partnership insurance coverage in amounts (with provisions for
deductible amounts) and for purposes, which would be carried by a reasonable,
prudent general contractor and operator in accordance with industry standards.
The Partnership will be named as an additional insured under these policies. In
addition, the Managing General Partner requires all of its subcontractors to
certify that they have acceptable insurance coverage for worker's compensation
and general, auto and excess liability coverage. Major subcontractors are
required to carry general and auto liability insurance with a minimum of
$1,000,000 combined single limit for bodily injury and property damage in any
one occurrence or accident. The Managing General Partner's current insurance
coverage satisfies the following specifications:
- worker's compensation insurance in full compliance with the laws of
the Commonwealth of Pennsylvania 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 occurrence or accident and in the aggregate; and
- excess liability insurance as to bodily injury and property damage
with combined limits of $50,000,000 during drilling operations, per
occurrence or accident and in the aggregate. This 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
57
<PAGE>
seepage, pollution or contamination damage resulting from an
accident. The excess liability insurance will be in place and
effective no later than the Initial Closing Date.
The excess liability insurance will insure the Partnership (and the Managing
General Partner's other Programs) until the Investor General Partners are
converted to Limited Partners. After conversion the Partnership will have the
benefit of the Managing General Partner's $11,000,000 liability insurance on the
same basis as the Managing General Partner and its Affiliates, including the
Managing General Partner's other Programs. Because the Managing General Partner
is driller and operator of other Programs there is a risk that the insurance
available to the Partnership could be substantially less if there are claims
with respect to the other Programs.
These policies will have terms, including exclusions and deductibles, standard
for the oil and gas industry. (See "Risk Factors - Special Risks of the
Partnership - Risk of Loss From Drilling Hazards.") Upon request the Managing
General Partner will provide you or your representative a copy of its insurance
policies. The Managing General Partner will use its best efforts to maintain
insurance coverage which meets or exceeds its current coverage, but may
ultimately be unsuccessful because the coverage becomes unavailable or too
expensive.
If you are an Investor General Partner and there is going to be an adverse
material change in the Partnership's insurance coverage, then the Managing
General Partner will notify you at least 30 days before the effective date. If
the insurance coverage will be materially reduced, which is not anticipated,
then you will have the right to convert your Units into Limited Partner
interests before the reduction by giving written notice to the Managing General
Partner. (See "Tax Aspects - Limitations on Passive Activities.")
USE OF CONSULTANTS AND SUBCONTRACTORS
The Partnership Agreement authorizes the Managing General Partner to use the
services of independent outside consultants and subcontractors, although this is
not anticipated by the Managing General Partner for producing operations in the
Mercer County area. These persons will normally be paid on a per diem or other
cash fee basis. The services will be charged to the Partnership as either a
Direct Cost or as a direct expense pursuant to the Drilling and Operating
Agreement. These charges will be in addition to the unaccountable, fixed payment
reimbursement paid to the Managing General Partner for Administrative Costs, and
well supervision fees paid to the Managing General Partner as Operator. (See
"Compensation" and "Management.")
INFORMATION REGARDING CURRENTLY PROPOSED PROSPECTS
Set forth below is information relating to Prospects which have been currently
proposed for assignment to the Partnership upon the Initial Closing Date and
from time to time thereafter subject to the Managing General Partner's right to
withdraw the Prospects and to substitute other Prospects. The specified
Prospects represent the necessary Prospects if approximately $12,000,000 is
raised and the Partnership takes 100% of the Working Interest. The Managing
General Partner has not proposed any other Prospects if more than this amount is
raised, if the Partnership takes a lesser Working Interest in the Prospects, if
the Prospects are substituted and/or if Prospects will be drilled in other areas
of the United States.
The currently proposed Prospects will be assigned unless circumstances occur
which, in the Managing General Partner's opinion, diminish the relative
suitability of the Prospects. Any substituted and/or additional Prospects will
meet the same general criteria for development potential as the currently
proposed Prospects. Also, most of the substituted and/or additional Prospects
will have the Clinton/Medina geological formation as their objective, which is
discussed in the UEDC Geological Report, and will be located in areas where the
Managing General Partner or its Affiliates have previously conducted drilling
operations. Nevertheless, you will not have the opportunity to evaluate for
yourself the relevant geophysical, geological, economic or other information
regarding the substituted and/or additional Prospects. (See "- Acquisition of
Leases," above.)
The purpose of the information regarding the currently proposed Prospects is to
assist you in analyzing and evaluating the currently proposed Prospects,
including production information for wells in the general area. The Managing
General Partner believes that production information for wells in the general
area is an important indicator in evaluating the economic potential of any well
to be drilled. There, however, can be no assurance that a well drilled by the
Partnership will experience production comparable to the production experienced
by wells in the surrounding area since the geological conditions in the
Clinton/Medina geological formation can change in a short distance.
You are cautioned and urged to analyze carefully all production information for
each well offsetting or in the general area of a specified Prospect and, in the
process of doing so, to take the factors set forth below into consideration:
58
<PAGE>
- The length of time which the well has been on line and the period
of time for which production information is shown.
- The impact of "flush" production of a well which usually occurs in
the early period of well operations. This period can vary depending
on the location of the well and the manner in which the well is
operated.
- Production declines at various rates throughout the life of a well
and decline curves vary depending on the geological location of the
well and the manner in which the well is operated.
- The production information with respect to some wells is incomplete
and with other wells very limited. The designation "N/A" means the
production was not available to the Managing General Partner or if
the Managing General Partner was the Operator, then the well was
not completed or on line as of the date of the report.
- Production information for wells located in close proximity to a
Prospect tends to be more relevant than production information for
wells located at a great distance from a Prospect, although from
time to time great disparity in well performance can occur in wells
located in close proximity.
- Consistency in production among wells tends to confirm the
reliability and predictability of the production.
All the specified Prospects are subject to the factors set forth below:
- The Leases are being contributed to the Partnership at the Managing
General Partner's Cost of the Lease, unless the Managing General
Partner has cause to believe that Cost is materially more than the
fair market value of the property, in which case the price will not
exceed the fair market value. There are no Overriding Royalty
Interests or other burdens in favor of the Managing General Partner
or its Affiliates.
- The Managing General Partner or its Affiliates will act as driller
and operator for all the wells pursuant to the Drilling and
Operating Agreement. It is anticipated that the Partnership
generally will be transferred 100% of the Working Interest but the
Partnership has reserved the right to take as little as 25% of the
Working Interest.
- The Managing General Partner and its Affiliates own acreage in the
vicinity of the Prospects. (See "Conflicts of Interest - Conflicts
Involving Acquisition of Leases.")
- All wells will be drilled through the Clinton/Medina geological
formation to the top of the Queenston geological formation. The
wells will have no secondary objectives.
- All the wells will be gas wells. See the Production Map for the
location of the Managing General Partner and its Affiliates'
pipeline. Also, see "- Sale of Oil and Gas Production" concerning a
discussion of the marketing arrangements for the Partnership's gas.
To assist you in becoming familiar with the Prospects included is the
information set forth below:
- A map of western Pennsylvania and eastern Ohio showing their
counties.
- Prospect Lease information.
- A Location and Production Map showing the Prospects and the wells in
the area.
- Production data.
- United Energy Development Consultants, Inc.'s geological report.
(See "Experts.")
59
<PAGE>
MAP OF WESTERN PENNSYLVANIA
AND
EASTERN OHIO
60
<PAGE>
[MAP]
61
<PAGE>
PROSPECT LEASE INFORMATION
62
<PAGE>
EXHIBIT A
ATLAS-ENERGY FOR THE NINETIES - PUBLIC #8 LTD.
<TABLE>
<CAPTION>
OVERRIDING ROYALTY
INTEREST TO THE
EFFECTIVE EXPIRATION MANAGING GENERAL
PROSPECT NAME COUNTY DATE* DATE* LANDOWNER ROYALTY PARTNER
- ----------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
1. Allen #3 Lawrence 10/13/97 10/13/02 12.50% 0%
2. Artman #3 Lawrence 10/13/97 10/13/02 12.50% 0%
3. Balog #1 Lawrence 4/6/98 4/6/01 12.50% 0%
4. Best #3 Lawrence 3/12/99 3/12/02 12.50% 0%
5. Booher #1 Lawrence 10/1/98 10/1/01 12.50% 0%
6. Booher #2 Lawrence 10/1/98 10/1/01 12.50% 0%
7. Booher #3 Lawrence 10/1/98 10/1/01 12.50% 0%
8. Borzackilo #1 Lawrence 9/17/98 9/17/01 12.50% 0%
9. Braatz #2 Lawrence 10/30/98 10/30/01 12.50% 0%
10. Byler #72 Lawrence 8/13/98 8/13/01 12.50% 0%
11. Clark #7 Lawrence 9/29/98 9/29/01 12.50% 0%
12. Daytner #1 Lawrence 8/24/98 8/24/01 12.50% 0%
13. Daytner #2 Lawrence 8/24/98 8/24/01 12.50% 0%
14. Elder #2 Lawrence 3/8/99 3/8/02 12.50% 0%
15. Grell Unit #1 Lawrence 1/27/99 1/27/02 12.50% 0%
16. Hasely #1 Lawrence 7/20/98 7/20/01 12.50% 0%
17. Hogue #1 Lawrence 10/18/97 10/18/02 12.50% 0%
18. Kauffman #1 Lawrence 4/27/98 4/27/01 12.50% 0%
19. Kendall #1 Lawrence 8/28/98 8/28/01 12.50% 0%
20. Kendall #2 Lawrence 8/28/98 8/28/01 12.50% 0%
21. Litwinovich #1 Lawrence 10/10/97 10/10/02 12.50% 0%
22. Litwinovich #2 Lawrence 10/2/97 10/2/02 12.50% 0%
23. Miller #10 Lawrence 2/25/99 2/25/02 12.50% 0%
24. Miller #12 Lawrence 10/15/97 10/15/02 12.50% 0%
25. Miller #14 Lawrence 11/12/98 11/12/01 12.50% 0%
26. Mitcheltree #1 Lawrence 10/9/98 10/9/01 12.50% 0%
27. Shaffer #5 Lawrence 10/26/98 10/26/01 12.50% 0%
28. Slick #2 Lawrence 10/22/97 10/22/02 12.50% 0%
29. Slick #3 Lawrence 4/16/99 4/16/02 12.50% 0%
30. Stickle #1 Lawrence 8/14/98 8/14/01 12.50% 0%
31. Telesz #1 Lawrence 4/26/99 4/26/02 12.50% 0%
32. Wengerd #6 Lawrence 1/26/99 1/26/02 12.50% 0%
33. Wengerd #7 Lawrence 2/26/98 2/26/02 12.50% 0%
34. Whiting #6 Lawrence 10/23/97 10/23/02 12.50% 0%
35. Wilson #6 Lawrence 2/10/98 2/10/02 12.50% 0%
36. Bobish #1 Mercer 7/16/98 7/16/01 12.50% 0%
37. Byler #74 Mercer 10/9/97 10/9/00 12.50% 0%
38. Combine #1 Mercer 7/24/98 7/24/01 12.50% 0%
39. Czubek #1 Mercer 2/19/98 2/19/01 12.50% 0%
40. Gathers #1 Mercer 8/4/98 8/4/01 12.50% 0%
41. Gearhart #1 Mercer 6/3/98 6/3/01 12.50% 0%
42. Hardisky #1 Mercer 9/19/97 9/19/00 12.50% 0%
43. Hostetler #14 Mercer 10/9/97 10/9/00 12.50% 0%
44. Hostetler #15 Mercer 8/21/97 8/21/00 12.50% 0%
45. Knierman #1 Mercer 8/3/98 8/3/01 12.50% 0%
<CAPTION>
OVERRIDING
ROYALTY ACRES TO BE
INTEREST TO NET REVENUE ASSIGNED TO
PROSPECT NAME 3RD PARTIES INTEREST NET ACRES PARTNERSHIP
- ---------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
1. Allen #3 0% 87.5% 107 50
2. Artman #3 0% 87.5% 126 50
3. Balog #1 0% 87.5% 99 50
4. Best #3 0% 87.5% 50 50
5. Booher #1 0% 87.5% 215 50
6. Booher #2 0% 87.5% 215 50
7. Booher #3 0% 87.5% 215 50
8. Borzackilo #1 0% 87.5% 88 50
9. Braatz #2 0% 87.5% 83 50
10. Byler #72 0% 87.5% 72 50
11. Clark #7 0% 87.5% 45 45
12. Daytner #1 0% 87.5% 105 50
13. Daytner #2 0% 87.5% 105 50
14. Elder #2 0% 87.5% 148 50
15. Grell Unit #1 0% 87.5% 55 50
16. Hasely #1 0% 87.5% 108 50
17. Hogue #1 0% 87.5% 38 38
18. Kauffman #1 0% 87.5% 92 50
19. Kendall #1 0% 87.5% 123 50
20. Kendall #2 0% 87.5% 123 50
21. Litwinovich #1 0% 87.5% 86 50
22. Litwinovich #2 0% 87.5% 108 50
23. Miller #10 0% 87.5% 60 50
24. Miller #12 0% 87.5% 88 50
25. Miller #14 0% 87.5% 85 50
26. Mitcheltree #1 0% 87.5% 103 50
27. Shaffer #5 0% 87.5% 52 50
28. Slick #2 0% 87.5% 113 50
29. Slick #3 0% 87.5% 56 50
30. Stickle #1 0% 87.5% 58 50
31. Telesz #1 0% 87.5% 95 50
32. Wengerd #6 0% 87.5% 54 50
33. Wengerd #7 0% 87.5% 95 50
34. Whiting #6 0% 87.5% 140 50
35. Wilson #6 0% 87.5% 50 50
36. Bobish #1 0% 87.5% 90 50
37. Byler #74 0% 87.5% 60 50
38. Combine #1 0% 87.5% 80 50
39. Czubek #1 0% 87.5% 50 50
40. Gathers #1 0% 87.5% 62 50
41. Gearhart #1 0% 87.5% 60 50
42. Hardisky #1 0% 87.5% 47 47
43. Hostetler #14 0% 87.5% 60 50
44. Hostetler #15 0% 87.5% 100 50
45. Knierman #1 0% 87.5% 155 50
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
OVERRIDING ROYALTY
INTEREST TO THE
EFFECTIVE EXPIRATION MANAGING GENERAL
PROSPECT NAME COUNTY DATE* DATE* LANDOWNER ROYALTY PARTNER
- ---------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
46. Leali #5 Mercer 1/30/98 1/30/01 12.50% 0%
47. Leali #6 Mercer 1/30/98 1/30/01 12.50% 0%
48. Lehto #1 Mercer 9/18/97 9/18/00 12.50% 0%
49. McFarland #14 Mercer 4/2/98 4/2/01 12.50% 0%
50. McFarland #15 Mercer 10/8/97 10/8/00 12.50% 0%
51. Minner #4 Mercer 5/7/98 5/7/01 12.50% 0%
52. Picirilli #1 Mercer 11/20/98 11/20/01 12.50% 0%
53. Sacewicz #1 Mercer 8/28/97 8/28/00 12.50% 0%
54. Scott #1 Mercer 4/29/98 4/29/01 12.50% 0%
55. Turner #3 Mercer 5/9/96 5/9/01 12.50% 0%
56. Wallace #2 Mercer 5/7/96 5/7/01 12.50% 0%
57. Yasnowski #1 Mercer 8/4/98 8/4/01 12.50% 0%
58. Yoder #8 Mercer 10/9/97 10/9/00 12.50% 0%
59. Yoder #9 Mercer 5/29/96 5/29/01 12.50% 0%
<CAPTION>
OVERRIDING
ROYALTY ACRES TO BE
INTEREST TO NET REVENUE ASSIGNED TO
PROSPECT NAME 3RD PARTIES INTEREST NET ACRES PARTNERSHIP
- -----------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
46. Leali #5 0% 87.5% 225 50
47. Leali #6 0% 87.5% 225 50
48. Lehto #1 0% 87.5% 155 50
49. McFarland #14 0% 87.5% 78 50
50. McFarland #15 0% 87.5% 79 50
51. Minner #4 0% 87.5% 205 50
52. Picirilli #1 0% 87.5% 58 50
53. Sacewicz #1 0% 87.5% 25 25
54. Scott #1 0% 87.5% 89 50
55. Turner #3 0% 87.5% 145 50
56. Wallace #2 0% 87.5% 168 50
57. Yasnowski #1 0% 87.5% 180 50
58. Yoder #8 0% 87.5% 80 50
59. Yoder #9 0% 87.5% 70 50
</TABLE>
*HBP - Held by Production
64
<PAGE>
LOCATION AND PRODUCTION MAP
65
<PAGE>
[MAP]
66
<PAGE>
[MAP]
67
<PAGE>
[MAP]
68
<PAGE>
[MAP]
69
<PAGE>
[MAP]
70
<PAGE>
[MAP]
71
<PAGE>
[MAP]
72
<PAGE>
PRODUCTION DATA
73
<PAGE>
THE PRODUCTION DATA PROVIDED IN THE TABLE BELOW IS NOT INTENDED TO IMPLY THAT
THE WELLS TO BE DRILLED BY THE PARTNERSHIP WILL HAVE THE SAME RESULTS, ALTHOUGH
IT IS AN IMPORTANT INDICATOR IN EVALUATING THE ECONOMIC POTENTIAL OF ANY WELL TO
BE DRILLED BY THE PARTNERSHIP.
<TABLE>
<CAPTION>
ID DATE MOS TOTAL TOTAL LATEST
NUMBER OPERATOR WELL NAME COMPLT'D ON LINE MCF LOGGERS 30 DAY
DEPTH PROD.
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
20022 The Peoples Natural Gas Co. Sokevitz #1 12/14/79 Plugged & Abandoned 4202' N/A
20185 Atlas Resources, Inc. Reed #4 08/03/98 7 13697 6144' 1902
20187 Atlas Resources, Inc. Wengerd Unit #2A 03/22/98 11 16430 6075' 1057
20191 Atlas Resources, Inc. Troyer #1 08/02/98 7 10687 6052' 1366
20195 Atlas Resources, Inc. Byler #33 01/11/99 3 8062 6098' 3159
20201 Atlas Resources, Inc. Byler #42 07/29/98 7 20302 6154' 2057
20203 Atlas Resources, Inc. Teh#1 09/18/98 7 12878 5999' 1254
20215 Atlas Resources, Inc. Mikloz #1 10/27/98 6 17567 6148' 3919
20216 Atlas Resources, Inc. Kempf #3 02/03/99 3 4774 6087' 2160
20217 Atlas Resources, Inc. Byler #43 01/09/99 3 8282 6080' 3982
20218 Atlas Resources, Inc. Buchowski #1 02/08/99 3 4006 6111' 2814
20220 Atlas Resources, Inc. Kempf #2 01/20/99 3 3544 6114' 1687
20225 Atlas Resources, Inc. Byler #60 03/03/99 2 2303 6102' 2029
20229 Atlas Resources, Inc. Johnston #4 03/14/99 1 906 6133' N/A
20234 Atlas Resources, Inc. Muscarella Unit #2 03/26/99 N/A N/A 5575' N/A
20551 Atlas Resources, Inc. Bartholomew, P. #1 05/18/84 136 48327 5795' 230
20604 Atlas Resources, Inc. Nych Unit #1 05/05/84 136 30447 5652' 119
20624 Atlas Resources, Inc. Buchanan-Oris Unit #1 08/02/84 136 33279 5791' N/A
20626 Atlas Resources, Inc. Plymire #1 11/03/84 Plugged & Abandoned 5784' N/A
21174 Atlas Resources, Inc. Pesek #1 11/26/90 101 120556 5692' 151
21260 Atlas Resources, Inc. McAnallen #1 03/19/91 97 50455 5719' 314
21307 Atlas Resources, Inc. Marsh #3 09/04/91 92 92487 5700' 366
21315 Atlas Resources, Inc. Kelso Unit #2 08/11/91 92 92679 5786' 202
21327 Atlas Resources, Inc. Cresswell #1 08/28/91 92 87272 5688' 197
21337 Atlas Resources, Inc. Monske #1 08/19/91 92 63490 5620' 178
21340 Atlas Resources, Inc. Kelso #1 11/11/91 89 55123 5827' 348
21394 Atlas Resources, Inc. Marsh Unit #4 11/06/91 90 79467 5811' 461
21569 Tipka Oil & Gas Byler, J. & K. #1 09/19/92 N/A N/A 6036' N/A
21582 Tipka Oil & Gas Janosky Unit #1 10/02/92 N/A N/A 5882' N/A
21590 Tipka Oil & Gas McFarland Unit #1 10/20/92 N/A N/A 5864' N/A
22234 Atlas Resources, Inc. Wasser #2 09/09/96 31 34174 5754' 652
22303 Atlas Resources, Inc. Fairlamb Unit #1 11/10/96 29 45418 5432' 1315
</TABLE>
74
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<TABLE>
<CAPTION>
ID DATE MOS TOTAL TOTAL LATEST
NUMBER OPERATOR WELL NAME COMPLT'D ON LINE MCF LOGGERS 30 DAY
DEPTH PROD.
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
22312 Vista Resources McQuiston #2-C 02/23/97 N/A N/A 5390' N/A
22315 Vista Resources McQuiston #1-C 01/09/97 N/A N/A 5300' N/A
22325 Vista Resources Miller Unit #1 02/05/97 N/A N/A 5375' N/A
22326 Vista Resources Miller Unit #2 03/05/97 N/A N/A 5367' N/A
22373 Vista Resources McQuiston, E. #3-C 07/31/97 N/A N/A 5359' N/A
22374 Atlas Resources, Inc. Jones #2 08/29/97 20 39986 5739' 1358
22399 Atlas Resources, Inc. Klein #1 09/07/97 18 29551 5473' 1738
22419 Vista Resources/Atlas Resources, Inc. Arbuckle Unit #2 11/25/97 17 12037 5359' 483
22420 Vista Resources Arbuckle, R. #1 11/24/97 N/A N/A N/A N/A
22436 Atlas Resources, Inc. Stallsmith #1 02/05/98 14 26629 5495' 1427
22463 Atlas Resources, Inc. Kennedy #2 03/12/98 13 34845 5750' 1907
22465 Atlas Resources, Inc. Byler #29 03/03/98 11 30861 6071' 1629
22466 Atlas Resources, Inc. Byler #31 03/12/98 12 36144 6034' 1865
22471 Atlas Resources, Inc. Winder #3 03/14/98 13 18859 5800' 1292
22487 Atlas Resources, Inc. Kurtz #7 07/14/98 7 24655 6020' 3423
22488 Atlas Resources, Inc. Jordan #4 03/10/98 13 26521 5770' 2006
22492 Atlas Resources, Inc. Byler #25 03/25/98 11 17198 5848' 1344
22494 Atlas Resources, Inc. Vandervort #1 03/29/98 12 22945 5292' 2101
22496 Atlas Resources, Inc. Byers #2 03/19/98 11 13330 5893' 787
22535 Atlas Resources, Inc. McFarland #4 08/15/98 7 11417 5914' 1210
22539 Atlas Resources, Inc. Wengerd #3 01/12/99 3 8372 6048' 3077
22546 Vista Resources Temple, L. #1 10/08/98 N/A N/A N/A N/A
22554 Atlas Resources, Inc. Byler #32 08/23/98 7 21577 5941' 2314
22559 Atlas Resources, Inc. Borowicz #1 09/22/98 7 11956 5955' 1431
22560 Atlas Resources, Inc. Thompson #9 10/22/98 5 4652 5781' 1209
22570 Atlas Resources, Inc. Donner #1 10/05/98 6 11632 5902' 2476
22572 Atlas Resources, Inc. Byler #57 10/09/98 6 15809 5760' 3024
22574 Atlas Resources, Inc. McQueen #1 10/17/98 6 10354 5938' 1373
22575 Atlas Resources, Inc. Hostetler Unit #10 01/11/99 4 4628 6003' 1455
22579 Atlas Resources, Inc. Hostetler Unit #9 01/14/99 4 7060 6091' 1814
22585 Atlas Resources, Inc. Minner #1 03/10/99 1 34 5795' N/A
22586 Atlas Resources, Inc. Dick #2 03/02/99 2 1879 5868' 1879
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
ID DATE MOS TOTAL TOTAL LATEST
NUMBER OPERATOR WELL NAME COMPLT'D ON LINE MCF LOGGERS 30 DAY
DEPTH PROD.
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
22587 Vista Resources Temple, L. #2 01/12/99 N/A N/A 5242' N/A
22610 Atlas Resources, Inc. Jovenall #1 03/02/99 1 1756 5889' N/A
22617 Atlas Resources, Inc. Cameron #2 03/10/99 1 1193 5843' N/A
22623 Atlas Resources, Inc. Hostetler #11 03/22/99 N/A N/A 5934' N/A
22628 Atlas Resources, Inc. Gall #1 02/24/99 N/A N/A 5310' N/A
22629 Atlas Resources, Inc. Dixon #4 03/16/99 1 39 5964' N/A
22630 Atlas Resources, Inc. Mast #6 03/28/99 N/A N/A 5976' N/A
22632 Atlas Resources, Inc. Winner Unit #1 03/22/99 1 213 5981' N/A
22638 Atlas Resources, Inc. Cypher Unit #1 03/17/99 N/A N/A 5972' N/A
Note: Accurate through ------ Period Ending 4/99
</TABLE>
76
<PAGE>
GEOLOGICAL REPORT
FOR THE
CURRENTLY PROPOSED PROSPECTS
77
<PAGE>
GEOLOGIC EVALUATION
of
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
DRILLING PROGRAM
Southwestern Mercer Prospect Area,
Pennsylvania
Program proposed by:
ATLAS RESOURCES, INC.
311 Rouser Road
P.O. BOX 611
Moon Township, PA 15108
Report submitted by:
UEDC
United Energy Development Consultants, Inc.
1715 Crafton Blvd.
Pittsburgh, PA 15205-3101
For:
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
Drilling program by:
ATLAS RESOURCES, INC.
311 Rouser Road
P.O. Box 611
Moon Township, PA 15108
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<PAGE>
LOCATION MAP - AREA OF INTEREST
[MAP]
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTIGATION SUMMARY..........................................................3
OBJECTIVE.............................................................3
AREA OF INVESTIGATION.................................................3
METHODOLOGY...........................................................3
SOUTHWESTERN MERCER PROSPECT AREA..............................................4
DRILLING ACTIVITY.....................................................4
GEOLOGY...............................................................4
STRATIGRAPHY, LITHOLOGY & DEPOSITION.........................4
RESERVOIR CHARACTERISTICS....................................6
PRODUCTION CURVE......................................................8
POTENTIAL MARKETS AND PIPELINES.......................................8
STATEMENTS.....................................................................9
CONCLUSION............................................................9
DISCLAIMER............................................................9
NON-INTEREST..........................................................9
</TABLE>
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<PAGE>
INVESTIGATION SUMMARY
OBJECTIVE
The purpose of the following investigation is to evaluate the geologic
feasibility and further development of the Southwestern Mercer Prospect Area
(consisting of Lawrence and Mercer Counties) as proposed by Atlas Resources,
Inc.
AREA OF INVESTIGATION
A portion of this prospect area, herein identified as the Atlas-Energy
for the Nineties-Public #8 Ltd. Drilling Program, contains acreage in the
following townships in Mercer and Lawrence Counties, located in Pennsylvania:
<TABLE>
<CAPTION>
Mercer County Lawrence County
------------- ---------------
<S> <C>
Shenango Pulaski
Lackawannock Wilmington
Coolspring Hickory
Deer Creek Mahoning
Sandy Creek Neshannock
Wilmington Washington
Jackson
Delaware
Jefferson
</TABLE>
Fifty-nine (59) drilling prospects designated for this program will be
targeted to produce natural gas from Clinton-Medina Group reservoirs, found at
depths ranging from approximately 5,800 to 6,200 feet beneath the earth's
surface.
METHODOLOGY
Atlas Resources, Inc. and the in-house archives of UEDC, Inc.
provided the data incorporated into this report. Geological mapping and the
interpretations by Atlas geologists were also examined. Available "electric"
log, completion, and production data on wells offsetting prospect locations
and other "key" wells within and adjacent to the defined prospect area were
used to determine productive and depositional trends.
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<PAGE>
SOUTHWESTERN MERCER PROSPECT AREA
DRILLING ACTIVITY
The proposed drilling area lies within a region of northwestern
Pennsylvania which has been very active for the past decade in terms of
exploration for, and exploitation of natural gas reserves. Development within
and adjacent to the Southwestern Mercer Prospect Area has escalated since 1986,
with Atlas Resources, Inc. and it's affiliates drilling over nine hundred (900)
wells during this period. Atlas Resources, Inc. has encountered favorable
drilling and production results while solidifying a strong acreage position, as
Atlas Resources, Inc. continues to identify and extend productive trends.
Drilling is ongoing as of the date of this report with recent wells displaying
favorable initial drilling and completion results. Competitive activity has
begun both south and east of the prospect area, confirming the Clinton-Medina
Group of Lower Silurian age as a viable target for the further development of
economic quantities of natural gas.
GEOLOGY
STRATIGRAPHY, LITHOLOGY & DEPOSITION
Regionally, the Clinton-Medina Group was deposited in tide-dominated
shoreline, deltaic, and shelf environments and is lithologically comprised of
alternating sandstones, siltstones and shales. Productive sandstones are
composed of siliceous to dolomitic subarkoses, sublitharenites, and quartz
arenites. Reservoir quality sands occur throughout the delta-complex from
eastern Ohio through northwestern Pennsylvania and western New York. The
Clinton-Medina Group, deposited during the Lower Silurian, overlies the Upper
Ordovician age Queenston shale and is capped by the Middle Silurian Reynales
Formation. This dolomitic limestone cap is known locally to drillers as the
"Packer Shell".
Stratigraphically, in descending order, the potentially productive
units of the Clinton-Medina Group consist of the: 1) Thorold, 2) Grimsby, 3)
Cabot Head, and 4) Whirlpool members. These stratigraphic relationships are
illustrated in the following diagram:
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<PAGE>
[DIAGRAM]
The WHIRLPOOL is a light gray quartzose sandstone to siltstone ranging
in thickness from five (5) to twenty (20) feet. Average porosity values for this
sand member range from five (5) to ten (10) percent regionally. Within the area
of investigation, porosities in excess of twelve (12) percent occur within
localized trends targeted for further development.
The CABOT HEAD is a dark green to black shale, most likely of marine
origin. Within the investigated area a CABOT HEAD SANDSTONE has been encountered
in numerous wells. This formation has been found to contribute natural gas when
reservoir characteristics, including evidence of enhanced permeability, warrant
completion. This sand member is considered a secondary target.
The GRIMSBY is the thickest sandstone member of the Clinton-Medina
Group. Sand development ranges from ten (10) to forty-five (45) feet within an
interval comprised of fine to very
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<PAGE>
fine, light gray to red sandstones and siltstones broken up by thin dark gray
silty shale layers. Average porosity values for the Grimsby are approximately
six (6) to ten (10) percent over the pay interval regionally. Permeability
may be enhanced locally by the presence of naturally occurring
micro-fractures. Future development focuses on established production trends.
The THOROLD sandstone is the uppermost producing interval of the
Clinton-Medina sequence. This interbedded ferric sand, silt and shale interval
averages forty (40) feet. Where pay sand development occurs, porosities are in
the typical Clinton-Medina group range of six (6) to ten (10) percent.
Permeability may be enhanced locally by the presence of naturally occurring
micro-fractures.
RESERVOIR CHARACTERISTICS
Petroleum reservoirs are formed by the presence of an impermeable
barrier trapping natural gas of commercial quantities in a more permeable
medium. In the Clinton-Medina, this occurs either stratigraphically when a
permeable sand containing hydrocarbons encounters impermeable shale or when
permeable sand changes gradually into non-permeable sand by a cementation
process known as "diagenesis". Thus, this type of trap represents cemented- in
hydrocarbon accumulations.
Electric well logs can be used in conjunction with production to
interpret reservoir parameters. When sandstones in the Thorold, Grimsby, Cabot
Head or Whirlpool develop porosity in excess of 6%, or a bulk density of 2.55 or
less, the permeability of the reservoir (which ranges from < 0.1 to > 0.2 mD)
can become great enough to allow commercial production of natural gas. Small,
naturally occurring cracks in the formation, referred to as micro-fractures,
can also enhance permeability. A gamma, bulk density, density porosity and
neutron log suite showing sand development in the Grimsby, Cabot Head and
Whirlpool is illustrated on the following page.
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<PAGE>
[DIAGRAM]
Two other phenomena detected by well logs can occur which are
indicators of enhanced permeability. These indicators used to detect productive
intervals are:
- - MUDCAKE BUILDUP ACROSS THE ZONE OF INTEREST - after loading
the wellbore with brine fluid and circulating, an interval with
enhanced permeability will accept fluid, filtering out the solids and
leaving behind a buildup (or mudcake) on the formation wall. This is
detectable with a caliper log.
- - INVASION PROFILE - during circulation, brine that has a high
conductivity (or low resistivity) that is accepted into the
formation (as described above) will change the electrical
conductivity of the reservoir rock near and around the well-
bore. The resistivity will be low nearest to the wellbore and
will increase away from the wellbore. A dual laterolog can be
used to detect this profile created by a permeable zone - it
records resistivity near the wellbore as well as deeper into
the formation. A zone with enhanced permeability will show a
separation between the shallow and deep laterologs, while a
zone with little or no permeability would cause the two
resistivity measurements to read exactly the same. An example
follows:
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<PAGE>
GAMMA RAY LOG RESISTIVITY LOG
[DIAGRAM]
PRODUCTION CURVE
A model decline curve for the Southwestern Mercer Prospect Area was
created, based on production histories from over 200 wells in the mature portion
of the field. The diagram below illustrates the percentage of gas recovery per
year:
SW MERCER PROSPECT
MODEL DECLINE CURVE
[CHART]
POTENTIAL MARKETS AND PIPELINES
In the area of this drilling program, there are a number of potential
purchasers and transporters of natural gas. These include Wheatland Tube
Company, Tenneco, National Fuel Supply, National Fuel Distribution and the
People's Natural Gas Company.
85
<PAGE>
STATEMENTS
CONCLUSION
UEDC has conducted a geologic feasibility study of the ATLAS-ENERGY
FOR THE NINETIES-PUBLIC #8 LTD. DRILLING PROGRAM, which will consist of
developmental drilling of the Clinton-Medina Group sands in Mercer and Lawrence
Counties, Pennsylvania. It is the professional opinion of UEDC that the drilling
of wells within this program is supported by sufficient geologic and engineering
data.
DISCLAIMER
For the purpose of this evaluation, UEDC did not visit any leaseholds
or inspect any of the associated production equipment. Likewise, UEDC has no
knowledge as to the validity of title, liabilities, or corporate matters
affecting these properties. UEDC does not warrant individual well performance.
NON-INTEREST
We hereby confirm that UEDC is an independent consulting firm and that
neither this firm or any of it's employees, contract consultants, or officers
has, or is committed to acquire any interest, directly or indirectly, in Atlas
Resources, Inc.; nor is this firm, or any employee, contract consultant, or
officer thereof, otherwise affiliated with Atlas Resources, Inc. We also confirm
that neither the employment of, nor payment of compensation received by UEDC in
connection with this report, is on a contingent basis.
Respectfully submitted,
/s/ Isaias Ortiz
UEDC, Inc.
86
<PAGE>
COMPETITION, MARKETS AND REGULATION
COMPETITION AND MARKETS
There are many companies engaged in natural gas drilling operations in the areas
where the Partnership is expected to conduct its activities. The industry is
highly competitive in all phases, including acquiring suitable properties for
drilling and the marketing of natural gas. The Partnership will compete with
entities having financial resources and staffs larger than those available to
the Partnership. Also, the sale of the production from the wells in the Mercer
County area will compete with the sale of production from the other wells that
have already been drilled or are being operated by the Managing General Partner
in the area. However, to reduce and/or eliminate this conflict of interest it is
the Managing General Partner's policy to treat all wells in a geographic area
equally as to pipeline access and access to the Managing General Partner's gas
supply agreements. (See "Proposed Activities - Sale of Oil and Gas Production.")
Current economic conditions indicate that the costs of exploration and
development are increasing gradually. However, the oil and gas industry
historically has experienced periods of rapid cost increases from time to time.
Natural gas and oil, if any, produced by the Partnership Wells must be marketed
in order for you to realize revenues. In recent years natural gas and oil prices
have been volatile. Reduced gas demand and/or excess gas supplies will result in
lower prices. The marketing of natural gas and oil production, if any, will be
affected by numerous factors beyond the control of the Partnership and which
cannot be accurately predicted. These factors include, but are not limited to,
the following:
- 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 the
gas. Also, increased imports of oil and natural gas have occurred and are
expected to continue. The free trade agreement between Canada and the United
States has eased restrictions on imports of Canadian gas to the United States.
Additionally, the passage in 1993 of the North American Free Trade Agreement
("NAFTA") will have some impact on the American gas industry by eliminating
trade and investment barriers in the United States, Canada and Mexico.
Additionally, new pipeline projects have been proposed to FERC which could
substantially increase the availability of Canadian gas to certain U.S. markets.
These imports could have an adverse effect on both the price and volume of gas
sales from the Partnership Wells.
Members of the Organization of Petroleum Exporting Countries ("OPEC") establish
prices and production quotas for petroleum products from time to time with the
intent of reducing the current global oversupply and maintaining or increasing
certain price levels. The Managing General Partner is unable to predict what, if
any, effect these actions will have on the amount of or the prices received for
the gas produced and sold from the Partnership Wells.
The accelerating deregulation of natural gas and electricity transmission has
caused, and will continue to cause, a coming together of the gas and electric
industries. Demand for natural gas by the electric power sector is expected to
increase modestly through the next decade. Increased competition in the electric
industry, coupled with the enforcement of stringent environmental regulations,
may lead to an increased reliance on natural gas by the electric industry.
Although the transportation and sale of gas in interstate commerce remains
heavily regulated, the Federal Energy Regulatory Commission ("FERC") has
sought to promote greater competition in natural gas markets by encouraging
open access transportation by interstate pipelines. The goal is to expand the
opportunities for producers, such as the Partnership, to contract directly
with local distribution companies and end-users. Traditionally, natural gas
has been sold by gas producers to pipeline companies, which then would resell
the gas to end-users. FERC Orders No. 436 and 500 alter this market structure
by requiring interstate pipeline companies that transport gas for others to
provide transportation service to producers,
87
<PAGE>
distributors and all other shippers of natural gas on a nondiscriminatory,
"first-come, first-served" basis ("open access transportation"). This permits
producers and other shippers to sell natural gas directly to end-users.
FERC Order 636 which became effective in 1992 requires 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 or producers. The premise behind FERC Order 636
was that the pipeline companies had an unfair advantage over other gas suppliers
or producers 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. The effect of FERC Order No. 636 has been
to restructure the natural gas industry and increase its competitiveness.
Although the Managing General Partner does not anticipate that the Partnership's
gas will be sold to local distribution companies ("LDCs"), it is possible that
in the future the Partnership's gas may be sold to LDCs if First Energy and the
Managing General Partner cannot agree upon a gas price as discussed in "Proposed
Activities - Sale of Oil and Gas Production." While in the past these purchases
were generally made on the spot market, FERC Order No. 636 has restructured
long-term gas supply. As a result, long-term market-based gas supply
arrangements have become more important than they were previously, and although
the spot market is still used, it is less important as a market-based supply
source. LDCs are required to take a more active role in acquiring their own gas
supplies under FERC Order No. 636. Many LDCs are buying gas directly from gas
marketers and are buying their own reserves. These LDCs have attempted to
minimize their risks by foregoing spot market purchases and instead entering
into longer-term gas supply contracts. LDCs are also attempting to diversify
their supplies.
FERC has also required pipeline companies to develop electronic bulletin boards
("EBBs") in order to ensure that the gas industry is more competitive. Through
EBBs, pipeline companies provide standardized access to information concerning
capacity and prices. LDCs and marketers are also working to develop companies
which can access and integrate all of the information available on all
pieplines' EBBs and arrange gas supplies and transportation on behalf of
purchasers from large regions of the country in order to create a national
market. These systems, and the development of information service companies,
will allow rapid consummation of natural gas transactions. Gas purchased in
Kansas could, for example, be used in Seattle. Although this system may
initially lower prices because of increased competition, it is anticipated to
increase natural gas markets and the reliability of the markets.
CRUDE OIL REGULATION
Oil prices are not regulated. The price of oil is subject to supply, demand,
competitive factors, the gravity of the crude oil, sulfur content differentials
and other factors. Certain federal reporting requirements are still in effect
under U. S. Department of Energy regulations.
FEDERAL GAS REGULATION
The sale of natural gas is subject to regulation of production and
transportation by governmental regulatory agencies. Generally, the regulatory
agency in the state where a producing natural gas well is located supervises
production activities and the transportation of natural gas sold into intrastate
markets.
FERC regulates the interstate transportation of natural gas, but under the
Wellhead Decontrol Act of 1989 FERC no longer regulates the price of gas.
Deregulated gas production may be sold at market prices determined by supply,
demand, BTU content, pressure, location of the wells, and other factors. The
Managing General Partner anticipates that all the Partnership's gas production
will be price decontrolled gas and sold at fair market value.
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 Managing General Partner
believes the amendments ultimately will have a beneficial effect on natural gas
markets and prices.
STATE REGULATIONS
Oil and gas operations are regulated in Pennsylvania by the Department of
Environmental Resources, and any other states where Partnership Wells may be
situated will also impose a comprehensive statutory and regulatory scheme for
oil and gas operations. Among other things, these regulations involve:
- new well permit and well registration requirements, procedures and
fees;
- minimum well spacing requirements;
88
<PAGE>
- restrictions on well locations and underground gas storage;
- certain well site restoration, groundwater protection and safety
measures;
- landowner notification requirements;
- certain bonding or other security measures;
- various reporting requirements;
- well plugging standards and procedures; and
- broad enforcement powers.
These state regulatory agencies have been granted broad regulatory and
enforcement powers which may create additional financial and operational burdens
on oil and gas operations like those of the Partnership. Pennsylvania and the
other states also have pollution and environmental control laws which have
become increasingly burdensome in recent years. Enforcement efforts with respect
to oil and gas operations have increased. It can be anticipated that this
regulation will expand and have a greater impact on future oil and gas
operations.
ENVIRONMENTAL REGULATION
Various federal, state, and local laws covering the discharge of materials into
the environment, or otherwise relating to the protection of the environment, may
affect the Partnership's operations. 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. The 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.
The Environmental Protection Agency ("EPA") will require the Partnership to
prepare and implement spill prevention control and countermeasure plans relating
to the possible discharge of oil into navigable waters. The EPA 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. The enforcement liabilities can result from
either governmental or citizen prosecution. Compliance with these statutes and
regulations may cause delays in producing natural gas and oil from the wells and
may substantially increase the cost of producing the natural gas and oil.
However, these laws and regulations are constantly being revised and changed,
and the Managing General Partner is unable to predict the ultimate costs of
complying with present and future environmental laws and regulations. See "Risk
Factors - Special Risks of the Partnership - Risk of Loss Because of Unlimited
Liability of Investor General Partners" and "Proposed Activities - Insurance"
concerning the Managing General Partner's inability to obtain insurance to
protect against environmental claims.
PROPOSED REGULATION
From time to time there are a number of proposals considered in Congress and in
the legislatures and agencies of various states that if enacted would
significantly and adversely affect the oil and natural gas industry. The
proposals involve, among other things, limiting the disposal of waste water from
wells. 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.
PARTICIPATION IN COSTS AND REVENUES
IN GENERAL
A tabular summary of the following discussion appears below. Please refer to
"Definitions" for a description of the items of revenue and cost included in the
terms used herein.
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<PAGE>
COSTS
1. ORGANIZATION AND OFFERING COSTS. Organization and Offering Costs will be
charged 100% to the Managing General Partner. However, Organization and
Offering Costs in excess of 15% of the Partnership Subscription will be
paid by the Managing General Partner, without recourse to the Partnership,
and the Managing General Partner will not be credited with this amount
towards its required Capital Contribution.
2. LEASE COSTS. The Leases will be contributed to the Partnership by the
Managing General Partner at its Cost, unless the Managing General Partner
has cause to believe that Cost is materially more than fair market value,
in which case the credit for the contribution will be made at a price not
in excess of fair market value.
3. INTANGIBLE DRILLING COSTS AND TANGIBLE DRILLING COSTS. Intangible Drilling
Costs will be allocated and charged 100% to you and the other
Participants. Tangible Costs will be allocated and charged 43.75% to the
Managing General Partner and 56.25% to you and the other Participants.
Intangible Drilling Costs and the Participants' share of Tangible Costs of
a well or wells to be drilled and completed with the proceeds of a
Partnership closing will be charged 100% to the Participants who are
admitted to the Partnership in that closing and will not be reallocated to
take into account other Partnership closings. Although the proceeds of
each Partnership closing will be used to pay the costs of drilling
different wells, you and the other Participants will pay the same amount
of the costs regardless of when you subscribe. Also, the revenues from all
Partnership Wells will be commingled, so regardless of when you subscribe
you will share in the revenues from all wells on the same basis as the
other Participants.
4. OPERATING COSTS, DIRECT COSTS, ADMINISTRATIVE COSTS AND ALL OTHER COSTS.
Operating Costs, Direct Costs, Administrative Costs, and all other
Partnership costs not specifically allocated will be allocated and charged
to the parties in the same ratio as the related production revenues are
being credited. (See " - Subordination of Portion of Managing General
Partner's Net Revenue Share," below.)
5. THE MANAGING GENERAL PARTNER'S REQUIRED CAPITAL CONTRIBUTION. The Managing
General Partner's aggregate Capital Contributions to the Partnership
(including its credit for the Cost of the Leases contributed) will not be
less than 22.15% of Capital Contributions to the Partnership. These
Capital Contributions must be paid by the Managing General Partner at the
time the costs are required to be paid by the Partnership, but not later
than December 31, 2000.
REVENUES
1. PROCEEDS FROM THE SALE OF LEASES. If the Partners' Capital Accounts are
adjusted under the Partnership Agreement to reflect the simulated
depletion of an oil or gas property of the Partnership, then the portion
of the total amount realized by the Partnership upon the taxable
disposition of the property that represents recovery of its simulated
tax basis therein is allocated to the Partners in the same proportion as
the aggregate adjusted tax basis of the property was allocated to the
Partners (or their predecessors in interest). If the Partners' Capital
Accounts are adjusted under the Partnership Agreement to reflect the
actual depletion of an oil or gas property of the Partnership, then the
portion of the total amount realized by the Partnership upon the taxable
disposition of the property that equals the Partners' aggregate remaining
adjusted tax basis therein is allocated to the Partners in proportion to
their respective remaining adjusted tax bases in the property. In
addition, proceeds will be allocated to the Managing General Partner to
the extent of the pre-contribution appreciation in value of the property,
if any. Any excess will be credited to the parties in the ratio in which
oil and gas production revenues of the Partnership are credited as
provided in 4, below.
2. INTEREST PROCEEDS. Interest earned on your Agreed Subscription before the
Offering Termination Date will be credited to your account and paid
approximately eight weeks after the Offering Termination Date. If a
subscription is refunded, then any interest allocated thereto will also be
refunded.
After the Offering Termination Date and until proceeds from the offering
are invested in the Partnership's oil and gas operations any interest
income from temporary investments will be allocated pro rata to the
Participants providing the Agreed Subscription. All other interest income,
including interest earned on the deposit of production revenues, will be
credited as provided in 4, below.
3. EQUIPMENT PROCEEDS. Proceeds from the sale or other disposition of
equipment will be credited to the parties charged with the costs of the
equipment in the ratio in which the costs were charged.
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4. PRODUCTION REVENUES. All other revenues of the Partnership, including
production revenues, will be credited 71% to you and the other
Participants and 29% to the Managing General Partner subject to the
Managing General Partner's subordination of a portion of its share of
Partnership Net Production Revenues, as described in " - Subordination of
Portion of Managing General Partner's Net Revenue Share," below.
SUBORDINATION OF PORTION OF MANAGING GENERAL PARTNER'S NET REVENUE SHARE
The Partnership is structured to provide you with preferred cash distributions
equal to a minimum of 10% of your Agreed Subscription in each of the first five
12-month periods of Partnership operations. To help achieve this investment
feature, the Managing General Partner will subordinate up to 40% of its 29%
share of Partnership Net Production Revenues (i.e., up to 11.6% of the
Partnership Net Production Revenues) to your receipt of Partnership cash
distributions equal to 10% of your Agreed Subscription in each of the first five
12-month periods of Partnership operations. (Partnership Net Production Revenues
means gross revenues after deduction of the related Operating Costs, Direct
Costs, Administrative Costs and all other Partnership costs not specifically
allocated.)
The subordination will be determined beginning with the first distribution of
Partnership revenues by debiting or crediting current period Partnership
revenues to the Managing General Partner as may be necessary to provide the
distributions to you and the other Participants. See Section 5.01(b)(4) of the
Partnership Agreement for the details an limitations on the subordination.
The Managing General Partner anticipates you will benefit from the subordination
if the price of gas received by the Partnership and the results of the
Partnership's drilling activities are unable to provide the required return.
Notwithstanding, if the wells produce small gas volumes and/or the price of gas
declines, then even with subordination your cash flow may be very small and you
may not receive a return of your entire investment. (See "Risk Factors - Special
Risks of the Partnership - Risk That Borrowings by the Managing General Partner
Could Reduce Funds Available for Its Subordination Obligation.")
TABLE OF PARTICIPATION IN COSTS AND REVENUES
The following table sets forth the participation in Partnership costs and
revenues between the Managing General Partner and you and the other Participants
after deducting from the Partnership's gross revenues the Landowner Royalties
and any other Lease burdens. (See "Proposed Activities - Interests of Parties"
and "Definitions.")
<TABLE>
<CAPTION>
Managing
General
Partner Participants
---------- ------------
<S> <C> <C>
PARTNERSHIP COSTS
Organization and Offering Costs.....................................................100% 0%
Lease Costs (1).....................................................................100% 0%
Intangible Drilling Costs (2).........................................................0% 100%
Tangible Costs (2)................................................................43.75% 56.25%
Operating Costs, Administrative Costs, Direct Costs and All
Other Costs (7).................................................................(3) (3)
PARTNERSHIP REVENUES
Interest Income......................................................................(4) (4)
Equipment Proceeds...................................................................(5) (5)
All other Revenues including Production Revenues (3)(6)(7)...........................29% 71%
PARTICIPATION IN DEDUCTIONS
Intangible Drilling Costs.............................................................0% 100%
Depreciation......................................................................43.75% 56.25%
Percentage Depletion Allowance (7)...................................................29% 71%
</TABLE>
- --------------------------
(1) Leases will be contributed to the Partnership by the Managing General
Partner.
(2) Intangible Drilling Costs and the Participants' share of Tangible Costs of
a well or wells to be drilled and completed with the proceeds of a
Partnership closing will be charged 100% to the Participants who are
admitted to the Partnership in the closing and will not be reallocated to
take into account other Partnership closings. Although the proceeds of each
Partnership closing will be used to pay the costs of drilling different
wells, you and the other Participants will pay the same amount of the costs
regardless of when you subscribe.
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(3) These costs will be charged to the parties in the same ratio as the related
production revenues are being credited. (See "- Subordination of Portion of
Managing General Partner's Net Revenue Share," above.)
(4) Interest earned on your Agreed Subscription before the Offering Termination
Date will be credited to your account and paid approximately eight 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 will be
allocated pro rata to the Participants providing the Agreed Subscription.
All other interest income, including interest earned on the deposit of
operating revenues, will be credited as oil and gas production revenues are
credited.
(5) Proceeds from the sale or other disposition of equipment will be credited
to the parties charged with the costs of such equipment in the ratio in
which such costs were charged.
(6) See " - Subordination of Portion of Managing General Partner's Net Revenue
Share," above. (7) The revenues from all Partnership Wells will be
commingled, so regardless of when you subscribe you will share in the
revenues from all wells on the same basis as the other Participants. Sales
proceeds of Leases are subject to special provisions. (See "- Revenues -
Proceeds from the Sale of Leases," above.)
ALLOCATION AND ADJUSTMENT AMONG PARTICIPANTS
The Partnership's revenues, gains, income, credits, costs, expenses, losses and
other charges and liabilities will be charged and credited, among you and the
other Participants, pro rata in accordance with your respective Agreed
Subscriptions. These charges and credits will take into account any Investor
General Partner's status as a defaulting Investor General Partner. (See "Summary
of the Offering - Actions to be Taken by Managing General Partner to Reduce
Risks of Additional Payments by Investor General Partners.")
DISTRIBUTIONS
The Managing General Partner will review the Partnership accounts at least
quarterly to determine whether cash distributions are appropriate and the amount
to be distributed, if any. The Partnership will distribute funds which the
Managing General Partner does not believe are necessary to be retained by the
Partnership. The determination of the revenues and costs will be made in
accordance with generally accepted accounting principles. (See "Capitalization
and Source of Funds and Use of Proceeds - Subsequent Source of Funds and
Borrowings.")
In no event will funds be advanced or borrowed for purposes of distributions if
the amount of the distributions would exceed the Partnership's accrued and
received revenues for the previous four quarters, less paid and accrued
Operating Costs with respect to the revenues. Also, cash distributions from the
Partnership to the Managing General Partner will only be made in conjunction
with Participant distributions and only out of funds properly allocated to the
Managing General Partner's account.
LIQUIDATION
The Partnership will continue in existence for 50 years unless it is terminated
earlier by certain Final Terminating Events. This includes an election to
terminate the Partnership by either:
- the Managing General Partner; or
- the affirmative vote of Participants whose Agreed Subscriptions equal
a majority of the Partnership Subscription.
Although the Partnership may terminate on the occurrence of various events
(other than a Final Terminating Event) which causes the dissolution of a limited
partnership under the Partnership Act, a successor limited partnership will
automatically be formed under these circumstances. Thus, only upon a Final
Terminating Event will the Partnership be liquidated.
Upon liquidation of the Partnership you will receive your Distribution Interest
in the Partnership. "Distribution Interest" means an undivided interest in the
assets of the Partnership after payments to creditors of the Partnership or the
creation of a reasonable reserve therefor, in the ratio the positive balance of
a party's Capital Account bears to the aggregate positive balance of the Capital
Accounts of all of the parties determined after taking into account all Capital
Account adjustments for the taxable year during which liquidation occurs (other
than those made pursuant to liquidating distributions or restoration of deficit
Capital Account balances); provided, however, after the Capital Accounts of all
of the parties have been reduced to zero, such interest
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in the remaining assets of the Partnership will equal a party's interest in
the related revenues of the Partnership as set forth in Section 5.01 and its
subsections of the Partnership Agreement.
Any in kind property distributions to you must be made to a liquidating trust or
similar entity, unless at the time of the distribution:
- the Managing General Partner offers you the election of receiving
in kind property distributions and you accept the offer after being
advised of the risks associated with the direct ownership; or
- there are alternative arrangements in place which assure that you
will not, at any time, be responsible for the operation or
disposition of the Partnership properties.
If the Managing General Partner has not received your written consent within 30
days after the Managing General Partner mailed the request for the consent, then
it will be presumed that you have not consented. The asset may then 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.
In dissolution and liquidation of the Partnership, the Managing General Partner
will have priority for any debts owed it by the Partnership before there are any
payments made to you and the other Participants.
TAX ASPECTS
SUMMARY OF TAX OPINION
The Managing General Partner has received the tax opinion of Special Counsel,
Kunzman & Bollinger, Inc., Oklahoma City, Oklahoma, which is included as Exhibit
(8) to the Registration Statement. This section of the Prospectus entitled "Tax
Aspects" is a summary of the Tax Opinion and is not complete. You are strongly
urged to read the entire Tax Opinion. (See "Additional Information.")
The Tax Opinion represents only Special Counsel's best legal judgment, and has
no binding effect or official status. There is no assurance that the present
laws or regulations will not be changed and adversely affect you. Also, the IRS
may challenge the deductions claimed by the Partnership or you, or the taxable
year in which such deductions are claimed, and no guaranty can be given that any
such challenge would not be upheld if litigated.
The practical utility of the tax aspects of any investment depends largely on
your particular income tax position. In addition, different tax considerations
may apply to foreign persons, corporations, partnerships, trusts and other
prospective Participants which are not treated as individuals for federal income
tax purposes. YOU SHOULD SATISFY YOURSELF AS TO THE TAX CONSEQUENCES OF
PARTICIPATING IN THE PARTNERSHIP BY OBTAINING ADVICE FROM YOUR OWN TAX ADVISOR.
In Special Counsel's opinion it is more likely than not that the following tax
treatment will be upheld if challenged by the IRS and litigated.
(1) PARTNERSHIP CLASSIFICATION. The Partnership will be classified as a
partnership for federal income tax purposes, and not as a corporation.
The Partnership, as such, will not pay any federal income taxes, and all
items of income, gain, loss, deduction, and credit of the Partnership
will be reportable by the Partners in the Partnership. (See "-
Partnership Classification.")
(2) PASSIVE ACTIVITY CLASSIFICATION. The Partnership's oil and gas
production income, together with gain, if any, from the disposition of
its oil and gas properties, which is allocable to Limited Partners who
are individuals, estates, trusts, closely held corporations or personal
service corporations more likely than not will be characterized as income
from a passive activity which may be offset by passive activity losses.
Income or gain attributable to investments of working capital of the
Partnership will be characterized as portfolio income, which cannot be
offset by passive activity losses. Also, the passive activity limitations
on losses under Section 469, more likely than not, will not be applicable
to Investor General Partners prior to the conversion of Investor General
Partner Units to Limited Partner interests. (See " - Limitations on
Passive Activities.")
(3) NOT A PUBLICLY TRADED PARTNERSHIP. Assuming that no more than 10% of the
Units are transferred in any taxable year of the Partnership (other than
in private transfers described in Treas. Reg. Section 1.7704-1(e)), it is
more likely than not that the
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Partnership will not be treated as a "publicly traded partnership"
under the Code. (See "- Limitations on Passive Activities.")
(4) AVAILABILITY OF CERTAIN DEDUCTIONS. Business expenses, including payments
for personal services actually rendered in the taxable year in which
accrued, which are reasonable, ordinary and necessary and do not include
amounts for items such as Lease acquisition costs, organization and
syndication fees and other items which are required to be capitalized,
are currently deductible. (See " - 1999 Expenditures," " - Availability
of Certain Deductions," and " - Partnership Organization and Syndication
Fees.")
(5) INTANGIBLE DRILLING AND DEVELOPMENT COSTS. Intangible drilling and
development costs ("Intangible Drilling Costs") paid by the Partnership
under the terms of bona fide drilling contracts for the Partnership's
wells will be deductible in the taxable year in which the payments are
made and the drilling services are rendered, assuming such amounts are
fair and reasonable consideration and subject to certain restrictions
summarized below (including basis and "at risk" limitations and the
passive activity loss limitation with respect to Limited Partners). (See
"- Intangible Drilling and Development Costs" and "- Drilling
Contracts.")
(6) PREPAYMENTS OF INTANGIBLE DRILLING AND DEVELOPMENT COSTS. Depending
primarily on when the Partnership Subscription is received, the
Partnership will prepay in 1999 most, if not all, of the intangible
drilling and development costs related to Partnership Wells the drilling
of which will be commenced in 2000. Assuming that such amounts are fair
and reasonable, and based in part on the factual assumptions set forth
below, in our opinion such prepayments of intangible drilling and
development costs will be deductible for the 1999 taxable year even
though all Working Interest owners in the well may not be required to
prepay such amounts, subject to certain restrictions summarized below
(including basis and "at risk" limitations, and the passive activity loss
limitation with respect to the Limited Partners). (See " - Drilling
Contracts," below.)
The foregoing opinion is based in part on the assumptions that: (1) such
costs will be required to be prepaid in 1999 for specified wells pursuant
to the Drilling and Operating Agreement; (2) pursuant to the Drilling and
Operating Agreement the wells are required to be, and actually are,
Spudded on or before March 30, 2000, and continuously drilled thereafter
until completed, if warranted, or abandoned; and (3) the required
prepayments are not refundable to the Partnership and any excess
prepayments are applied to intangible drilling and development costs of
substitute wells.
(7) DEPLETION ALLOWANCE. The greater of cost depletion or percentage
depletion will be available to qualified Participants as a current
deduction against the Partnership's oil and gas production income,
subject to certain restrictions summarized below. (See "- Depletion
Allowance.")
(8) MACRS. The Partnership's reasonable costs for recovery property (tangible
depreciable property used in a trade or business or held for the
production of income) which cannot currently be deducted but must be
capitalized ("Tangible Costs") will be eligible for cost recovery
deductions under the Modified Accelerated Cost Recovery System ("MACRS"),
generally over a seven year "cost recovery period," subject to certain
restrictions summarized below (including basis and "at risk" limitations,
and the passive activity loss limitation in the case of Limited
Partners). (See "- Depreciation - Modified Accelerated Cost Recovery
System ("MACRS").")
(9) TAX BASIS OF PARTICIPANT'S INTEREST. Each Participant's adjusted tax
basis in his Partnership interest will be increased by his total Agreed
Subscription. (See "- Tax Basis of Participants' Interests.")
(10) AT RISK LIMITATION ON LOSSES. Each Participant initially will be "at
risk" to the full extent of his Agreed Subscription. (See "- `At Risk'
Limitation For Losses.")
(11) ALLOCATIONS. Assuming the effect of the allocations of income, gain,
loss, deduction and credit (or items thereof) set forth in the
Partnership Agreement, including the allocations of basis and amount
realized with respect to oil and gas properties, is substantial in light
of a Participant's tax attributes that are unrelated to the Partnership,
it is more likely than not that such allocations will have "substantial
economic effect" and will govern each Participant's distributive share of
such items to the extent such allocations do not cause or increase
deficit balances in the Participants' Capital Accounts.
(See "- Allocations.")
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(12) AGREED SUBSCRIPTION. No gain or loss will be recognized by the
Participants on payment of their Agreed Subscriptions.
(13) PROFIT MOTIVE AND NO TAX SHELTER REGISTRATION. Based on the Managing
General Partner's representation that the Partnership will be conducted
as described in the Prospectus, it is more likely than not that the
Partnership will possess the requisite profit motive under Section 183
of the Code and is not required to register with the IRS as a tax
shelter. (See "- Disallowance of Deductions Under Section 183 of the
Code" and " - Lack of Registration as a Tax Shelter.")
(14) IRS ANTI-ABUSE RULE. Based on the Managing General Partner's
representation that the Partnership will be conducted as described in the
Prospectus, it is more likely than not that the Partnership will not be
subject to the anti-abuse rule set forth in Treas. Reg. Section 1.701-2.
(See "- Penalties and Interest - IRS Anti-Abuse Rule.")
(15) OVERALL EVALUATION OF TAX BENEFITS. Based on Special Counsel's conclusion
that substantially more than half of the material tax benefits of the
Partnership, in terms of their financial impact on a typical Participant,
more likely than not will be realized if challenged by the IRS, it is the
Special Counsel's opinion that the tax benefits of the Partnership, in
the aggregate, which are a significant feature of an investment in the
Partnership by a typical original Participant more likely than not will
be realized as contemplated by the Prospectus.
PARTNERSHIP CLASSIFICATION
For federal income tax purposes, a partnership is not a taxable entity. The
partners, rather than the partnership, receive any deductions and credits, as
well as the income, from the operations engaged in by the partnership. A
business entity with two or more members is classified for federal tax purposes
as either a corporation or a partnership. Because the Partnership was formed
under the Pennsylvania Revised Uniform Limited Partnership Act which describes
the Partnership as a "partnership," it will automatically be classified as a
partnership unless it elects to be classified as a corporation. In this regard,
the Managing General Partner has represented that no election for the
Partnership to be classified as a corporation will be filed with the IRS.
LIMITATIONS ON PASSIVE ACTIVITIES
Under the passive activity rules, all income of a taxpayer who is subject to the
rules is categorized as: (i) income from passive activities such as limited
partners' interests in a business; (ii) active income (e.g., salary, bonuses,
etc.); or (iii) portfolio income (gain, interest, dividends and royalties unless
earned in the ordinary course of a trade or business). Losses generated by
"passive activities" can offset only passive income and cannot be applied
against active income or portfolio income. Suspended losses and credits may be
carried forward (but not back) and used to offset future years' passive activity
income.
Passive activities include any trade or business in which the taxpayer does not
materially participate on a regular, continuous, and substantial basis. Under
the Partnership Agreement, Limited Partners will not have material participation
in the Partnership and generally will be subject to the passive activity
limitations.
Investor General Partners also do not materially participate in the Partnership.
However, because Investor General Partners do not have limited liability under
the Revised Uniform Limited Partnership Act of Pennsylvania ("Act") until they
are converted to Limited Partners, their deductions generally will not be
treated as passive deductions prior to the conversion. (See " - Conversion from
Investor General Partner to Limited Partner," below.) However, if an Investor
General Partner invests in the Partnership through an entity which limits his
liability (e.g., a limited partnership or S corporation), he will be treated the
same as a Limited Partner and generally will be subject to the passive activity
limitations. Contractual limitations on the liability of Investor General
Partners under the Partnership Agreement (e.g., insurance, limited
indemnification, etc.) will not cause Investor General Partners to be subject to
the passive activity limitations.
PUBLICLY TRADED PARTNERSHIP RULES. Net losses and credits of a partner from each
publicly traded partnership are suspended and carried forward to be netted
against income from that publicly traded partnership only. In addition, net
losses from other passive activities may not be used to offset net income from a
publicly traded partnership. However, in the opinion of Special Counsel it is
more likely than not that the Partnership will not be characterized as a
publicly traded partnership under the Code so long as no more than 10% of the
Units are transferred in any taxable year of the Partnership (other than in
private transfers described in Treas. Reg. Section 1.7704-1(e)).
CONVERSION FROM INVESTOR GENERAL PARTNER TO LIMITED PARTNER. Investor General
Partner Units will be converted to Limited Partner interests after substantially
all of the Partnership Wells have been drilled and completed, which the Managing
General Partner anticipates will be in the late summer of 2000. Thereafter, each
Investor General Partner will be deemed a Limited
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Partner in the Partnership and will enjoy the limited liability provided to
limited partners under the Revised Uniform Limited Partnership Act of
Pennsylvania with respect to his interest in the Partnership.
Concurrently, the Investor General Partner will become subject to the passive
activity limitations. However, his net income from Partnership Wells following
the conversion will continue to be characterized as non-passive income which
cannot be offset with passive losses. An Investor General Partner's conversion
of his Partnership interest into a Limited Partner interest should not have any
other adverse tax consequences unless the Investor General Partner's share of
any Partnership liabilities is reduced as a result of the conversion. A
reduction in a partner's share of liabilities is treated as a constructive
distribution of cash to such partner, which reduces the basis of the partner's
interest in the partnership and is taxable to the extent it exceeds such basis.
TAXABLE YEAR
The Partnership intends to adopt a calendar year taxable year.
1999 EXPENDITURES
The Managing General Partner anticipates that all of the Partnership's
subscription proceeds will be expended in 1999 and that your share of the income
and deductions generated pursuant thereto will be reflected on your federal
income tax return for that period. (See "Capitalization and Source of Funds and
Use of Proceeds" and "Participation in Costs and Revenues.")
Depending primarily on when the Partnership Subscription is received, the
Managing General Partner anticipates that the Partnership will prepay in 1999
most, if not all, of its intangible drilling and development costs for wells the
drilling of which will be commenced in 2000. The deductibility in 1999 of such
advance payments cannot be guaranteed. (See " - Drilling Contracts," below.)
AVAILABILITY OF CERTAIN DEDUCTIONS
Ordinary and necessary business expenses, including reasonable compensation for
personal services actually rendered, are deductible in the year incurred. The
Managing General Partner has represented to Special Counsel that the amounts
payable to the Managing General Partner and its Affiliates, including the
amounts paid to the Managing General Partner or its Affiliates as general
drilling contractor, are the amounts which would ordinarily be paid for similar
services in similar transactions. (See "- Drilling Contracts," below.) The fees
paid to the Managing General Partner and its Affiliates will not be currently
deductible if they are in excess of reasonable compensation, are properly
characterized as organization or syndication fees, other capital costs such as
the acquisition cost of the Leases, or not "ordinary and necessary" business
expenses, or the services were rendered in tax years other than the tax year in
which such fees were deducted by the Partnership. In the event of an audit,
payments to the Managing General Partner and its Affiliates by the Partnership
will be scrutinized by the IRS to a greater extent than payments to an unrelated
party.
INTANGIBLE DRILLING AND DEVELOPMENT COSTS
Assuming a proper election and subject to the passive activity loss rules in the
case of Limited Partners, you will be entitled to deduct your share of
intangible drilling and development costs ("Intangible Drilling Costs") which
include items which do not have salvage value, such as labor, fuel, repairs,
supplies and hauling necessary to the drilling of a well. (See "Participation in
Costs and Revenues" and "- Limitations on Passive Activities," above.) Such
costs generally will be treated as ordinary income if a property is sold at a
gain. (See " - Sale of the Properties," and " - Disposition of Partnership
Interests," below.) Also, productive-well intangible drilling and development
costs may subject you to an alternative minimum tax in excess of regular tax
unless an election is made to deduct them on a straight line basis over a 60
month period. (See " - Minimum Tax - Tax Preferences," below.)
In preparing the Partnership's informational tax returns, the Managing General
Partner will allocate Partnership costs among Intangible Drilling Costs,
Tangible Costs, Direct Costs, Administrative Costs, Organization and Offering
Costs and Operating Costs based upon guidance from advisors to the Managing
General Partner. The Managing General Partner has allocated approximately 76.12%
of the footage price to be paid by the Partnership for a completed well in the
Appalachian Basin to intangible drilling and development costs ("Intangible
Drilling Costs") which are charged 100% to you and the other Participants under
the Partnership Agreement. The IRS could challenge the characterization of costs
claimed by you and the Partnership to be deductible intangible drilling and
development costs and recharacterize such costs as some other item which may be
non-deductible; however, this would have no effect on the allocation and payment
of such costs under the Partnership Agreement.
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The amount of the deduction for intangible drilling and development costs is
limited for integrated oil companies, I.E., (i) those taxpayers who directly or
through a related person engage in the retail sale of oil or gas and whose gross
receipts for the calendar year from such activities exceed $5,000,000, or (ii)
those taxpayers and related persons who have refinery production in excess of
50,000 barrels on any day during the taxable year.
DRILLING CONTRACTS
The Partnership will enter into the Drilling and Operating Agreement with the
Managing General Partner or its Affiliates, as a third-party general drilling
contractor, to drill and complete the Partnership's Development Wells on a
footage basis of $37.81 per foot for each well that is drilled and completed in
the Appalachian Basin, and at a competitive rate for wells, if any, drilled in
other areas of the United States. Under the footage drilling contracts for wells
situated in the Mercer County area of the Appalachian Basin, the Managing
General Partner anticipates that it will have reimbursement of general and
administrative overhead of $3,600 per well and a profit of approximately 15% per
well assuming the well is drilled to 5,950 feet. However, the actual cost of the
drilling of the wells may be more or less than the estimated amount, due
primarily to the uncertain nature of drilling operations.
The Managing General Partner believes the Drilling and Operating Agreement is at
competitive rates in the proposed areas of operation. Nevertheless, the amount
of the profit realized by the Managing General Partner under the drilling
contract, if any, could be challenged by the IRS as unreasonable and disallowed
as a deductible intangible drilling and development cost. (See "- Intangible
Drilling and Development Costs," above, and "Proposed Activities" and
"Compensation.")
Depending primarily on when the Partnership Subscription is received, the
Managing General Partner anticipates that the Partnership will prepay in 1999
most, if not all, of the intangible drilling and development costs for drilling
activities that will be conducted in 2000. In KELLER V. COMMISSIONER, 79 T.C. 7
(1982), aff'd 725 F.2d 1173 (8th Cir. 1984), the Tax Court applied a two-part
test for the current deductibility of prepaid intangible drilling and
development costs: (1) the expenditure must be a payment rather than a
refundable deposit; and (2) the deduction must not result in a material
distortion of income taking into substantial consideration the business purpose
aspects of the transaction.
The Partnership will attempt to comply with the guidelines set forth in KELLER
with respect to prepaid intangible drilling and development costs. The Drilling
and Operating Agreement will require the Partnership to prepay in 1999
intangible drilling and development costs for specified wells the drilling of
which will be commenced in 2000. Although the Partnership is not required to
prepay completion costs of a well prior to the time a decision has been made to
complete the well, the Managing General Partner anticipates that all Partnership
Wells will be required to be completed before an evaluation can be made as to
their potential productivity. Prepayments should not result in a loss of current
deductibility where there is a legitimate business purpose for the required
prepayment, the contract is not merely a sham to control the timing of the
deduction and there is an enforceable contract of economic substance. The
Drilling and Operating Agreement will require the Partnership to prepay the
intangible drilling and development costs of the wells in order to enable the
Operator to commence site preparation for the wells, obtain suitable
subcontractors at the then current prices and insure the availability of
equipment and materials. Under the Drilling and Operating Agreement excess
prepaid amounts, if any, will not be refundable to the Partnership but will be
applied to intangible drilling and development costs to be incurred in drilling
substitute wells. Under KELLER, such a provision for substitute wells should not
result in the prepayments being characterized as refundable deposits.
The likelihood that prepayments will be challenged by the IRS on the grounds
that there is no business purpose for the prepayment is increased in the event
prepayments are not required with respect to 100% of the Working Interest. It is
possible that less than 100% of the Working Interest will be acquired by the
Partnership in one or more wells and prepayments may not be required of all
holders of the Working Interest. However, in the view of Special Counsel, a
legitimate business purpose for the required prepayments may exist under the
guidelines set forth in KELLER, even though prepayment is not required, or
actually received, by the drilling contractor with respect to a portion of the
Working Interest.
In addition to the foregoing, a current deduction for prepaid intangible
drilling and development costs is available only if the drilling of the wells is
commenced before the close of the 90th day after the close of the taxable year.
The Managing General Partner will attempt to cause prepaid Partnership Wells to
be Spudded on or before March 30, 2000. However, the Spudding of any Partnership
Well may be delayed due to circumstances beyond the control of the Partnership
or the drilling contractor. Such circumstances include the unavailability of
drilling rigs, weather conditions, inability to obtain drilling permits or
access right to the drilling site, or title problems. Due to the foregoing
factors no guaranty can be given that all prepaid Partnership Wells required by
the Drilling and Operating Agreement to be Spudded on or before March 30, 2000,
will actually be
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commenced by such date. In that event, deductions claimed in 1999 for prepaid
intangible drilling and development costs would be disallowed and deferred to
the 2000 taxable year.
No assurance can be given that on audit the IRS would not disallow the current
deductibility of a portion or all of any prepayments of intangible drilling and
development costs under the Partnership's drilling contracts, thereby decreasing
the amount of deductions allocable to the Participants for the current taxable
year, or that such a challenge would not ultimately be sustained. In the event
of disallowance, the deduction would be available in the year the work is
actually performed.
DEPLETION ALLOWANCE
Proceeds from the sale of the Partnership's oil and gas production will
constitute ordinary income. A certain portion of such income will not be taxable
by virtue of the depletion allowance which permits the deduction from gross
income for federal income tax purposes of either the percentage depletion
allowance or the cost depletion allowance, whichever is greater. Depletion
deductions generally will be treated as ordinary income if a property is sold at
a gain. (See " - Sale of the Properties" and " - Disposition of Partnership
Interests," below.)
Cost depletion for any year is determined by dividing the adjusted tax basis for
the property by the total units of gas or oil expected to be recoverable
therefrom and then multiplying the resultant quotient by the number of units
actually sold during the year. Cost depletion cannot exceed the adjusted tax
basis of the property to which it relates.
Percentage depletion generally is available to taxpayers other than integrated
oil companies. (See "- Intangible Drilling and Development Costs," above.)
Percentage depletion is based on your share of the Partnership's gross
production income from its oil and gas properties. The rate of percentage
depletion is 15%. However, percentage depletion for marginal production
increases 1% (up to a maximum increase of 10%) for each whole dollar that the
domestic wellhead price of crude oil for the immediately preceding year is less
than $20 per barrel (without adjustment for inflation). The term "marginal
production" includes oil and gas produced from a domestic stripper well
property, which is defined as any property which produces a daily average of 15
or less equivalent barrels of oil (90 MCF of natural gas) per producing well on
the property in the calendar year. The rate of percentage depletion for marginal
production in 1999 is 24%. (See the model decline curve included in the UEDC
Geological Report in "Proposed Activities - Information Regarding Currently
Proposed Prospects.")
Also, percentage depletion may not exceed 100% of the net income from each oil
and gas property before the deduction for depletion and is limited to 65% of the
taxpayer's taxable income for a year computed without regard to deductions for
percentage depletion, net operating loss carry-backs and capital loss
carry-backs. With respect to marginal properties, however, the 100% of net
income property limitation is suspended for 1999.
AVAILABILITY OF PERCENTAGE DEPLETION MUST BE COMPUTED SEPARATELY BY YOU, AND NOT
BY THE PARTNERSHIP OR FOR PARTICIPANTS AS A WHOLE. YOU ARE URGED TO CONSULT YOUR
OWN TAX ADVISORS WITH RESPECT TO THE AVAILABILITY OF PERCENTAGE DEPLETION TO
YOU.
DEPRECIATION - MODIFIED ACCELERATED COST RECOVERY SYSTEM ("MACRS")
Tangible Costs and the related depreciation deductions are allocated and charged
under the Partnership Agreement 43.75% to the Managing General Partner and
56.25% to you and the other Participants. These deductions are subject to
recapture as ordinary income rather than capital gain upon the disposition of
the property or a Participant's interest in the Partnership. (See " - Sale of
the Properties" and " - Disposition of Partnership Interests," below.) The cost
of most equipment placed in service by the Partnership will be recovered through
depreciation deductions over a seven year cost recovery period, using the 200%
declining balance method, with a switch to straight-line to maximize the
deduction. Smaller depreciation deductions are used for purposes of the
alternative minimum tax. (See - "Minimum Tax - Tax Preferences," below.) Only a
half-year of depreciation is allowed for the year recovery property is placed in
service or disposed of, and in the case of a short tax year the MACRS deduction
is prorated on a 12-month basis. No distinction is made between new and used
property and salvage value is disregarded.
LEASEHOLD COSTS AND ABANDONMENT
The costs of acquiring oil and gas Lease interests, together with the related
cost depletion deduction and any abandonment loss, are allocated under the
Partnership Agreement 100% to the Managing General Partner, which will
contribute the Leases to the Partnership as a part of its Capital Contribution.
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TAX BASIS OF PARTICIPANTS' INTERESTS
Your distributive share of Partnership loss is allowable only to the extent of
the adjusted basis of your interest in the Partnership at the end of the
Partnership's taxable year. The adjusted basis for federal income tax purposes
of your interest in the Partnership will be adjusted (but not below zero) for
any gain or loss to you from a disposition by the Partnership of an oil or gas
property, and will be increased by your cash subscription payment, your share of
Partnership income and your share, if any, of Partnership debt. (See " -
Partnership Borrowings," below.) The adjusted basis of your interest in the
Partnership will be reduced by: your share of Partnership losses; your depletion
deduction (but not below zero); and cash distributions from the Partnership to
you. The reduction in your share of Partnership liabilities, if any, is
considered a cash distribution. Should cash distributions exceed the tax basis
of your interest in the Partnership, taxable gain would result to the extent of
the excess.
"AT RISK" LIMITATION FOR LOSSES
Subject to the limitations on "passive losses" generated by the Partnership in
the case of Limited Partners and your basis in the Partnership, you may use your
share of the Partnership's losses to offset income from other sources. (See "-
Limitations on Passive Activities" and " - Tax Basis of Participants'
Interests," above.) However, you may deduct the loss only to the extent of the
amount you have "at risk" in the Partnership at the end of a taxable year. The
amount "at risk" is limited to the amount of money you have contributed to the
Partnership. In addition, the amount you have "at risk" may not include the
amount of any loss that you are protected against through nonrecourse loans,
guarantees, stop loss agreements, or other similar arrangements.
DISTRIBUTIONS FROM A PARTNERSHIP
Generally, a cash distribution from a partnership to a partner in excess of the
adjusted basis of the partner's interest in the partnership immediately before
the distribution is treated as gain from the sale or exchange of his interest in
the partnership to the extent of the excess. No loss is recognized by the
partners on these types of distributions. Other distributions of cash,
disproportionate distributions of property, and liquidating distributions may
result in taxable gain or loss. (See "- Disposition of Partnership Interests"
and " - Termination of a Partnership," below.)
SALE OF THE PROPERTIES
Generally, net long-term capital gains of a noncorporate taxpayer on the sale of
assets held more than a year are taxed at a maximum rate of 20% (10% if they
would be subject to tax at a rate of 15% if they were not eligible for long-term
capital gains treatment). These rates also apply for purposes of the alternative
minimum tax. (See " - Minimum Tax - Tax Preferences," below.) The annual capital
loss limitation for noncorporate taxpayers is the amount of capital gains plus
the lesser of $3,000 ($1,500 for married persons filing separate returns) or the
excess of capital losses over capital gains.
Gains or losses from sales of oil and gas properties held for more than twelve
months generally will be treated as a long-term capital gain, while a net loss
will be an ordinary deduction. However, on disposition of an oil and gas
property gain is treated as ordinary income to the extent of the lesser of:
- the amounts that were deducted as intangible drilling and development
costs rather than added to basis, plus depletion deductions that
reduced the basis of the property, depreciation deductions and certain
losses, if any, on previous sales of Partnership assets; or
- the amount realized in the case of a sale, exchange or involuntary
conversion or fair market value in all other cases, minus the
property's adjusted basis.
Other gains and losses on sales of oil and gas properties will generally result
in ordinary gains or losses. (See " - Intangible Drilling and Development
Costs," "- Depletion Allowance" and " - Depreciation - Modified Accelerated Cost
Recovery System ("MACRS"), above.)
DISPOSITION OF PARTNERSHIP INTERESTS
The sale or exchange, including a repurchase by the Managing General Partner,
of all or part of your interest in the Partnership held by you for more than
twelve months will generally result in a recognition of long-term capital
gain or losss. However, the recapturable portions of depreciation, depletion
and intangible drilling and development costs will constitute ordinary
income. (See " - Sale of the Properties," above). In the event the interest
is held for twelve months or less, the gain or loss will generally be
short-term gain or loss. Also, your pro rata share of the Partnership's
liabilities, if any, as of the date of the sale or exchange must be included
in the amount realized. Therefore, the gain recognized may result in a tax
liability greater than the cash proceeds, if any, from such disposition. In
addition to gain from a passive activity, a portion of any gain recognized by
a Limited Partner on the sale or other disposition of his interest in the
Partnership may be characterized as portfolio income. (See " -Limitations on
Passive Activities", above.)
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A gift of your interest in the Partnership may result in federal and/or state
income tax and gift tax liability to you, and interests in different
partnerships do not qualify for tax-free like-kind exchanges. Other dispositions
of your interest, may or may not result in recognition of taxable gain. However,
no gain should be recognized by an Investor General Partner whose interest in
the Partnership is converted to a Limited Partner interest so long as there is
no change in his share of the Partnership's liabilities or certain Partnership
assets as a result of the conversion. In addition, if you sell or exchange all
or part of your interest in the Partnership you are required by the Code to
notify the Partnership within 30 days or by January 15 of the following year, if
earlier.
NO DISPOSITION OF YOUR INTEREST IN THE PARTNERSHIP (INCLUDING REPURCHASE OF THE
INTEREST BY THE MANAGING GENERAL PARTNER) SHOULD BE MADE BY YOU PRIOR TO
CONSULTATION WITH YOUR TAX ADVISOR.
MINIMUM TAX - TAX PREFERENCES
With limited exceptions, all taxpayers are subject to the alternative minimum
tax. If your alternative minimum tax exceeds the regular tax, the excess is
payable in addition to the regular tax. The alternative minimum tax is intended
to insure that no one with substantial income can avoid tax liability by using
deductions and credits. The alternative minimum tax accomplishes this objective
by not treating favorably certain items that are treated favorably for purposes
of the regular tax, including the deductions for intangible drilling and
development costs and accelerated depreciation. Generally, the alternative
minimum tax rate for individuals is 26% on alternative minimum taxable income up
to $175,000 ($87,500 for married individuals filing separate returns) and 28%
thereafter. See " - Sale of the Properties," above, for the tax rates on capital
gains. Regular tax personal exemptions are not available for purposes of the
alternative minimum tax, however, alternative minimum taxable income may be
reduced by certain itemized deductions, exemption amounts and net operating
losses.
For taxpayers other than integrated oil companies (see "- Intangible Drilling
and Development Costs"), the 1992 National Energy Bill repealed: (1) the
preference for excess intangible drilling and development costs; and (2) the
excess percentage depletion preference for oil and gas. The repeal of the excess
intangible drilling and development costs preference, however, may not result in
more than a 40% reduction in the amount of the taxpayer's alternative minimum
taxable income computed as if the excess intangible drilling and development
costs preference had not been repealed. Under the prior rules, the amount of
intangible drilling and development costs which is not deductible for
alternative minimum tax purposes is the excess of the "excess intangible
drilling costs" over 65% of net income from oil and gas properties. Excess
intangible drilling costs is the regular intangible drilling and development
costs deduction minus the amount that would have been deducted under 120-month
straight-line amortization, or (at the taxpayer's election) under the cost
depletion method. There is no preference for costs of nonproductive wells.
THE LIKELIHOOD OF YOU INCURRING, OR INCREASING, ANY MINIMUM TAX LIABILITY BY
VIRTUE OF AN INVESTMENT IN THE PARTNERSHIP MUST BE DETERMINED ON AN INDIVIDUAL
BASIS, AND REQUIRES YOU TO CONSULT WITH YOUR PERSONAL TAX ADVISOR.
LIMITATIONS ON DEDUCTION OF INVESTMENT INTEREST
Investment interest is deductible by a noncorporate taxpayer only to the extent
of net investment income each year (with an indefinite carryforward of
disallowed investment interest). An Investor General Partner's share of any
interest expense incurred by the Partnership will be subject to the investment
interest limitation. In addition, an Investor General Partner's income and
losses (including intangible drilling and development costs) from the
Partnership will be considered investment income and losses. Losses allocable to
an Investor General Partner will reduce his net investment income and may affect
the deductibility of his investment interest expense, if any. These rules do not
apply to Partnership income or expense subject to the passive activity loss
limitations for Limited Partners. (See " - Limitations on Passive Activities,"
above.)
ALLOCATIONS
The Partnership Agreement allocates to you your share of the Partnership's
income, gains, credits and deductions (including the deductions for intangible
drilling and development costs and depreciation). (See "Participation in Costs
and Revenues.") Your Capital Account will be adjusted to reflect these
allocations and your Capital Account, as adjusted, will be given effect in
distributions made to you upon liquidation of the Partnership or your interest
in the Partnership. Generally, your Capital Account will be increased by the
amount of money you contribute to the Partnership and allocations to you of
income and gain, and decreased by the value of property or cash distributed to
you and allocations to you of loss and deductions.
It should be noted that your share of Partnership items of income, gain, loss,
deduction and credit must be taken into account whether or not there is any
distributable cash. Your share of Partnership revenues applied to the repayment
of loans or the
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reserve for plugging wells, for example, will be included in
your gross income in a manner analogous to an actual distribution of the income
to you. Thus, you may have tax liability from the Partnership for a particular
year in excess of any cash distributions from the Partnership to you with
respect to that year. To the extent the Partnership has cash available for
distribution, however, it is the Managing General Partner's policy that
Partnership distributions will not be less than the Managing General Partner's
estimate of the Participants' income tax liability with respect to Partnership
income.
If any allocation under the Partnership Agreement is not recognized for federal
income tax purposes, your distributive share of the items subject to such
allocation generally will be determined in accordance with your interest in the
Partnership, determined by considering relevant facts and circumstances. To the
extent such deductions, as allocated by the Partnership Agreement, exceed
deductions which would be allowed pursuant to such a reallocation you may incur
a greater tax burden.
PARTNERSHIP BORROWINGS
Under the Partnership Agreement, the Managing General Partner and its Affiliates
may make loans to the Partnership. The use of Partnership revenues taxable to
Participants to repay Partnership borrowings could create income tax liability
for the Participants in excess of cash distributions to them, since repayments
of principal are not deductible for federal income tax purposes. In addition,
interest on the loans will not be deductible unless the loans are bona fide
loans that will not be treated as Capital Contributions in light of all the
surrounding facts and circumstances.
PARTNERSHIP ORGANIZATION AND SYNDICATION FEES
Expenses connected with the sale of interests in a partnership are not
deductible. Although certain organization expenses of the Partnership may be
amortized over a period of not less than 60 months, these expenses are paid by
the Managing General Partner as part of the Partnership's Organization and
Offering Costs and any related deductions, which the Managing General Partner
does not expect will be material in amount, will be allocated to the Managing
General Partner.
TAX ELECTIONS
The Partnership may elect to adjust the basis of Partnership property on the
transfer of an interest in a Partnership by sale or exchange or on the death of
a Partner, and on the distribution of property by the Partnership to a Partner
(the Section 754 election). The general effect of such an election is that
transferees of the Partnership interests are treated, for purposes of
depreciation and gain, as though they had acquired a direct interest in the
Partnership assets and the Partnership is treated for such purposes, upon
certain distributions to Partners, as though it had newly acquired an interest
in the Partnership assets and therefore acquired a new cost basis for such
assets. Also, certain "start-up expenditures" must be capitalized and can only
be amortized over a 60-month period. If it is ultimately determined that any of
the Partnership's expenses constituted start-up expenditures and not deductible
business expenses, the Partnership's deductions would be reduced.
DISALLOWANCE OF DEDUCTIONS UNDER SECTION 183 OF THE CODE
Your ability to deduct your share of the Partnership's losses could be lost if
the Partnership lacks the appropriate profit motive. There is a presumption that
an activity is engaged in for profit, if, in any three of five consecutive
taxable years, the gross income derived from such activity exceeds the
deductions attributable to such activity. Thus, if the Partnership fails to show
a profit in at least three of five consecutive years, this presumption will not
be available and the possibility that the IRS could successfully challenge the
Partnership deductions claimed by you would be substantially increased.
The fact that the possibility of ultimately obtaining profits is uncertain,
standing alone, does not appear to be sufficient grounds for the denial of
losses. Based on the Managing General Partner's representation that the
Partnership will be conducted as described in this Prospectus, in the opinion of
Special Counsel it is more likely than not that the Partnership will possess the
requisite profit motive.
TERMINATION OF A PARTNERSHIP
The Partnership will be considered as terminated for federal income tax purposes
if within a twelve month period there is a sale or exchange of 50% or more of
the total interest in Partnership capital and profits. You will realize taxable
gain on a termination of the Partnership to the extent that money regarded as
distributed to you exceeds the adjusted basis of your Partnership interest. The
conversion of Investor General Partner Units to Limited Partner interests,
however, will not result in a termination of the Partnership.
LACK OF REGISTRATION AS A TAX SHELTER
An organizer of a "tax shelter" must obtain an identification number which must
be included on the tax returns of investors in the tax shelter. For this
purpose, a "tax shelter" includes investments with respect to which any person
could reasonably infer
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that the ratio that (1) the aggregate amount of the potentially allowable
deductions and 350% of the potentially allowable credits with respect to the
investment during the first five years of the investment bears to (2) the
amount of money and the adjusted basis of property contributed to the
investment exceeds 2 to 1, determined without reduction for gross income
derived from the investment.
The Managing General Partner does not believe that the Partnership will have a
tax shelter ratio greater than 2 to 1. Also, because the purpose of the
Partnership is to locate, produce and market natural gas on an economic basis,
the Managing General Partner does not believe that the Partnership will be a
"potentially abusive tax shelter." Accordingly, the Managing General Partner
does not intend to cause the Partnership to register with the IRS as a tax
shelter.
If it is subsequently determined that the Partnership was required to be
registered with the IRS as a tax shelter, the Managing General Partner would be
subject to certain penalties and you would be liable for a $250 penalty for
failure to include the tax shelter registration number on your tax return,
unless such failure was due to reasonable cause. You also would be liable for a
penalty of $100 for failing to furnish the tax shelter registration number to
any transferee of your interest in the Partnership. However, based on the
representations of the Managing General Partner, Special Counsel has expressed
the opinion that the Partnership, more likely than not, is not required to
register with the IRS as a tax shelter.
Issuance of a registration number does not indicate that an investment or the
claimed tax benefits have been reviewed, examined, or approved by the IRS.
INVESTOR LISTS. Any person who organizes a tax shelter required to be registered
with the IRS must maintain a list of each investor in the tax shelter. For the
reasons described above, the Managing General Partner does not believe the
Partnership is a tax shelter for this purpose. If this determination is wrong
there is a penalty of $50 for each person, unless the failure is due to
reasonable cause.
TAX RETURNS AND AUDITS
IN GENERAL. The tax treatment of all partnership items is generally determined
at the partnership, rather than the partner, level; and the partners are
generally required to treat partnership items on their individual returns in a
manner which is consistent with the treatment of the partnership items on the
partnership return. Generally, the IRS must conduct an administrative
determination as to partnership items at the partnership level before conducting
deficiency proceedings against a partner, and the partners must file a request
for an administrative determination before filing suit for any credit or refund.
The period for assessing tax against a Partner attributable to a partnership
item may be extended as to all partners by agreement between the IRS and the
Managing General Partner, which will serve as the Partnership's representative
("Tax Matters Partner") in all administrative and judicial proceedings conducted
at the partnership level. The Tax Matters Partner generally may enter into a
settlement on behalf of, and binding upon, partners owning less than a 1%
profits interest in partnerships having more than 100 partners. In addition, a
partnership with at least 100 partners may elect to be governed under simplified
tax reporting and audit rules as an "electing large partnership." These rules
also facilitate the matching of partnership items with individual partner tax
returns by the IRS. The Managing General Partner does not anticipate that the
Partnership will make this election. By executing the Partnership Agreement, you
agree that you will not form or exercise any right as a member of a notice group
and will not file a statement notifying the IRS that the Tax Matters Partner
does not have binding settlement authority.
TAX RETURNS. Your income tax returns are your responsibility. The Partnership
will provide you with the tax information applicable to your investment in the
Partnership necessary to prepare your returns. However, the treatment of the tax
attributes of the Partnership may vary among Participants. Accordingly, the
Managing General Partner, its Affiliates and Special Counsel assume no
responsibility for the tax consequences of this transaction to you, nor for the
disallowance of any proposed deductions.
YOU ARE URGED TO SEEK QUALIFIED, PROFESSIONAL ASSISTANCE IN THE PREPARATION OF
YOUR FEDERAL, STATE AND LOCAL TAX RETURNS.
PENALTIES AND INTEREST
IN GENERAL. Interest is charged on underpayments of tax and various civil and
criminal penalties are included in the Code.
PENALTY FOR NEGLIGENCE OR DISREGARD OF RULES OR REGULATIONS. If any portion of
an underpayment of tax is attributable to negligence or disregard of rules or
regulations, 20% of such portion is added to the tax. Negligence is strongly
indicated if a partner fails to treat partnership items on his tax return in a
manner that is consistent with the treatment of such items on the partnership's
return or to notify the IRS of the inconsistency.
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VALUATION MISSTATEMENT PENALTY. There is an addition to tax of 20% of the amount
of any underpayment of tax of $5,000 or more which is attributable to a
substantial valuation misstatement. There is a substantial valuation
misstatement if the value or adjusted basis of any property claimed on a return
is 200% or more of the correct amount; or if the price for any property or
services (or for the use of property) claimed on a return is 200% or more (or
50% or less) of the correct price. If there is a gross valuation misstatement
(400% or more of the correct value or adjusted basis or the undervaluation is
25% or less of the correct amount) the penalty is 40%.
SUBSTANTIAL UNDERSTATEMENT PENALTY. There is also an addition to tax of 20% of
any underpayment if the difference between the tax required to be shown on the
return over the tax actually shown on the return, exceeds the greater of 10% of
the tax required to be shown on the return, or $5,000. The amount of any
understatement generally will be reduced to the extent it is attributable to the
tax treatment of an item supported by substantial authority, or adequately
disclosed on the taxpayer's return and there is a reasonable basis for the tax
treatment of such item by the taxpayer. However, in the case of "tax shelters,"
the understatement may be reduced only if the tax treatment of an item
attributable to a tax shelter was supported by substantial authority and the
taxpayer established that he reasonably believed that the tax treatment claimed
was more likely than not the proper treatment. A "tax shelter" for this purpose
is any entity which has as a significant purpose the avoidance or evasion of
federal income tax.
IRS ANTI-ABUSE RULE. If a principal purpose of a partnership is to reduce
substantially the partners' federal income tax liability in a manner that is
inconsistent with the intent of the partnership rules of the Code, based on all
the facts and circumstances, the IRS is authorized to remedy the abuse. Based on
the Managing General Partner's representation that the Partnership will be
conducted as described in this Prospectus, in the opinion of Special Counsel it
is more likely than not that the Partnership will not be subject to this rule.
STATE AND LOCAL TAXES
Under Pennsylvania law, the Partnership is required to withhold state income tax
at the rate of 2.8% of Partnership income allocable to Participants who are not
residents of Pennsylvania. Also, the Partnership will operate in states and
localities which impose a tax on its assets or its income, or on you. Deductions
which are available to you for federal income tax purposes may not be available
for state or local income tax purposes.
YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISORS CONCERNING THE POSSIBLE EFFECT OF
VARIOUS STATE AND LOCAL TAXES ON YOUR PERSONAL TAX SITUATIONS.
SEVERANCE, FRANCHISE, AND AD VALOREM (REAL ESTATE) TAXES
The Partnership may incur various ad valorem or severance taxes imposed by state
or local taxing authorities. Currently, there is no such tax liability in Mercer
County, Pennsylvania.
SOCIAL SECURITY BENEFITS AND SELF-EMPLOYMENT TAX
A Limited Partner's share of income or loss from the Partnership is excluded
from the definition of "net earnings from self-employment." No increased
benefits under the Social Security Act will be earned by Limited Partners, and
if any Limited Partners are currently receiving Social Security benefits their
shares of Partnership taxable income will not be taken into account in
determining any reduction in benefits because of "excess earnings." An Investor
General Partner's share of income or loss from the Partnership will constitute
"net earnings from self-employment" for these purposes. For 1999 the ceiling for
social security tax of 12.4% is $72,600 and there is no ceiling for medicare tax
of 2.9%. Self-employed individuals can deduct one-half of their self-employment
tax.
FOREIGN PARTNERS
The Partnership will be required to withhold and pay to the IRS tax at the
highest rate under the Code applicable to Partnership income allocable to
foreign partners, even if no cash distributions are made to such partners. In
the event of overwithholding, a foreign Partner must file a United States tax
return to obtain a refund.
ESTATE AND GIFT TAXATION
There is no federal tax on lifetime or testamentary transfers of property
between spouses. The gift tax annual exclusion is $10,000 per donee, which will
be adjusted for inflation. Estates of $650,000 (which increases in stages to
$1,000,000 by 2006) or less generally are not subject to federal estate tax.
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IT IS NOT POSSIBLE FOR SPECIAL COUNSEL TO PREDICT THE EFFECT OF THE TAX LAWS ON
YOU. ACCORDINGLY, YOU ARE URGED TO SEEK, AND SHOULD DEPEND UPON, THE ADVICE OF
YOUR OWN TAX ADVISORS WITH RESPECT TO YOUR INVESTMENT IN THE PARTNERSHIP WITH
SPECIFIC REFERENCE TO YOUR OWN TAX SITUATION AND POTENTIAL CHANGES IN THE
APPLICABLE LAW.
DEFINITIONS
TERMS DEFINED
As used in this Prospectus, the following terms have the meanings hereinafter
set forth:
(1) "Administrative Costs" means all customary and routine expenses incurred by
the Sponsor for the conduct of Partnership administration, including:
legal, finance, accounting, secretarial, travel, office rent, telephone,
data processing and other items of a similar nature. No Administrative
Costs charged will be duplicated under any other category of expense or
cost. No portion of the salaries, benefits, compensation or remuneration of
controlling persons of the Managing General Partner shall be reimbursed by
the Partnership as Administrative Costs. Controlling persons include
directors, executive officers and those holding five percent or more equity
interest in the Managing General Partner or a person having power to direct
or cause the direction of the Managing General Partner, whether through the
ownership of voting securities, by contract, or otherwise.
(2) "Administrator" means the official or agency administering the securities
laws of a state.
(3) "Affiliate" means with respect to a specific person:
- any person directly or indirectly owning, controlling, or holding with
power to vote ten percent or more of the outstanding voting securities
of such specified person;
- any person ten percent or more of whose outstanding voting securities
are directly or indirectly owned, controlled, or held with power to
vote, by such specified person;
- any person directly or indirectly controlling, controlled by, or under
common control with such specified person;
- any officer, director, trustee or partner of such specified person; and
- if such specified person is an officer, director, trustee or partner,
any person for which such person acts in any such capacity.
(4) "AIC, Inc." means AIC, Inc., a wholly owned subsidiary of Atlas America,
Inc. and the sole shareholder of Atlas, whose principal executive offices
are located at 311 Rouser Road, Moon Township, Pennsylvania, 15108.
(5) "Agreed Subscription" means that amount so designated on the Subscription
Agreement executed by the Participant, or, in the case of the Managing
General Partner, its subscription under ss.3.03(b) and its subsections of
the Partnership Agreement.
(6) "Anthem Securities" means Anthem Securities, Inc. whose principal executive
offices are located at 311 Rouser Road, P.O. Box 926, Coraopolis,
Pennsylvania 15108-0926.
(7) "Assessments" means additional amounts of capital which may be mandatorily
required of or paid voluntarily by a Participant beyond his subscription
commitment.
(8) "Atlas" means Atlas Resources, Inc., a Pennsylvania corporation, whose
principal executive offices are located at 311 Rouser Road, Moon Township,
Pennsylvania 15108.
(9) "Atlas America, Inc." means Atlas America, Inc., a Pennsylvania
corporation, whose principal executive offices are located at 311 Rouser
Road, Moon Township, Pennsylvania 15108.
(10) "Atlas Energy" means Atlas Energy Group, Inc., an Ohio corporation, whose
principal executive offices are located at 311 Rouser Road, Moon Township,
Pennsylvania 15108.
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(11) "Atlas Group" means The Atlas Group, Inc., a Pennsylvania corporation,
which was formerly known as AEGH or AEG Holdings, Inc., and has been merged
into Atlas America, Inc.
(12) "Capital Account" or "account" means the account established for each party
to the Partnership Agreement, maintained as provided in ss.5.02 and its
subsections of the Partnership Agreement.
(13) "Capital Contribution" means the amount agreed to be contributed to the
Partnership by a party pursuant to ss.ss.3.04 and 3.05 and their
subsections of the Partnership Agreement.
(14) "Carried Interest" means 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.
(15) "Code" means the Internal Revenue Code of 1986, as amended.
(16) "Cost", when used with respect to the sale of property to the Partnership,
means:
- the sum of the prices paid by the seller to an unaffiliated person for
such property, including bonuses;
- 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;
- a pro rata portion of the seller's actual necessary and reasonable
expenses for seismic and geophysical services; and
- 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 (iv) shall have been
incurred not more than 36 months prior to the purchase by the
Partnership.
"Cost", when used with respect to services, means the reasonable,
necessary and actual expense incurred by the seller on behalf of the
Partnership in providing such services, determined in accordance with
generally accepted accounting principles.
As used elsewhere, "Cost" means the price paid by the seller in an
arm's-length transaction.
(17) "Dealer-Manager" means Anthem Securities, an Affiliate of the Managing
General Partner and the broker-dealer which will manage the offering and
sale of the Units in all states other than Minnesota and New Hampshire,
and Bryan Funding, Inc., the broker-dealer which will manage the offering
and sale of Units in Minnesota and New Hampshire.
(18) "Development Drilling" means drilling a Development Well.
(19) "Development Well" means a well drilled within the proved area of an oil
or gas reservoir to the depth of a stratigraphic Horizon known to be
productive.
(20) "Direct Costs" means all actual and necessary costs directly incurred for
the benefit of the Partnership and generally attributable to the goods
and services provided to the Partnership by parties other than the Sponsor
or its Affiliates. Direct Costs shall not include any cost otherwise
classified as Organization and Offering Costs, Administrative Costs,
Intangible Drilling Costs, Tangible Costs, Operating Costs or costs
related to the Leases. Direct Costs may include the cost of services
provided by the Sponsor or its Affiliates if the services are provided
pursuant to written contracts and in compliance with ss.4.03(d)(7) of the
Partnership Agreement.
(21) "Drilling and Completion Costs" means all expenditures made with respect
to any well before 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
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"intangible drilling and development costs," including the expense of
plugging and abandoning any well prior to a completion attempt
("Intangible Drilling Costs"), and 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 ("Tangible
Costs").
(22) "Drilling and Operating Agreement" means the proposed Drilling and
Operating Agreement between the Managing General Partner or an Affiliate
as Operator, and the Partnership as Developer, a copy of the proposed form
of which is attached as Exhibit (II) to the Partnership Agreement.
(23) "Dry Hole" means a well which is plugged and abandoned with or without a
completion attempt because the Operator has determined that it will not be
productive of gas and/or oil in commercial quantities.
(24) "Exploratory Drilling" means drilling an Exploratory Well.
(25) "Exploratory Well" means a well drilled:
- to find commercially productive hydrocarbons in an unproved area;
- to find a new commercially productive Horizon in a field previously
found to be productive of hydrocarbons at another Horizon; or
- to significantly extend a known prospect.
(26) "Farmout" means an agreement whereby the owner of the leasehold or Working
Interest agrees to assign his interest in certain specific acreage to the
assignees, retaining some interest such as an Overriding Royalty Interest,
an oil and gas payment, offset acreage or other type of interest, subject
to the drilling of one or more specific wells or other performance as a
condition of the assignment.
(27) "Final Terminating Event" means any one of the following:
- the expiration of the fixed term of the Partnership;
- the giving of notice to the Participants by the Managing General
Partner of its election to terminate the affairs of the Partnership;
- 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
- the termination of the Partnership under ss.708(b)(1)(A) of the Code
or the Partnership ceases to be a going concern.
(28) "Force Majeure" means 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 under the Drilling and Operating Agreement and is not
reasonably within the control of the Operator.
(29) "Fracturing" or "Frac" means a treatment to a potentially productive
geological formation intended to enhance the ability of oil or gas to
migrate through the formation to the well hole. Fracturing may involve the
application of hydraulic pressure to the reservoir formation or the use of
explosive devices to create or enlarge fractures through which oil or gas
may move.
(30) "Horizon" means a zone of a particular formation; that part of a formation
of sufficient porosity and permeability to form a petroleum reservoir.
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(31) "Independent Expert" means a person with no material relationship to the
Sponsor or its Affiliates who is qualified and who is in the business of
rendering opinions regarding the value of oil and gas properties based
upon the evaluation of all pertinent economic, financial, geologic and
engineering information available to the Sponsor or its Affiliates.
(32) "Initial Closing Date" means the date, on or before the Offering
Termination Date, but after the minimum Partnership Subscription has been
received, that the Managing General Partner, in its sole discretion,
elects for the Partnership to begin business activities, including the
drilling of wells. It is anticipated that this date will be November 1,
1999.
(33) "Intangible Drilling Costs" or "Non-Capital Expenditures" means those
expenditures associated with property acquisition and the drilling and
completion of oil and gas wells that under present law are generally
accepted as fully deductible currently for federal income tax purposes;
and includes all expenditures made with respect to any well prior to the
establishment of production in commercial quantities for wages, fuel,
repairs, hauling, supplies and other costs and expenses incident to and
necessary for the drilling of such well and the preparation thereof for
the production of oil or gas, that are currently deductible pursuant to
Section 263(c) of the Code and Treasury Reg. Section 1.612-4, which are
generally termed "intangible drilling and development costs," including
the expense of plugging and abandoning any well prior to a completion
attempt.
(34) "Interim Closing Date" means those date(s) after the Initial Closing Date
of the Partnership, but before the Offering Termination Date, that the
Managing General Partner, in its sole discretion, applies additional
Agreed Subscriptions to additional Partnership activities, including
drilling activities.
(35) "Investor General Partners" means the persons signing the Subscription
Agreement as Investor General Partners and the Managing General Partner
to the extent of any optional subscription under ss.3.03(b)(2) of the
Partnership Agreement. All Investor General Partners will be of the same
class and have the same rights.
(36) "IRS" means the United States Internal Revenue Service.
(37) "Joint and Several Liability" means a liability in which a claimant, at
its option, may sue all or any one or more of the co-obligors for the
entire amount of the liability, whereas a joint liability is one in which
a claimant must sue all co-obligors.
(38) "Landowner's Royalty Interest" means an interest in production, or the
proceeds therefrom, to be received free and clear of all costs of
development, operation, or maintenance, reserved by a landowner upon the
creation of an oil and gas Lease.
(39) "Leases" means full or partial interests in oil and gas leases, oil and
gas mineral rights, fee rights, licenses, concessions, or other rights
under which the holder is entitled to explore for and produce oil and/or
gas, and further includes any contractual rights to acquire any such
interest.
(40) "Limited Partners" means the persons signing the Subscription Agreement as
Limited Partners, the Managing General Partner to the extent of any
optional subscription under ss.3.03(b)(2) of the Partnership Agreement,
the Investor General Partners upon the conversion of their Investor
General Partner Units to Limited Partner interests pursuant to ss.6.01 (b)
of the Partnership Agreement, and any other persons who are admitted to
the Partnership as additional or substituted Limited Partners. All Limited
Partners will be of the same class and have the same rights; provided,
however, Limited Partners who were formerly Investor General Partners
remain liable for Partnership obligations incurred before the conversion
of their Investor General Partner Units to Limited Partner interests in
the Partnership, as set forth in the Partnership Agreement.
(41) "Managing General Partner" means Atlas Resources, Inc. or any Person
admitted to the Partnership as a general partner other than as an Investor
General Partner pursuant to the Partnership Agreement who is designated to
exclusively supervise and manage the operations of the Partnership.
(42) "MCF" means one thousand cubic feet of natural gas.
(43) "Net Revenue Interest" means that percentage of revenues attributable to
the oil and gas rights subject to a particular Lease which a party
acquiring a Lease is entitled to receive by virtue of its interest
therein.
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(44) "Offering Termination Date" means the date after the minimum Partnership
Subscription has been received on which the Managing General Partner
determines, in its sole discretion, the Partnership's subscription period
is closed and the acceptance of subscriptions ceases, which shall not be
later than December 31, 1999.
(45) "Operating Costs" means expenditures made and costs incurred in producing
and marketing oil or gas from completed wells, including, in addition to
labor, fuel, repairs, hauling, materials, supplies, utility charges and
other costs incident to or therefrom, ad valorem and severance taxes,
insurance and casualty loss expense, and compensation to well operators or
others for services rendered in conducting such operations. Subject to the
foregoing, Operating Costs also include reworking, workover, subsequent
equipping and similar expenses relating to any well.
(46) "Operator" means the Managing General Partner, as operator of Partnership
Wells in Pennsylvania and the Managing General Partner or an Affiliate as
operator of Partnership Wells in other areas of the United States.
(47) "Organization Costs" means all costs of organizing the offering,
including, but not limited to, expenses for printing, engraving, mailing,
charges of transfer agents, registrars, trustees, escrow holders,
depositaries, engineers and other experts, expenses of qualification of
the sale of the securities under Federal and State law, including taxes
and fees, accountants' and attorneys' fees and other front-end fees.
(48) "Organization and Offering Costs" means all costs of organizing and
selling the offering including, but not limited to, total underwriting and
brokerage discounts and commissions (including fees of the underwriters'
attorneys), expenses for printing, engraving, mailing, salaries of
employees while engaged in sales activities, charges of transfer agents,
registrars, trustees, escrow holders, depositaries, engineers and other
experts, expenses of qualification of the sale of the securities under
federal and state law, including taxes and fees, accountants' and
attorneys' fees and other front-end fees.
(49) "Overriding Royalty Interest" means an interest in the oil and gas
produced pursuant to a specified oil and gas lease or leases, or the
proceeds from the sale thereof, carved out of the Working Interest, to be
received free and clear of all costs of development, operation, or
maintenance.
(50) "Participants" means the Managing General Partner to the extent of its
optional subscription under ss.3.03(b)(2) of the Partnership Agreement,
the Limited Partners and the Investor General Partners.
(51) "Partners" means the Managing General Partner, the Investor General
Partners, and the Limited Partners.
(52) "Partnership" means Atlas-Energy for the Nineties-Public #8 Ltd., the
Pennsylvania limited partnership formed pursuant to the Partnership
Agreement.
(53) "Partnership Agreement" means the Amended and Restated Certificate and
Agreement of Limited Partnership, including all exhibits thereto, as set
forth in Exhibit (A) to this Prospectus.
(54) "Partnership Net Production Revenues" means gross revenues after deduction
of the related Operating Costs, Direct Costs, Administrative Costs and all
other Partnership costs not specifically allocated.
(55) "Partnership Subscription" means the aggregate Agreed Subscriptions of the
parties to the Partnership Agreement; provided, however, with respect to
Participant voting rights under the Partnership Agreement, the term
"Partnership Subscription" shall be deemed not to include the Managing
General Partner's required subscription under ss.3.03(b)(1) of the
Partnership Agreement.
(56) "Partnership Well" means a well, some portion of the revenues from which
is received by the Partnership.
(57) "Person" means a natural person, partnership, corporation, association,
trust or other legal entity.
(58) "Program" means one or more limited or general partnerships or other
investment vehicles formed, or to be formed, for the primary purpose of
exploring for oil, gas and other hydrocarbon substances or investing in or
holding any property interests which permit the exploration for or
production of hydrocarbons or the receipt of such production or the
proceeds thereof.
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(59) "Prospect" means an area covering lands which are believed by the Managing
General Partner to contain subsurface structural or stratigraphic
conditions making it susceptible to the accumulations of hydrocarbons in
commercially productive quantities at one or more Horizons. The area,
which may be different for different Horizons, shall be designated by the
Managing General Partner in writing prior to the conduct of Partnership
operations and shall be enlarged or contracted from time to time on the
basis of subsequently acquired information to define the anticipated
limits of the associated hydrocarbon reserves and to include all acreage
encompassed therein. A "Prospect" with respect to a particular Horizon may
be limited to the minimum area permitted by state law or local practice,
whichever is applicable, to protect against drainage from adjacent wells
if the well to be drilled by the Partnership is to a Horizon containing
Proved Reserves. Subject to the foregoing sentence, with respect to the
Clinton/Medina geological formation in Ohio and Pennsylvania "Prospect"
shall be deemed the drilling or spacing unit.
(60) "Proved Developed Oil and Gas Reserves" means reserves that can be
expected to be recovered through existing wells with existing equipment
and operating methods. Additional oil and gas expected to be obtained
through the application of fluid injection or other improved recovery
techniques for supplementing the natural forces and mechanisms of primary
recovery should be included as "proved developed reserves" only after
testing by a pilot project or after the operation of an installed program
has confirmed through production response that increased recovery will be
achieved.
(61) "Proved Reserves" means the estimated quantities of crude oil, natural
gas, and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions,
I.E., prices and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future conditions.
- 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:
- that portion delineated by drilling and defined by gas-oil and/or
oil-water contacts, if any; and
- 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.
- 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.
- Estimates of proved reserves do not include the following:
- oil that may become available from known reservoirs but is
classified separately as "indicated additional reserves";
- 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;
- crude oil, natural gas, and natural gas liquids, that may occur
in undrilled prospects; and
- crude oil, natural gas, and natural gas liquids, that may be
recovered from oil shales, coal, gilsonite and other such sources.
(62) "Proved Undeveloped Reserves" means reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells
where a relatively major expenditure is required for recompletion.
Reserves on undrilled acreage shall be limited to those drilling units
offsetting productive units that are reasonably certain of production when
drilled. Proved reserves for other undrilled units can be claimed only
where it can be demonstrated with certainty that there is continuity of
production from the existing productive formation. Under no circumstances
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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.
(63) "Roll-Up" means a transaction involving the acquisition, merger,
conversion or consolidation, either directly or indirectly, of the
Partnership and the issuance of securities of a Roll-Up Entity. Such term
does not include:
- a 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
- 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.
(64) "Roll-Up Entity" means a partnership, trust, corporation or other entity
that would be created or survive after the successful completion of a
proposed roll-up transaction.
(65) "Sales Commissions" means all underwriting and brokerage discounts and
commissions incurred in the sale of Units in the Partnership payable to
registered broker-dealers, but excluding the Dealer-Manager fee, a .5%
reimbursement of marketing expenses, and a .5% reimbursement for bona fide
accountable due diligence expenses.
(66) "Selling Agents" means those broker-dealers selected by the Dealer-Manager
which will participate in the offer and sale of the Units.
(67) "Shut-In" means temporary cessation of operation of a producing well. A
well may be Shut-In because of:
- down time for repair and maintenance;
- the lack of a market for the production; or
- the Managing General Partner has ceased producing all or a portion
of the gas from the well because of gas price decreases.
(68) "Sponsor" means any person directly or indirectly instrumental in
organizing, wholly or in part, a program or any person who will manage or
is entitled to manage or participate in the management or control of a
program. "Sponsor" includes the managing and controlling general
partner(s) and any other person who actually controls or selects the
person who controls 25% or more of the exploratory, development or
producing activities of the program, or any segment thereof, even if that
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.
(69) "Spud" means with respect to any well the commencement of the first boring
of the hole for the well for which a "spudding bit" may be used, or such
other meaning as is generally accepted in the oil and gas industry.
(70) "Subscription Agreement" means an execution and subscription instrument in
the form attached as Exhibit (I-B) to the Partnership Agreement.
(71) "Subordinated Interest" means an equity interest in a program issued to a
person, without payment of full consideration, after the attainment of
certain specified performance by the program.
(72) "Tangible Costs"or "Capital Expenditures" means those costs associated
with the drilling and completion of oil and gas wells which are generally
accepted as capital expenditures pursuant to the provisions of the
Internal Revenue Code; and includes all costs of equipment, parts and
items of hardware used in drilling and completing a well, and those items
necessary to deliver acceptable oil and gas production to purchasers to
the extent installed downstream from the
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wellhead of any well and which are required to be capitalized pursuant
to applicable provisions of the Code and regulations promulgated
thereunder.
(73) "Tax Matters Partner" means the Managing General Partner.
(74) "Units" or "Units of Participation" means the Limited Partner interests
and the Investor General Partner interests purchased by Participants in
the Partnership under the provisions of Section 3.03 and its subsections
of the Partnership Agreement.
(75) "Working Interest" means an interest in an oil and gas leasehold which is
subject to some portion of the cost of development, operation, or
maintenance.
SUMMARY OF PARTNERSHIP AGREEMENT
NOTE: THE RIGHTS AND OBLIGATIONS OF THE MANAGING GENERAL PARTNER AND YOU AND THE
OTHER PARTICIPANTS ARE GOVERNED BY THE PARTNERSHIP AGREEMENT, A COPY OF WHICH IS
ATTACHED AS EXHIBIT (A) TO THIS PROSPECTUS. YOU SHOULD NOT INVEST IN THE
PARTNERSHIP WITHOUT FIRST THOROUGHLY REVIEWING THE PARTNERSHIP AGREEMENT. THE
FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS IN THE PARTNERSHIP AGREEMENT WHICH
ARE NOT COVERED ELSEWHERE IN THIS PROSPECTUS.
RESPONSIBILITY OF MANAGING GENERAL PARTNER
The Managing General Partner will have the exclusive management and control
of all aspects of the business of the Partnership. As a Participant, even if
you are an Investor General Partner, you will not have any voice in the
day-to-day business operations of the Partnership. (See Section 4.03(a)(2) of
the Partnership Agreement.)
LIABILITIES OF GENERAL PARTNERS, INCLUDING INVESTOR GENERAL PARTNERS
General Partners, including Investor General Partners, will not be protected by
limited liability for Partnership activities. If you invest as an Investor
General Partner you will be Jointly and Severally Liable for all obligations and
liabilities to creditors and claimants (whether arising out of contract or tort)
in the conduct of Partnership operations. If an Investor General Partner is
called upon to pay an additional Capital Contribution to the Partnership and
fails to pay the required Capital Contribution when due, then the remaining
Investor General Partners, pro rata, must pay the defaulting Investor General
Partner's share of Partnership liabilities and obligations. In that event, the
remaining Investor General Partners:
- will have a first lien on the defaulting Investor General Partner's
interest in the Partnership to secure payment of the amount in
default plus interest at the legal rate;
- will be entitled to receive 100% of the defaulting Investor General
Partner's cash distributions directly from the Partnership until
the amount in default is recovered in full plus interest at the
legal rate; and
- may begin legal action to collect the amount due plus interest at
the legal rate. (See Section 3.05(b) of the Partnership Agreement.)
The Managing General Partner maintains general liability insurance. (See
Section 4.02(c)(1)(vi) of the Partnership Agreement.) In addition, the
Managing General Partner has agreed to indemnify each of the Investor General
Partners for obligations related to casualty losses which exceed available
insurance coverage and Partnership net assets. (See Section 4.05(b) of the
Partnership Agreement.)
LIABILITY OF LIMITED PARTNERS
The Partnership will be governed by the Pennsylvania Revised Uniform Limited
Partnership Act (the "Partnership Act"). Under the Partnership Act if you invest
as a Limited Partner, then generally you will not be liable to third parties for
the obligations of the Partnership. However, there are the following exceptions:
- if you also invest as an Investor General Partner; or
- in addition to the exercise of your rights and powers as a Limited
Partner, you take part in the control of the business of the
Partnership. (See Section 4.03(a)(1) of the Partnership
Agreement.)
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Under Pennsylvania law, if you invest as a Limited Partner you should not have
any liability to the Partnership in excess of your investment and your share of
the Partnership's assets and undistributed income. Notwithstanding, as a Limited
Partner you will have liability to the extent of the following:
- a failure to make a required Capital Contribution; and
- for a period of two years, any Capital Contributions "wrongfully"
returned to you in violation of the Partnership Agreement or
Pennsylvania law, with interest thereon. This includes, but is not
limited to, any distribution to you and the other Limited Partners
to the extent that, after giving effect to the distribution, all
liabilities of the Partnership (other than liabilities to the
Participants on account of their contributions and to the Managing
General Partner) exceed Partnership assets.
AMENDMENTS
Amendments to the Partnership Agreement may be:
- 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
- proposed in writing by Participants whose Agreed Subscriptions
equal 10% or more of the Partnership Subscription and adopted by an
affirmative vote of Participants whose Agreed Subscriptions equal a
majority of the Partnership Subscription.
The Partnership Agreement may also be amended by the Managing General Partner
for certain purposes, however, no amendment materially and adversely affecting
the Participants can be made without the consent of the affected Participants.
NOTICE
Notice to you as a Participant begins from the date of mailing the notice. Also,
the notice is binding on you even if you do not receive the notice. The notice
periods are frequently quite short (a minimum of 15 business days) and apply to
matters which may seriously affect your rights. If you fail to respond in the
specified time to a request by the Managing General Partner for approval of or
concurrence in a proposed action, then you will conclusively be deemed to have
approved the action unless the Partnership Agreement expressly requires your
affirmative approval. (See Section 8.01 of the Partnership Agreement.)
VOTING RIGHTS AND ACCESS TO RECORDS
Generally, you will be entitled to vote with respect to any and all Partnership
matters at any time a meeting is called by either the Managing General Partner
or Participants owning 10% or more of the Partnership Subscription. For each
Unit you own you are entitled to one vote on the matters being voted upon. If
you own a fractional Unit, then you are entitled to vote that fraction of one
vote equal to the fractional interest in the Unit.
At any time upon the request of Participants whose Agreed Subscriptions equal
10% or more of the Partnership Subscription, you and the other Participants may
vote without a meeting and without the concurrence of the Managing General
Partner or its Affiliates on the matters set forth below. Participants whose
Agreed Subscriptions equal a majority of the Partnership Subscription may vote
to:
- amend the Partnership Agreement; provided however, any amendment
may not increase the duties or liabilities of you or the Managing
General Partner or increase or decrease the profit or loss sharing
or required Capital Contribution of you or the Managing General
Partner without the approval of you or the Managing General
Partner. Furthermore, any amendment may not affect the
classification of Partnership income and loss for federal income
tax purposes without the unanimous approval of all Participants;
- dissolve the Partnership;
- remove the Managing General Partner and elect a new Managing
General Partner;
- elect a new Managing General Partner if the Managing General
Partner elects to withdraw from the Partnership;
- remove the Operator and elect a new Operator;
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- approve or disapprove the sale of all or substantially all of the
assets of the Partnership; and
- cancel any contract for services with the Managing General Partner,
the Operator or their Affiliates without penalty upon 60 days
notice.
The Managing General Partner, its officers, directors, and Affiliates may
also subscribe for Units in the Partnership on the same basis as you and the
other Participants, except that they are not required to pay the
Dealer-Manager fee, Sales Commissions, reimbursement of marketing expenses,
and reimbursement of bona fide accountable due diligence expenses. The
Managing General Partner, its officers, directors, or Affiliates may vote on
all matters other than the issues set forth in removing the Managing General
Partner and Operator above and any other transaction between the Managing
General Partner or its Affiliates and the Partnership. In determining the
requisite percentage in interest of Units necessary to approve any
Partnership matter on which the Managing General Partner and its Affiliates
may not vote or consent, any Units owned by the Managing General Partner and
its Affiliates will not be included. (See Section 4.03(c)(1) of the
Partnership Agreement.)
As a Participant you will have access to all records of the Partnership after
adequate notice, at any reasonable time. Logs, well reports and other
drilling and operating data may be kept confidential, but only for reasonable
periods of time. Your ability to obtain the Participant List is subject to
additional requirements set forth in the Partnership Agreement. (See Sections
4.03(b)(5) and 4.03(b)(6) of the Partnership Agreement.)
WITHDRAWAL OF MANAGING GENERAL PARTNER
After 10 years, the Managing General Partner may voluntarily withdraw as
Managing General Partner for whatever reason by giving 120 days' written notice
to you and the other Participants. Although the withdrawing Managing General
Partner is not required to provide a substitute Managing General Partner, a new
Managing General Partner may be substituted by the affirmative vote of
Participants whose Agreed Subscriptions equal a majority of the Partnership
Subscription.
If the Managing General Partner would withdraw and the Participants failed to
elect to continue the Partnership and to designate a substituted Managing
General Partner, then the Partnership would terminate and dissolve. This could
result in adverse tax and other consequences. (See "Participation in Costs and
Revenues - Liquidation" and "Tax Aspects - Termination of a Partnership.")
Subject to a required participation of not less than 1% of the Partnership
revenues, the Managing General Partner may partially withdraw a property
interest held by the Partnership in the form of a Working Interest in the
Partnership Wells equal to or less than its respective interest in the
revenues of the Partnership if the withdrawal is necessary to satisfy the
bona fide request of its creditors or approved by Participants whose Agreed
Subscriptions equal a majority of the Partnership Subscription. (See Sections
4.04(a)(3) and 6.03 of the Partnership Agreement.)
SUMMARY OF DRILLING AND OPERATING AGREEMENT
The Managing General Partner will serve as the Operator pursuant to the Drilling
and Operating Agreement, Exhibit (II) to the Partnership Agreement, for wells
situated in Pennsylvania, and the Managing General Partner or an Affiliate will
serve as the Operator for any wells situated in other areas of the United
States. The Operator may be replaced at any time upon 60 days advance written
notice by the Managing General Partner acting on behalf of the Partnership upon
the affirmative vote of Participants whose Agreed Subscriptions equal a majority
of the Partnership Subscription.
The Drilling and Operating Agreement provides a number of material provisions,
including, without limitation, those set forth below:
- The Operator's right to resign after five years.
- The Operator's right beginning three years after a Partnership Well
begins producing to retain $200 per month to cover future plugging
and abandonment costs of the well, although the Managing General
Partner historically has never done this after only three years.
- The grant of a first lien and security interest in the wells and
related production to secure payment of amounts due to the Operator
by the Partnership.
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- The prescribed insurance coverage to be maintained by the Operator.
- Limitations on the Operator's authority to incur extraordinary
costs with respect to producing wells in excess of $5,000 per well.
- Restrictions on the Partnership's ability to transfer its interest
in fewer than all wells, unless the transfer is of an equal
undivided interest in all wells.
- The limitation of the Operator's liability except for:
- violations of law;
- negligence or misconduct by it, its employees, agents or
subcontractors; and
- breach of the Drilling and Operating Agreement.
- The excuse for nonperformance by the Operator due to force majeure.
Force majeure generally means acts of God, catastrophes and other
causes which preclude the Operator's performance and are beyond
its control. (See "Definitions.")
THE FOREGOING IS ONLY A SUMMARY OF SOME OF THE PROVISIONS OF THE PROPOSED FORM
OF DRILLING AND OPERATING AGREEMENT. IT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FORM ATTACHED TO THE PARTNERSHIP AGREEMENT AS EXHIBIT (II). YOU
SHOULD NOT SUBSCRIBE TO THE PARTNERSHIP WITHOUT FIRST THOROUGHLY REVIEWING THE
DRILLING AND OPERATING AGREEMENT.
REPORTS TO INVESTORS
The Partnership will provide you and the other Participants the reports set
forth below. The cost of all the reports described below will be paid by the
Partnership as Direct Costs. (See Section 4.03(b) of the Partnership
Agreement.)
- Beginning with the 1999 calendar year, the Partnership will provide
you an annual report within 120 days after the close of the
calendar year, and beginning with the 2000 calendar year, a report
within 75 days after the end of the first six months of its
calendar year, containing, except as otherwise indicated, at least
the following information.
- Audited financial statements of the Partnership, including a
balance sheet and statements of income, cash flow and
Partners' equity prepared in accordance with generally
accepted accounting principles. Semiannual reports need not be
audited.
- A summary of the total fees and compensation paid by the
Partnership to the Managing General Partner, the Operator and
their Affiliates. In addition, you will be provided the
percentage that the annual unaccountable, fixed payment
reimbursements for Administrative Costs bears to annual
Partnership revenues.
- A description of each Prospect owned by the Partnership,
including the cost, location, number of acres and the Working
Interest except succeeding reports need contain only material
changes, if any.
- A list of the wells drilled or abandoned by the Partnership
(indicating whether each of such wells has or has not been
completed), and a statement of the cost of each well completed
or abandoned.
- A description of all farmins and joint ventures.
- 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; and
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- the revenues received or credited to the Managing General
Partner and the revenues received or credited to the
Participants.
- The Partnership will, within 75 days after the end of each fiscal
year, transmit to you the information needed for you to file your
federal and state income tax returns.
- Beginning January 1, 2001, and every year thereafter, the Managing
General Partner will provide a computation of the total oil and gas
Proved Reserves of the Partnership and the dollar value thereof.
The reserve computations will be based upon engineering reports
prepared by the Managing General Partner and reviewed by an
Independent Expert.
PRESENTMENT FEATURE
You and the other Participants may present your interests for repurchase by the
Managing General Partner beginning in 2004. However, you and the other
Participants are not obligated to present your Units for repurchase. The
Managing General Partner may suspend its repurchase obligation by notice to you
and the other Participants if it determines, in its sole discretion, that it
does not have the necessary cash flow or cannot borrow funds for this purpose on
terms it deems reasonable. After this notice, the Managing General Partner will
not be contractually obligated to purchase any interests presented for
repurchase.
The Managing General Partner will not purchase less than one Unit unless the
lesser amount represents your entire interest. If less than all interests
presented at any time are to be purchased, then the interests to be purchased
will be selected by lot. In any calendar year the Managing General Partner will
not purchase more than 5% of the Units. The Managing General Partner may waive
these limitations in its sole discretion, other than the limitation on its
purchasing more than 5% of the Units in any calendar year.
The Managing General Partner's obligation to purchase interests presented may be
discharged for its benefit by a third party or an Affiliate. If you sell your
interest it will be transferred to the party who pays for it. Also, you will be
required to deliver an executed assignment of your interest along with any other
documentation that the Managing General Partner reasonably requests.
You may present your Units in writing to the Managing General Partner
beginning in 2004. The presentment must be within 120 days of the Partnership
reserve report (the "Reserve Report") discussed below. In addition, in
accordance with Treas. Reg. Section 1.7704-1(f), no repurchase will occur
until at least 60 calendar days after you notify the Partnership in writing
of your intention to exercise your repurchase right. No repurchase will be
considered effective until payment has been made to you in cash.
The amount attributable to Partnership reserves will be determined based upon
the last Reserve Report prepared by the Managing General Partner and reviewed by
an Independent Expert. Beginning in 2001 the Managing General Partner will
estimate the present worth of future net revenues attributable to the
Partnership's interest in Proved Reserves. In making this estimate, the Managing
General Partner will use 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 presentment price to be paid to you will be based upon your share of the net
assets and liabilities of the Partnership based upon your Agreed Subscription.
The presentment price will include the sum of the following items:
- an amount based on 70% of the present worth of future net revenues
from the Partnership's Proved Reserves, determined as described
above;
- Partnership cash on hand;
- prepaid expenses and accounts receivable of the Partnership, less
a reasonable amount for doubtful accounts; and
- the estimated market value of all assets of the Partnership not
separately specified above, determined in accordance with standard
industry valuation procedures.
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There will be deducted from the foregoing sum the following items:
- an amount equal to all Partnership debts, obligations and other
liabilities, including accrued expenses; and
- any distributions made to you between the date of the request and
the actual payment. However, 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
presentment price, the distributions will be discounted at the same
rate used to take into account the risk factors employed to
determine the present worth of the Partnership's Proved Reserves
(see above).
The amount may be further adjusted by the Managing General Partner for estimated
changes therein from the date of the Reserve Report to the date of payment of
the presentment price to you:
- 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 before the presentment request; and
- by reason of any of the following occurring before payment of the
presentment price to you: 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.
Because of the difficulty in accurately estimating oil and gas reserves, the
purchase price may not reflect the full value of the Partnership property to
which it relates. These estimates are merely appraisals of value and may not
correspond to realizable value. There can be no assurance that the revenues
received by you before the presentment and the price paid for the interests will
be equal to the original price paid for the interests. You are not obligated to
present your Units for purchase and you may receive a greater return if you
retain rather than sell your Units as provided herein. Also, your sale of
interests will be a taxable event, and gain or loss generally will be recognized
for federal income tax purposes. (See "Tax Aspects - Disposition of Partnership
Interests.")
TRANSFERABILITY OF UNITS
RESTRICTIONS ON TRANSFER IMPOSED BY THE SECURITIES AND TAX LAW
Transferability of the Units is restricted. Thus, neither you nor the other
Participants will be able to sell, assign, pledge, hypothecate or transfer your
Partnership interest other than by operation of law unless there is:
- an effective registration of the Units under the 1933 Act and
qualification under applicable state securities law; or
- an opinion of counsel acceptable to the Managing General Partner
that the registration and qualification are not required.
Further, the Managing General Partner and the Partnership have no obligation or
intention to register the Units for resale.
Also, the tax laws require certain transfer limitations. Thus, subject to
transfers pursuant to the Partnership's presentment feature and transfers by
operation of law, no sale, exchange, transfer or assignment of a Unit may be
made if it would, in the opinion of counsel for the Partnership, result in the
termination of the Partnership within the meaning of Section 708 of the Code, or
would result in the Partnership being treated as a "publicly-traded" partnership
for purposes of ss.469(k) of the Code. (See "Tax Aspects - Limitations on
Passive Activities" and " - Termination of a Partnership.")
TRANSFER PROVISIONS
A Unit may be transferred only with the consent of the Managing General Partner.
The Partnership will recognize the assignment of one or more whole Units unless
you own less than a whole Unit, in which case your entire fractional interest
must be assigned. Any transfer that is consented to by the Managing General
Partner when the assignee of the Unit does not become a substituted Participant
as described below will be effective as of:
- midnight of the last day of the calendar month in which it is made;
or
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- at the Managing General Partner's election, 7:00 A.M. of the
following day.
An assignee of a Unit may become a substituted Participant only upon meeting
certain further conditions. A substitute Participant is entitled to all of the
rights attributable to full ownership of the assigned Units which includes the
right to vote. The conditions to become a substitute Participant are as follows:
- the assignor of the Unit gives the assignee the right;
- the Managing General Partner consents to the substitution, which is
in the Managing General Partner's absolute discretion;
- the assignee of the Unit pays to the Partnership all costs and
expenses incurred in connection with the substitution; and
- the assignee of the Unit executes and delivers the instruments (in
form and substance satisfactory to the Managing General Partner)
necessary or desirable to effect the substitution and to confirm
the agreement of the assignee to be bound by all terms and
provisions of the Partnership Agreement.
The Partnership will amend its records at least once each calendar quarter to
effect the substitution of substituted Participants.
PLAN OF DISTRIBUTION
COMMISSIONS
The Units will be offered on a "best efforts" basis by Anthem Securities, which
is an Affiliate of the Managing General Partner, acting as Dealer-Manager in all
states other than Minnesota and New Hampshire, and by other selected registered
broker-dealers, which are members of the NASD, acting as Selling Agents. Anthem
Securities was formed for the purpose of serving as Dealer-Manager of Programs
sponsored by the Managing General Partner and became an NASD member firm in
April, 1997. Anthem Securities has participated as Dealer-Manager in five
Programs sponsored by the Managing General Partner. Bryan Funding, Inc., a
member of the NASD, will serve as Dealer-Manager in the states of Minnesota and
New Hampshire, and will receive the same compensation as Anthem Securities with
respect to sales in those states. Best efforts means that the Dealer-Manager and
Selling Agents will not guarantee the sale of a certain amount of Units.
The Dealer-Manager will manage and oversee the offering of the Units as
described above and will receive on each Unit sold:
- a 2.5% Dealer-Manager fee;
- a 7% Sales Commission;
- a .5% reimbursement of marketing expenses; and
- a .5% reimbursement of the Selling Agent's bona fide accountable
due diligence expenses.
All or a portion of the 7% Sales Commissions, the .5% reimbursement of marketing
expenses, and the .5% reimbursement of the Selling Agents' bona fide accountable
due diligence expenses will be reallowed to the Selling Agents.
The Managing General Partner is also using the services of three wholesalers,
Mr. Eric Koval, Mr. Bruce Bundy and Mr. Robert Gourlay who are employed by it
and associated with Anthem Securities. The 2.5% Dealer-Manager fee will be
reallowed to the Affiliated wholesalers for Agreed Subscriptions obtained
through their efforts. The Dealer-Manager will retain any Sales Commissions,
reimbursement of marketing expenses, and reimbursement of the Selling Agents'
bona fide accountable due diligence expenses not reallowed to the Selling
Agents.
The offering will be made in compliance with Rule 2810 of the NASD Conduct Rules
and all compensation to broker-dealers and wholesalers, regardless of the
source, will be limited to 10% of the gross proceeds of the offering, plus the
reimbursement for bona fide accountable due diligence expenses of .5% on each
Agreed Subscription.
All Dealer-Manager fees, Sales Commissions, reimbursement of marketing expenses,
and due diligence reimbursements will be aggregated and paid by the Managing
General Partner as a part of Organization and Offering Costs and will not be
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deducted from subscription proceeds. Notwithstanding, the Managing General
Partner, its officers, directors and Affiliates and the Selling Agents may
subscribe for Units on the same basis as Participants but without paying the
Dealer-Manager fee, Sales Commissions, reimbursement of marketing expenses, and
due diligence reimbursements. Also Registered Investment Advisors and their
clients may subscribe for Units on the same basis as Participants by paying the
Dealer-Manager fee, but without paying Sales Commissions, reimbursement of
marketing expenses, and due diligence reimbursements.
After the minimum Partnership Subscription is received and the checks have
cleared the banking system, the Dealer-Manager fee, the Sales Commissions,
reimbursement of marketing expenses, and due diligence reimbursements will be
paid to the Dealer-Manager and broker-dealers approximately every two weeks
until the Offering Termination Date.
INDEMNIFICATION
The Dealer-Managers may be deemed underwriters as that term is defined in the
1933 Act and the Sales Commissions and Dealer-Manager fees may be deemed
underwriting compensation. The Managing General Partner and the Dealer-Managers
have agreed to indemnify each other, and it is anticipated that the
Dealer-Managers and each Selling Agent will agree to indemnify each other
against certain liabilities, including liabilities under the 1933 Act.
SALES MATERIAL
In addition to the Prospectus the Managing General Partner will use the
following sales material with the offering of the Units:
- a brochure entitled "Atlas-Energy for the Nineties-Public #8 Ltd.";
and
- Atlas America, Inc.'s corporate profile.
The Managing General Partner has not authorized the use of other sales material
and the offering of Units is made only by means of this Prospectus. Sales
material must be preceded or accompanied by this Prospectus. Although the
information contained in the sales material does not conflict with any of the
information set forth herein, this material does not purport to be complete.
Sales material should not be considered a part of or incorporated into this
Prospectus or the Registration Statement of which this Prospectus is a part.
In addition, supplementary materials (including prepared presentations for group
meetings) will be submitted to the Administrator in advance of use, and its use
must either be preceded by or accompanied with an effective Prospectus. Also,
all advertisements of, and oral or written invitations to, "seminars" or other
group meetings at which Units are to be described, offered or sold will clearly
indicate that the purpose of the meeting is to offer the Units for sale, the
minimum purchase price of the Units, the suitability standards to be employed,
and the name of the person selling the Units. No cash, merchandise or other
items of value will be offered as an inducement to any prospective investor to
attend any such meeting. All written or prepared audiovisual presentations
(including scripts prepared in advance for oral presentations) to be made at
such meetings must be submitted to the Administrator within a prescribed review
period. These provisions, however, will not apply to meetings consisting only of
representatives of broker-dealers.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS IN MAKING
YOUR INVESTMENT DECISION. NO ONE IS AUTHORIZED TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT.
LEGAL OPINIONS
Kunzman & Bollinger, Inc., has issued its opinion to the Managing General
Partner regarding the validity and due issuance of the Units offered hereby and
its opinion on material tax consequences to individual investors in the
Partnership. Notwithstanding the foregoing, the factual statements herein are
those of the Managing General Partner, and counsel has not given any opinions
with respect to any of the tax or other legal aspects of this offering except as
expressly set forth above.
EXPERTS
The financial statements included in this Prospectus for the Managing General
Partner and the Partnership have been audited by Grant Thornton, L.L.P., as of
the date indicated in their reports thereon which appear elsewhere herein. The
financial statements have been included in reliance on their reports given on
their authority as experts in auditing and accounting.
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The geological report of United Energy Development Consultants, Inc., which is
not affiliated with the Managing General Partner and its Affiliates, appearing
in "Proposed Activities - Information Regarding Currently Proposed Prospects"
has been included herein in reliance upon the authority of United Energy
Development Consultants, Inc. as an expert with respect to the matters covered
by such report and in the giving of such report.
LITIGATION
The Managing General Partner knows of no litigation pending or threatened to
which the Managing General Partner or the Partnership is subject or may be a
party, which it believes would have a material adverse effect upon the
Partnership or its business, and no such proceedings are known to be
contemplated by governmental authorities or other parties.
Notwithstanding, on November 22, 1995, Winston Management Services Corporation
("Winston") and Professional Planning & Technologies, Inc. ("PPT") filed a
complaint in the United States District Court for the District of Rhode Island
against Atlas Resources, Inc., Atlas Energy Group, Inc., and others. The gist of
the complaint is for the alleged breach of contract relating to the
interpretation of broker-dealer agreements entered into between Winston and PPT
and Atlas and Atlas Energy for the marketing of interests in limited
partnerships in 1987, 1988, 1989 and 1990. The complaint seeks compensatory
damages in an unspecified amount in excess of $50,000 plus an unspecified amount
of punitive damages together with interest and costs of the lawsuit. The
Managing General Partner intends to fight the lawsuit vigorously.
ADDITIONAL INFORMATION
The Partnership currently is not required to file reports with the Securities
and Exchange Commission (the "SEC"). However, a Registration Statement (together
with amendments thereto, hereinafter referred to as the "Registration
Statement") on Form SB-2 with respect to the Units offered hereby has been filed
on behalf of the Partnership with the SEC. Certain portions of the Registration
Statement have been omitted from this Prospectus pursuant to the rules and
regulations of the SEC. Reference is made to the Registration Statement,
including exhibits, for further information. Statements in this Prospectus as to
the contents of any document are not necessarily complete, and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement for full statements of the provisions thereof, and
each such statement in this Prospectus is qualified in all respects by this
reference. You may read and copy any materials filed as a part of the
Registration Statement, including the Tax Opinion as set forth on Exhibit 8, at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Also, you may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. In addition, a copy of the Tax
Opinion may be obtained by you or your advisors from the Managing General
Partner at no cost. The delivery of this Prospectus at any time does not imply
that the information contained herein is correct as of any time subsequent to
the date hereof.
The Managing General Partner is fully aware of its obligations under Rule 13e-4
of the Securities Exchange Act of 1934. It is fully the intention of the
Managing General Partner to comply with Rule 13e-4 and to cause the Partnership
to comply with Rule 13e-4.
FINANCIAL INFORMATION CONCERNING THE MANAGING
GENERAL PARTNER AND THE PARTNERSHIP
Financial information concerning the Partnership and the Managing General
Partner is reflected in the following financial statements. (See "Management.")
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SECURITIES OF, NOR ARE YOU
ACQUIRING AN INTEREST IN THE MANAGING GENERAL PARTNER, ITS AFFILIATES, OR ANY
OTHER ENTITY OTHER THAN THE PARTNERSHIP.
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FINANCIAL STATEMENT AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ATLAS-ENERGY FOR THE NINETIES - PUBLIC #8 LTD.
A PENNSYLVANIA LIMITED PARTNERSHIP
JUNE 11, 1999
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[LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
ATLAS-ENERGY FOR THE NINETIES - PUBLIC #8 LTD.
A PENNSYLVANIA LIMITED PARTNERSHIP
We have audited the accompanying balance sheet of Atlas-Energy for The
Nineties - Public #8 Ltd., A Pennsylvania Limited Partnership, as of
June 11, 1999. This financial statement is the responsibility of the
Partnership's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Atlas-Energy for The Nineties -
Public #8 Ltd. as of June 11, 1999, in conformity with generally accepted
accounting principles.
/s/ GRANT THORNTON LLP
Cleveland, Ohio
June 30, 1999
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Atlas-Energy for the Nineties - Public #8 Ltd.
(A Pennsylvania Limited Partnership)
BALANCE SHEET
June 11, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $100
----------
----------
PARTNERS' CAPITAL
Partners' capital $100
----------
----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
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Atlas-Energy for the Nineties - Public #8 Ltd.
(A Pennsylvania Limited Partnership)
NOTES TO FINANCIAL STATEMENT
June 11, 1999
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Atlas-Energy for the Nineties - Public #8 Ltd. (the "Partnership") is a
Pennsylvania Limited Partnership in which Atlas Resources, Inc. ("Atlas"),
of Pittsburgh, Pennsylvania, (a wholly-owned subsidiary of Atlas America,
Inc.) will be Managing General Partner and Operator, and subscribers to
Units will be either Limited Partners or Investor General Partners
depending upon their election.
The Partnership will be funded to drill development wells which are
proposed to be located primarily in Mercer County, Pennsylvania, although
the Managing General Partner has reserved the right to use up to 20% of the
Partnership Subscription to drill wells in other areas of the United
States.
Subscriptions at a cost of $10,000 per unit will be sold through
wholesalers and broker-dealers including Anthem Securities, Inc., an
affiliated company, which will be compensated in an amount equal to 10% of
the subscription cost plus a .5% accountable due diligence fee.
Commencement of Partnership operations is subject to the receipt of minimum
Partnership subscriptions of $1,000,000 (to a maximum of $18,000,000) by
December 31, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in accordance with generally accepted
accounting principles.
The Partnership will 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 will be capitalized.
Depreciation and depletion will be computed on a field-by-field basis by
the unit-of-production method based on periodic estimates of oil and gas
reserves.
Undeveloped leaseholds and proved properties will be assessed periodically
or whenever events or circumstances indicate that the carrying amount of
these assets may not be recoverable. Proved properties will be assessed
based on estimates of future cash flows.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
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Atlas-Energy for the Nineties - Public #8 Ltd.
(A Pennsylvania Limited Partnership)
NOTES TO FINANCIAL STATEMENT - CONTINUED
JUNE 11, 1999
3. 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.
4. PARTICIPATION IN REVENUES AND COSTS
Atlas and the other partners will participate in revenues and costs in the
following manner:
<TABLE>
<CAPTION>
OTHER
ATLAS PARTNERS
--------- ----------
<S> <C> <C>
Organization and offering costs 100% 0%
Lease costs 100% 0%
Revenues 29% 71%
Operating costs, administrative costs,
direct costs and all other costs 29% 71%
Intangible drilling costs 0% 100%
Tangible costs 43.75% 56.25%
Tax deductions:
Intangible drilling and development costs 0% 100%
Depreciation 43.75% 56.25%
Depletion allowances 29% 71%
</TABLE>
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Atlas-Energy for the Nineties - Public #8 Ltd.
(A Pennsylvania Limited Partnership)
NOTES TO FINANCIAL STATEMENT - CONTINUED
June 11, 1999
5. TRANSACTIONS WITH ATLAS AND ITS AFFILIATES
The Partnership intends to enter into the following significant
transactions with Atlas and its affiliates as provided under the
Partnership agreement:
Drilling contracts to drill and complete Partnership wells at
an anticipated cost of $37.81 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.
Reimbursement of gas transportation and marketing charges at
competitive rates.
6. PURCHASE COMMITMENT
Subject to certain conditions, investor partners may present their
interests beginning in 2004 for purchase by Atlas. Atlas is not obligated
to purchase more than 5% of the units in any calendar year.
7. SUBORDINATION OF MANAGING GENERAL PARTNER'S REVENUE SHARE
Atlas will subordinate a part of its partnership revenues in an amount up
to 11.6% of production revenues of the Partnership, net of related
operating costs, administrative costs and well supervision fees to the
receipt by participants of cash distributions from the Partnership equal to
at least 10% of their agreed subscriptions, determined on a cumulative
basis, in each of the first five years of Partnership operations,
commencing with the first distribution of revenues to the participants.
8. INDEMNIFICATION
In order to limit the potential liability of the investor general
partners, Atlas has agreed to indemnify each investor general partner
from any liability incurred which exceeds such partner's share of
Partnership assets.
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CONSOLIDATED BALANCE SHEET
AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ATLAS RESOURCES, INC.
September 30, 1998
126
<PAGE>
[LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
ATLAS AMERICA, INC.
We have audited the accompanying consolidated balance sheet of Atlas
Resources, Inc. (a Pennsylvania corporation) and Subsidiary as of
September 30, 1998. This financial statement is the responsibility of
the Company's management. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the consolidated financial position of
Atlas Resources, Inc. and Subsidiary as of September 30, 1998, in conformity
with generally accepted accounting principles.
As discussed in Note B to the consolidated Balance Sheet, the Company's
former parent, The Atlas Group, Inc., merged into Atlas America, Inc. on
September 29, 1998. Accordingly, the assets acquired and liabilities assumed
were adjusted to their estimated fair values. As a result, the consolidated
balance sheet for periods subsequent to the merger are not comparable to the
consolidated balance sheets presented for prior periods.
/s/ Grant Thornton LLP
Cleveland, Ohio
March 22, 1999
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Atlas Resources, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEET
September 30, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current Assets
Cash $ 62,724
Accounts receivable 1,619,811
Inventories 160,890
Prepaid expenses and other current assets 1,346,161
--------------
3,189,586
Total current assets
Oil and Gas Properties (Successful Efforts) 13,290,245
Property, Plant and Equipment
Land 361,000
Buildings 2,469,000
Equipment 209,964
--------------
3,039,964
Contract rights and other intangibles 12,095,708
Goodwill 17,717,000
--------------
$ 49,332,503
--------------
--------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable and accrued liabilities 801,488
Working interests and royalties payable 4,723,751
Accounts payable to affiliates 1,414,897
Billings in excess of costs on uncompleted contracts 5,290,633
Current maturities of long-term debt 185,714
--------------
Total current liabilities 12,416,483
Deferred Taxes 2,300,000
Long-Term Debt, net of current maturities 526,191
Stockholder's Equity
Capital stock - stated value $10 per share; authorized -
500 shares, issued and outstanding - 200 shares 2,000
Additional paid-in capital 34,087,829
--------------
34,089,829
--------------
$ 49,332,503
--------------
--------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
128
<PAGE>
Atlas Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
September 30, 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the accompanying consolidated balance sheet follows.
1. NATURE OF OPERATIONS
Atlas Resources, Inc. and its subsidiary, ARD Investments, are
engaged in the exploration for development, production and
marketing of natural gas and oil primarily in the Appalachian Basin
Area. In addition, the company performs contract drilling and well
operation services.
2. PRINCIPLES OF CONSOLIDATION
The consolidated balance sheet includes the accounts of Atlas
Resources, Inc., its wholly-owned subsidiary ARD Investments and
its pro rata share of the assets and liabilities of the
partnerships in which it has an interest. All significant
intercompany transactions and balances have been eliminated.
3. AFFILIATED COMPANIES
Atlas Resources, Inc. (the Company) is a wholly-owned subsidiary of
AIC, Inc. which is a wholly-owned subsidiary of Atlas America, Inc.
(formerly The Atlas Group, Inc.). Atlas America, Inc. is a
wholly-owned subsidiary of Resource America, Inc. which is the
parent company. The Company is affiliated to other companies which
are subsidiaries of AIC, Inc. The Company's operations are
dependent upon the resources and services provided by AIC, Inc. The
company is also the managing general partner of several oil and gas
partnerships.
Accounts payable to affiliates represents the net balance due to
other subsidiaries of AIC, Inc. for reimbursement of Company
expenses paid by an affiliate and marketing fees paid to an
affiliate for marketing the Company's oil and gas production.
4. USE OF ESTIMATES
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
129
<PAGE>
Atlas Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENT - CONTINUED
September 30, 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
5. INVENTORIES
Inventories, consisting of oil and gas field materials and
supplies, are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
6. OIL AND GAS PROPERTIES
The Company follows the successful efforts method of accounting for
its oil and gas activities. In accordance with this method, the
acquisition costs of undeveloped leaseholds are capitalized.
Exploration costs, including delay rentals, are expensed.
Development costs related to drilling and equipping development
wells are capitalized. Costs of drilling and equipping exploratory
oil and gas wells are capitalized pending determination of
quantities of proved reserves. If proved reserves are not found,
such costs are charged to expense. Costs of surrendered, expired
and abandoned leases are charged to expense.
Depreciation and depletion of proved properties is computed on a
field-by-field basis by the unit-of-production method based on
periodic estimates of oil and gas reserves.
The Company charges maintenance and repairs directly to expense
while betterments and renewals are capitalized in the property
accounts. Undeveloped leaseholds and proved properties are assessed
whenever events or circumstances indicate that the carrying amount
of these assets may not be recoverable. Proved properties are
assessed based on estimates of future cash flows. When property is
retired or otherwise disposed of, the cost and applicable
accumulated depreciation, depletion and valuation allowances are
removed from the respective accounts and the resulting gain or loss
is recorded in operations.
On an annual basis, the Company estimates the costs of future
dismantlement, restoration, reclamation, and abandonment of its gas
and oil producing properties. Additionally, the Company evaluates
the estimated salvage value of equipment recoverable upon
abandonment. At September 30, 1998 the Company's evaluation of
equipment salvage values was greater than or equal to the estimated
costs of future dismantlement, restoration, reclamation and
abandonment.
7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, other than oil and gas properties,
is stated at their estimated fair value at the date of acquisition.
Depreciation is provided using the straight-line method over the
following estimated useful lives once the asset is put into
productive use.
<TABLE>
<S> <C>
Equipment 7 years
Building 39 years
</TABLE>
130
<PAGE>
Atlas Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENT - CONTINUED
September 30, 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
8. LONG-LIVED ASSETS
Contract rights and other intangibles consist of contracts
purchased to operate wells and manage limited partnerships and the
ongoing partnership syndication business. Operating and management
contracts are being amortized on a straight-line basis over the
lives of the respective partnerships (up to 13 years) while the
syndication rights are being amortized on a straight-line basis
over 30 years.
Goodwill is the excess of cost over the fair value of net assets
acquired and is being amortized by the straight-line method over 30
years. The Company evaluates both contract rights and goodwill
periodically to determine potential impairment by comparing the
carrying value to the undiscounted estimated future cash flows of
the related assets.
9. BILLINGS IN EXCESS OF COSTS
Amounts billed that are in excess of costs incurred are classified
as a current liability under billings in excess of costs on
uncompleted contracts. Contract costs include all direct material
and labor costs and those indirect costs related to contract
performance, such as indirect labor, supplies, repairs and
depreciation costs. Contract retentions are included in accounts
receivable.
NOTE B - RELATED PARTY TRANSACTIONS
On September 29, 1998, Atlas America, Inc., a newly formed
wholly-owned subsidiary of Resource America, Inc., acquired all the
common stock of The Atlas Group, Inc., the former parent company of
AIC, Inc., in exchange for 2,063,496 shares of Resource America,
Inc. common stock worth approximately $29,534,000 and the
assumption of debt. The acquisition was recorded under the purchase
method of accounting and accordingly the purchase price was
allocated to assets acquired and liabilities assumed based on their
fair market values, at the date of acquisition, as summarized below:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired $ 74,635,000
Liabilities assumed (45,968,000)
Amounts due seller (9,191,000)
Common stock issued (29,534,000)
--------------
NET CASH ACQUIRED $(10,058,000)
--------------
--------------
</TABLE>
NOTE C - INCOME TAXES
The Company is included in the consolidated U.S. Federal income tax
return filed by Resource America, Inc., the parent company. Allocation
of income tax provision or benefit is based on actual tax calculations
of the individual companies.
131
<PAGE>
Atlas Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENT - CONTINUED
September 30, 1998
NOTE C - INCOME TAXES (CONTINUED)
The Company records deferred tax assets and liabilities based on
the temporary differences between the financial statement and tax
bases of assets and liabilities. The net deferred tax liability at
September 30, 1998 was primarily related to differences between
book and tax bases of oil and gas properties.
NOTE D - LONG-TERM DEBT
Long-term debt consists of a note payable to a bank in the amount
of $711,905 which is payable in monthly installments of $15,476
plus interest at or below the prime rate plus 1/2% (8.25% at
September 30, 1998) and is due in August of 2002. The note is
secured by a building and certain equipment. Maturities of the note
payable for the years following September 30, 1998 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
SEPTEMBER 30,
------------------
<S> <C>
1999 $185,714
2000 185,714
2001 185,714
2002 154,763
--------
711,905
Less current maturities 185,714
--------
$526,191
--------
--------
</TABLE>
NOTE E - REVOLVING CREDIT AND TERM LOAN AGREEMENT
Atlas America, Inc. (Atlas) maintains a $40.0 million credit
facility (with $27.0 million of permitted draws) at PNC Bank
("PNC"). The credit facility is divided into two principal parts: a
revolving credit facility and a term loan facility. The revolving
credit facility has $20.0 million of permitted draws, with a term
ending in 2001 and the draws bearing interest at one of two rates
(elected at borrower's option) which increase as the amount
outstanding under the facility increases: (i) PNC prime rate plus
between 0 to 50 basis points, or (ii) LIBOR plus between 137.5 to
212.5 basis points. The term loan facility has $7.0 million of
permitted draws, with a term ending in 2003, and with draws bearing
interest at one of two rates (elected at borrower's option), which
increase as the amount outstanding under the facility increases:
(i) PNC prime rate plus between 12.5 to 62.5 basis points, or (ii)
LIBOR plus between 150 to 225 basis points. The credit facility
contains certain financial covenants of Atlas and imposes the
following limits: (a) Atlas' exploration expense can be no more
than 20% of capital expenditures plus exploration expense, without
PNC's consent; (b) sales, leases or transfers of property by Atlas
are limited to $1.0 million without PNC's consent; and (c) Atlas
cannot incur debt in excess of $2.0 million to lenders other than
PNC without PNC's consent. As of September 30, 1998, Atlas had
$20.0 million outstanding under the revolving credit facility and
$7.0 million outstanding under the term loan facility which are
recorded on Atlas' books. Borrowings under the credit facility are
collateralized by substantially all the oil and gas properties of
the Company and Atlas.
132
<PAGE>
Atlas Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENT - CONTINUED
September 30, 1998
NOTE F - COMMITMENTS
The Company is the managing general partner in several oil and gas
limited partnerships, and Atlas America, Inc. has agreed to
indemnify each investor general partner from any liability which
exceeds such partner's share of partnership assets. Management
believes that any such liabilities that may occur will be covered
by insurance and, if not covered by insurance, will not result in a
significant loss to Atlas America, Inc. and its subsidiaries.
Subject to certain conditions, investor general partners in certain
oil and gas limited partnerships have the right to present their
interests for purchase by the Company, as managing general partner.
The Company is not obligated to purchase more than 5% or 10% of the
units in any calendar year.
The Company subordinates a part of its net partnership revenues to
the receipt by investor general partners of cash distributions from
the Partnership equal to at least 10% of their agreed subscriptions
determined on a cumulative basis, in accordance with the terms of
the partnership agreement.
NOTE G - FUTURES CONTRACTS
The Company enters into natural gas futures contracts to hedge its
exposure to changes in natural gas prices. At any point in time,
such contracts may include regulated NYMEX futures contracts and
non-regulated over-the-counter futures contracts with qualified
counterparties. The futures contracts employed by the Company are
commitments to purchase or sell natural gas at future date and
generally cover one month periods for up to 18 months in the
future. Gains and losses on such contracts are deferred and
recognized in the month the gas is sold. The Company had no
significant futures contracts at September 30, 1998.
NOTE H - OIL AND GAS INFORMATION (UNAUDITED)
The estimates of the Company's proved and unproved gas reserves are
based upon evaluations verified by Wright & Company Inc., an
independent petroleum engineering firm, as of September 30, 1998.
All reserves are located in Pennsylvania. Reserves are estimated in
accordance with guidelines established by the Securities and
Exchange Commission and the Financial Accounting Standards Board
which require that reserve estimates be prepared under existing
economic and operating conditions with no provision for price and
cost escalation except by contractual arrangements. Proved reserves
are estimated quantities of oil and natural gas which geological
and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs. Proved developed
reserves are those which are expected to be recovered through
existing wells with existing equipment and operating methods.
133
<PAGE>
Atlas Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENT - CONTINUED
September 30, 1998
NOTE H - OIL AND GAS INFORMATION (UNAUDITED) (CONTINUED)
The components of capitalized costs related to the Company's oil and
gas producing activities are as follows:
<TABLE>
<CAPTION>
<S> <C>
Proved oil and gas properties $13,279,245
Unproved oil and gas properties 11,000
-----------
NET CAPITALIZED COSTS AT
SEPTEMBER 30, 1998 $13,290,245
-----------
-----------
</TABLE>
There are numerous uncertainties inherent in estimating quantities
of proved reserves and in projecting future net revenues and the
timing of development expenditures. The reserve data presented
represents estimates only and should not be construed as being
exact. In addition, the standarized measures of discounted future
net cash flows may not represent the fair market value of the
Company's oil and gas reserves or the present value of future cash
flows of equivalent reserves, due to anticipated future changes in
oil and gas prices and in production and development costs and
other factors for which effects have not been provided.
The standardized measure of discounted future net cash flows is
information provided for the financial statement user as a common
base for comparing oil and gas reserves of enterprises in the
industry. The following schedule presents the standardized measure
of estimated discounted future net cash flows from the Company's
proved reserves. Estimated future cash flows are determined by
using the weighted average price received for the month of
September 1998 adjusted only for fixed and determinable increases
in natural gas prices provided by contractual agreements. The
standardized measure of future net cash flows was prepared using
the prevailing economic conditions existing at September 30, 1998
and such conditions continually change. Accordingly, such
information should not serve as a basis in making any judgement on
the potential value of recoverable reserves or in estimating future
results of operations.
<TABLE>
<CAPTION>
GAS OIL
PROVED RESERVES AT SEPTEMBER 30, 1998 (MCF) (BBLS)
----------------------------------------------------------------------------------
<S> <C> <C>
Proved developed reserves 25,360,750 4,574
Proved undeveloped reserves 40,015,460 -
-------------------------------------
65,376,210 4,574
-------------------------------------
-------------------------------------
</TABLE>
134
<PAGE>
Atlas Resources, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENT - CONTINUED
September 30, 1998
NOTE H - OIL AND GAS INFORMATION (UNAUDITED) (CONTINUED)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED RESERVES (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Future cash inflows $152,909,040
Future production and development costs (73,423,000)
------------------
Future net cash flows before income taxes 79,486,040
Future income taxes 3,853,561
------------------
Future net cash flows 75,632,479
10% annual discount for estimated timing
of cash flows 56,231,521
------------------
STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS $19,400,968
------------------
------------------
</TABLE>
135
<PAGE>
Consolidated Financial Statements (unaudited)
Atlas Resources, Inc.
May 31, 1999
136
<PAGE>
ATLAS RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS 5/31/99 9/30/98
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,336,592 $ 62,724
Trade accounts receivable 2,535,064 1,619,811
Inventories 263,486 160,890
Other current assets 1,590,625 1,346,161
----------- -----------
TOTAL CURRENT ASSETS 9,725,767 3,189,586
----------- -----------
OIL AND GAS PROPERTIES
Oil and gas wells and leases 19,561,492 13,290,245
Less accumulated depreciation, depletion and ammortization 935,702 -
----------- -----------
NET OIL & GAS PROPERTIES 18,625,790 13,290,245
----------- -----------
PROPERTY, PLANT AND EQUIPMENT
Land 361,000 361,000
Buildings 2,469,000 2,469,000
Equipment 217,702 209,964
----------- -----------
Sub-total 3,047,702 3,039,964
Less accumulated depreciation 69,661 -
----------- -----------
NET PROPERTY, PLANT & EQUIPMENT 2,978,041 3,039,964
----------- -----------
Contract rights and other intangibles (Net of accumulated 11,686,513 12,095,708
ammortization
Goodwill (Net of accumulated amortization) 17,323,289 17,717,000
----------- -----------
TOTAL ASSETS $60,339,400 $49,332,503
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 456,045 $ 801,488
Working interests and royalties payable 3,596,522 4,723,751
Billings in excess of costs on uncompleted contracts 1,164,325 5,290,633
Accounts payable to affiliates 8,463,105 1,414,897
Current maturities on long-term debt: 185,714 185,714
Income taxes payable 2,224,440 -
----------- -----------
TOTAL CURRENT LIABILITIES 16,090,151 12,416,483
----------- -----------
LONG-TERM DEBT, net of current maturities 4,752,381 526,191
----------- -----------
DEFERRED TAXES 2,300,000 2,300,000
----------- -----------
STOCKHOLDERS' EQUITY
Capital stock, stated value $10.00: Authorized - 500 2,000 2,000
shs; Issued - 200 shs
Additional Paid in Capital 34,087,829 34,087,829
Retained earnings 3,107,039 -
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 37,196,868 34,089,829
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' $60,339,400 $49,332,503
EQUITY ----------- -----------
----------- -----------
</TABLE>
137
<PAGE>
ATLAS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Eight Months Ended May 31
-------------------------------
1999 1998
----------- ------------
<S> <C> <C>
INCOME
Sales-gas wells $24,079,953 $17,021,218
Well operating fees 1,741,021 1,536,412
Working interest and royalties 2,879,570 3,103,443
Interest Income 22,853 13,471
Other 305,710 204,118
----------- -----------
TOTAL INCOME 29,029,107 21,878,662
----------- -----------
COST OF SALES AND OTHER EXPENSES
Costs of sales-gas wells 19,711,381 14,925,371
Well operating expense 650,833 716,252
Exploration expense 117,836 336,501
General and administrative 1,294,070 1,670,970
Interest expense 216,012 193,471
Depreciation, depletion and amortization 1,808,269 1,538,516
----------- -----------
TOTAL COST OF SALES AND OTHER EXPENSES 23,798,401 19,381,081
----------- -----------
INCOME BEFORE INCOME TAXES 5,230,706 2,497,581
INCOME TAXES 2,123,667 1,014,018
----------- -----------
NET INCOME $ 3,107,039 $ 1,483,563
----------- -----------
----------- -----------
ATLAS RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Eight Months Ended May 31
-------------------------------
1999 1998
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,107,039 $ 1,483,563
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation, depletion and amortization 1,808,269 1,538,516
(Increase) Decrease in Current Assets (1,262,313) 462,025
Increase (Decrease) in Current Liabilities 3,673,668 (1,932,964)
Other assets and liabilities, net - 44,140
----------- ------------
Net cash provided by(used in) 7,326,663 1,595,280
operating activities ----------- ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in oil and gas wells and leases (6,271,247) (2,729,147)
Investment in other property, plant & equipment (7,738) (76,446)
----------- ------------
Net cash used in investing (6,278,985) (2,805,593)
activities ----------- ------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Repayment of bank notes (123,810) (123,810)
Repayment of advances from affiliates 4,350,000 -
----------- ------------
Net cash used in financing 4,226,190 (123,810)
activities ----------- ------------
Net increase (decrease) in cash and cash equivalents 5,273,868 (1,334,123)
Cash and cash equivalents at beginning of year 62,724 1,525,975
----------- ------------
138
<PAGE>
<S> <C> <C>
Cash and cash equivalents at end of period $ 5,336,592 $ 191,852
----------- -----------
----------- -----------
</TABLE>
ATLAS RESOURCES, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MAY 31, 1999
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements as of May 31, 1999 and for the eight
months then ended have been prepared by the management of the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These consolidated financial statements should be read
in conjunction with the audited September 30, consolidated financial statements.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) considered necessary for presentation have been included.
139
<PAGE>
EXHIBIT (A)
AMENDED AND RESTATED CERTIFICATE
AND
AGREEMENT OF LIMITED PARTNERSHIP
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section No. Description Page
<S> <C>
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................................2
III. SUBSCRIPTIONS AND FURTHER CAPITAL CONTRIBUTIONS
3.01 Designation of Managing General Partner
and Participants...........................8
3.02 Participants...............................8
3.03 Subscriptions to the Partnership...........9
3.04 Capital Contributions.....................10
3.05 Payment of Subscriptions..................11
3.06 Partnership Funds.........................12
IV. CONDUCT OF OPERATIONS
4.01 Acquisition of Leases.....................12
4.02 Conduct of Operations.....................13
4.03 General Rights and Obligations of the
Participants and Restricted and
Prohibited Transactions...............17
4.04 Designation, Compensation and
Removal of Managing General
Partner and Removal of Operator......25
4.05 Indemnification and Exoneration...........27
4.06 Other Activities..........................29
V. PARTICIPATION IN COSTS AND REVENUES, CAPITAL
ACCOUNTS, ELECTIONS AND DISTRIBUTIONS
5.01 Participation in Costs and Revenues.......30
5.02 Capital Accounts and Allocations
Thereto...............................32
5.03 Allocation of Income, Deductions and
Credits...............................33
5.04 Elections.................................35
5.05 Distributions.............................35
VI. TRANSFER OF INTERESTS
6.01 Transferability...........................36
6.02 Special Restrictions on Transfers.........37
6.03 Right of Managing General Partner to
Hypothecate and/or Withdraw Its
Interests.............................38
6.04 Presentment...............................38
VII. DURATION, DISSOLUTION, AND WINDING
UP
7.01 Duration..................................40
7.02 Dissolution and Winding Up................40
VIII. MISCELLANEOUS PROVISIONS
8.01 Notices...................................41
8.02 Time......................................41
8.03 Applicable Law............................41
8.04 Agreement in Counterparts.................42
8.05 Amendment.................................42
8.06 Additional Partners.......................42
8.07 Legal Effect..............................42
</TABLE>
EXHIBITS
EXHIBIT (I-A) - Managing General Partner Signature Page
EXHIBIT (I-B) - Subscription Agreement
EXHIBIT (II) - Drilling and Operating Agreement
i
<PAGE>
AMENDED AND RESTATED CERTIFICATE AND
AGREEMENT OF LIMITED PARTNERSHIP
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 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 _____________________, 1999, 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, these parties hereinafter
sometimes referred to as "Limited Partners," or for Investor General Partner
Units, these 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. This document shall be filed or recorded in the public offices
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 the public offices required under applicable law
or deemed advisable in the discretion of the Managing General Partner.
1.03. NAME, PRINCIPAL OFFICE AND RESIDENCE.
1.03(a). NAME. The name of the Partnership is Atlas-Energy for the
Nineties-Public #8 Ltd.
1.03(b). RESIDENCE. The residence of the Managing General Partner 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 party.
All addresses shall be subject to change upon notice to the parties.
1.03(c). AGENT FOR SERVICE OF PROCESS. The name and address of the agent for
service of process shall be Mr. Tony C. Banks 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. This includes, 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.
1
<PAGE>
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 the Managing General
Partner shall 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. "Affiliate" shall mean with respect to a specific person:
(i) any person directly or indirectly owning, controlling, or
holding with power to vote ten percent or more of the
outstanding voting securities of such specified person;
(ii) any person ten percent or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or
held with power to vote, by such specified person;
(iii) any person directly or indirectly controlling, controlled
by, or under common control with such specified person;
(iv) any officer, director, trustee or partner of such specified
person; and
(v) if such specified person is an officer, director, trustee
or partner, any person for which such person acts in any
such capacity.
4. "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
Section 3.03(b) and its subsections.
5. "Agreement" shall mean this Amended and Restated Certificate and
Agreement of Limited Partnership, including all exhibits hereto.
6. "Anthem Securities" shall mean Anthem Securities, Inc., whose
principal executive offices are located at 311 Rouser Road, P.O.
Box 926, Coraopolis, Pennsylvania 15108-0926.
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. "Capital Account" or "account" shall mean the account established
for each party hereto, maintained as provided in Section 5.02 and
its subsections.
10. "Capital Contribution" shall mean the amount agreed to be
contributed to the Partnership by a party pursuant to Sections
3.04 and 3.05 and their subsections.
11. "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.
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12. "Code" shall mean the Internal Revenue Code of 1986, as amended.
13. "Cost," when used with respect to the sale of property to the
Partnership, shall mean:
(i) the sum of the prices paid by the seller to an unaffiliated
person for such property, including bonuses;
(ii) 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;
(iii) a pro rata portion of the seller's actual necessary and
reasonable expenses for seismic and geophysical services;
and
(iv) 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 (iv) shall have
been incurred not more than 36 months prior to the purchase
by the Partnership.
"Cost," when used with respect to services, 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.
14. "Dealer-Manager" shall mean Anthem Securities, Inc., an Affiliate
of the Managing General Partner and the broker-dealer which will
manage the offering and sale of the Units in all states other
than Minnesota and New Hampshire, and Bryan Funding, Inc., the
broker-dealer which will manage the offering and sale of Units in
Minnesota and New Hampshire.
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.
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 the services are
provided pursuant to written contracts and in compliance with
Section 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 Section 5.01 and its subsections of this Agreement.
18. "Drilling and Operating Agreement" shall mean the proposed
Drilling and Operating Agreement between the Managing General
Partner or an Affiliate as Operator, and the Partnership as
Developer, a copy of the proposed form of which is attached
hereto as Exhibit (II).
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19. "Exploratory Well" shall mean a well drilled:
(i) to find commercially productive hydrocarbons in an unproved
area;
(ii) to find a new commercially productive Horizon in a field
previously found to be productive of hydrocarbons at
another Horizon; or
(iii) 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 Section
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. "Initial Closing Date" shall mean the date, on or before the
Offering Termination Date, but after the minimum Partnership
Subscription has been received, that the Managing General
Partner, in its sole discretion, elects for the Partnership to
begin business activities, including the drilling of wells. It is
anticipated that this date will be November 1, 1999.
25. "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.
26. "Interim Closing Date" shall mean those date(s) after the Initial
Closing Date of the Partnership, but before the Offering
Termination Date, that the Managing General Partner, in its sole
discretion, applies additional Agreed Subscriptions to additional
Partnership activities, including drilling activities.
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27. "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 Section 3.03(b)(2). All Investor General
Partners shall be of the same class and have the same rights.
28. "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.
29. "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.
30. "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
Section 3.03(b)(2), the Investor General Partners upon the
conversion of their Investor General Partner Units to Limited
Partner interests pursuant to Section 6.01(b), and any other
persons who are admitted to the Partnership as additional or
substituted Limited Partners. Except as provided in Section
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.
31. "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.
32. "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.
33. "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,
1999.
34. "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.
35. "Operator" shall mean the Managing General Partner, as operator
of Partnership Wells in Pennsylvania and the Managing General
Partner or an Affiliate as Operator of Partnership Wells in other
areas of the United States.
36. "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.
37. "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.
38. "Participants" shall mean the Managing General Partner to the
extent of its optional subscription under Section 3.03(b)(2), the
Limited Partners, and the Investor General Partners.
39. "Partners" shall mean the Managing General Partner, the Investor
General Partners, and the Limited Partners.
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40. "Partnership" shall mean Atlas-Energy for the Nineties-Public #8
Ltd., the Pennsylvania limited partnership formed pursuant to
this Agreement.
41. "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.
42. "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 Section 3.03(b)(1).
43. "Partnership Well" shall mean a well, some portion of the
revenues from which is received by the Partnership.
44. "Person" shall mean a natural person, partnership, corporation,
association, trust or other legal entity.
45. "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.
46. "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.
47. "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 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.
48. "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.
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(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.
49. "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.
50. "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:
(i) 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
(ii) 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.
51. "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.
52. "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, but excluding
the Dealer-Manager fee, a .5% reimbursement of marketing
expenses, and a .5% reimbursement for bona fide accountable due
diligence expenses.
53. "Selling Agents" shall mean those broker-dealers selected by the
Dealer-Manager which will participate in the offer and sale of
the Units.
54. "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,
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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.
55. "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.
56. "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.
57. "Tax Matters Partner" shall mean the Managing General Partner.
58. "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 Section 3.03 and its subsections.
59. "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.
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
Section 3.03(b)(2).
Limited Partners and Investor General Partners, including Affiliates of the
Managing General Partner, shall serve as Participants.
The Limited Partners shall not be bound by the obligations of the Partnership
other than as provided under the Pennsylvania Revised Uniform Limited
Partnership Act.
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 one or more Limited Partners pursuant to Section
3.02(c) below, the Partnership shall return to the Original Limited Partner
its Capital Contribution and shall reacquire its Unit. The Original Limited
Partner shall then cease to be a Limited Partner in the Partnership with
respect to the Unit.
3.02(b). OFFERING OF INTERESTS. The Partnership is authorized to admit to the
Partnership at the Initial Closing Date, any Interim Closing Date(s), and the
Offering Termination Date additional Participants whose Agreed Subscriptions for
Units are accepted by the Managing General Partner if, after the admission of
the additional Participants, the Agreed Subscriptions of all Participants do not
exceed the number of Units set forth in Section 3.03(c)(1).
3.02(c). ADMISSION OF PARTICIPANTS. No action or consent by the Participants
shall be required for the admission of additional Participants pursuant to this
Agreement.
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 Section 3.03(c)(2). Thereafter,
subscriptions may be paid directly to the Partnership account.
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3.02(d). DURATION OF THE OFFERING AND MINIMUM CAPITALIZATION.
3.02(d)(1). DURATION OF OFFERING. The offering of Units shall be terminated
not later than the earlier of:
(i) December 31, 1999; or
(ii) at such time as Agreed Subscriptions for the maximum Partnership
Subscription set forth in Section 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.
3.02(d)(2). MINIMUM CAPITALIZATION. If at the time of termination Agreed
Subscriptions for fewer than 100 Units have been received and accepted, then all
monies deposited by subscribers shall be promptly returned to them. They shall
receive interest earned thereon from the date the 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 the Participant 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 Participant, shall:
(i) contribute to the Partnership the Leases which will be drilled by
the Partnership on the terms set forth in Section 4.01(a)(4); and
(ii) pay the costs charged to it pursuant to Section 5.01(a).
These amounts shall be paid as set forth in Section 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
Section 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 Section 3.03(a) and its subsections, and, subject to the
limitations on voting rights set forth in Section 4.03(c)(3), to that extent
shall be deemed a Participant in the Partnership for all purposes under this
Agreement.
Notwithstanding the foregoing, Selling Agents, and the Managing General Partner,
its officers, directors, and Affiliates shall not be required to pay the
Dealer-Manager fee, Sales Commissions, the .5% reimbursement of marketing
expenses, and the .5% reimbursement of the Selling Agent's bona fide accountable
due diligence expenses. Also, Registered Investment Advisors and their clients
may subscribe by paying only the Dealer-Manager fee and not the Sales
Commissions, the .5% reimbursement of marketing expenses, and the .5%
reimbursement of the Selling Agents' bona fide accountable due diligence
expenses.
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 Section
3.03(b)(1) and which may be
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amended to reflect the amount of any optional subscription under
Section 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 Section 3.03(b)(1) may not exceed $14,000,000 (1,400 Units). However, if
subscriptions for all 1,400 Units being offered are obtained, then the Managing
General Partner, in its sole discretion, may offer not more than 400 additional
Units and increase the maximum aggregate subscriptions with which the
Partnership may be funded to not more than $18,000,000 (1,800 Units).
3.03(c)(2). MINIMUM PARTNERSHIP SUBSCRIPTION. The minimum Partnership
Subscription shall equal at least $1,000,000 (100 Units). The Managing General
Partner, its officers, directors, and Affiliates may purchase up to 10% of the
Partnership Subscription, none of which will be applied to satisfy the
$1,000,000 minimum.
The Partnership shall begin drilling operations after the receipt of the minimum
Partnership Subscription and the Initial Closing Date.
3.03(d). ACCEPTANCE OF SUBSCRIPTIONS.
3.03(d)(1). DISCRETION BY THE MANAGING GENERAL PARTNER. Acceptance of
subscriptions shall be discretionary with the Managing General Partner. The
Managing General Partner may reject any subscription for any reason it deems
appropriate.
3.03(d)(2). TIME PERIOD IN WHICH TO ACCEPT SUBSCRIPTIONS. A Participant's
subscription to the Partnership and the Managing General Partner's acceptance
thereof shall be evidenced by the execution of a Subscription Agreement by the
Participant and by the Managing General Partner.
Agreed Subscriptions shall be accepted or rejected by the Partnership within 30
days of their receipt; if rejected, all funds shall be returned to the
subscriber immediately.
3.03(d)(3). ADMISSION TO THE PARTNERSHIP. Upon the original sale of Units,
the Participants shall be admitted as Participants not later than 15 days after
the release from escrow of Participants' funds to the Partnership. 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). PARTICIPANT CAPITAL CONTRIBUTIONS. Each Participant shall make a
Capital Contribution to the Partnership equal to the sum of:
(i) the Agreed Subscription of the Participant; and
(ii) in the case of Investor General Partners, but not the Limited
Partners, the additional Capital Contributions required in
Section 3.05(b)(2).
Participants shall not be required to restore any deficit balances in their
Capital Accounts except as set forth in Section 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 Section 3.03(b)(1) and any optional Capital
Contribution as a Participant as provided in Section 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 the costs exceed:
(i) its Capital Contribution pursuant to Section 3.03(b); and
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(ii) its share of undistributed revenues.
These Capital Contributions shall be paid by the Managing General Partner at the
time the costs are required to be paid by the Partnership, but, in no event,
later than December 31, 2000.
3.04(b)(2). MINIMUM AMOUNT OF MANAGING GENERAL PARTNER'S REQUIRED
CONTRIBUTION. The Managing General Partner's aggregate Capital Contributions
to the Partnership (including Leases contributed pursuant to Section
3.03(b)(1)) shall not be less than 22.15% of all Capital Contributions to 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)(3). UPON LIQUIDATION THE MANAGING GENERAL PARTNER MUST CONTRIBUTE
DEFICIT BALANCE IN ITS CAPITAL ACCOUNT. 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. This shall be
determined after taking into account all adjustments for the Partnership's
taxable year during which the 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.
3.04(b)(4). 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
Section 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 Section
3.03(b)(1) and pay the costs charged to it when incurred by the Partnership,
subject to Section 3.04(b)(1).
Any optional subscription under Section 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 Section 3.05(b).
3.05(b). PARTICIPANT SUBSCRIPTIONS AND ADDITIONAL CAPITAL CONTRIBUTIONS OF THE
INVESTOR GENERAL PARTNERS.
3.05(b)(1). PAYMENT OF AGREED SUBSCRIPTIONS. 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.
3.05(b)(2). ADDITIONAL REQUIRED CAPITAL CONTRIBUTIONS OF THE INVESTOR GENERAL
PARTNERS. 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 before the conversion of
Investor General Units to Limited Partner interests pursuant to Section 6.01(b).
3.05(b)(3). DEFAULT PROVISIONS. 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
the defaulting Investor General Partner's share of Partnership liabilities and
obligations. In that event, the remaining Investor General Partners:
(i) 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;
(ii) 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
(iii) may commence legal action to collect the amount due plus interest
at the legal rate.
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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. The Managing General Partner shall not employ, or permit another to
employ, the funds and assets in any manner except for the exclusive benefit
of the Partnership. Neither this Agreement nor any other agreement between
the Managing General Partner and the Partnership shall contractually limit
any fiduciary duty owed to the Participants by the Managing General Partner
under applicable law, except as provided in Sections 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.
3.06(c)(1). INVESTMENTS IN OTHER ENTITIES. Partnership funds may not be
invested in the securities of another person except in the following instances:
(i) investments in Working Interests or undivided Lease interests
made in the ordinary course of the Partnership's business;
(ii) temporary investments made as set forth in Section 3.06(c)(2);
(iii) multi-tier arrangements meeting the requirements of
Section 4.03(d)(15);
(iv) investments involving less than 5% of the Partnership Subscription
which are a necessary and incidental part of a property
acquisition transaction; and
(v) 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.
3.06(c)(2). PERMISSIBLE INVESTMENTS PRIOR TO INVESTMENT IN PARTNERSHIP
ACTIVITIES. After the Offering Termination Date and until proceeds from the
offering are invested in the Partnership's operations, the proceeds may be
temporarily invested in income producing short-term, highly liquid investments,
in which there is appropriate safety of principal, such as U.S.
Treasury Bills.
ARTICLE IV
CONDUCT OF OPERATIONS
4.01. ACQUISITION OF LEASES.
4.01(a). ASSIGNMENT TO PARTNERSHIP.
4.01(a)(1). IN 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). MANAGING GENERAL PARTNER'S DISCRETION AS TO TERMS AND BURDENS OF
ACQUISITION. Subject to the provisions of Section 4.03(d) and its
subsections, the 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.
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4.01(a)(4). COST OF LEASES. All Leases shall be acquired from the Managing
General Partner or its Affiliates and shall be credited towards the Managing
General Partner's required Capital Contribution set forth in Section
3.03(b)(1) at the Cost of the Lease, unless the Managing General Partner
shall have cause to believe that Cost is materially more than the fair market
value of the property, in which case the credit for the 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. This opinion and any associated supporting information must
be maintained in the Partnership's records for six years.
4.01(a)(5). THE MANAGING GENERAL PARTNER, OPERATOR OR THEIR AFFILIATES' RIGHTS
IN THE REMAINDER INTERESTS. To the extent the Partnership does not acquire a
full interest in a Lease from the Managing General Partner or its Affiliates,
the remainder of the interest in the Lease may be held by the Managing General
Partner or its Affiliates which may either retain and exploit it for its own
account or sell or otherwise dispose of all or a part of the remaining interest.
Profits from the exploitation and/or disposition of their retained interests in
the Leases shall be for the benefit of the Managing General Partner or its
Affiliates to the exclusion of the Partnership.
4.01(a)(6). NO BREACH OF DUTY. Subject to the provisions of Section 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). NO OVERRIDING ROYALTY INTERESTS. Neither the Managing General Partner,
the Operator nor any Affiliate shall 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, 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). MANAGING GENERAL PARTNER'S DISCRETION. The Managing General Partner
shall take the steps which 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. The Managing General Partner shall be free, however, to use its own
best judgment in waiving title requirements. The Managing General Partner 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 provided in the
Drilling and Operating Agreement.
4.01(c)(3). COMMENCEMENT OF OPERATIONS. No operation shall be commenced on the
Leases acquired by the Partnership unless the Managing General Partner is
satisfied that necessary title requirements have been satisfied.
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.
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4.02(c). GENERAL POWERS OF THE MANAGING GENERAL PARTNER.
4.02(c)(1). IN GENERAL. Subject to the provisions of Section 4.03 and its
subsections, and to any authority which may be granted the Operator under
Section 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 the 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 in no
event less in amount or type than the following:
(a) worker's compensation insurance in full compliance with
the laws of the Commonwealth of Pennsylvania and any other
applicable state laws;
(b) liability insurance (including automobile) which has a
$1,000,000 combined single limit for bodily injury and
property damage in any one accident or occurrence and in
the aggregate; and
(c) such excess liability insurance as to bodily injury and
property damage with combined limits of $50,000,000,
during drilling operations and $10,000,000 thereafter, 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. The excess liability insurance shall be in
place and effective no later than the Initial Closing Date
and shall continue until the Investor General Partners are
converted to Limited Partners, at which time the
Partnership shall continue to enjoy the benefit of the
Managing General Partner's $11,000,000 liability insurance
on the same basis as the Managing General Partner and its
Affiliates, including the Managing General Partner's other
Programs;
(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;
(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)
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provided that the sale of all or substantially all of the assets
of the Partnership shall only be made as provided in Section
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 the 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. The party shall have the same powers in
the conduct of the duties as would the Managing General Partner. The
delegation, however, 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. This 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 Section
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 Section 4.02(c) and its subsections or elsewhere in this
Agreement, the Managing General Partner, when specified, shall have the
following additional express powers.
4.02(d)(1). DRILLING CONTRACTS. Partnership Wells drilled in Pennsylvania and
other areas of the Appalachian Basin may be drilled pursuant to the Drilling and
Operating Agreement on a per-foot basis with the Managing General Partner or its
Affiliates based on $37.81 per foot or, with respect to a well which the
Partnership elects not to complete, $20.60 per foot.
Partnership Wells in other areas of the United States shall be drilled at
competitive rates and in no event shall the Managing General Partner 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.
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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:
(i) 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, 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
(ii) 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. Each
party 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 when the 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 Participant,
the power of attorney shall survive the delivery of the assignment for the sole
purpose of enabling such attorney-in-fact to execute, acknowledge and file any
agreement, certificate, instrument or document necessary to effect the
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.
4.02(e)(1)(a). IN GENERAL. If additional funds over the Participants' Capital
Contributions are needed for Partnership operations, then the Managing General
Partner may:
(i) use Partnership revenues for such purposes; or
(ii) the Managing General Partner and its Affiliates may advance to
the Partnership the funds necessary pursuant to
Section 4.03(d)(8)(b).
4.02(e)(1)(b). LIMITATION ON BORROWING. The 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.
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(f). TAX MATTERS PARTNER.
4.02(f)(1). DESIGNATION OF TAX MATTERS PARTNER. The Managing General Partner
is hereby designated the Tax Matters Partner of the Partnership pursuant to
Section 6231(a)(7) of the Code. The Managing General Partner is authorized to
act in this capacity on
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behalf of the Partnership and the Participants and to take any action,
including settlement or litigation, which it in its sole discretion deems to
be in the best interest of the Partnership.
4.02(f)(2). COSTS INCURRED BY TAX MATTERS PARTNER. Costs incurred by the Tax
Matters Partner shall be considered a Direct Cost of the Partnership.
4.02(f)(3). NOTICE TO PARTICIPANTS OF IRS PROCEEDINGS. 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 the
proceedings.
4.02(f)(4). PARTICIPANT RESTRICTIONS. Each Participant agrees as follows:
(i) 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;
(ii) 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
(iii) 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).
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. Limited Partners 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 unless
they also subscribe to the Partnership as Investor General Partners, or, in the
case of the Managing General Partner if it purchases Limited Partner Units.
4.03(a)(2). NO MANAGEMENT AUTHORITY OF PARTICIPANTS. Participants, other than
the Managing General Partner if it buys Units, shall have no power over the
conduct of the affairs of the Partnership. No Participant, other than the
Managing General Partner if it buys Units, 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.
4.03(b)(1). ANNUAL REPORTS AND FINANCIAL STATEMENTS. Commencing with the 1999
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
2000 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:
(i) Audited financial statements of the Partnership, including a
balance sheet and statements of income, cash flow and Partners'
equity, 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 the 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.
(ii) 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.
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(iii) 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 the Prospects.
(iv) A list of the wells drilled or abandoned by the Partnership
during the period of the report (indicating whether each of the
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.
(v) 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.
(vi) A schedule reflecting:
(a) the total Partnership costs;
(b) the costs paid by the Managing General Partner and the
costs paid by the Participants;
(c) the total Partnership revenues;
(d) the revenues received or credited to the Managing General
Partner and the revenues received and credited to the
Participants; and
(e) a reconciliation of the expenses and revenues in
accordance with the provisions of Article V.
4.03(b)(2). TAX INFORMATION. The Partnership shall, by March 15 of each year,
prepare, or supervise the preparation of, and transmit to each Participant the
information needed for the Participant 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.
4.03(b)(3). RESERVE REPORT. Annually, beginning January 1, 2001, a computation
of the total oil and gas Proved Reserves of the Partnership and the present
worth of the 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. The
reserve computations shall be based upon engineering reports prepared by the
Managing General Partner and reviewed by an Independent Expert. There shall also
be included an estimate of the time required for the extraction of the reserves
and a statement that because of the time period required to extract the 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 90 days after the occurrence of an event
leading to reduction of the 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.
4.03(b)(4). COST OF REPORTS. The cost of all reports described herein shall be
paid by the Partnership as Direct Costs.
4.03(b)(5). PARTICIPANT ACCESS TO RECORDS. The Participants and/or their
representatives shall be permitted access to all records of the Partnership. The
Participant may inspect and copy any of the records after giving adequate notice
at any reasonable time.
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 the sources that are customary in the
industry or required by rule, regulation, or order of any regulatory body.
4.03(b)(6). REQUIRED LENGTH OF TIME TO HOLD RECORDS. 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.
This includes 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 Section 4.01(a)(4).
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4.03(b)(7). PARTICIPANT LISTS. The following provisions apply regarding
access to the list of Participants:
(i) 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;
(ii) the Participant List shall be updated at least quarterly to
reflect changes in the information contained therein;
(iii) a copy of the Participant List shall be mailed to any
Participant requesting the Participant List within 10 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;
(iv) 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
(v) 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.
4.03(b)(8). STATE FILINGS. Concurrently with their transmittal to
Participants, and as required, the Managing General Partner shall file a copy
of each report provided for in this Section 4.03(b) with the California
Commissioner of Corporations and with the securities commissions of other
states which request the report.
4.03(c). MEETINGS OF PARTICIPANTS.
4.03(c)(1). PROCEDURE FOR A PARTICIPANT MEETING.
4.03(c)(1)(a). MEETINGS MAY BE CALLED BY MANAGING GENERAL PARTNER OR
PARTICIPANTS. Meetings of the Participants may be called by the Managing
General Partner.
Also, meetings of the Participants may be called by Participants whose Agreed
Subscriptions equal 10% or more of the Partnership Subscription for any
matters for which Participants may vote. The call for a meeting by
Participants 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.
4.03(c)(1)(b). NOTICE REQUIREMENT. The Managing General Partner shall deposit
in the United States mail within 15 days after the receipt of the request,
written notice to all Participants of the meeting and the purpose of the
meeting. The meeting shall be held on a date not less than 30 days nor more
than 60 days after the date of the mailing of the notice, at a reasonable
time and place.
Notwithstanding the foregoing, the date for notice of the meeting may be
extended for a period of up to 60 days, if in the opinion of the Managing
General Partner the additional time is necessary to permit preparation of
proxy or information statements or other documents required to be delivered
in connection with the meeting by the Securities and Exchange Commission or
other regulatory authorities.
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4.03(c)(1)(c). MAY VOTE BY PROXY. Participants shall have the right to vote at
any Participant meeting either:
(i) in person; or
(ii) by proxy.
4.03(c)(2). 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, and 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:
(i) amend this Agreement; provided however, any 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 the
Participant or the Managing General Partner. Furthermore, any
amendment may not affect the classification of Partnership income
and loss for federal income tax purposes without the unanimous
approval of all Participants;
(ii) dissolve the Partnership;
(iii) remove the Managing General Partner and elect a new Managing
General Partner;
(iv) elect a new Managing General Partner if the Managing General
Partner elects to withdraw from the Partnership;
(v) remove the Operator and elect a new Operator;
(vi) approve or disapprove the sale of all or substantially all of the
assets of the Partnership; and
(vii) cancel any contract for services with the Managing General
Partner, the Operator, or their Affiliates without penalty upon 60
days notice.
4.03(c)(3). RESTRICTIONS ON MANAGING GENERAL PARTNER'S VOTING RIGHTS. With
respect to Units owned by the Managing General Partner or its Affiliates, the
Managing General Partner and its Affiliates may vote or consent on all
matters other than those matters set forth in Section 4.03(c)(2)(iii) and (v)
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)(4). RESTRICTIONS ON LIMITED PARTNER VOTING RIGHTS. The exercise by
the Limited Partners of the rights granted Participants under Section
4.03(c), except for the special voting rights granted Participants under
Section 4.03(c)(2), shall be subject to the prior legal determination that
the grant or exercise of the powers will not adversely affect the limited
liability of Limited Partners. Notwithstanding the foregoing, if in the
opinion of counsel to the Partnership, the legal determination is not
necessary under Pennsylvania law to maintain the limited liability of the
Limited Partners, then it shall not be required. A legal determination under
this paragraph may be made either pursuant to:
(i) an opinion of counsel, the 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
(ii) 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 the vote if
the Investor General Partners represent the requisite percentage of the
Participants necessary to take the action.
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4.03(d). TRANSACTIONS WITH THE MANAGING GENERAL PARTNER.
4.03(d)(1). TRANSFER OF EQUAL PROPORTIONATE INTEREST. When 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, transfer or convey 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 the
well will be drilled by the Partnership:
(i) if the geological feature to which the well will be drilled
contains Proved Reserves; and
(ii) 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 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. If the Partnership abandons its
interest in a well, then 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 and the
activities of the Partnership were material in establishing the existence of
Proved Undeveloped Reserves which are attributable to the separate property
interest, then the separate property interest or a portion thereof shall be
sold, transferred or conveyed to the Partnership as set forth in Sections
4.01(a)(4), 4.03(d)(1) and 4.03(d)(2).
Notwithstanding the foregoing, 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:
(i) the interest retained by the Managing General Partner or the
Affiliate is a proportionate Working Interest;
(ii) 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
(iii) 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 shall retain any
Overriding Royalty Interests or other burdens on an interest sold or transferred
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). NO SALE 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.
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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:
(i) 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
(ii) 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 owns 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 Affiliated partnerships, provided that:
(i) 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
(ii) if different, the aggregate compensation of the Managing General
Partner or the Affiliate is reduced to reflect the lower
compensation arrangement.
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.
4.03(d)(7)(a). COMPETITIVE RATES. 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:
(i) the person is engaged, independently of the Partnership and as
an ordinary and ongoing business, in the business of rendering
the services or selling or leasing the 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
(ii) 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 the person is not engaged in such a business, then the compensation, price or
rental shall be the Cost of the services, equipment or supplies to the person or
the competitive rate which could be obtained in the area, whichever is less.
4.03(d)(7)(b). IF NOT DISCLOSED IN THE PROSPECTUS OR THIS AGREEMENT THEN
SERVICES BY THE MANAGING GENERAL PARTNER MUST BE DESCRIBED IN A SEPARATE
CONTRACT AND CANCELLABLE. Any services for which the Managing General Partner or
an Affiliate is to receive compensation other than those described in this
Agreement or the Prospectus shall be set forth in a
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written contract which precisely describes the services to be rendered and
all compensation to be paid. These contracts are cancellable without penalty
upon 60 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). NO 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 if the interest to be
charged exceeds the Managing General Partner's or the Affiliate's interest cost,
or if 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.
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 the charges incurred from third-party lenders may be reimbursed to the
Managing General Partner or the Affiliate.
4.03(d)(9). NO FARMOUTS. The Partnership shall not Farmout its Leases.
4.03(d)(10). NO 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 the 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 the 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 the gas sold in a geographic
area by taking all money received from the sale of all 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 pipeline facilities and
compression facilities, 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 when 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 before the time a decision is made
that the well or wells warrant a completion attempt.
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),
then 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:
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(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.
4.03(d)(16)(a). REQUIREMENT FOR APPRAISAL AND ITS ASSUMPTIONS. In connection
with a proposed Roll-Up, 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, then 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 before the announcement of the
proposed Roll-Up transaction. The appraisal shall assume an orderly liquidation
of the Partnership's assets over a 12-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.
4.03(d)(16)(b). RIGHTS OF PARTICIPANTS WHO VOTE AGAINST PROPOSAL. In connection
with a proposed Roll-Up, Participants who vote "no" on the proposal shall be
offered the choice of:
(i) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up;
(ii) remaining as Participants in the Partnership and preserving their
interests therein on the same terms and conditions as existed
previously; or
(iii) receiving cash in an amount equal to the Participants' pro rata
share of the appraised value of the net assets of the Partnership.
4.03(d)(16)(c). NO ROLL-UP IF DIMINISHMENT OF VOTING RIGHTS. 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 Sections 4.03(c)(1) and 4.03(c)(2) of
this Agreement. If the Roll-Up Entity is a corporation, then the democracy
rights of Participants shall correspond to the democracy rights provided for
in this Agreement to the greatest extent possible.
4.03(d)(16)(d). NO ROLL-UP IF ACCUMULATION OF SHARES WOULD BE IMPEDED. 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).
The Partnership shall not 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.
4.03(D)(16)(e). NO ROLL-UP IF ACCESS TO RECORDS WOULD BE LIMITED. 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 Sections 4.03(b)(5), 4.03(b)(6) and 4.03(b)(7) of this
Agreement.
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4.03(d)(16)(f). COST OF ROLL-UP. 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 Participants whose Agreed Subscriptions equal 75%
of the Partnership Subscription do not vote to approve the proposed Roll-Up.
4.03(d)(16)(g). ROLL-UP APPROVAL. 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.
4.03(d)(18). TRANSACTIONS MUST BE 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 Section 4.04(a)(3)
or withdraws pursuant to Section 4.04(a)(3)(f).
4.04(a)(2). COMPENSATION OF MANAGING GENERAL PARTNER. In addition to the
compensation set forth in Sections 4.01(a)(4) and 4.02(d)(1), the Managing
General Partner shall receive the compensation set forth in Sections
4.04(a)(2)(b) through 4.04(a)(2)(g).
4.04(a)(2)(a). CHARGES MUST BE NECESSARY AND REASONABLE. Charges by the Managing
General Partner for goods and services must be fully supportable as to
(i) the necessity thereof; and
(ii) 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.
4.04(a)(2)(b). DIRECT COSTS. The Managing General Partner shall be reimbursed
for all Direct Costs. Direct Costs, however, shall be billed directly to and
paid by the Partnership to the extent practicable.
4.04(a)(2)(c). ADMINISTRATIVE COSTS. The Managing General Partner 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, the 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 the Managing General
Partner for the Partnership's Administrative Costs. Finally, the Managing
General Partner shall not receive the unaccountable, fixed payment reimbursement
of $75 per well per month for plugged or abandoned wells.
4.04(a)(2)(d). GAS GATHERING. The Managing General Partner and its Affiliates
(which may include a limited partnership sponsored by an Affiliate of AAI) shall
receive a gathering fee at a competitive rate for gathering and transporting the
Partnership's gas.
4.04(a)(2)(e). DEALER-MANAGER FEE. Subject to Section 3.03(b)(2), the
Dealer-Manager shall receive on each Unit sold to investors:
(i) a 2.5% Dealer-Manager fee;
(ii) a 7% Sales Commission;
(iii) a .5% reimbursement of marketing expenses; and
(iv) a .5% reimbursement of the Selling Agent's bona fide accountable
duediligence expenses.
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4.04(a)(2)(f). DRILLING AND OPERATING AGREEMENT. The Managing General Partner
and its Affiliates shall receive compensation as set forth in the Drilling and
Operating Agreement.
4.04(a)(2)(g). OTHER TRANSACTIONS. The Managing General Partner and its
Affiliates may enter into transactions pursuant to Section 4.03(d)(7) with
the Partnership and shall be entitled to compensation pursuant to such
section.
4.04(a)(3). REMOVAL OF MANAGING GENERAL PARTNER.
4.04(a)(3)(a). MAJORITY VOTE REQUIRED TO REMOVE THE MANAGING GENERAL PARTNER.
The Managing General Partner may be removed at any time upon 60 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. If Participants vote to remove the Managing General Partner from
the Partnership, then Participants must elect by an affirmative vote of
Participants whose Agreed Subscriptions equal a majority of the Partnership
Subscription either:
(i) to terminate, dissolve and wind up the Partnership; or
(ii) to continue as a successor limited partnership under all the
terms of this Partnership Agreement, as provided in Section
7.01(c).
If the Participants elect to continue as a successor limited partnership, then
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.
4.04(a)(3)(b). VALUATION OF MANAGING GENERAL PARTNER'S INTEREST IN THE
PARTNERSHIP. If the Managing General Partner is removed, then the Managing
General Partner's interest in the Partnership shall be determined by appraisal
by a qualified Independent Expert. The Independent Expert shall be selected by
mutual agreement between the removed Managing General Partner and the incoming
Managing General Partner. The appraisal shall 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 presentment offer, if any.
The cost of the appraisal shall be borne equally by the removed Managing General
Partner and the Partnership.
4.04(a)(3)(c). INCOMING MANAGING GENERAL PARTNER'S OPTION TO PURCHASE. 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.
4.04(a)(3)(d). METHOD OF PAYMENT. The method of payment for the removed Managing
General Partner's interest must be fair and must protect the solvency and
liquidity of the Partnership. The method of payment shall be as follows:
(i) when 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;
and
(ii) when 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 on comparable loans.
4.04(a)(3)(e). TERMINATION OF CONTRACTS. 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 the Managing General Partner 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
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Partner shall not receive any interest in the Managing General Partner's and
its Affiliates' pipeline or gathering system or compression facilities.
4.04(a)(3)(f). THE MANAGING GENERAL PARTNER'S RIGHT TO VOLUNTARILY WITHDRAW. At
any time beginning 10 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. If the Managing
General Partner withdraws, then the following conditions shall apply:
(i) the Managing General Partner's interest in the Partnership shall
be determined as described in Section 4.04(a)(3)(b) above with
respect to removal; and
(ii) the interest shall be distributed to the Managing General Partner
as described in Section 4.04(a)(3)(d)(i) above.
Any successor Managing General Partner shall have the option to purchase 20% of
the withdrawing Managing General Partner's interest in the Partnership at the
value determined as described above with respect to removal.
4.04(a)(3)(g). THE MANAGING GENERAL PARTNER'S RIGHT TO WITHDRAW PROPERTY
INTEREST. 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 Section
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 the 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)(1). STANDARDS FOR THE MANAGING GENERAL PARTNER NOT INCURRING LIABILITY
TO THE PARTNERSHIP OR PARTICIPANTS. The Managing General Partner, the Operator,
and their Affiliates shall not have any 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:
(i) the Managing General Partner, the Operator, and their Affiliates
determined in good faith that the course of conduct was in the
best interest of the Partnership;
(ii) the Managing General Partner, the Operator, and their Affiliates
were acting on behalf of, or performing services for, the
Partnership; and
(iii) the course of conduct did not constitute negligence or
misconduct of the Managing General Partner, the Operator, or
their Affiliates.
4.05(a)(2). STANDARDS FOR MANAGING GENERAL PARTNER INDEMNIFICATION. 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:
(i) 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;
(ii) the Managing General Partner, the Operator, and their Affiliates
were acting on behalf of, or performing services for, the
Partnership; and
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(iii) the 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.
4.05(a)(3). Standards for Securities Law Indemnification. 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:
(i) there has been a successful adjudication on the merits of each
count involving alleged securities law violations as to the
particular indemnitee;
(ii) the claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the particular indemnitee;
or
(iii) 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, 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.
4.05(a)(4). STANDARDS FOR ADVANCEMENT OF FUNDS TO THE MANAGING GENERAL PARTNER
AND INSURANCE. The advancement of Partnership funds to the Managing General
Partner, the Operator, or their 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:
(i) the legal action relates to acts or omissions with respect to
the performance of duties or services on behalf of the
Partnership;
(ii) 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 the
advancement; and
(iii) 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 Sections 4.05(a)(1) and
4.05(a)(2).
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, the Managing General Partner agrees to use its corporate assets and
not the assets of the Partnership to indemnify each of the Investor General
Partners against all Partnership related liabilities which exceed the Investor
General Partner's interest in the undistributed net assets of the Partnership
and insurance proceeds, if any. Further, the Managing General Partner agrees to
indemnify each Investor General Partner against any personal liability as a
result of the unauthorized acts of another Investor General Partner.
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If the Managing General Partner provides indemnification, then 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 the Managing General Partner.
4.05(c). ORDER OF PAYMENT OF CLAIMS. Claims shall be paid as follows:
(i) first out of any insurance proceeds;
(ii) second out of the assets and revenues of the Partnership; and
(iii) last by the Managing General Partner as provided in
Sections 3.05(b)(2) and (3) 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:
(i) for a liability resulting from the Limited Partner's unauthorized
participation in Partnership management; or
(ii) from some other breach by the Limited Partner of this Agreement.
4.05(d). AUTHORIZED TRANSACTIONS ARE NOT DEEMED TO BE A BREACH. 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.
4.06(a). THE MANAGING GENERAL PARTNER MAY PURSUE OTHER OIL AND GAS ACTIVITIES
FOR ITS OWN ACCOUNT. 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. This includes 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, the
Managing General Partner, the Operator, and their Affiliates may do the
following:
(i) may continue its 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;
(ii) may reserve partial interests in Leases being assigned to the
Partnership or any other interests not expressly prohibited by
this Agreement;
(iii) may deal with the Partnership as independent parties or through
any other entity in which they may be interested;
(iv) may conduct business with the Partnership as set forth herein;
and
(v) may participate in such other investor operations, as investors
or otherwise.
The Managing General Partner and its Affiliates 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.
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4.06(b). MANAGING GENERAL PARTNER MAY MANAGE MULTIPLE PARTNERSHIPS. The Managing
General Partner or its Affiliates may manage multiple Programs simultaneously.
4.06(c). PARTNERSHIP HAS NO INTEREST IN GAS CONTRACTS OR PIPELINES AND GATHERING
SYSTEMS. Notwithstanding any other provision in this Agreement, the Partnership
shall not be a party to any gas supply agreement that the Managing General
Partner, the Operator, or their Affiliates enter 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 the Managing General Partner's,
the Operator's, and their Affiliates' pipeline or gathering system or
compression facilities.
ARTICLE V
PARTICIPATION IN COSTS AND REVENUES,
CAPITAL ACCOUNTS, ELECTIONS AND DISTRIBUTIONS
5.01. PARTICIPATION IN COSTS AND REVENUES. Except as otherwise provided in this
Agreement, costs and revenues shall be charged and credited to the Managing
General Partner and the Participants as set forth in this Section 5.01 and its
subsections.
5.01(a). Costs. Costs shall be charged as set forth below.
5.01(a)(1). ORGANIZATION AND OFFERING COSTS. Organization and Offering Costs
shall be charged 100% to the Managing General Partner. For purposes of
sharing in revenues, pursuant to Section 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. Any 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 these amounts towards its required Capital
Contribution.
5.01(a)(2). INTANGIBLE DRILLING COSTS. Intangible Drilling Costs shall be
charged 100% to the Participants.
5.01(a)(3). TANGIBLE COSTS. Tangible Costs shall be charged 43.75% to the
Managing General Partner and 56.25% to the Participants.
5.01(a)(4). OPERATING COSTS, DIRECT COSTS, ADMINISTRATIVE COSTS AND ALL OTHER
COSTS. Operating Costs, Direct Costs, Administrative Costs, and all other
Partnership costs not specifically allocated shall be charged to the parties in
the same ratio as the related production revenues are being credited.
5.01(a)(5). ALLOCATION OF INTANGIBLE DRILLING COSTS AND TANGIBLE COSTS AT
PARTNERSHIP CLOSINGS. Intangible Drilling Costs and the Participants' share of
Tangible Costs of a well or wells to be drilled and completed with the proceeds
of a Partnership closing shall be charged 100% to the Participants who are
admitted to the Partnership in that closing and shall not be reallocated to take
into account other Partnership closings.
Although the proceeds of each Partnership closing will be used to pay the costs
of drilling different wells, each Participant will pay the same amount of the
costs regardless of when he subscribes.
5.01(a)(6). LEASE COSTS. The Leases shall be contributed to the Partnership as
set forth in Section 4.01(a)(4).
5.01(b). REVENUES. Revenues of the Partnership from all sources and wells shall
be commingled and credited as set forth below.
5.01(b)(1). ALLOCATION OF REVENUES UPON DISPOSITION OF PROPERTY. If the
Partners' Capital Accounts are adjusted to reflect the simulated depletion of an
oil or gas property of the Partnership, then 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). If
the Partners' Capital Accounts are adjusted to reflect the actual depletion of
an oil or gas property of the Partnership, then 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 the
Managing General Partner 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 Section 5.01(b)(4), below.
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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.
5.01(b)(2). INTEREST. Interest earned on Agreed Subscriptions before the
Offering Termination Date pursuant to Section 3.05(b)(1) shall be credited to
the accounts of the respective subscribers who paid the subscriptions to the
Partnership and paid approximately eight 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 Section 5.01(b)(4),
below.
5.01(b)(3). SALE OR DISPOSITION OF EQUIPMENT. 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.
5.01(b)(4). OTHER REVENUES. All other revenues of the Partnership shall be
credited 71% to the Participants and 29% to the Managing General Partner subject
to Sections 5.01(b)(4)(a).
5.01(b)(4)(a). SUBORDINATION. The Managing General Partner shall subordinate up
to 40% of its 29% share of Partnership Net Production Revenues (i.e. up to 11.6%
of the Partnership Net Production Revenues), to the receipt by Participants of
cash distributions from the Partnership equal to 10% of their Agreed
Subscriptions in each of the first five 12-month periods of Partnership
operations. The subordination shall begin with the first distribution of
revenues to the Participants. The Managing General Partner, however, shall not
subordinate an amount greater than 40% of its 29% share of Partnership Net
Production Revenues (i.e., net of the related costs as provided in
Section 5.01(a)(4)) in any such distribution period.
The subordination shall be determined by:
(i) carrying forward to subsequent 12-month periods the amount, if
any, by which cumulative cash distributions to Participants
(including any subordination payments) are less than:
(a) 10% of Participants' Agreed Subscriptions in the first
12-month period;
(b) 20% of Participants' Agreed Subscriptions in the second
12-month period;
(c) 30% of Participants' Agreed Subscriptions in the third
12-month period; or
(d) 40% of Participants' Agreed Subscriptions in the fourth
12-month period (no carry forward is required if such
distributions are less than 50% of Participants' Agreed
Subscriptions in the fifth 12-month period because the
Managing General Partner's subordination obligation
terminates upon the expiration of the fifth 12-month
period) ; and
(ii) reimbursing the Managing General Partner for any previous
subordination payments to the extent cumulative cash
distributions to Participants (including any subordination
payments) would exceed:
(a) 10% of Participants' Agreed Subscriptions in the first
12-month period;
(b) 20% of Participants' Agreed Subscriptions in the second
12-month period;
(c) 30% of Participants' Agreed Subscriptions in the third
12-month period;
(d) 40% of Participants' Agreed Subscriptions in the fourth
12-month period; or
(e) 50% of Participants' Agreed Subscriptions in the fifth
12-month period.
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The Managing General Partner's subordination obligation shall be determined and
paid at the time of each Partnership distribution during the subordination
period, and may be prorated in the Managing General Partner's discretion (e.g.
in the case of a quarterly distribution, the Managing General Partner will not
have any subordination obligation if the distributions to Participants equal
2.5% or more of their Agreed Subscriptions assuming there is no subordination
owed for any preceding periods).
The Managing General Partner shall not be required to return Partnership
distributions previously received by it, even though a subordination obligation
arises after the distributions. Also, no subordination payments to Participants
or reimbursements to the Managing General Partner shall be made after the
expiration of the fifth 12-month subordination period.
Subject to the foregoing provisions of this Section 5.01(b)(4)(a), only
Partnership revenues in the current distribution period shall be debited or
credited to the Managing General Partner as may be necessary to provide, to
the extent possible, such distributions to the Participants and
reimbursements to the Managing General Partner.
5.01(b)(5). COMMINGLING OF REVENUES FROM ALL PARTNERSHIP WELLS. The revenues
from all Partnership wells will be commingled, so regardless of when a
Participant subscribes he will share in the revenues from all wells on the same
basis as the other Participants.
5.01(c). ALLOCATIONS.
5.01(c)(1). ALLOCATIONS AMONG PARTICIPANTS. Except as provided otherwise in
this Agreement, costs and revenues charged 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
Section 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). MANAGING GENERAL PARTNER'S DISCRETION IN MAKING ALLOCATIONS FOR
FEDERAL INCOME TAX PURPOSES. 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 FOR EACH PARTY TO THE AGREEMENT. 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.
5.02(b)(1). GENERAL STANDARD. Except as otherwise provided in this Agreement,
the Capital Account of each party shall be determined and maintained in
accordance with Treas. Reg. Section 1.704-l(b)(2)(iv) and shall be increased
by:
(i) the amount of money contributed by him to the Partnership;
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(ii) the fair market value of property contributed by him (without
regard to Section 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
Section 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. Section 1.704-l(b)(2)(iv)(g),
but excluding income and gain described in Treas. Reg. Section
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 Section 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 Section 752 of the
Code);
(vi) allocations to him of Partnership expenditures described in
Section 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. Section 1.704-l(b)(2)(iv)(g), but excluding items described
in (vi) above, and loss or deduction described in Treas. Reg.
Section 1.704-l(b)(4)(i) or (iii).
5.02(b)(2). EXCEPTION. If Treas. Reg. Section 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.
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
Section 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 IN THE METHOD OF MAINTAINING
CAPITAL ACCOUNTS. 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
Section 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 Section 704(c) of the Code and the regulations thereunder) on
the Partnership's books, in accordance with Treas. Reg. Section
1.704-l(b)(2)(iv)(f).
5.02(f). AMOUNT OF BOOK ITEMS. In cases where Section 704(c) of the Code or
Section 5.02(e) applies, Capital Accounts shall be adjusted in accordance
with Treas. Reg. Section 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.
5.03(a)(1). DEDUCTIONS ARE ALLOCATED TO PARTY CHARGED WITH EXPENDITURE. To the
extent permitted by law and except as otherwise provided in this Agreement, all
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
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the deductions and credits; and to the extent permitted by law, these parties
shall be entitled to the deductions and credits in computing taxable income
or tax liabilities to the exclusion of any other party. Also, any Partnership
deductions that would be nonrecourse deductions if they were not attributable
to a loan made or guaranteed by the Managing General Partner or its
Affiliates shall be allocated to the Managing General Partner to the extent
required by law.
5.03(a)(2). INCOME AND GAIN ALLOCATED IN ACCORDANCE WITH REVENUES. 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 Section 5.01(b) and its subsections.
5.03(b). TAX BASIS OF EACH PROPERTY. Subject to Section 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 the
property and the capital interest in the Partnership for this 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 the 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 Section 613A(c)(7)D) of the Code, and the
calculation of the gain or loss shall consider the party's adjusted basis in his
property interest computed as provided in ss.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 the sale or other disposition exceeds its contribution to the
adjusted basis of the property in the ratio that the excess bears to the sum of
the excesses of all parties having 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 the sale, abandonment or other disposition in the proportion that
the excess bears to the sum of the excesses of all parties having an excess.
5.03(f). ALLOCATION IF RECAPTURE TREATED AS ORDINARY INCOME. Any recapture
treated as an increase in ordinary income by reason of Sections 1245, 1250,
or 1254 of the Code shall be allocated to the parties in the amounts in which
the recaptured items were previously allocated to them; provided that to the
extent recapture allocated to any party is in excess of the party's gain from
the disposition of the property, the excess shall be allocated to the other
parties but only to the extent of the other parties' gain from the
disposition of the property.
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 the year, then the Partners' interests in the
Partnership with respect to the credit (or the cost giving rise thereto) shall
be in the same proportion as the Partners' respective distributive shares of the
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 Participant having a deficit Capital Account
balance as of the end of the taxable year to which the allocation relates, if
charged to the Participant, (to the extent the Participant is not required to
restore the deficit to the Partnership), taking into account:
(i) adjustments that, as of the end of the year, reasonably are
expected to be made to the Participant'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 the Participant
pursuant to Sections 704(e)(2) and 706(d) of the Code and Treas.
Reg. Section 1.751-1(b)(2)(ii); and
(iii) distributions that, as of the end of such year, reasonably are
expected to be made to the Participant to the extent they exceed
offsetting increases to the Participant's Capital Account
(assuming for this purpose that the fair
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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 the distributions
reasonably are expected to be made,
shall be charged to the Managing General Partner. 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
Participants' Capital Accounts which are not required to be restored to the
Partnership).
Notwithstanding any provisions of this Agreement to the contrary, if a
Participant 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 the Participant's Capital Account which is not
required to be restored to the Partnership, the Participant 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). MINIMUM GAIN CHARGEBACK. To the extent there is a net decrease during a
Partnership taxable year in the minimum gain attributable to a Partner
nonrecourse debt, then any Partner with a share of the minimum gain attributable
to such debt at the beginning of such year shall be allocated items of
Partnership income and gain in accordance with Treas. Reg. Section 1.704-2(i).
5.03(j). 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). ELECTION TO DEDUCT INTANGIBLE COSTS. 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). Section 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 Sections 734 and 743 of the Code.
5.05. DISTRIBUTIONS.
5.05(a). IN GENERAL.
5.05(a)(1). QUARTERLY REVIEW OF ACCOUNTS. 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.
5.05(a)(2). DISTRIBUTIONS. 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.
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5.05(a)(3). NO BORROWINGS. 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 revenues and costs shall be made in accordance
with generally accepted accounting principles, consistently applied.
5.05(a)(4). DISTRIBUTIONS TO THE MANAGING GENERAL PARTNER. 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.
5.05(a)(5). RESERVE. 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 the 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 12 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. 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 Section 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. Each Participant shall look only to his
share of distributions, if any, from the Partnership for a return of his Capital
Contribution.
ARTICLE VI
TRANSFER OF INTERESTS
6.01. TRANSFERABILITY.
6.01(a). IN GENERAL.
6.01(a)(1). CONSENT REQUIRED. In addition to other restrictions on
transferability provided in this Agreement, Units 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 written consent of the Managing
General Partner.
6.01(a)(2). RIGHTS OF ASSIGNEE. Unless an assignee becomes a substituted
Participant in accordance with the provisions set forth below, he shall not be
entitled to any of the rights granted to a Participant 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). CONVERSION OF INVESTOR GENERAL PARTNER UNITS TO LIMITED PARTNER
INTERESTS.
6.01(b)(1). AUTOMATIC CONVERSION. 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.
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6.01(b)(2). INVESTOR GENERAL PARTNERS SHALL HAVE CONTINGENT LIABILITY. Upon
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 before the conversion of their Units
as provided in Section 3.05(b)(2).
6.01(b)(3). CONVERSION SHALL NOT AFFECT ALLOCATIONS. The conversion shall not
affect the allocation to any Participant of any item of Partnership income,
gain, loss, deduction or credit or other item of special tax significance (other
than Partnership liabilities, if any). Further, the conversion shall not affect
any Participant's interest in the Partnership's oil and gas properties and
unrealized receivables.
6.01(b)(4). RIGHT TO CONVERT IF REDUCTION OF INSURANCE. Notwithstanding the
foregoing, the Managing General Partner shall notify all Participants at least
30 days before the effective date of any adverse material change in the
Partnership's insurance coverage. If the insurance coverage is to be materially
reduced, then the Investor General Partners shall have the right to convert
their Units into Limited Partner interests before the 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 Participant 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 set forth in Sections 6.02(a)(1) and
6.02(a)(2).
6.02(a)(1). SECURITIES LAWS RESTRICTION. Subject to transfers permitted by
Section 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. Subject to transfers permitted by Section
6.04 and transfers by operation of law, no sale, exchange, transfer or
assignment shall be made which, in the opinion of counsel to the Partnership,
would result in:
(i) the Partnership being considered to have been terminated for
purposes of Section 708 of the Code; or
(ii) the Partnership being treated as a "publicly-traded" partnership
for purposes of Section 469(k) of the Code.
6.02(a)(3). SUBSTITUTE PARTICIPANT.
6.02(a)(3)(a). PROCEDURE TO BECOME SUBSTITUTE PARTICIPANT. An assignee of a
Participant's interest in the Partnership shall become a substituted Participant
entitled to all the rights of a Participant if, and only if:
(i) the assignor of the Unit gives the assignee the right;
(ii) the Managing General Partner consents to the substitution, which
consent shall be in the Managing General Partner's absolute
discretion;
(iii) the assignee of the Unit pays to the Partnership all costs and
expenses incurred in connection with the substitution; and
(iv) the assignee of the Unit executes and delivers the instruments
(in form and substance satisfactory to the Managing General
Partner) necessary or desirable to effect the substitution and
to confirm the agreement of the assignee to be bound by all of
the terms and provisions of this Agreement.
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6.02(a)(3)(b). RIGHTS OF SUBSTITUTE PARTICIPANT. A substitute Participant is
entitled to all of the rights attributable to full ownership of the assigned
Units including the right to vote.
6.02(b). EFFECT OF TRANSFER.
6.02(b)(1). AMENDMENT OF RECORDS. The Partnership shall amend its records at
least once each calendar quarter to effect the substitution of substituted
Participants.
Any transfer permitted hereunder when the assignee does not become a substituted
Participant 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.
6.02(b)(2). TRANSFER DOES NOT RELIEVE TRANSFEROR OF CERTAIN COSTS. No 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 before or after the transfer.
6.02(b)(3). TRANSFER DOES NOT REQUIRE AN ACCOUNTING. No transfer of a Unit shall
require an accounting by the Managing General Partner. Also, no transfer shall
grant rights hereunder (including the exercise of any elections) as between the
transferring parties and the remaining parties hereto to more than one party
unanimously designated by the transferees and, if he should have retained an
interest hereunder, the transferor.
6.02(b)(4). NOTICE. Until the Managing General Partner receives a proper
designation acceptable to it, the Managing General Partner shall continue to
account only to the person to whom it was furnishing notices before the time
pursuant to Section 8.01 and its subsections. That 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. In no event shall the repayments, costs, interest, or other charges
related to the borrowing 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:
(i) the withdrawal is necessary to satisfy the bona fide request of
its creditors; or
(ii) the withdrawal is approved by Participants whose Agreed
Subscriptions equal a majority of the Partnership Subscription.
6.04. PRESENTMENT.
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. A Participant, however, is not obligated
to present his Units for repurchase.
The Managing General Partner shall not be obligated to purchase more than 5% 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 5% of the Units in any calendar year.
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A Participant may present his Units in writing to the Managing General
Partner every year beginning in 2004. The presentment must be made within 120
days of the reserve report set forth in Section 4.03(b)(3). No repurchase
shall be considered effective until the payment has been made to the
Participant in cash.
In addition, in accordance with Treas. Reg. Section 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). REQUIREMENT FOR INDEPENDENT PETROLEUM CONSULTANT EVERY OTHER YEAR.
The amount attributable to Partnership reserves shall be determined based
upon the last reserve report of the Partnership prepared by the Managing
General Partner and reviewed by an Independent Expert. The Managing General
Partner shall estimate the present worth of future net revenues attributable
to the Partnership's interest in the Proved Reserves. In making this
estimate, the Managing General Partner shall use a discount rate equal to 10%
and 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 Section
6.04(c).
6.04(c). CALCULATION OF PRESENTMENT PRICE. The presentment 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 presentment price shall include the sum of the following
items:
(i) an amount based on 70% of the present worth of future net
revenues from the Partnership's Proved Reserves determined as
described in Section 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. However, 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 presentment price, the
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.
6.04(d). FURTHER ADJUSTMENT MAY BE ALLOWED. The presentment 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 presentment 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 before the request for repurchase; and
(ii) by reason of any of the following occurring before payment of
the presentment 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(e). SELECTION BY LOT. If less than all interests presented at any time are
to be purchased, then the Participants whose interests are to be purchased will
be selected by lot.
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The Managing General Partner's obligation to purchase interests presented may be
discharged for its benefit 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(f). 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 presentment obligations under this section.
6.04(g). SUSPENSION OF PRESENTMENT FEATURE. The Managing General Partner may
suspend this presentment feature by so notifying Participants at any time if:
(i) it does not have sufficient cash flow; or
(ii) it is unable to borrow funds for such purpose on terms it deems
reasonable.
In addition, the presentment feature may be conditioned, in the Managing General
Partner's sole discretion, on the Managing General Partner's receipt of an
opinion of counsel that such transfers will not cause the Partnership to be
treated as a "publicly traded partnership" under the Code.
The Managing General Partner shall hold such repurchased Units for its own
account and not for resale.
ARTICLE VII
DURATION, DISSOLUTION, AND WINDING UP
7.01. DURATION.
7.01(a). FIFTY YEAR TERM. The Partnership shall continue in existence for a term
of 50 years from the effective date of this Agreement unless sooner terminated
as hereinafter set forth.
7.01(b). TERMINATION. The Partnership shall terminate following:
(i) the occurrence of a Final Terminating Event; or
(ii) 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 FINAL TERMINATING EVENT. Except
upon the occurrence of a Final Terminating Event, the Partnership or any
successor limited partnership shall not be wound up, but shall be continued by
the parties and their respective successors as a successor limited partnership
under all the terms of this Agreement. Such successor limited partnership shall
succeed to all of the assets of the Partnership. As used throughout this
Agreement, the term "Partnership" shall include such successor limited
partnerships and the parties thereto.
7.02. DISSOLUTION AND WINDING UP.
7.02(a). FINAL TERMINATING EVENT. 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.
7.02(b). TIME OF LIQUIDATING DISTRIBUTION. 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
Section 706(c)(2)(A) of the Code) or, if later, within 90 days after the date
of such liquidation.
Notwithstanding, the following amounts need not be distributed within the
foregoing time periods so long as such withheld amounts are distributed as soon
as practical:
(i) amounts withheld for reserves reasonably required for liabilities
of the Partnership; and
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(ii) installment obligations owed to the Partnership.
7.02(c). IN-KIND DISTRIBUTIONS. 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:
(i) the Managing General Partner shall offer the individual
Participants the election of receiving in kind property
distributions and the Participants accept the offer after being
advised of the risks associated with such direct ownership; or
(ii) 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 his consent if the Managing
General Partner has not received the consent within 30 days after the Managing
General Partner mailed the request for consent.
7.02(d). SALE IF NO CONSENT. Any Partnership asset which would otherwise be
distributed in kind to a Participant, except for the failure or refusal of the
Participant to give his written consent to the 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.
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 the notice at the address
designated in Section 1.03. 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. If
there is a transfer of rights hereunder to more than one party, then notice to
any owner of any interest in such rights shall be notice to all owners thereof.
8.01(b). CHANGE IN ADDRESS. The address of any party hereto may be changed by:
(i) written notice to the Participants in the event of a change of
address by the Managing General Partner; or
(ii) to the Managing General Partner in the event of a change of
address by a Participant.
8.01(c). TIME NOTICE DEEMED GIVEN. If the notice is given by the Managing
General Partner, then the notice shall be considered given, and any applicable
time shall run, from the date the notice is place in the mails or delivered to
the telegraph company.
If the notice is given by any Participant, then the notice shall be considered
given and any applicable time shall run from the date the notice is received.
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 the notice is actually received, and irrespective of any disability or
death on the part of the noticee, even if the disability or death is known to
the party giving the notice.
8.01(e). FAILURE TO RESPOND. Except when this Agreement expressly requires
affirmative approval of a Participant, any Participant who fails to respond in
writing within the time specified to a request by the Managing General Partner
for approval of or concurrence in a proposed action shall be conclusively deemed
to have approved the action. The time period shall be not less than 15 business
days from the date of mailing of the request.
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
Section 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.
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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.
8.05(a). PROCEDURE FOR AMENDMENT. No changes herein shall be binding unless:
(i) 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
(ii) 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.
8.05(b). CIRCUMSTANCES UNDER WHICH THE MANAGING GENERAL PARTNER ALONE MAY AMEND.
The Managing General Partner is authorized to amend this Agreement and its
exhibits without the consent of Participants in any way deemed necessary or
desirable by it:
(i) to add or substitute (in the case of an assigning party)
additional Participants;
(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 additional Participants as the Managing General Partner, in
its discretion, chooses to admit.
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: ATLAS RESOURCES, INC.
Managing General Partner
By:________________________________
Attest:
____________________________________
(SEAL) Secretary
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EXHIBIT (I-A)
MANAGING GENERAL PARTNER SIGNATURE PAGE
<PAGE>
EXHIBIT (I-A)
MANAGING GENERAL PARTNER SIGNATURE PAGE
Attached to and made a part of the AMENDED AND RESTATED CERTIFICATE AND
AGREEMENT OF LIMITED PARTNERSHIP of ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
The undersigned agrees:
1. to serve as the Managing General Partner of ATLAS-ENERGY FOR THE
NINETIES-PUBLIC #8 LTD. (the "Partnership"), and hereby executes,
swears to and agrees to all the terms of the Partnership Agreement;
2. to pay the required subscription of the Managing General Partner under
Section 3.03(b)(1) of the Partnership Agreement; and
3. to subscribe to the Partnership as follows:
(a) $___________________ [________] Unit(s)] under Section
3.03(b)(2) of the Partnership Agreement as a Limited Partner; or
(b) $___________________ [________] Unit(s)] under Section
3.03(b)(2) of the Partnership Agreement as an Investor General
Partner.
MANAGING GENERAL PARTNER:
Atlas Resources, Inc. Address:
By: 311 Rouser Road
--------------------------------- Moon Township, Pennsylvania 15108
ACCEPTED this _____ day of ______________ , 1999.
ATLAS RESOURCES, INC.
MANAGING GENERAL PARTNER
By:
-----------------------------
Attest
- ------------------------------------------
(SEAL) Secretary
<PAGE>
EXHIBIT (I-B)
SUBSCRIPTION AGREEMENT
<PAGE>
ATLAS-ENERGY FOR THE
NINETIES-PUBLIC #8 LTD.
- ------------------------------------------------------------------------------
SUBSCRIPTION AGREEMENT
- ------------------------------------------------------------------------------
The undersigned hereby offers to purchase Units of Atlas-Energy for the
Nineties-Public #8 Ltd. in the amount set forth on the Signature Page of this
Subscription Agreement and on the terms described in the current Prospectus
for Atlas-Energy for the Nineties-Public #8 Ltd. (as supplemented or amended
from time to time). The undersigned acknowledges and agrees that his
execution of this Subscription Agreement also constitutes his execution of
the Amended and Restated Certificate and Agreement of Limited Partnership
(the "Partnership Agreement") the form of which is attached as Exhibit (A) to
the Prospectus and the undersigned agrees to be bound by all of the terms and
conditions of the Partnership Agreement if his Agreed Subscription is
accepted by the Managing General Partner. The undersigned understands and
agrees that this offer may not be assigned or withdrawn by the undersigned.
The undersigned hereby irrevocably constitutes and appoints Atlas Resources,
Inc. (and its duly authorized agents) the undersigned's agent and
attorney-in-fact, in the undersigned's name, place and stead, to make,
execute, acknowledge, swear to, file, record and deliver the Amended and
Restated Certificate and Agreement of Limited Partnership and any
certificates related thereto.
In order to induce the Managing General Partner to accept this subscription,
the undersigned hereby represents, warrants, covenants and agrees as follows:
INVESTOR'S INITIALS
_____ The undersigned has received the Prospectus.
_____ The undersigned (other than Minnesota residents) recognizes that
before this offering there has been no public market for the Units
and it is unlikely that after the offering there will be any such
market. In addition, the undersigned understands that the
transferability of the Units is restricted and that he cannot
expect to be able to readily liquidate his investment in the Units
in case of emergency or other change in circumstances.
_____ The undersigned is purchasing the Units for his own account, for
investment purposes and not for the account of others and he is not
purchasing the Units with the present intention of reselling them.
_____ The undersigned, if he is an individual, is a citizen of the United
States of America and is at least twenty-one years of age, or, if a
partnership, corporation or trust, the members, stockholders or
beneficiaries thereof are citizens of the United States and each is
at least twenty-one years of age.
_____ The undersigned, if he is not an individual, is empowered and duly
authorized under a governing document, trust instrument, pension
plan, charter, certificate of incorporation, by-law provision or
the like to enter into this Subscription Agreement and to perform
the transactions contemplated by the Prospectus, including the
exhibits thereto.
_____ (a) The undersigned has:
- a net worth of at least $225,000 (exclusive of home,
furnishings and automobiles); or
- a net worth (exclusive of home, furnishings and
automobiles) of at least $60,000 and had during the
last tax year, or estimates that he will have during
the current tax year, "taxable income" as defined in
Section 63 of the Code of at least $60,000, without
regard to an investment in the Partnership.
(b) IN ADDITION, IF A RESIDENT OF ALABAMA, ARIZONA, CALIFORNIA,
INDIANA, IOWA, KANSAS, KENTUCKY, MASSACHUSETTS, MICHIGAN,
MINNESOTA, MISSISSIPPI, MISSOURI, NEW HAMPSHIRE, NEW MEXICO,
NORTH CAROLINA, OHIO, OKLAHOMA, OREGON, PENNSYLVANIA, SOUTH
DAKOTA, TENNESSEE, TEXAS, VERMONT OR WASHINGTON, THEN THE
UNDERSIGNED REPRESENTS THAT HE IS AWARE OF AND MEETS THAT
STATE'S QUALIFICATIONS AND SUITABILITY STANDARDS SET FORTH
IN EXHIBIT (B) TO THE PROSPECTUS.
(c) If the undersigned is a fiduciary, then he is purchasing for
a person or entity having the appropriate income and/or net
worth specified in (a) or (b) above.
1
<PAGE>
INVESTOR'S INITIALS
_____ An Investor General Partner will have unlimited joint and several
liability for Partnership obligations and liabilities including
amounts in excess of his Agreed Subscription to the extent the
obligations and liabilities exceed the Partnership's insurance
proceeds, the Partnership's assets and indemnification by the Managing
General Partner. Insurance may be inadequate to cover these
liabilities and there is no insurance coverage for certain claims.
_____ Partnership losses allocable to a Limited Partner generally may be
used only to the extent of his net passive income from passive
activities in such year, with any excess losses being deferred.
THE ABOVE REPRESENTATIONS DO NOT CONSTITUTE A WAIVER OF ANY RIGHTS THAT THE
UNDERSIGNED MAY HAVE UNDER THE ACTS ADMINISTERED BY THE SECURITIES AND EXCHANGE
COMMISSION OR BY ANY STATE REGULATORY AGENCY ADMINISTERING STATUTES BEARING ON
THE SALE OF SECURITIES.
No state or federal governmental authority has made any finding or determination
relating to the fairness for public investment of the Units and no state or
federal governmental authority has recommended or endorsed or will recommend or
endorse the Units.
The Selling Agent or registered representative is required to inform potential
investors of all pertinent facts relating to the Units, including the following:
- the risks involved in the offering, including the speculative nature
of the investment and the speculative nature of drilling for oil and
gas;
- the financial hazards involved in the offering, including the risk of
losing the entire investment;
- the lack of liquidity of this investment;
- the restrictions on transferability of the Units;
- the background of the Managing General Partner and the Operator;
- the tax consequences of the investment; and
- the unlimited joint and several liability of the Investor General
Partners.
You are required to execute your own Subscription Agreements. The Managing
General Partner will not accept any Subscription Agreement that has been
executed by someone other than you unless the person has been given the legal
power of attorney to sign on your behalf and you meet all of the conditions
herein. In the case of sales to fiduciary accounts, the minimum standards set
forth herein must be met by the beneficiary, the fiduciary account, or by the
donor or grantor who directly or indirectly supplies the funds to purchase
the Partnership interests if the donor or grantor is the fiduciary.
Your execution of the Subscription Agreement constitutes your binding offer
to buy Units in the Partnership and to hold the offer open until your Agreed
Subscription is accepted or rejected by the Managing General Partner (I.E.,
once you subscribe you will not have any revocation rights). The Managing
General Partner has the discretion to refuse to accept your Agreed
Subscription without liability to you. Agreed Subscriptions will be accepted
or rejected by the Partnership within 30 days of their receipt. If your
Agreed Subscription is rejected, then all of your funds will be returned to
you immediately.
If your Agreed Subscription is accepted before the first closing, then you
will be admitted as a Participant not later than 15 days after the release
from escrow of the investors' funds to the Partnership. If your Agreed
Subscription is accepted after the first closing, then you will be admitted
into the Partnership not later than the last day of the calendar month in
which your Agreed Subscription was accepted by the Partnership.
The Managing General Partner may not complete a sale of Units to you until at
least five business days after the date you receive a final Prospectus. In
addition, the Managing General Partner will send you a confirmation of purchase.
NOTICE TO CALIFORNIA RESIDENTS: This offering deviates in certain respects from
various requirements of Title 10 of the California Administrative Code. These
deviations include, but are not limited to the following: the definition of
Prospect in the Prospectus, unlike Rule 260.140.127.2(b) and Rule 260.140.121(1)
does not require enlarging or contracting of the size of the area on the basis
of geological data in all cases.
If a resident of California the undersigned acknowledges the receipt of
California Rule 260.141.11 set forth in Exhibit (B) to the Prospectus.
2
<PAGE>
- ------------------------------------------------------------------------------
SIGNATURE PAGE OF SUBSCRIPTION AGREEMENT
- ------------------------------------------------------------------------------
The undersigned agrees to purchase ________ Units of Participation at $10,000
per Unit in ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD. (the "Partnership") as
(check one):
/ / INVESTOR GENERAL PARTNER AGREED SUBSCRIPTION
/ / LIMITED PARTNER $ ___________________________
(______________________# Units)
Make check payable to: "Atlas Public #8 Ltd., Escrow Agent, National City
Bank of PA" Minimum Subscription: one Unit ($10,000), however, the Managing
General Partner, in its discretion, may accept one-half Unit ($5,000)
subscriptions; and Additional Subscriptions in $1,000 increments.
Subscriber (All individual investors must Address
personally sign this Signature
Page.)
- ----------------------------------------- ------------------------------------
Print Name
- ----------------------------------------- ------------------------------------
Signature
- ----------------------------------------- ------------------------------------
Print Name
- -----------------------------------------
Signature
- -----------------------------------------
Name of Entity if a Trust, Corporation or Partnership is
Subscribing
Address for Distributions if
Different from Above
-----------------------------------
-----------------------------------
Date: ____________ Telephone No.: Business __________________ Home _________
Tax I.D. No. (Social Security No.): __________________________________________
(CHECK ONE): Calendar Year Taxpayer _______ Fiscal Year Taxpayer __________
(CHECK ONE): OWNERSHIP - Tenants-in-Common Partnership
-------- --------
Joint Tenancy C Corporation
-------- --------
Individual S Corporation
-------- --------
Trust Community Property
-------- --------
Other
--------
3
<PAGE>
- -------------------------------------------------------------------------------
TO BE COMPLETED BY REGISTERED REPRESENTATIVE (FOR COMMISSION AND OTHER PURPOSES)
- -------------------------------------------------------------------------------
I hereby represent that I have discharged my affirmative obligations under
Rule 2810(b)(2)(B) and (b)(3)(D) of the NASD's Conduct Rules and specifically
have obtained information from the above-named subscriber concerning his/her
age, net worth, annual income, federal income tax bracket, investment
objectives, investment portfolio and other financial information and have
determined that an investment in the Partnership is suitable for such
subscriber, that such subscriber is or will be in a financial position to
realize the benefits of this investment, and that such subscriber has a fair
market net worth sufficient to sustain the risks for this investment. I have
also informed the subscriber of all pertinent facts relating to the liquidity
and marketability of an investment in the Partnership, of the risks of
unlimited liability regarding an investment as an Investor General Partner,
and of the passive loss limitations for tax purposes of an investment as a
Limited Partner.
_________________________________________________ _________________________
Registered Representative Name and Number Name of Broker-Dealer
Registered Representative Office Address:
_________________________________________________ _________________________
_________________________________________________ Company Name (if other
than Broker-Dealer Name)
_________________________________________________
Phone Number; Facsimile Number
NOTICE TO BROKER-DEALER:
Send complete and signed DOCUMENTS
and THE CHECK to:
Mr. Eric D. Koval
Anthem Securities, Inc.
P.O. Box 911
Coraopolis, Pennsylvania 15108-0911
(412) 262-1680
FACSIMILE: (412) 262-7430
- ------------------------------------------------------------------------------
TO BE COMPLETED BY THE MANAGING GENERAL PARTNER
- ------------------------------------------------------------------------------
ACCEPTED THIS ______ day ATLAS RESOURCES, INC.,
of _________________ , 1999 MANAGING GENERAL PARTNER
Attest By:
--------------------------------
- -------------------------------------------
(SEAL) Secretary
4
<PAGE>
EXHIBIT (II)
DRILLING AND OPERATING AGREEMENT
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
(THIS DRILLING AND OPERATING AGREEMENT WILL BE APPROPRIATELY
MODIFIED FOR OTHER AREAS OF THE UNITED STATES.)
<PAGE>
INDEX
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
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. . . . . . . . 4
5. Title Examination of Well Locations; Liability for Title Defects. . . . . . . . . . . . . . . 5
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8. Operator's Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9. Successors and Assigns; Transfers; Appointment of Agent . . . . . . . . . . . . . . . . . . . 8
10. Insurance; Operator's Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
11. Internal Revenue Code Election, Relationship of Parties; Right to Take Production in Kind . . 9
12. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
13. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
14. Governing Law and Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
15. Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
16. Waiver of Default or Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
17. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
18. Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
19. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Signature Page. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
</TABLE>
Exhibit A Description of Leases and Initial Well Locations
Exhibits A-l through A-___ Maps of Initial Well Locations
Exhibit B Form of Assignment
Exhibit C Form of Addendum
<PAGE>
DRILLING AND OPERATING AGREEMENT
THIS AGREEMENT made this ______ day of _______________, 1999, by and
between ATLAS RESOURCES, INC., a Pennsylvania corporation (hereinafter referred
to as "Atlas" or "Operator"),
and
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD., a Pennsylvania limited
partnership, (hereinafter referred to as the "Developer").
WITNESSETH THAT:
WHEREAS, the Operator, by virtue of the Oil and Gas Leases (the "Leases")
described on Exhibit A attached hereto and made a part hereof, has certain
rights to develop the ____________ (______) initial well locations identified on
the maps attached hereto as Exhibits A-l through A-______ (the "Initial Well
Locations");
WHEREAS, the Developer, subject to the terms and conditions hereof, desires to
acquire certain of the Operator's rights to develop the aforesaid ____________
(______) Initial Well Locations and to provide for the development upon the
terms and conditions herein set forth of additional well locations ("Additional
Well Locations") which the parties may from time to time designate; and
WHEREAS, the 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) The Operator 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 Pennsylvania and Ohio.
The assignment shall be substantially in the form of Exhibit B attached
hereto and made a part hereof. The amount of acreage included in each Initial
Well Location and the configuration thereof are indicated on the maps attached
hereto as Exhibits A-l through A-______. The amount of acreage included in each
Additional Well Location and the configuration thereof shall be indicated on the
maps to be attached as exhibits to the applicable addendum as provided in
sub-section (c) below.
(b) As of the date hereof, the Operator represents and warrants to the
Developer that the Operator 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 Operator 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 the Operator 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. The Operator 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, the Operator 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
1
<PAGE>
Leases to be included as Leases hereunder, specifying the amount and
configuration of acreage included in each such Additional Well Location on
maps attached as exhibits to such addendum and setting forth their agreement
that such Additional Well Locations shall be developed in accordance with the
terms and conditions of this Agreement.
(d) It is understood and agreed that the assignment of rights under the
Leases and the oil and gas development activities contemplated by this Agreement
relate only to the Initial Well Locations described herein and to the Additional
Well Locations designated pursuant to sub-section (c) above. Nothing contained
in this Agreement shall be interpreted to restrict in any manner the right of
each of the parties hereto to conduct without the participation of any other
party hereto any additional activities relating to exploration, development,
drilling, production or delivery of oil and gas on lands adjacent to or in the
immediate vicinity of the aforesaid Initial and Additional Well Locations or
elsewhere.
2. DRILLING OF WELLS; INTEREST OF DEVELOPER; RIGHT OF SUBSTITUTION.
(a) Operator, as Developer's independent contractor, agrees to drill,
complete (or plug) and operate ____________ (_____) natural gas wells on the
____________ (______) Initial Well Locations in accordance with the terms and
conditions of this Agreement. Developer, as a minimum commitment, agrees to
participate in and pay the Operator's charges for drilling and completing the
wells and any extra costs pursuant to Section 4 hereof in proportion to the
share of the Working Interest owned by the Developer in the wells with respect
to all ___________ (______) initial wells, it being expressly understood and
agreed that, subject to sub-section (e) below, Developer does not reserve the
right to decline participation in the drilling of any of the ____________
(______) initial wells to be drilled hereunder.
(b) Operator will use its best efforts to commence drilling the first well
within thirty (30) days after the date of this Agreement and to commence the
drilling of each of said ______________ (_____) initial wells for which payment
is made pursuant to Section 4(b) of this Agreement, on or before March 30, 2000.
Subject to the foregoing time limits, Operator shall determine the timing of and
the order of the drilling of said ____________ (______) Initial Well Locations.
(c) The ____________ (______) initial wells to be drilled on the Initial
Well Locations designated pursuant to this Agreement and any additional wells
drilled hereunder on any Additional Well Locations designated pursuant to
Section l(c) above shall be drilled and completed (or plugged) in accordance
with the generally accepted and customary oil and gas field practices and
techniques then prevailing in the geographical area of the Well Locations and
shall be drilled to a depth sufficient to test thoroughly the objective
formation or the deepest assigned depth, whichever is less.
(d) Except as otherwise provided herein, all costs, expenses and
liabilities incurred in connection with the drilling and other operations and
activities contemplated by this Agreement shall be borne and paid, and all
wells, gathering lines of up to approximately 1,500 feet on the Prospect,
equipment, materials, and facilities acquired, constructed or installed
hereunder shall be owned, by the Developer in proportion to the share of the
Working Interest owned by the Developer in the wells. Subject to the payment of
lessor's royalties and other royalties and overriding royalties, if any,
production of oil and gas from the wells to be drilled hereunder shall be owned
by the Developer in proportion to the share of the Working Interest owned by the
Developer in the wells.
(e) Notwithstanding the provisions of sub-section (a) above, in the event
the Operator or Developer determines in good faith, with respect to any Well
Location, before operations commence hereunder with respect to such Well
Location, based upon the production (or failure of production) of any other
wells which may have been recently drilled in the immediate area of such Well
Location, or upon newly discovered title defects, or upon such other evidence
with respect to the Well Location as may be obtained, that it would not be in
the best interest of the parties hereto to drill a well on such Well Location,
then the party making the determination shall notify the other party hereto of
such determination and the basis therefor and, unless otherwise instructed by
Developer, such well shall not be drilled.
If such well is not drilled, Operator shall promptly propose a new
well location (including such information with respect thereto as Developer may
reasonably request) within Pennsylvania, Ohio, or other areas of the Appalachian
Basin to be substituted for such original Well Location. 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.
2
<PAGE>
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;
(v) 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;
(v) 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
3
<PAGE>
(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 $37.81 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. Such footage price shall not include the cost of:
(i) completing more than two (2) zones;
(ii) completion procedures, equipment, or any facilities necessary
or appropriate for the production and sale of oil and/or
natural gas liquids; and
(iii) equipment or materials necessary or appropriate to collect,
lift or dispose of liquids for efficient gas production,
except that the cost of saltwater collection tanks,
separators, siphon string and tubing shall be included in the
aforesaid footage price.
Any such extra costs shall be billed to Developer in proportion to the
share of the Working Interest owned by the Developer in the wells on a direct
cost basis equal to the sum of:
(i) Operator's invoice costs of third party services performed and
materials and equipment purchased plus ten percent (10%) to
cover supervisory services and overhead; and
(ii) Operator's standard charges for services performed directly by
it.
(b) In order to enable Operator to commence site preparation for
________________ (______) initial wells, to obtain suitable subcontractors for
the drilling and completion of such wells at currently prevailing prices, and to
insure the availability of equipment and materials, the Developer shall pay to
Operator, in proportion to the share of the Working Interest owned by the
Developer in the wells, one hundred percent (100%) of the estimated price for
all initial wells upon execution of this Agreement. The payment to be
nonrefundable in all events, except that Atlas' share of such payments as the
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. The payment shall be nonrefundable in all
events, except that Atlas' share of such payments as the Managing General
Partner of the Developer shall be paid within five (5) business days of notice
from Operator that such costs have been incurred.
Subject to the above, with respect to each well and each additional
well, Developer shall pay to Operator, in proportion to the share of the Working
Interest owned by the Developer in the wells, the designated completion costs
for such well within
4
<PAGE>
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 the Operator 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 the Operator in Section l(b) of this
Agreement.
6. OPERATIONS SUBSEQUENT TO COMPLETION OF THE WELLS; PRICE
DETERMINATIONS; PLUGGING AND ABANDONMENT.
(a) Commencing with the month in which a well drilled hereunder begins to
produce, Operator shall be entitled to an operating fee of $275 per month for
each well being operated under this Agreement, proportionately reduced to the
extent the Developer owns less than 100% of the Working Interest in the wells.
This fee shall be 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. The operating fees 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
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<PAGE>
(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, 2001. 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,
1997, 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. In addition,
Operator shall not plug and abandon any such well prior to obtaining the written
consent of the Developer. However, if the 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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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. Operator shall also 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. Operator, however, 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. The invoice shall 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. This 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:
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<PAGE>
(i) upon at least ten (10) days' written notice have access during
normal business hours to all of Operator's records pertaining
to operations hereunder, including without limitation, the
right to audit the books of account of Operator relating to
all receipts, costs, charges and expenses under this
Agreement; and
(ii) have access, at its sole risk, to any wells drilled by
Operator hereunder at all times to inspect and observe any
machinery, equipment and operations.
8. OPERATOR'S LIEN.
(a) The Developer hereby grants Operator a first and preferred lien on and
security interest in the interest of the Developer covered by this Agreement,
and in the Developer's interest in oil and gas produced and the proceeds
thereof, and upon the Developer's interest in materials and equipment, to secure
the payment of all sums due from Developer to Operator under the provisions of
this Agreement.
(b) In the event that the Developer fails to pay any amount owing
hereunder by it to the Operator within the time limit for payment thereof,
Operator, without prejudice to other existing remedies, is authorized at its
election to collect from any purchaser or purchasers of oil or gas and retain
the proceeds from the sale of the Developer's share thereof until the amount
owed by the Developer, plus twelve percent (12%) interest on a per annum basis
and any additional costs (including without limitation actual attorneys' fees
and costs) resulting from such delinquency, has been paid. Each purchaser of oil
or gas shall be entitled to rely upon Operator's written statement concerning
the amount of any default.
9. SUCCESSORS AND ASSIGNS; TRANSFERS; APPOINTMENT OF AGENT.
(a) This Agreement shall be binding upon and shall inure to the benefit of
the undersigned parties and their respective successors and permitted assigns;
provided, however, that Operator may not assign, transfer, pledge, mortgage,
hypothecate, sell or otherwise dispose of any of its interest in this Agreement,
or any of the rights or obligations hereunder, without the prior written consent
of the Developer, except that such consent shall not be required in connection
with:
(i) the assignment of work to be performed for Operator by
subcontractors, it being understood and agreed, however, that
any such assignment to Operator's subcontractors shall not in
any manner relieve or release Operator from any of its
obligations and responsibilities under this Agreement;
(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.
Further, 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.
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(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 as an additional insured party; 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.
Provided, that the Developer shall reimburse Operator for the additional cost,
if any, of including it as an additional insured party under the Operator's
insurance.
Current copies of all policies or certificates thereof shall be delivered
to the Developer upon request. It is understood and agreed that Operator's
insurance coverage may not adequately protect the interests of the Developer
hereunder and that the Developer shall carry at its expense such excess or
additional general public liability, property damage, and other insurance, if
any, as the Developer deems appropriate.
(b) Operator shall require all of its subcontractors to carry all required
Workmen's Compensation Insurance and to maintain such other insurance, if any,
as Operator in its discretion may require.
(c) Operator's liability to the Developer as Operator hereunder shall be
limited to, and Operator shall indemnify the Developer and hold it harmless
from, claims, penalties, liabilities, obligations, charges, losses, costs,
damages or expenses (including but not limited to reasonable attorneys' fees)
relating to, caused by or arising out of:
(i) the noncompliance with or violation by Operator, its employees,
agents, or subcontractors of any local, state or federal law,
statute, regulation, or ordinance;
(ii) the negligence or misconduct of Operator, its employees, agents or
subcontractors; or
(iii) the breach of or failure to comply with any provisions of this
Agreement.
11. INTERNAL REVENUE CODE ELECTION; RELATIONSHIP OF PARTIES; RIGHT TO TAKE
PRODUCTION IN KIND.
(a) With respect to this Agreement, each of the parties hereto elects,
under the authority of Section 761(a) of the Internal Revenue Code of 1986, as
amended, to be excluded from the application of all of the provisions of
Subchapter K of Chapter 1 of Sub Title A of the Internal Revenue Code of 1986,
as amended. If the income tax laws of the state or states in which the property
covered hereby is located contain, or may hereafter contain, provisions similar
to those contained in the Subchapter of the Internal Revenue Code of 1986, as
amended, referred to under which a similar election is permitted, each of
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<PAGE>
the parties agrees that such election shall be exercised. Beginning with the
first taxable year of operations hereunder, each party agrees that the deemed
election provided by Section 1.761-2(b)(2)(ii) of the Regulations under the
Internal Revenue Code of 1986, as amended, will apply; and no party will file
an application under Section 1.761-2 (b)(3)(i) and (ii) of said Regulations
to revoke such election. Each party hereby agrees to execute such documents
and make such filings with the appropriate governmental authorities as may be
necessary to effect such election.
(b) It is not the intention of the parties hereto to create, nor shall
this Agreement be construed as creating, a mining or other partnership or
association or to render the parties liable as partners or joint venturers for
any purpose. Operator shall be deemed to be an independent contractor and shall
perform its obligations as set forth herein or as otherwise directed by the
Developer.
(c) Subject to the provisions of Section 8 hereof, the Developer shall
have the exclusive right to sell or dispose of its proportionate share of all
oil and gas produced from the wells to be drilled hereunder, exclusive of
production which may be used in development and producing operations, production
unavoidably lost, and production used to fulfill any free gas obligations under
the terms of the applicable Lease or Leases; and Operator shall not have any
right to sell or otherwise dispose of such oil and gas. The Developer shall have
the exclusive right to execute all contracts relating to the sale or disposition
of its proportionate share of the production from the wells drilled hereunder.
Developer shall have no interest in any gas purchase agreements of Operator,
except the right to receive Developer's share of the proceeds received from the
sale of any gas or oil from wells developed hereunder. The Developer agrees to
designate Operator or Operator's designated bank agent as the Developer's
collection agent in any such contract. Upon request, Operator shall render
assistance in arranging such sale or disposition and shall promptly provide the
Developer with all relevant information which comes to Operator's attention
regarding opportunities for sale of production.
In the event Developer shall fail to make the arrangements necessary to
take in kind or separately dispose of its proportionate share of the oil and gas
produced hereunder, Operator shall have the right, subject to the revocation at
will by the Developer, but not the obligation, to purchase such oil and gas or
sell it to others at any time and from time to time, for the account of the
Developer at the best price obtainable in the area for such production, however,
Operator shall have no liability to Developer should Operator fail to market
such production.
Any such purchase or sale by Operator shall be subject always to the right
of the Developer to exercise at any time its right to take in kind, or
separately dispose of, its share of oil and gas not previously delivered to a
purchaser. Any purchase or sale by Operator of any other party's share of oil
and gas shall be only for such reasonable periods of time as are consistent with
the minimum needs of the Industry under the particular circumstance, but in no
event for a period in excess of one (1) year.
12. FORCE MAJEURE.
(a) If Operator is rendered unable, wholly or in part, by force majeure
(as hereinafter defined) to carry out its obligations under this Agreement, the
Operator shall give to the Developer prompt written notice of the force majeure
with reasonably full particulars concerning it; thereupon, the obligations of
the Operator, so far as it is affected by the force majeure, shall be suspended
during but no longer than, the continuance of the force majeure. Operator shall
use all reasonable diligence to remove the force majeure as quickly as possible
to the extent the same is within reasonable control.
(b) The term "force majeure" shall mean an act of God, strike, lockout, or
other industrial disturbance, act of the public enemy, war, blockade, public
riot, lightning, fire, storm, flood, explosion, governmental restraint,
unavailability of equipment or materials, plant shut-downs, curtailments by
purchasers and any other causes whether of the kind specifically enumerated
above or otherwise, which directly precludes Operator's performance hereunder
and is not reasonably within the control of the Operator.
(c) The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts, or
other labor difficulty affecting the Operator, contrary to its wishes. The
method of handling all such difficulties shall be entirely within the discretion
of the Operator.
13. TERM.
This Agreement shall become effective when executed by Operator and the
Developer. Except as provided in sub-section (c) of Section 3, the Agreement
shall continue and remain in full force and effect for the productive lives of
the wells being operated hereunder.
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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 the Operator, to:
Atlas Resources, Inc.
311 Rouser Road
Moon Township, Pennsylvania 15108
Attention: President
(ii) If to Developer, to:
Atlas-Energy for the Nineties-Public #8 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, the 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.
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19. COUNTERPARTS.
The parties hereto may execute this Agreement in any number of separate
counterparts, each of which, when executed and delivered by the parties hereto,
shall have the force and effect of an original; but all such counterparts shall
be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
under their respective seals as of the day and year first above written.
Attest ATLAS RESOURCES, INC.
_______________________________ By:____________________________
Secretary
[Corporate Seal]
ATLAS-ENERGY FOR NINETIES-PUBLIC #8 LTD.
Attest By its Managing General Partner:
ATLAS RESOURCES, INC.
______________________________
Secretary
[Corporate Seal] By:______________________________
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EXHIBIT (B)
SPECIAL SUITABILITY REQUIREMENTS
AND DISCLOSURES TO INVESTORS
<PAGE>
SPECIAL SUITABILITY REQUIREMENTS AND DISCLOSURES TO INVESTORS
If you are a resident of one of the following states, then you must meet that
state's qualification and suitability standards as follows:
SUBSCRIBERS TO LIMITED PARTNER UNITS.
If you are a resident of Michigan or North Carolina and you purchase Limited
Partner Units, then you must:
- have a net worth of not less than $225,000 (exclusive of
home, furnishings and automobiles); or
- have a net worth of not less than $60,000 (exclusive of
home, furnishings and automobiles) and estimated current
year taxable income as defined in Section 63 of the Internal
Revenue Code of 1986 of $60,000 or more without regard to an
investment in the Partnership.
In addition, if you are a resident of Michigan, Ohio or Pennsylvania, then you
must not make an investment in the Partnership in excess of 10% of your net
worth (exclusive of home, furnishings and automobiles).
If you are a resident of California and you purchase Limited Partners Units,
then you must:
- have a net worth of not less than $250,000 (exclusive of
home, furnishings and automobiles) and expect to have gross
income in the current year of $65,000 or more; or
- have a net worth of not less than $500,000 (exclusive of home,
furnishings and automobiles); or
- have a net worth of not less than $1,000,000, or
- expect to have gross income in the current tax year of not
less than $200,000.
PENNSYLVANIA INVESTORS: Because the minimum closing amount is less than
$1,800,000 you are cautioned to carefully evaluate the Partnership's ability to
fully accomplish its stated objectives and inquire as to the current dollar
volume of Partnership subscriptions.
SUBSCRIBERS TO INVESTOR GENERAL PARTNER UNITS.
If you are a resident of California and you purchase Investor General Partner
Units, then you must:
- have a net worth of not less than $250,000 (exclusive of
home, furnishings and automobiles) and expect to have annual
gross income in the current year of $120,000 or more; or
- have a net worth of not less than $500,000 (exclusive of home,
furnishings and automobiles); or
- have a net worth of not less than $1,000,000; or
- expect to have gross income in the current year of not less
than $200,000.
If you are a resident of Alabama, Massachusetts, Minnesota, North Carolina,
Ohio, Pennsylvania, Tennessee, or Texas and you purchase Investor General
Partner Units, then you must:
- have an individual or joint net worth with your spouse of
$225,000 or more, without regard to the investment in the
Partnership, (exclusive of home, home furnishings and
automobiles) and a combined gross income of $100,000 or more
for the current year and for the two previous years; or
- have an individual or joint net worth with your spouse in
excess of $1,000,000, inclusive of home, home furnishings
and automobiles; or
- have an individual or joint net worth with your spouse in
excess of $500,000, exclusive of home, home furnishings and
automobiles; or
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- have a combined "gross income" as defined in Section 61 of
the Internal Revenue Code of 1986, as amended, in excess of
$200,000 in the current year and the two previous years.
If you are a resident of Arizona, Indiana, Iowa, Kansas, Kentucky, Michigan,
Mississippi, Missouri, New Hampshire, New Mexico, Oklahoma, Oregon, South
Dakota, Vermont, or Washington and you purchase Investor General Partner Units,
then you must:
- have an individual or joint net worth with your spouse of
$225,000 or more, without regard to the investment in the
Partnership, (exclusive of home, home furnishings and
automobiles) and a combined "taxable income" of $60,000 or
more for the previous year and expect to have a combined
"taxable income" of $60,000 or more for the current year and
for the succeeding year; or
- have an individual or joint net worth with your spouse in
excess of $1,000,000, inclusive of home, home furnishings
and automobiles; or
- have an individual or joint net worth with your spouse in
excess of $500,000, exclusive of home, home furnishings and
automobiles; or
- have a combined "gross income" as defined in Section 61 of
the Internal Revenue Code of 1986, as amended, in excess of
$200,000 in the current year and the two previous years.
In addition, if you are a resident of Michigan, Ohio or Pennsylvania, then you
must not make an investment in the Partnership in excess of 10% of your net
worth (exclusive of home, furnishings and automobiles).
If a resident of Missouri, I am aware that:
THESE SECURITIES ARE NOT ELIGIBLE FOR ANY TRANSACTIONAL EXEMPTION UNDER THE
MISSOURI UNIFORM SECURITIES ACT (SECTION 409.402(b), R.S.MO.(1978). UNLESS THESE
SECURITIES ARE AGAIN REGISTERED UNDER THE ACT, THEY MAY NOT BE REOFFERED FOR
SALE OR RESOLD IN THE STATE OF MISSOURI (SECTION 409.301, R.S.MO.(1978)).
If a resident of California, I am aware that:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
As a condition of qualification of the Units for sale in the State of
California, the following rule is hereby delivered to each California purchaser.
CALIFORNIA ADMINISTRATIVE CODE, TITLE 10, CH. 3, RULE 260.141.11. RESTRICTION ON
TRANSFER.
(a) The issuer of any security upon which a restriction on
transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 and 260.534 shall cause a copy of this section to
be delivered to each issuee or transferee of such security
at the time the certificate evidencing the security is
delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to
consummate a sale or transfer of such security, or any
interest therein, without the prior written consent of the
Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(i) to the issuer;
(ii) pursuant to the order or process of any court;
(iii) to any person described in Subdivision (i) of Section
25102 of the Code or Section 260.105.14 of these rules;
(iv) to the transferor's ancestors, descendants or spouse,
or any custodian or trustee for the account of the
2
<PAGE>
transferor's ancestors, descendants or spouse, or to a
transferee by a trustee or custodian for the account of
the transferee or the transferee's ancestors,
descendants or spouse;
(v) to holders of securities of the same class of the same
issuer;
(vi) by way of gift or donation inter vivos or on death;
(vii) by or through a broker-dealer licensed under the Code
(either acting as such or as a finder) to a resident
of a foreign state, territory or country who is
neither domiciled in this state to the knowledge of
the broker-dealer, nor actually present in this state
if the sale of such securities is not in violation of
any securities law of the foreign state, territory or
country concerned;
(viii) to a broker-dealer licensed under the Code in a
principal transaction, or as an underwriter or member
of an underwriting syndicate or selling group;
(ix) if the interest sold or transferred is a pledge or
other lien given by the purchaser to the seller upon
a sale of the security for which the Commissioner's
written consent is obtained or under this rule not
required;
(x) by way of a sale qualified under Sections 25111,
25112, 25113 or 25121 of the Code, of the
securities to be transferred, provided that no order
under Section 25140 or Subdivision (a) of Section
25143 is in effect with respect to such qualification;
(xi) by a corporation or wholly-owned subsidiary of such
corporation, or by a wholly-owned subsidiary of a
corporation to such corporation;
(xii) by way of an exchange qualified under Sections 25111,
25112 or 25113 of the Code, provided that no order
under Section 25140 or Subdivision (a) of Section
25143 is in effect with respect to such qualification;
(xiii) between residents of foreign states, territories or
countries who are neither domiciled nor actually
present in this state;
(xiv) to the State Controller pursuant to the Unclaimed
Property Law or to the administrator of the unclaimed
property law of another state;
(xv) by the State Controller pursuant to the Unclaimed
Property Law or by the administrator of the unclaimed
property law of another state if, in either such
case, such person (i) discloses to potential
purchasers at the sale that transfer of the
securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and
(iii) advises the Commissioner of the name of each
purchaser;
(xvi) by a trustee to a successor trustee when such
transfer does not involve a change in the beneficial
ownership of the securities;
(xvii) by way of an offer and sale of outstanding securities
in an issuer transaction that is subject to the
qualification requirement of Section 25110 of the
Code but exempt from that qualification requirement
by subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend, prominently
stamped or printed thereon in capital letters of not less than
10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
3
<PAGE>
If a resident of North Carolina, I am aware that:
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
PENNSYLVANIA INVESTORS: Because the minimum closing amount is less than
$1,800,000 you are cautioned to carefully evaluate the Partnership's ability to
fully accomplish its stated objectives and inquire as to the current dollar
volume of Partnership subscriptions.
4
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Summary of the Offering..............................1
Risk Factors.........................................9
Capitalization and Source of Funds and Use of
Proceeds.........................................19
Compensation........................................21
Terms of the Offering...............................24
Conflicts of Interest...............................27
Fiduciary Responsibility of the Managing
General Partner..................................36
Prior Activities....................................38
Management..........................................45
Investment Objectives...............................49
Proposed Activities.................................50
Competition, Markets and Regulation.................87
Participation in Costs and Revenues.................89
Tax Aspects.........................................93
Definitions........................................104
Summary of Partnership Agreement...................111
Summary of Drilling and Operating Agreement........113
Reports to Investors...............................114
Presentment Feature................................115
Transferability of Units...........................116
Plan of Distribution...............................117
Sales Material.....................................118
Legal Opinions.....................................118
Experts............................................118
Litigation.........................................119
Additional Information.............................119
Financial Information Concerning the Managing
General Partner and the Partnership.............119
</TABLE>
EXHIBIT (A) - Amended and Restated Certificate
and Agreement of Limited Partnership
EXHIBIT (I-A) - Managing General Partner
Signature Page
EXHIBIT (I-B) - Subscription Agreement
EXHIBIT (II) - Drilling and Operating Agreement
EXHIBIT (B) - Special Suitability Requirements and
Disclosures to Investors
No one has been authorized to give any information or make any representations
other than those contained in this Prospectus in connection with this offering.
If given or made, you should not rely on such information or representations as
having been authorized by the Managing General Partner. The delivery of this
Prospectus does not imply that its information is correct as of any time after
its date. This Prospectus is not an offer to sell these securities in any State
to any person where the offer and sale is not permitted.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ATLAS-ENERGY FOR
THE NINETIES -
PUBLIC #8 LTD.
--------------
PROSPECTUS
--------------
______________, 1999
Until December 31, 1999, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 1741 et seq. of the Pennsylvania Business Corporation Law provides for
indemnification of officers, directors, employees and agents by a corporation
subject to certain limitations.
Under Section 4.05 of the Amended and Restated Certificate and Agreement of
Limited Partnership, the Participants, within the limits of their Capital
Contributions, and the Partnership, generally agree to indemnify and exonerate
the Managing General Partner, the Operator and their Affiliates from claims of
liability to any third party arising out of operations of the Partnership
provided that they determined in good faith that the course of conduct which
caused the loss or liability was in the best interest of the Partnership, they
were acting on behalf of or performing services for the Partnership, and the
course of conduct was not the result of their negligence or misconduct.
Paragraph 11 of the Dealer-Manager Agreement provides for the indemnification of
the Managing General Partner, the Partnership and control persons under
specified conditions by the Dealer-Manager and/or Selling Agent.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be incurred in connection with the issuance and distribution of
the securities to be registered, other than underwriting discounts, commissions
and expense allowances, are estimated to be as follows:
<TABLE>
<S> <C>
Accounting $ 2,000.00*
Legal Fees (including Blue Sky) 50,000.00*
Printing 95,000.00*
SEC Registration Fee 5,310.00
Blue Sky Filing Fees (excluding legal fees) 26,000.00*
NASD Filing Fee 2,300.00
Miscellaneous 629,390.00*
------------
Total $810,000.00*
------------
------------
</TABLE>
- --------------
*Estimated
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
None by the Registrant.
Atlas Resources, Inc. ("Atlas"), an Affiliate of the Registrant, has made sales
of unregistered and registered securities within the last three years. See the
section of the Prospectus captioned "Prior Activities" regarding the sale of
limited and general partner interests. In the opinion of Atlas, the foregoing
unregistered securities in each case have been and/or are being offered and sold
in compliance with exemptions from registration provided by the Securities Act
of 1933, as amended, including the exemptions provided by Section 4(2) of that
Act and certain rules and regulations promulgated thereunder. The securities in
each case have been and/or are being offered and sold to a limited number of
persons who had the sophistication to understand the merits and risks of the
investment and who had the financial ability to bear such risks. The units of
limited and general partner interests were sold to persons who were Accredited
Investors, as that term is defined in Regulation D (17 CFR 230.501(a)), or who
had, at the time of purchase, a net worth of at least $225,000 (exclusive of
home, furnishings and automobiles) or a net worth (exclusive of home,
furnishings and automobiles) of at least $125,000 and gross income of at least
$75,000, or otherwise satisfied Atlas that the investment was suitable.
ITEM 27. EXHIBITS.
<TABLE>
<C> <S>
1(a) Proposed form of Dealer-Manager Agreement with Anthem
Securities, Inc.
1(b) Proposed form of Dealer-Manager Agreement with Bryan
Funding, Inc.
3(a) Articles of Incorporation of Atlas Resources, Inc.
3(b) Bylaws of Atlas Resources, Inc.
4(a) Certificate of Limited Partnership for Atlas-Energy for
the Nineties-Public #8 Ltd.
4(b) Amended and Restated Certificate and Agreement of Limited
Partnership for Atlas-Energy for the Nineties-Public #8
Ltd. (See Exhibit (A) to Prospectus)
</TABLE>
<PAGE>
<TABLE>
<C> <S>
5 Opinion of Kunzman & Bollinger, Inc. as to the legality of
the Units registered hereby
8 Opinion of Kunzman & Bollinger, Inc. as to tax matters
10(a) Proposed Form of Escrow Agreement
10(b) Drilling and Operating Agreement (See Exhibit (II) to the
Amended and Restated Certificate and Agreement of Limited
Partnership, Exhibit (A) to Prospectus)
24(a) Consent of Grant Thornton, L.L.P.
24(b) Consent of United Energy Development Consultants, Inc.
24(c) Consent of Kunzman & Bollinger, Inc. (See Exhibits 5 and 8)
25 Power of Attorney
</TABLE>
ITEM 28. UNDERTAKINGS.
(a) As required by Item 512(a) of Regulation S-B and Rule 415, the
undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a Post-Effective Amendment to this
Registration Statement to:
(i) include any Prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) reflect in the Prospectus any facts or events
arising after the effective date of the
Registration Statement (or of the most recent
Post-Effective Amendment thereof) which,
individually or together, represent a fundamental
change in the information set forth in the
Registration Statement; and
(iii) include any material information with respect to
the plan of distribution not previously disclosed
in the Registration Statement or any material
change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such Post-Effective
Amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and
the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a Post-Effective
Amendment any of the securities being registered which
remain unsold at the termination of the offering.
(e) The undersigned Registrant undertakes:
(1) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to
Atlas and its directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, Atlas
and the Registrant have been advised that in the opinion
of the Securities and Exchange Commission such
indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses
incurred or paid by Atlas and its directors, officers and
controlling persons in the successful defense of any
action, suit or proceeding) is asserted by such party in
connection with the securities being registered,
Registrant will unless in the opinion of its counsel the
matter has been settled by controlling precedent submit to
a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Act, and will be governed by final
adjudication of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in Moon Township, Pennsylvania, on the 6th day of July, 1999.
<TABLE>
<S> <C>
ATLAS-ENERGY FOR THE NINETIES-
PUBLIC #8 LTD.
(Registrant)
By: Atlas Resources, Inc.,
Managing General Partner
James R. O'Mara and Tony C. Banks, By: /s/ James R. O'Mara
pursuant to the Registration Statement, ---------------------------------------------------
have been granted Power of Attorney and are James R. O'Mara, President, Chief Executive
signing on behalf of the names shown below, Officer and Director
in the capacities indicated.
By: /s/ Tony C. Banks
---------------------------------------------------
Tony C. Banks, Senior Vice President of Finance,
Chief Financial Officer and Director
</TABLE>
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Charles T. Koval Chairman of the Board and a Director July 6, 1999
James R. O'Mara President, Chief Executive Officer and a Director July 6, 1999
Tony C. Banks Senior Vice President of Finance, Chief Financial Officer, and a Director July 6, 1999
Frank P. Carolas Vice President of Land and Geology July 6, 1999
Jeffrey C. Simmons Vice President - Operations July 6, 1999
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on July 7, 1999
Registration No.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
EXHIBITS
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------------------------
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
(Exact name of Registrant as Specified in its Charter)
-----------------------------------
JAMES R. O'MARA, PRESIDENT
ATLAS RESOURCES, INC.
311 ROUSER ROAD, MOON TOWNSHIP, PENNSYLVANIA 15108
(412) 262-2830
(Name, Address and Telephone Number of Agent for Service)
-----------------------------------
Copies to:
WALLACE W. KUNZMAN, JR., ESQ. JAMES R. O'MARA
KUNZMAN & BOLLINGER, INC. ATLAS RESOURCES, INC.
5100 N. BROOKLINE, SUITE 600 311 ROUSER ROAD
OKLAHOMA CITY, OKLAHOMA 73112 MOON TOWNSHIP, PENNSYLVANIA 15108
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
1(a) Proposed form of Dealer-Manager Agreement for Anthem Securities, Inc.
1(b) Proposed form of Dealer-Manager Agreement for Bryan Funding, Inc.
3(a) Articles of Incorporation of Atlas Resources, Inc.
3(b) Bylaws of Atlas Resources, Inc.
4(a) Certificate of Limited Partnership for Atlas-Energy for the Nineties-
Public #8 Ltd.
4(b) Amended and Restated Certificate and Agreement of Limited
Partnership for Atlas-Energy for the Nineties-Public #8 Ltd.
(See Exhibit (A) to Prospectus)
5 Opinion of Kunzman & Bollinger, Inc. as to the legality of the Units
registered hereby
8 Opinion of Kunzman & Bollinger, Inc. as to tax matters
10(a) Escrow Agreement
10(b) Proposed form of Drilling and Operating Agreement
(See Exhibit (II) to the Amended and Restated Certificate and
Agreement of Limited Partnership, Exhibit (A) to Prospectus)
24(a) Consent of Grant Thornton, L.L.P.
24(b) Consent of United Energy Development Consultants, Inc.
24(c) Consent of Kunzman & Bollinger, Inc. (See Exhibits 5 and 8)
25 Power of Attorney
</TABLE>
<PAGE>
PROPOSED FORM OF
DEALER-MANAGER AGREEMENT
FOR ANTHEM SECURITIES, INC.
<PAGE>
Exhibit 1(a)
ANTHEM SECURITIES, INC.
DEALER-MANAGER AGREEMENT
(Best Efforts)
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
Anthem Securities, Inc.
P.O. Box 926
Coraopolis, Pennsylvania 15108-0926
Gentlemen:
The undersigned, Atlas Resources, Inc. ( the "Managing General Partner"),
on behalf of ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD., hereby confirms its
agreement with you as Dealer-Manager as follows:
1. DESCRIPTION OF UNITS. The Managing General Partner has formed a limited
partnership known as Atlas-Energy for the Nineties-Public #8 Ltd. (the
"Partnership"), which will issue and sell Units of Participation in the
Partnership (the "Units") at a price of $10,000 per Unit. Subject to the
receipt and acceptance by the Managing General Partner of the minimum
Partnership Subscription of 100 Units ($1,000,000), there will be two
closings, which are tentatively set for November 1, 1999 (the "Initial
Closing Date"), and December 31, 1999.
No subscriptions to the Partnership will be accepted after receipt of the
maximum Partnership Subscription of $14,000,000 (which may be increased to
$18,000,000 in the Managing General Partner's discretion) or December 31,
1999, whichever event occurs first (the "Offering Termination Date").
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE MANAGING GENERAL PARTNER.
The Managing General Partner represents and warrants to and agrees with you
that:
(a) The Units have been or will be registered with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act
of 1933, as amended (the "Act").
(b) The Managing General Partner shall provide to you for delivery to all
offerees and purchasers and their representatives such information and
documents as the Managing General Partner deems appropriate to comply
with the Act and applicable state securities ("blue sky") laws.
(c) The Units when issued will be duly authorized and validly issued as
set forth in the Amended and Restated Certificate and Agreement of
Limited Partnership of the Partnership ("Partnership Agreement") set
forth as Exhibit (A) to the offering circular (the "Prospectus") and
subject only to the rights and obligations set forth in the
Partnership Agreement or imposed by the laws of the state of formation
of the Partnership or of any jurisdiction to the laws of which the
Partnership is subject.
(d) The Partnership was duly formed pursuant to the laws of the
Commonwealth of Pennsylvania and is validly existing as a limited
partnership in good standing under the laws of Pennsylvania with full
power and authority to own its properties and conduct its business as
described in the Prospectus. The Partnership will be qualified to do
business as a limited partnership or similar entity offering limited
liability in those jurisdictions where the Managing General Partner
deems such qualification necessary to assure limited liability of the
limited partners.
(e) The Prospectus, as heretofore or hereafter supplemented or amended,
does not contain an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they are made,
not misleading.
1
<PAGE>
3. GRANT OF AUTHORITY TO THE DEALER-MANAGER. On the basis of the
representations and warranties herein contained, and subject to the terms
and conditions herein set forth, the Managing General Partner hereby
appoints you as the Dealer-Manager for the Partnership and gives you the
exclusive right to solicit subscriptions for the Units in all states other
than Minnesota and New Hampshire, on a "best efforts" basis, subject to the
terms and conditions set forth herein. In all states other than Minnesota
and New Hampshire you agree to use your best efforts to effect such sales
and to form and manage a selling group composed of soliciting
broker-dealers ("Selling Agents"), each of which shall be a member of the
National Association of Securities Dealers, Inc. ("NASD"), pursuant to
"Selling Agent Agreements" in substantially the form attached hereto as
Exhibit "B."
The Managing General Partner shall have three business days after the
receipt of an executed Selling Agent Agreement to refuse that Selling
Agent's participation.
4. COMPENSATION AND FEES.
(a) As Dealer-Manager you will receive from the Partnership the
following fees based on the amount of the Agreed Subscription on each
Unit sold to investors who are situated and/or residents in states
other than Minnesota and New Hampshire:
(i) a 2.5% Dealer-Manager fee;
(ii) a 7.0% Sales Commission;
(iii) a .5% reimbursement of marketing expenses; and
(iv) a .5% reimbursement of the Selling Agents' bona fide accountable
due diligence expenses.
The 7.0% Sales Commission, the .5% reimbursement of marketing expenses
and the .5% reimbursement of bona fide accountable due diligence
expenses will be reallowed to the Selling Agents. The 2.5%
Dealer-Manager fee will be reallowed to the wholesalers for Agreed
Subscriptions obtained through the wholesalers' effort.
(b) Pending receipt and acceptance by the Managing General Partner of the
minimum Partnership Subscription ($1,000,000 excluding any optional
subscription by the Managing General Partner and its Affiliates), all
proceeds received by you from the sale of Units will be held in a
separate interest bearing escrow account as provided in Section 15.
Unless at least the minimum Partnership Subscription of $1,000,000 is
received on or before December 31, 1999, the offering shall be
terminated, in which event no fee shall be payable to you and all
funds advanced by purchasers shall be returned to them with interest
earned. In addition, you shall deliver a termination letter in the
form provided to you by the Managing General Partner to each such
subscriber and to each of the offerees previously solicited by you and
the Selling Agents in connection with the offering of the Units.
(c) The fees set forth in Section 4(a), which shall be reallowed by you to
the Selling Agents which made the sale and the wholesalers, will be
paid to you within five business days after at least the minimum
Partnership Subscription ($1,000,000) has been received and accepted
by the Managing General Partner and the subscription proceeds have
been released to the Managing General Partner from the escrow account.
Thereafter, such fees will be paid to you and reallowed to the Selling
Agents and wholesalers as described in the previous sentence
approximately every two weeks until the Offering Termination Date and
all your remaining fees shall be paid by the Managing General Partner
no later than 14 business days after the Offering Termination Date.
(d) Notwithstanding the foregoing, Registered Investment Advisors and
their clients may subscribe to Units without paying the Sales
Commissions and the reimbursement of marketing expenses and bona fide
accountable due diligence expenses, and their Agreed Subscriptions
will be subject only to the 2.5% Dealer-Manager fee.
2
<PAGE>
Also, the Managing General Partner, its officers and directors and
Affiliates, and the Selling Agents may subscribe to Units without
paying the Dealer-Manager fee, Sales Commissions and the reimbursement
of marketing expenses and the Selling Agents' bona fide accountable
due diligence expenses.
5. COVENANTS OF THE MANAGING GENERAL PARTNER. The Managing General Partner
covenants and agrees that:
(a) The Managing General Partner will deliver to you ample copies of
the Prospectus and of all amendments or supplements thereto,
heretofore or hereafter made, including all exhibits and other
documents included therein.
(b) If any event affecting the Partnership or the Managing General
Partner shall occur which in the opinion of the Managing General
Partner should be set forth in a supplement to or an amendment of
the Prospectus, the Managing General Partner will forthwith at
its own expense prepare and furnish to you a sufficient number of
copies of a supplement or amendment to the Prospectus so that it,
as so supplemented or amended, will not contain an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they are made, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF DEALER-MANAGER. You, as the
Dealer-Manager, represent and warrant to the Managing General Partner that:
(a) You are a corporation duly organized, validly existing and in good
standing under the laws of the state of your formation or of any
jurisdiction to the laws of which you are subject, with all requisite
power and authority to enter into this Agreement and to carry out your
obligations hereunder.
(b) This Agreement when accepted and approved will be duly authorized,
executed and delivered by you and will be a valid and binding
agreement on your part in accordance with its terms.
(c) The consummation of the transactions contemplated by this Agreement
and the Prospectus will not result in any breach of any of the terms
or conditions of, or constitute a default under your Articles of
Incorporation, Bylaws, any indenture, agreement or other instrument to
which you are a party, or violate any order applicable to you of any
court or any federal or state regulatory body or administrative agency
having jurisdiction over you or over your affiliates.
(d) You are duly registered pursuant to the provisions of the Securities
Exchange Act of 1934 (the "Act of 1934") as a dealer and you are a
member in good standing of the NASD. You are duly registered as a
broker-dealer in the states in which you are required to be registered
in order to carry out your obligations as contemplated by this
Agreement and the Prospectus. You agree to maintain all the foregoing
registrations in good standing throughout the term of the offer and
sale of the Units and you agree to comply with all statutes and other
requirements applicable to you as a broker-dealer pursuant to those
registrations.
(e) Pursuant to your appointment as Dealer-Manager, you shall use your
best efforts to exercise the supervision and control that you deem
necessary and appropriate to the activities of you and the Selling
Agents to comply with all the provisions of the Act, insofar as the
Act applies to your and their activities hereunder. Further, you and
the Selling Agents shall not engage in any activity which would cause
the offer and/or sale of Units not to comply with the Act, the Act of
1934 and the applicable rules and regulations of the Commission, the
applicable state securities laws and regulations, this Agreement and
the NASD Conduct Rules including Rules 2730, 2740, 2420, 2750, and
Rules 2810(b)(2) and (b)(3), which provide as follows:
3
<PAGE>
Sec. (b)(2)
SUITABILITY
(A) A member or person associated with a member shall not
underwrite or participate in a public offering of a direct
participation program unless standards of suitability have
been established by the program for participants therein and
such standards are fully disclosed in the prospectus and are
consistent with the provisions of subparagraph (B) of this
section.
(B) In recommending to a participant the purchase, sale or
exchange of an interest in a direct participation program, a
member or person associated with a member shall:
(i) have reasonable grounds to believe, on the basis of
information obtained from the participant concerning
his investment objectives, other investments, financial
situation and needs, and any other information known by
the member or associated person, that:
(a) the participant is or will be in a financial
position appropriate to enable him to realize to a
significant extent the benefits described in the
prospectus, including the tax benefits where they
are a significant aspect of the program;
(b) the participant has a fair market net worth
sufficient to sustain the risks inherent in the
program, including loss of investment and lack of
liquidity; and
(c) the program is otherwise suitable for the
participant; and
(ii) maintain in the files of the member documents
disclosing the basis upon which the determination of
suitability was reached as to each participant.
(C) Notwithstanding the provisions of subparagraphs (A) and (B)
hereof, no member shall execute any transaction in a direct
participation program in a discretionary account without
prior written approval of the transaction by the customer.
Sec. (b)(3)
DISCLOSURE
(A) Prior to participating in a public offering of a direct
participation program, a member or person associated with a
member shall have reasonable grounds to believe, based on
information made available to him by the sponsor through a
prospectus or other materials, that all material facts are
adequately and accurately disclosed and provide a basis for
evaluating the program.
(B) In determining the adequacy of disclosed facts pursuant to
subparagraph (A) hereof, a member or person associated with
a member shall obtain information on material facts relating
at a minimum to the following, if relevant in view of the
nature of the program:
(i) items of compensation;
(ii) physical properties;
(iii) tax aspects;
(iv) financial stability and experience of the sponsor;
(v) the program's conflicts and risk factors; and
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(vi) appraisals and other pertinent reports.
(C) For purposes of subparagraphs (A) and (B) hereof, a member
or person associated with a member may rely upon the results
of an inquiry conducted by another member or members,
provided that:
(i) the member or person associated with a member has
reasonable grounds to believe that such inquiry was
conducted with due care;
(ii) the results of the inquiry were provided to the member
or person associated with a member with the consent of
the member or members conducting or directing the
inquiry; and
(iii) no member that participated in the inquiry is a
sponsor of the program or an affiliate of such
sponsor.
(D) Prior to executing a purchase transaction in a direct
participation program, a member or person associated with a
member shall inform the prospective participant of all
pertinent facts relating to the liquidity and marketability
of the program during the term of investment.
(f) You and the Selling Agents have received copies of the Prospectus
relating to the Units and you and the Selling Agents have relied only
on the statements contained in the Prospectus and not on any other
statements whatsoever, either written or oral, with respect to the
details of the offering of Units.
(g) You and the Selling Agents agree that you and the Selling Agents shall
not place any advertisement or other solicitation with respect to the
Units (including without limitation any material for use in any
newspaper, magazine, radio or television commercial, telephone
recording, motion picture, or other public media) without the prior
written approval of the Managing General Partner, and without the
prior written approval of the form and content thereof by the
Commission, the NASD and the securities authorities of the states
where such advertisement or solicitation is to be circulated. Any such
advertisements or solicitations shall be at your expense.
(h) If a supplement or amendment to the Prospectus is prepared and
delivered to you by the Managing General Partner, you agree and shall
require any Selling Agent to agree to distribute each such supplement
or amendment to the Prospectus to every person who has previously
received a copy of the Prospectus from you and/or the Selling Agent
and you further agree and shall require any Selling Agent to further
agree to include such supplement or amendment in all future deliveries
of any Prospectus.
(i) You agree to advise the Managing General Partner in writing of each
state in which you and the Selling Agents propose to offer or sell the
Units and you shall not nor shall you permit any Selling Agent to
offer or sell Units in any state until such time as you shall have
been advised in writing by the Managing General Partner, or the
Managing General Partner's special counsel, that such offer or sale
has been qualified in such state or is exempt from the qualification
requirements imposed by such state or such qualification is otherwise
not required.
(j) In connection with any offer or sale of the Units, you agree and shall
require any Selling Agent to agree to comply in all respects with
statements set forth in the Prospectus and the Partnership Agreement
and you agree and shall require any Selling Agent to agree not to make
any statement inconsistent with the statements in the Prospectus or
the Partnership Agreement. You further agree and shall require any
Selling Agent to further agree that you shall not provide and shall
require any Selling Agent not to provide any written information,
statements or sales literature other than the Prospectus, the Managing
General Partner's corporate profile and a brochure entitled
"Atlas-Energy for the Nineties-Public #8 Ltd." (the corporate profile
and the brochure collectively referred to herein as the "Brochure"),
and any supplements or amendments thereto unless approved in
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writing by the Managing General Partner. Further, you agree and shall
require any Selling Agent to agree not to make any untrue or
misleading statements of a material fact in connection with the Units.
(k) You agree to use your best efforts in the solicitation and sale of
said Units and to coordinate and supervise the efforts of the Selling
Agents and you shall require any Selling Agent to agree to use its
best efforts in the solicitation and sale of said Units, including
insuring that the prospective purchasers meet the suitability
requirements set forth in the Prospectus and the Subscription
Agreement and properly execute the Subscription Agreement, which has
been provided as Exhibit (I-B) to the Partnership Agreement, Exhibit
(A) of the Prospectus, together with any additional forms provided in
any supplement or amendment to the Prospectus, or otherwise provided
to you by the Managing General Partner to be completed by prospective
purchasers.
Executed Subscription Agreements shall be delivered or mailed
immediately to the Managing General Partner and must be received by
the Managing General Partner at or prior to the Offering Termination
Date.
The Managing General Partner shall have the right to reject any
subscription at any time for any reason without liability to it.
Investor funds shall be transmitted as set forth in Section 16.
(l) Although not anticipated, in the event you assist in any transfers of
the Units, you shall comply, and you shall require any Selling Agent
to comply, with the requirements of Rule 2810(b)(2)(B) and (b)(3)(D)
of the NASD Conduct Rules.
7. STATE SECURITIES REGISTRATION. Incident to the offer and sale of the Units,
the Managing General Partner will either use its best efforts in taking all
necessary action and filing all necessary forms and documents deemed
reasonable by it in order to qualify or register Units for sale under the
securities laws of the states requested by you pursuant to Section 6 (i)
hereof or use its best efforts in taking any necessary action and filing
any necessary forms deemed reasonable by it which are required to obtain an
exemption from qualification or registration in such states.
Notwithstanding, the Managing General Partner may elect not to qualify or
register Units in any state in which it deems such qualification or
registration is not warranted for any reason in its sole discretion. The
Managing General Partner and its counsel will inform you as to the
jurisdictions in which the Partnership Units have been qualified for sale
or are exempt under the respective securities or blue sky laws of such
jurisdictions; but the Managing General Partner has not assumed and will
not assume any obligation or responsibility as to your right or any Selling
Agent's right to act as a broker-dealer with respect to the Units in any
such jurisdiction.
The Managing General Partner will provide to you and the Selling Agents for
delivery to all offerees and purchasers and their representatives, any
additional information, documents and instruments which the Managing
General Partner deems necessary to comply with the rules, regulations and
judicial and administrative interpretations in those states and
jurisdictions for the offer and sale of the Units in such states. The
Managing General Partner will file all post-offering forms, documents or
materials and take all other actions required by the states in which the
offer and sale of Units have been qualified or are exempt or in which the
Units have been registered. However, the Managing General Partner shall not
be required to take any actions, make any filings or prepare any documents
necessary or required in connection with your status or any Selling Agent's
status as a broker-dealer under the laws of such states.
The Managing General Partner shall promptly provide you with copies of all
applications, filings, correspondence, orders or other documents or
instruments relating to any application for qualification, registration or
other approval under applicable state or Federal securities laws for the
offering.
8. EXPENSE OF SALE. The expenses in connection with the offer and sale of the
Units shall be payable as set forth below.
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(a) The Managing General Partner shall pay all expenses incident to the
performance of its obligations hereunder, including the fees and
expenses of the Managing General Partner's attorneys and accountants
and all fees and expenses of registering or qualifying the Units for
offer and sale in the states as set forth in Section 7 hereof, or
obtaining exemptions therefrom, even if this offering is not
successfully completed.
(b) You shall pay all expenses incident to the performance of your
obligations hereunder, including the formation and management of the
selling group and the fees and expenses of your own counsel and
accountants, even if this offering is not successfully completed.
9. CONDITIONS OF YOUR DUTIES. Your obligations provided herein shall be
subject to the accuracy, as of the date hereof and at the applicable
closing date (as if made at the applicable closing date), of the
representations and warranties of the Managing General Partner herein and
to the performance by the Managing General Partner of its obligations
hereunder.
10. CONDITION OF THE MANAGING GENERAL PARTNER'S DUTIES. The Managing General
Partner's obligations provided herein, including the duty to pay
compensation as set forth in Section 4 hereof, shall be subject to the
accuracy, as of the date hereof and at the applicable closing date (as if
made at the applicable closing date) of your representations and warranties
made herein, and to the performance by you of your obligations hereunder,
and to the additional condition that the Managing General Partner shall
have received, at or prior to the applicable closing date, the following
documents:
(a) a fully executed Subscription Agreement for each prospective
purchaser;
(b) certification to the Managing General Partner that you and each
Selling Agent are registered as required by Section 6(d) and that such
registrations were, during the term of the offering and through the
applicable closing date, in full force and effect; and
(c) a certificate from you, dated at the applicable closing date, to the
effect that your representations and warranties made herein are true
and correct as if made at the applicable closing date and that you
have fulfilled all your obligations hereunder.
11. INDEMNIFICATION.
(a) You and the Selling Agents shall indemnify and hold harmless the
Managing General Partner, the Partnership and its attorneys, against
any losses, claims, damages or liabilities, joint or several, to which
such parties may become subject, under the Act, the Act of 1934 or
otherwise insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon your
agreements with the Selling Agents or your breach of any of your
duties and obligations, representations, or warranties under the terms
or provisions of this Agreement and you and the Selling Agents shall
reimburse such parties for any legal or other expenses reasonably
incurred in connection with investigating or defending any such loss,
claim, damage, liability or action.
(b) The Managing General Partner shall indemnify and hold you and the
Selling Agents harmless against any losses, claims, damages or
liabilities, joint or several, to which you and the Selling Agents may
become subject, under the Act, the Act of 1934 or otherwise insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the Managing General Partner's
breach of any of its duties and obligations, representations, or
warranties under the terms or provisions of this Agreement and the
Managing General Partner shall reimburse you and the Selling Agents
for any legal or other expenses reasonably incurred in connection with
investigating or defending such loss, claim, damage, liability or
action.
(c) The foregoing indemnity agreements shall extend upon the same terms
and conditions to, and shall inure to the benefit of, each person, if
any, who controls each indemnified party within the meaning of the
Act.
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(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim
in respect thereof is to be made against the indemnifying party under
this Section, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party. If any such action shall be brought against such
indemnified party, it shall notify the indemnifying party of the
commencement thereof, and the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified and
indemnifying parties. After the indemnified party shall have received
notice from the agreed upon counsel that the defense under this
paragraph has been so assumed, the indemnifying party shall not be
responsible for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other
than with respect to the agreed upon counsel who assumed the defense
thereof.
12. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations,
warranties and agreements of the Managing General Partner and you herein or
in certificates delivered pursuant hereto, and the indemnity agreements
contained in Section 11 hereof, shall survive the delivery, execution and
closing hereof, and shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of you or any person
who controls you within the meaning of the Act, or by the Managing General
Partner, or any of its officers, directors or any person who controls the
Managing General Partner within the meaning of the Act, or any other
indemnified party, and shall survive delivery of the Units hereunder.
13. TERMINATION. You shall have the right to terminate this agreement other
than the indemnification provisions of Section 11 by giving notice as
hereinafter specified any time at or prior to a closing date:
(a) if the Managing General Partner shall have failed, refused, or been
unable at or prior to the closing date, to perform any of its
obligations hereunder; or
(b) there has occurred an event materially and adversely affecting the
value of the Units.
If you elect to terminate this Agreement other than the indemnification
provisions of Section 11, the Managing General Partner shall be promptly
notified by you by telephone, telecopier or telegram, confirmed by letter.
The Managing General Partner may terminate this Agreement other than the
indemnification provisions of Section 11 for any reason by promptly giving
notice to you by telephone, telecopier or telegram, confirmed by letter as
hereinafter specified at or prior to a closing date.
14. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing, and if sent to you
shall be mailed, delivered or telegraphed and confirmed to you at P.O. Box
926, 311 Rouser Road, Coraopolis, Pennsylvania 15108 or if sent to the
Managing General Partner or on behalf of the Partnership, at 311 Rouser
Road, Moon Township, Pennsylvania 15108.
15. FORMAT OF CHECKS/ESCROW AGENT. Pending receipt of the minimum Partnership
Subscription, the Managing General Partner and you and the Selling Agents
agree that all subscribers shall be instructed to make their checks,
drafts, or money orders payable solely to "Atlas Public #8 Ltd., Escrow
Agent, National City Bank of PA" as agent for the Partnership.
If you receive a check, draft, or money order not conforming to the
foregoing instructions you shall return such check, draft, or money order
to the Selling Agent not later than the end of the next business day
following its receipt by you. The Selling Agent shall then return such
check, draft, or money order directly to the subscriber not later than the
end of the next business day following its receipt from you. Checks,
drafts, or money orders received by you or a Selling Agent which conform to
the foregoing instructions shall be transmitted by you pursuant to Section
16 "Transmittal Procedures," below.
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You represent that you have executed the Escrow Agreement and agree that
you are bound by the terms of the Escrow Agreement executed by you, the
Partnership and the Managing General Partner, a copy of which is attached
hereto as Exhibit "A".
16. TRANSMITTAL PROCEDURES. You and each Selling Agent shall transmit received
investor funds in accordance with the following procedures. For purposes of
the following, the term Selling Agent shall also include you as
Dealer-Manager where you receive subscriptions from investors.
(a) Pending receipt of the minimum subscription of $1,000,000, the Selling
Agents shall promptly, upon receipt of any and all checks, drafts, and
money orders received from prospective purchasers of Units, transmit
same together with the original executed Subscription Agreement to
you, as Dealer-Manager by the end of the next business day following
receipt of the check, draft, or money order by the Selling Agent. By
the end of the next business day following receipt of the check,
draft, or money order and Subscription Agreement by you as
Dealer-Manager, you as Dealer-Manager shall transmit the check, draft
or money order and a copy of the executed Subscription Agreement to
the Escrow Agent, and the original Subscription Agreement and a copy
of the check, draft or money order to the Managing General Partner.
(b) Upon receipt by you as Dealer-Manager of notice from the Managing
General Partner that the minimum Partnership Subscription has been
received, the Managing General Partner, you and the Selling Agent
agree that all subscribers thereafter may be instructed, in the
Managing General Partner's sole discretion, to make their checks,
drafts, or money orders payable solely to "Atlas Public #8 Ltd.".
Thereafter, Selling Agents shall promptly, upon receipt of any and all
checks, drafts, and money orders received from prospective purchasers
of Units, transmit same together with the original Subscription
Agreement to you as Dealer-Manager by the end of the next business day
following receipt of the check, draft, or money order by the Selling
Agent. By the end of the next business day following receipt of the
check, draft, or money order and Subscription Agreement by you as
Dealer-Manager, you as Dealer-Manager shall transmit the check, draft
or money order and the original Subscription Agreement to the Managing
General Partner.
17. PARTIES. This Agreement shall inure to the benefit of and be binding upon
you, the Managing General Partner, and any respective successors and
assigns. This Agreement shall also inure to the benefit of the indemnified
parties, their successors and assigns. This Agreement is intended to be and
is for the sole and exclusive benefit of the parties hereto, including the
Partnership, and their respective successors and assigns, and the
indemnified parties and their successors and assigns, and for the benefit
of no other person, and no other person shall have any legal or equitable
right, remedy or claim under or in respect of this Agreement. No purchaser
of any of the Units from you shall be construed a successor or assign
merely by reason of such purchase
18. RELATIONSHIP. This Agreement shall not constitute you a partner of the
Managing General Partner or the Partnership or any general partner thereof,
nor render the Managing General Partner or the Partnership liable for any
of your obligations except as otherwise provided herein.
19. EFFECTIVE DATE. This Agreement is made effective between the parties as of
the date accepted by you as indicated by your signature hereto.
20. ENTIRE AGREEMENT WAIVER. This Agreement constitutes the entire agreement
between the parties hereto and shall not be amended or modified in any way
except by subsequent agreement executed in writing, and no party shall be
liable or bound to the other by any agreement, except as specifically set
forth herein. Any party hereto may waive, but only in writing, any term,
condition, or requirement under this Agreement which is intended for its
own benefit, and written waiver of any term or condition of this Agreement
shall not operate as a waiver of any other breach of such term or
condition, nor shall any failure to enforce any provision hereof operate as
a waiver of such provision or any other provision hereof.
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If the foregoing correctly sets forth our understanding please so indicate in
the space provided below for the purpose whereupon this letter shall constitute
a binding agreement between us.
<TABLE>
<S> <C>
Very truly yours,
ATLAS RESOURCES, INC.,
a Pennsylvania corporation
________________________________, 1999 By: ________________________________________
Date Tony C. Banks, Senior Vice President and
Chief Financial Officer
ATTEST:
______________________________________
(SEAL) Secretary
PARTNERSHIP
-----------
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
By: Atlas Resources, Inc.,
Managing General Partner
________________________________, 1999 By: ________________________________________
Date Tony C. Banks, Senior Vice President and
Chief Financial Officer
ATTEST:
______________________________________
(SEAL) Secretary
DEALER-MANAGER
--------------
ANTHEM SECURITIES, INC.,
a Pennsylvania corporation
________________________________, 1999 By: ________________________________________
Date Eric D. Koval, President
ATTEST:
______________________________________
(SEAL) Secretary
</TABLE>
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EXHIBIT "A"
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
ESCROW AGREEMENT
THIS AGREEMENT, made to be effective as of the _____ day of _________,
1999, by and between Atlas Resources, Inc., a Pennsylvania corporation (the
"Managing General Partner"), Anthem Securities, Inc., a Pennsylvania corporation
("Anthem"), Bryan Funding, Inc., a Pennsylvania corporation ("Bryan Funding"),
collectively Anthem and Bryan Funding are referred to as the "Dealer-Manager",
Atlas-Energy for the Nineties-Public #8 Ltd., a Pennsylvania limited partnership
(the "Partnership") and National City Bank of Pennsylvania, Pittsburgh,
Pennsylvania, as escrow agent (the "Escrow Agent").
WITNESSETH:
WHEREAS, the Partnership intends to offer publicly for sale to qualified
investors (the "Investors") up to 1,800 limited partnership interests in the
Partnership (the "Units"); and
WHEREAS, each Investor will be required to pay his subscription in full
upon subscribing ($10,000 per Unit, however, the Managing General Partner, in
its discretion, may accept one-half Unit [$5,000] subscriptions, with larger
subscriptions permitted in $1,000 increments), by check, draft or money order
except that the broker-dealers and the Managing General Partner, its officers
and directors and Affiliates, may purchase Units net of the Dealer-Manager fee,
the commissions and reimbursement of marketing expenses and bona fide
accountable due diligence expenses set forth below, and registered investment
advisors and their clients may purchase Units subject to the Dealer-Manager fee
but net of the commissions and reimbursement of marketing expenses and bona fide
accountable due diligence expenses set forth below (the "Subscription
Proceeds"); and
WHEREAS, the Managing General Partner and Anthem have executed an agreement
("Anthem Dealer-Manager Agreement") pursuant to which Anthem will solicit
subscriptions for Units in all states other than Minnesota and New Hampshire on
a "best efforts" "all or none" basis for $1,000,000 and on a "best efforts"
basis for the remaining Units on behalf of the Managing General Partner and the
Partnership and pursuant to which Anthem has been authorized to select certain
members in good standing of the National Association of Securities Dealers, Inc.
("NASD") to participate in the offering of the Units ("Selling Agents"); and
WHEREAS, the Managing General Partner and Bryan Funding have executed an
agreement ("Bryan Funding Dealer-Manager Agreement") pursuant to which Bryan
Funding will solicit subscriptions for Units in the states of Minnesota and New
Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on a "best
efforts" basis for the remaining Units on behalf of the Managing General Partner
and the Partnership and pursuant to which Bryan Funding has been authorized to
select certain members in good standing of the NASD to participate in the
offering of the Units ("Selling Agents"); and
WHEREAS, the Anthem Dealer-Manager Agreement and the Bryan Funding
Dealer-Manager Agreement, collectively referred to as the "Dealer-Manager
Agreement", provide for compensation to the Dealer-Manager which includes, but
is not limited to: (i) a 2.5% Dealer-Manager fee; (ii) a 7.0% sales commission;
(iii) a .5% reimbursement of marketing expenses; and (iv) reimbursement of the
Selling Agents' bona fide accountable due diligence expenses of .5% per Unit to
participate in the offering of the Units, all or a portion of which compensation
will be reallowed to the Selling Agents and wholesalers; and
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WHEREAS, under the terms of the Dealer-Manager Agreement the Subscription
Proceeds are required to be held in escrow subject to the receipt and acceptance
by the Managing General Partner of the minimum Subscription Proceeds of
$1,000,000, excluding any optional subscription by the Managing General Partner,
its officers, directors and Affiliates; and
WHEREAS, no subscriptions to the Partnership will be accepted after receipt
of the maximum Subscription Proceeds of $14,000,000 (which may be increased to
$18,000,000 in the Managing General Partner's discretion) or December 31, 1999,
whichever event occurs first (the "Offering Termination Date"); and
WHEREAS, to facilitate compliance with the terms of the Dealer-Manager
Agreement, the Managing General Partner and the Dealer-Manager desire to have
the Subscription Proceeds deposited with the Escrow Agent and the Escrow Agent
desires to hold the Subscription Proceeds pursuant to the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. APPOINTMENT OF ESCROW AGENT. The Managing General Partner, the Partnership
and the Dealer-Manager hereby appoint Escrow Agent as the escrow agent to
receive and to hold the Subscription Proceeds deposited with Escrow Agent
by the Dealer-Manager and the Selling Agents pursuant hereto and Escrow
Agent hereby agrees to serve in such capacity during the term and based
upon the provisions hereof.
2. DEPOSIT OF SUBSCRIPTION PROCEEDS. Pending receipt of the minimum
Subscription Proceeds of $1,000,000, the Dealer-Manager shall deposit the
Subscription Proceeds of each Investor with the Escrow Agent and shall
deliver to the Escrow Agent a copy of the Subscription Agreement of such
Investor. Payment for each subscription for Units shall be in the form of a
check made payable to "Atlas Public #8 Ltd., Escrow Agent, National City
Bank of PA". The Escrow Agent shall deliver a receipt to Anthem and the
Managing General Partner for each deposit of Subscription Proceeds made
pursuant hereto by Anthem, and to Bryan Funding and the Managing General
Partner for each deposit of subscription proceeds made pursuant hereto by
Bryan Funding.
3. INVESTMENT OF SUBSCRIPTION PROCEEDS. The Subscription Proceeds shall be
deposited in an interest bearing account maintained by the Escrow Agent
entitled "Armada Government Fund." Subscription Proceeds may be temporarily
invested by the Escrow Agent only in income producing short-term, highly
liquid investments secured by the United States government where there is
appropriate safety of principal, such as U.S. Treasury Bills. The interest
earned shall be added to the Subscription Proceeds and disbursed in
accordance with the provisions of paragraph 4 or 5, as the case may be.
4. DISTRIBUTION OF SUBSCRIPTION PROCEEDS. If the Escrow Agent:
(a) receives written notice from an authorized officer of the Managing
General Partner that at least the minimum aggregate subscriptions of
$1,000,000 have been received and accepted by the Managing General
Partner; and
(b) determines that Subscription Proceeds for at least $1,000,000 as
determined by the Managing General Partner have cleared the banking
system and are good;
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the Escrow Agent shall promptly release and distribute to the Managing
General Partner such escrowed Subscription Proceeds which have cleared
the banking system and are good plus any interest paid and investment
income earned on such Subscription Proceeds while held by the Escrow
Agent in an escrow account.
Any remaining Subscription Proceeds, plus any interest paid and
investment income earned on such Subscription Proceeds while held by
the Escrow Agent in an escrow account shall be promptly released and
distributed to the Managing General Partner by the Escrow Agent as
such Subscription Proceeds clear the banking system and become good.
5. SEPARATE PARTNERSHIP ACCOUNT. During the continuation of the offering after
the Partnership is funded with cleared Subscription Proceeds of at least
$1,000,000 and the Escrow Agent receives the notice described in Paragraph
4 of this Agreement, and prior to the Offering Termination Date, any
additional Subscription Proceeds may be deposited by the Dealer-Manager
directly in a separate Partnership account which shall not be subject to
the terms of this Agreement.
6. DISTRIBUTIONS TO SUBSCRIBERS.
(a) In the event that the Partnership will not be funded as contemplated
because less than the minimum aggregate subscriptions of $1,000,000
have been received and accepted by the Managing General Partner by
twelve p.m. (noon), local time, on December 31, 1999, or for any other
reason, the Managing General Partner shall so notify the Escrow Agent,
whereupon the Escrow Agent promptly shall distribute to each Investor
a refund check made payable to such Investor in an amount equal to the
Subscription Proceeds of such Investor, plus any interest paid or
investment income earned thereon while held by the Escrow Agent in an
escrow account as calculated by the Managing General Partner.
(b) In the event that a subscription for Units submitted by an Investor is
rejected by the Managing General Partner for any reason after the
Subscription Proceeds relating to such subscription have been
deposited with the Escrow Agent, then the Managing General Partner
promptly shall notify the Escrow Agent of such rejection, and the
Escrow Agent shall promptly distribute to such Investor a refund check
made payable to such Investor in an amount equal to the Subscription
Proceeds of such Investor, plus any interest paid or investment income
earned thereon while held by the Escrow Agent in an escrow account as
calculated by the Managing General Partner.
7. COMPENSATION AND EXPENSES OF ESCROW AGENT. The Managing General Partner
shall be solely responsible for and shall pay the compensation of the
Escrow Agent for its services hereunder, as provided in Appendix 1 to this
Agreement and made a part hereof, and the charges, expenses (including any
reasonable attorneys' fees), and other out-of-pocket expenses incurred by
the Escrow Agent in connection with the administration of the provisions of
this Agreement. The Escrow Agent shall have no lien on the Subscription
Proceeds deposited in an escrow account unless and until the Partnership is
funded with cleared Subscription Proceeds of at least $1,000,000 and the
Escrow Agent receives the notice described in Paragraph 4 of this
Agreement, at which time the Escrow Agent shall have, and is hereby
granted, a prior lien upon any property, cash, or assets held hereunder,
with respect to its unpaid compensation and nonreimbursed expenses,
superior to the interests of any other persons or entities.
8. DUTIES OF ESCROW AGENT. The Escrow Agent shall not be obligated to accept
any notice, make any delivery, or take any other action under this Escrow
Agreement unless the notice or request or demand for delivery or other
action is in writing and given or made by the party given the right or
charged with
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the obligation under this Escrow Agreement to give the notice or to make
the request or demand. In no event shall the Escrow Agent be obligated
to accept any notice, request, or demand from anyone other than the
Managing General Partner or the Dealer-Manager.
9. LIABILITY OF ESCROW AGENT. The Escrow Agent shall not be liable for any
damages, or have any obligations other than the duties prescribed herein in
carrying out or executing the purposes and intent of this Escrow Agreement;
provided, however, that nothing herein contained shall relieve the Escrow
Agent from liability arising out of its own willful misconduct or gross
negligence. Escrow Agent's duties and obligations under this Agreement
shall be entirely administrative and not discretionary. Escrow Agent shall
not be liable to any party hereto or to any third party as a result of any
action or omission taken or made by Escrow Agent in good faith. The parties
to this Agreement will indemnify Escrow Agent, hold Escrow Agent harmless,
and reimburse Escrow Agent from, against and for, any and all liabilities,
costs, fees and expenses (including reasonable attorney's fees) Escrow
Agent may suffer or incur by reason of its execution and performance of
this Agreement. In the event any legal questions arise concerning Escrow
Agent's duties and obligations hereunder, Escrow Agent may consult with its
counsel and rely without liability upon written opinions given to it by
such counsel.
The Escrow Agent shall be protected in acting upon any written notice,
request, waiver, consent, authorization, or other paper or document which
the Escrow Agent, in good faith, believes to be genuine and what it
purports to be.
In the event that there shall be any disagreement between any of the
parties to this Agreement, or between them or any of them and any other
person, resulting in adverse claims or demands being made in connection
with this Agreement, or in the event that Escrow Agent, in good faith,
shall be in doubt as to what action it should take hereunder, Escrow Agent
may, at its option, refuse to comply with any claims or demands on it or
refuse to take any other action hereunder, so long as such disagreement
continues or such doubt exists. In any such event, Escrow Agent shall not
be or become liable in any way or to any person for its failure or refusal
to act and Escrow Agent shall be entitled to continue to so refrain from
acting until the dispute is resolved by the parties involved.
National City Bank of Pennsylvania is acting solely as Escrow Agent and is
not a party to, nor has it reviewed or approved any agreement or matter of
background related to this Agreement, other than this Agreement itself, and
has assumed, without investigation, the authority of the individuals
executing this Agreement to be so authorized on behalf of the party or
parties involved.
10. RESIGNATION OR REMOVAL OF ESCROW AGENT. The Escrow Agent may resign as such
following the giving of thirty days' prior written notice to the other
parties hereto. Similarly, the Escrow Agent may be removed and replaced
following the giving of thirty days' prior written notice to the Escrow
Agent by the other parties hereto.
In either event, the duties of the Escrow Agent shall terminate thirty days
after the date of such notice (or as of such earlier date as may be
mutually agreeable); and the Escrow Agent shall then deliver the balance of
the Subscription Proceeds (and any interest paid or investment income
earned thereon while held by the Escrow Agent in an escrow account) in its
possession to a successor escrow agent as shall be appointed by the other
parties hereto as evidenced by a written notice filed with the Escrow
Agent. If the other parties hereto are unable to agree upon a successor or
shall have failed to appoint a successor prior to the expiration of thirty
days following the date of the notice of resignation or removal, the then
acting Escrow Agent may petition any court of competent jurisdiction for
the appointment of a successor escrow agent or other appropriate relief;
and any such resulting appointment shall be binding upon all of the parties
hereto.
Upon acknowledgment by any successor escrow agent of the receipt of the
then remaining balance of the Subscription Proceeds (and any interest paid
or investment income earned thereon while held by the Escrow Agent in an
escrow account), the then acting Escrow Agent shall be fully released and
relieved of all duties, responsibilities, and obligations under this
Agreement.
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11. TERMINATION. This Agreement shall terminate and the Escrow Agent shall have
no further obligation with respect hereto upon the occurrence of the
distribution of all Subscription Proceeds (and any interest paid or
investment income earned thereon while held by the Escrow Agent in an
escrow account) as contemplated hereby or upon the written consent of all
the parties hereto.
12. NOTICE. Any notices or instructions, or both, to be given hereunder shall
be validly given if set forth in writing and mailed by certified mail,
return receipt requested, as follows:
IF TO THE ESCROW AGENT:
-----------------------
National City Bank of Pennsylvania
Attention: Mr. Robert Mialki, Vice President
Corporate Trust Department
300 Fourth Avenue
Pittsburgh, Pennsylvania 15278-2331
Phone: (412) 644-8401
Facsimile: (412) 644-7971
IF TO THE MANAGING GENERAL PARTNER:
-----------------------------------
Atlas Resources, Inc.
311 Rouser Road
P.O. Box 611
Moon Township, Pennsylvania 15108
Attention: Tony C. Banks
Phone: (412) 262-2830
Facsimile: (412) 262-2820
IF TO ANTHEM:
-------------
Anthem Securities, Inc.
311 Rouser Road
P.O. Box 926
Coraopolis, Pennsylvania 15108
Attention: Eric D. Koval
Phone: (412) 262-1680
Facsimile: (412) 262-7430
IF TO BRYAN FUNDING:
-------------------
Bryan Funding, Inc.
393 Vanadium Road
Pittsburgh, Pennsylvania 15243
Attention: Richard G. Bryan, Jr.
Phone: (412) 276-9393
Facsimile: (412) 276-9396
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Any party may designate any other address to which notices and instructions
shall be sent by notice duly given in accordance herewith.
13. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
(b) This Agreement is binding upon and shall inure to the benefit of the
undersigned and their respective heirs, successors and assigns.
(c) This Agreement may be executed in multiple copies, each executed copy
to serve as an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the day and year first above written.
<TABLE>
<S> <C>
NATIONAL CITY BANK OF PENNSYLVANIA
ATTEST: As Escrow Agent
By:______________________________ By: _____________________________________________
(Authorized Officer) (Authorized Officer)
ATLAS RESOURCES, INC.
ATTEST: A Pennsylvania corporation
By:______________________________ By: ____________________________________________
Secretary Tony C. Banks, Senior Vice President and
Chief Financial Officer
ANTHEM SECURITIES, INC.
ATTEST: A Pennsylvania corporation
By:______________________________ By: _____________________________________________
Secretary Eric D. Koval, President
BRYAN FUNDING, INC.
ATTEST: A Pennsylvania corporation
By:______________________________ By: ______________________________________________
Secretary Richard G. Bryan, Jr., President
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
By: ATLAS RESOURCES, INC.
ATTEST: Managing General Partner
By:______________________________ By: ______________________________________
Secretary Tony C. Banks, Senior Vice President and
Chief Financial Officer
</TABLE>
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APPENDIX I TO ESCROW AGREEMENT
COMPENSATION FOR SERVICES OF ESCROW AGENT
<TABLE>
<S> <C>
Escrow Agent annual fee per year or any part thereof $3,000.00
</TABLE>
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EXHIBIT "B"
SELLING AGENT AGREEMENT
WITH ANTHEM SECURITIES, INC.
TO: ____________________________________________
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
Gentlemen:
Atlas Resources, Inc. ("Atlas"), is the Managing General Partner in a
Pennsylvania limited partnership named Atlas-Energy for the Nineties-Public #8
Ltd. (the "Partnership"). The Units of Participation (the "Units") and the
offering are described in the enclosed Prospectus dated _________, 1999 (the
"Prospectus"). Prospectuses relating to the Units have been furnished to you
with this Agreement.
Our firm, Anthem Securities, Inc. (the "Dealer-Manager"), has entered into
a Dealer-Manager Agreement for sales in all states other than Minnesota and New
Hampshire, a copy of which has been furnished to you and is incorporated herein
by reference, with the Managing General Partner and the Partnership under which
the Dealer-Manager has agreed to form a group of National Association of
Securities Dealers, Inc. (the "NASD") member firms (the "Selling Agents"), who
will obtain subscriptions to the Partnership in all states other than Minnesota
and New Hampshire on a "best efforts" basis pursuant to the Securities Act of
1933, as amended (the "Act"), and the provisions of the Prospectus.
You are invited to become one of the Selling Agents, on a non-exclusive
basis. By your acceptance below you will have agreed to act in that capacity and
to use your best efforts, in accordance with the following terms and conditions,
to solicit such subscriptions in all states other than Minnesota and New
Hampshire. This Agreement, however, shall not be construed to prohibit your
participation as a selling agent in Minnesota and New Hampshire pursuant to a
duly executed selling agent agreement entered into by you and any other
authorized "Dealer-Manager" for the Partnership.
1. REPRESENTATIONS AND WARRANTIES OF SELLING AGENT. You, as a Selling Agent,
represent and warrant to the Dealer-Manager that:
(a) You are a corporation duly organized, validly existing and in good
standing under the laws of the state of your formation or of any
jurisdiction to the laws of which you are subject, with all requisite
power and authority to enter into this Agreement and to carry out your
obligations hereunder.
(b) This Agreement when accepted and approved will be duly authorized,
executed and delivered by you and will be a valid and binding
agreement on your part in accordance with its terms.
(c) The consummation of the transactions contemplated by this Agreement
and the Prospectus will not result in any breach of any of the terms
or conditions of, or constitute a default under your Articles of
Incorporation, Bylaws, any indenture, agreement or other instrument to
which you are a party, or violate any order applicable to you of any
court or any federal or state regulatory body or administrative agency
having jurisdiction over you or over your affiliates.
(d) You are duly registered pursuant to the provisions of the Securities
Exchange Act of 1934 (the "Act of 1934") as a dealer and you are a
member in good standing of the NASD. You are duly registered as a
broker-dealer in the states in which you are required to be registered
in order to
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carry out your obligations as contemplated by this Agreement and
the Prospectus. You agree to maintain all the foregoing
registrations in good standing throughout the term of the offer and
sale of the Units and you agree to comply with all statutes and
other requirements applicable to you as a broker-dealer pursuant to
those registrations.
(e) Pursuant to your appointment as a Selling Agent, you shall comply with
all the provisions of the Act, insofar as the Act applies to your
activities hereunder. Further, you shall not engage in any activity
which would cause the offer and/or sale of Units not to comply with
the Act, the Act of 1934 and the applicable rules and regulations of
the Securities and Exchange Commission (the "Commission"), the
applicable state securities laws and regulations, this Agreement and
the NASD Conduct Rules including Rules 2730, 2740, 2420, 2750, and
Rules 2810(b)(2) and (b)(3), which provide as follows:
Sec. (b)(2)
SUITABILITY
(A) A member or person associated with a member shall not
underwrite or participate in a public offering of a
direct participation program unless standards of
suitability have been established by the program for
participants therein and such standards are fully
disclosed in the prospectus and are consistent with the
provisions of subparagraph (B) of this section.
(B) In recommending to a participant the purchase, sale or
exchange of an interest in a direct participation
program, a member or person associated with a member
shall:
(i) have reasonable grounds to believe, on the
basis of information obtained from the
participant concerning his investment
objectives, other investments, financial
situation and needs, and any other information
known by the member or associated person, that:
(a) the participant is or will be in a financial
position appropriate to enable him to realize
to a significant extent the benefits
described in the prospectus, including the
tax benefits where they are a significant
aspect of the program;
(b) the participant has a fair
market net worth sufficient to
sustain the risks inherent in
the program, including loss of
investment and lack of
liquidity; and
(c) the program is otherwise suitable for the
participant; and
(ii) maintain in the files of the member documents
disclosing the basis upon which the determination
of suitability was reached as to each participant.
(C) Notwithstanding the provisions of subparagraphs (A) and
(B) hereof, no member shall execute any transaction in
a direct participation program in a discretionary
account without prior written approval of the
transaction by the customer.
Sec. (b)(3)
DISCLOSURE
(A) Prior to participating in a public offering of a direct
participation program, a member or person associated
with a member shall have reasonable grounds to believe,
based on information made available to him by the
sponsor through a
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prospectus or other materials, that all material
facts are adequately and accurately disclosed and
provide a basis for evaluating the program.
(B) In determining the adequacy of disclosed facts pursuant
to subparagraph (A) hereof, a member or person
associated with a member shall obtain information on
material facts relating at a minimum to the following,
if relevant in view of the nature of the program:
(i) items of compensation;
(ii) physical properties;
(iii) tax aspects;
(iv) financial stability and experience of the sponsor;
(v) the program's conflicts and risk factors; and
(vi) appraisals and other pertinent reports.
(C) For purposes of subparagraphs (A) and (B) hereof, a
member or person associated with a member may rely upon
the results of an inquiry conducted by another member
or members, provided that:
(i) the member or person associated with a member has
reasonable grounds to believe that such inquiry
was conducted with due care;
(ii) the results of the inquiry were provided to the
member or person associated with a member with
the consent of the member or members conducting
or directing the inquiry; and
(iii) no member that participated in the inquiry is a
sponsor of the program or an affiliate of such
sponsor.
(D) Prior to executing a purchase transaction in a direct
participation program, a member or person associated
with a member shall inform the prospective participant
of all pertinent facts relating to the liquidity and
marketability of the program during the term of
investment.
(f) You have received copies of the Prospectus relating to the Units and
you have relied only on the statements contained in the Prospectus and
not on any other statements whatsoever, either written or oral, with
respect to the details of the offering of Units.
(g) You agree that you shall not place any advertisement or other
solicitation with respect to the Units (including without limitation
any material for use in any newspaper, magazine, radio or television
commercial, telephone recording, motion picture, or other public
media) without the prior written approval of the Managing General
Partner, and without the prior written approval of the form and
content thereof by the Commission, the NASD and the securities
authorities of the states where such advertisement or solicitation is
to be circulated. Any such advertisements or solicitations shall be at
your expense.
(h) If a supplement or amendment to the Prospectus is prepared and
delivered to you by the Managing General Partner or the
Dealer-Manager, you agree to distribute each such supplement or
amendment to the Prospectus to every person who has previously
received a copy of the Prospectus from you and you further agree to
include such supplement or amendment in all future deliveries of any
Prospectus.
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(i) In connection with any offer or sale of the Units, you agree to comply
in all respects with statements set forth in the Prospectus and the
Partnership Agreement and you agree not to make any statement
inconsistent with the statements in the Prospectus or the Partnership
Agreement and you further agree that you shall not provide any written
information, statements or sales literature other than the Prospectus,
the Managing General Partner's corporate profile and a brochure
entitled "Atlas-Energy for the Nineties-Public #8 Ltd." (the corporate
profile and the brochure collectively referred to herein as the
"Brochure"), and any supplements or amendments thereto unless approved
in writing by the Managing General Partner. Further, you agree not to
make any untrue or misleading statements of a material fact in
connection with the Units.
(j) You agree to use your best efforts in the solicitation and sale of
said Units, including insuring that the prospective purchasers meet
the suitability requirements set forth in the Prospectus and the
Subscription Agreement and properly execute the Subscription
Agreement, which has been provided as Exhibit (I-B) to the Partnership
Agreement, Exhibit (A) to the Prospectus, together with any additional
forms provided in any supplement or amendment to the Prospectus, or
otherwise provided to you by the Managing General Partner or the
Dealer-Manager to be completed by prospective purchasers.
The Managing General Partner shall have the right to reject any
subscription at any time for any reason without liability to it.
Investor funds and executed Subscription Agreements shall be
transmitted as set forth in Section 11.
(k) You shall comply with the requirements of Rules 2810(b)(2)(B) and
(b)(3)(D) of the NASD Conduct Rules.
2. COMMISSIONS.
(a) Subject to the receipt of the minimum required Partnership
Subscription of $1,000,000, the Dealer-Manager is entitled to receive
from the Partnership a 7.0% Sales Commission, a .5% reimbursement of
marketing expenses and a .5% reimbursement of the Selling Agents' bona
fide accountable due diligence expenses based on the aggregate amount
of all Unit subscriptions to the Partnership secured by the
Dealer-Manager or the selling group formed by the Dealer-Manager and
accepted by the Managing General Partner.
Subject to the terms and conditions herein set forth, including the
Dealer-Manager's receipt from you of the documentation required of you
in Section 1 of this Agreement, the Dealer-Manager agrees to pay you a
7.0% cash commission, a .5% reimbursement of marketing expenses and a
.5% reimbursement of your bona fide accountable due diligence
expenses, of subscriptions sold by you and accepted by the Managing
General Partner, within seven business days after the Dealer-Manager
has received the commissions and reimbursements on such subscriptions.
The Dealer-Manager is entitled to receive its commissions and
reimbursements within five business days after at least the minimum
Partnership Subscription ($1,000,000) has been received and accepted
by the Managing General Partner and the subscription proceeds have
been released to the Managing General Partner from the escrow account,
and approximately every two weeks thereafter until the Offering
Termination Date, which is December 31, 1999, or when the maximum
Partnership Subscription of $18,000,000 is received if earlier. The
balance will be paid to the Dealer-Manager within 14 business days
after the Offering Termination Date.
(b) Notwithstanding anything herein to the contrary, you agree to waive
payment of your commissions and reimbursements as set forth above in
(a) until the Dealer-Manager is in receipt of the related amounts owed
to it pursuant to the Dealer-Manager Agreement, and the
Dealer-Manager's liability for such amounts hereunder is limited
solely to the proceeds of the related amounts owed to it pursuant to
the Dealer-Manager Agreement.
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(c) The Partnership will not commence operations unless subscriptions for
at least $1,000,000 have been secured by December 31, 1999. If this
amount is not secured, nothing will be payable to you and all funds
advanced by purchasers will be returned to them with interest earned,
if any.
(d) Notwithstanding the foregoing, Registered Investment Advisors and
their clients may subscribe to Units without paying the Sales
Commissions and reimbursement of marketing expenses and bona fide
accountable due diligence expenses, and their Agreed Subscriptions
will be subject only to the 2.5% Dealer-Manager fee.
Also, the Managing General Partner, its officers and directors and
Affiliates, and the Selling Agents may subscribe to Units without
paying the Dealer-Manager fee, Sales Commissions and the reimbursement
of marketing expenses and the Selling Agents' bona fide accountable
due diligence expenses.
3. STATE SECURITIES REGISTRATION. The Managing General Partner may elect not
to qualify or register Units in any state in which it deems such
qualification or registration is not warranted for any reason in its sole
discretion. Upon application to the Dealer-Manager you will be informed as
to the jurisdictions in which the Units have been qualified for sale or are
exempt under the respective securities or "Blue Sky" laws of such
jurisdictions.
Notwithstanding, the Dealer-Manager, the Partnership and the Managing
General Partner have not assumed and will not assume any obligation or
responsibility as to your right to act as a broker-dealer with respect to
the Units in any such jurisdiction.
4. EXPENSE OF SALE. The expenses in connection with the offer and sale of the
Units shall be payable as set forth below.
(a) The Dealer-Manager shall pay all expenses incident to the performance
of its obligations hereunder, including the fees and expenses of its
attorneys and accountants, even if this offering is not successfully
completed.
(b) You shall pay all expenses incident to the performance of your
obligations hereunder, including the fees and expenses of your own
counsel and accountants, even if this offering is not successfully
completed.
5. CONDITIONS OF YOUR DUTIES. Your obligations provided herein, as of the date
hereof and at the applicable closing date, shall be subject to the
performance by the Dealer-Manager of its obligations hereunder and to the
performance by the Managing General Partner of its obligations under the
Dealer-Manager Agreement.
6. CONDITIONS OF DEALER-MANAGER'S DUTIES. The Dealer-Manager's obligations
provided herein, including the duty to pay compensation as set forth in
Section 2 hereof, shall be subject to the accuracy, as of the date hereof
and at the applicable closing date (as if made at the applicable closing
date) of your representations and warranties made herein, and to the
performance by you of your obligations hereunder, and to the additional
condition that the Dealer-Manager shall have received, at or prior to the
applicable closing date, the following documents:
(a) a fully executed Subscription Agreement for each prospective
purchaser;
(b) certification to the Dealer-Manager that you are registered as
required by Section 1(d) and that such registrations were, during the
term of the offering and through the applicable closing date, in full
force and effect; and
(c) a certificate from you, dated at the applicable closing date, to the
effect that your representations and warranties made herein are true
and correct as if made at the applicable closing date and that you
have fulfilled all your obligations hereunder.
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7. INDEMNIFICATION.
(a) You shall indemnify and hold harmless the Dealer-Manager, the Managing
General Partner, the Partnership and its attorneys, against any
losses, claims, damages or liabilities, joint or several, to which
such parties may become subject, under the Act, the Act of 1934 or
otherwise insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon your breach
of any of your duties and obligations, representations, or warranties
under the terms or provisions of this Agreement and you shall
reimburse such parties for any legal or other expenses reasonably
incurred in connection with investigating or defending any such loss,
claim, damage, liability or action.
(b) The Dealer-Manager shall indemnify and hold you harmless against any
losses, claims, damages or liabilities, joint or several, to which you
may become subject, under the Act, the Act of 1934 or otherwise
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the Dealer-Manager's
breach of any of its duties and obligations, representations, or
warranties under the terms or provisions of this Agreement and the
Dealer-Manager shall reimburse you for any legal or other expenses
reasonably incurred in connection with investigating or defending such
loss, claim, damage, liability or action.
(c) The foregoing indemnity agreements shall extend upon the same terms
and conditions to, and shall inure to the benefit of, each person, if
any, who controls each indemnified party within the meaning of the
Act.
(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim
in respect thereof is to be made against the indemnifying party under
this Section, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party. If any such action shall be brought against such
indemnified party, it shall notify the indemnifying party of the
commencement thereof, and the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified and
indemnifying parties. After the indemnified party shall have received
notice from the agreed upon counsel that the defense under this
paragraph has been so assumed, the indemnifying party shall not be
responsible for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other
than with respect to the agreed upon counsel who assumed the defense
thereof.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations,
warranties and agreements of the Dealer-Manager and you herein or in
certificates delivered pursuant hereto, and the indemnity agreements
contained in Section 7 hereof, shall survive the delivery, execution and
closing hereof, and shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of you or any person
who controls you within the meaning of the Act, or by the Dealer-Manager,
or any of its officers, directors or any person who controls the
Dealer-Manager within the meaning of the Act, or any other indemnified
party, and shall survive delivery of the Units hereunder.
9. TERMINATION. You shall have the right to terminate this Agreement, other
than the indemnification provisions of Section 7, by giving notice as
hereinafter specified any time at or prior to a closing date:
(a) if the Dealer-Manager shall have failed, refused, or been unable at or
prior to the closing date, to perform any of its obligations
hereunder; or
(b) there has occurred an event materially and adversely affecting the
value of the Units.
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If you elect to terminate this Agreement, other than the indemnification
provisions of Section 7, the Dealer-Manager shall be promptly notified by
you by telephone, telecopier, facsimile, or telegram, confirmed by letter.
The Dealer-Manager may terminate this Agreement, other than the
indemnification provisions of Section 7, for any reason and at any time by
promptly giving notice to you by telephone, telecopier or telegram,
confirmed by letter.
10. FORMAT OF CHECKS/ESCROW AGENT. Pending receipt of the minimum Partnership
Subscription of $1,000,000 (100 Units), the Dealer-Manager and you agree
that all subscribers shall be instructed to make their checks, drafts, or
money orders payable solely to "Atlas Public #8 Ltd., Escrow Agent,
National City Bank of PA" as agent for the Partnership.
If you receive a check, draft, or money order not conforming to the
foregoing instructions you shall return such check, draft, or money order
directly to the subscriber not later than the end of the next business day
following its receipt from the subscriber. If the Dealer-Manager receives a
check, draft, or money order not conforming to the foregoing instructions
the Dealer-Manager shall return such check, draft, or money order to you
not later than the end of the next business day following its receipt by
the Dealer-Manager and you shall then return such check, draft, or money
order directly to the subscriber not later than the end of the next
business day following its receipt from the Dealer-Manager. Checks, drafts,
or money orders received by you which conform to the foregoing instructions
shall be transmitted by you pursuant to Section 11 "Transmittal
Procedures," below.
You agree that you are bound by the terms of the Escrow Agreement, a copy
of which is attached to the Dealer-Manager Agreement as Exhibit "A."
11. TRANSMITTAL PROCEDURES. You shall transmit received investor funds in
accordance with the following procedures.
(a) Pending receipt of the minimum Partnership Subscription of $1,000,000,
you shall promptly, upon receipt of any and all checks, drafts, and
money orders received from prospective purchasers of Units, transmit
same together with the original executed Subscription Agreement to the
Dealer-Manager by the end of the next business day following receipt
of the check, draft, or money order by you. By the end of the next
business day following receipt of the check, draft, or money order and
Subscription Agreement by the Dealer-Manager, the Dealer-Manager shall
transmit the check, draft, or money order and a copy of the executed
Subscription Agreement to the Escrow Agent, and the original
Subscription Agreement and a copy of the check, draft, or money order
to the Managing General Partner.
(b) Upon receipt by you of notice from the Managing General Partner or the
Dealer-Manager that the minimum Partnership Subscription has been
received, you agree that all subscribers thereafter may be instructed,
in the Managing General Partner's sole discretion, to make their
checks, drafts, or money orders payable solely to "Atlas Public #8
Ltd.". Thereafter, you shall promptly, upon receipt of any and all
checks, drafts, and money orders received from prospective purchasers
of Units, transmit same together with the original Subscription
Agreement to the Dealer-Manager by the end of the next business day
following receipt of the check, draft, or money order by you. By the
end of the next business day following receipt of the check, draft, or
money order and subscription documents by the Dealer-Manager, the
Dealer-Manager shall transmit the check, draft, or money order and the
original Subscription Agreement to the Managing General Partner.
12. PARTIES. This Agreement shall inure to the benefit of and be binding upon
you, the Dealer-Manager, and any respective successors and assigns. This
Agreement shall also inure to the benefit of the indemnified parties, their
successors and assigns. This Agreement is intended to be and is for the
sole and exclusive benefit of the parties hereto, and their respective
successors and assigns, and the indemnified parties and their successors
and assigns, and for the benefit of no other person. No other person shall
have any legal
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or equitable right, remedy or claim under or in respect of this
Agreement. No purchaser of any of the Units from you shall be construed
a successor or assign merely by reason of such purchase.
13. RELATIONSHIP. You are not authorized to hold yourself out as agent of the
Dealer-Manager, the Managing General Partner, the Partnership or of any
other Selling Agent, nor shall this Agreement constitute you a partner of
the Managing General Partner, the Dealer-Manager, the Partnership or of any
other Selling Agent, or render the Managing General Partner, the
Dealer-Manager, the Partnership or any general partner thereof, or any
other Selling Agent liable for any of your obligations.
14. EFFECTIVE DATE. This Agreement is made effective between the parties as of
the date accepted by you as indicated by your signature hereto.
15. ENTIRE AGREEMENT, WAIVER. This Agreement constitutes the entire agreement
between the parties hereto and shall not be amended or modified in any way
except by subsequent agreement executed in writing, and no party shall be
liable or bound to the other by any agreement, except as specifically set
forth herein. Any party hereto may waive, but only in writing, any term,
condition, or requirement under this Agreement which is intended for its
own benefit, and written waiver of any term or condition of this Agreement
shall not operate as a waiver of any other breach of such term or
condition, nor shall any failure to enforce any provision hereof operate as
a waiver of such provision or any other provision hereof.
16. NOTICES. Any communications from you shall be in writing addressed to the
Dealer-Manager at P.O. Box 926, Coraopolis, Pennsylvania 15108-0926. Any
notice from the Dealer-Manager to you shall be deemed to have been duly
given if mailed, faxed or telegraphed to you at your address shown below.
17. ACCEPTANCE. Please confirm your agreement to become a Selling Agent under
the terms and conditions set forth above by signing and returning the
enclosed duplicate copy of this Agreement to us at the address set forth
above.
Sincerely,
_____________________________ , 1999 ANTHEM SECURITIES, INC.
ATTEST:
_____________________________________ By:_______________________________
(SEAL) Secretary Eric D. Koval, President
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ACCEPTANCE:
We accept your invitation to become a Selling Agent under all the terms and
conditions stated in the above Agreement and confirm that all the statements set
forth in the above Agreement are true and correct. We hereby acknowledge receipt
of the Prospectuses and Brochures and a copy of the Dealer-Manager Agreement
referred to above.
____________________________, 1999 ____________________________,
a(n)____________corporation,
ATTEST:
__________________________________ By:__________________________
(SEAL) Secretary _______________, President
_____________________________
(Address)
_____________________________
_____________________________
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PROPOSED FORM OF
DEALER-MANAGER AGREEMENT
FOR BRYAN FUNDING, INC.
<PAGE>
Exhibit 1(b)
BRYAN FUNDING, INC.
DEALER-MANAGER AGREEMENT
(Best Efforts)
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
Bryan Funding, Inc.
393 Vanadium Road
Pittsburgh, Pennsylvania 15243
Gentlemen:
The undersigned, Atlas Resources, Inc. (the "Managing General Partner"), on
behalf of ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD., hereby confirms its
agreement with you as Dealer-Manager as follows:
1. DESCRIPTION OF UNITS. The Managing General Partner has formed a limited
partnership known as Atlas-Energy for the Nineties-Public #8 Ltd. (the
"Partnership"), which will issue and sell Units of Participation in the
Partnership (the "Units") at a price of $10,000 per Unit. Subject to the
receipt and acceptance by the Managing General Partner of the minimum
Partnership Subscription of 100 Units ($1,000,000), there will be two
closings, which are tentatively set for November 1, 1999 (the "Initial
Closing Date"), and December 31, 1999.
No subscriptions to the Partnership will be accepted after receipt of the
maximum Partnership Subscription of $14,000,000 (which may be increased to
$18,000,000 in the Managing General Partner's discretion) or December 31,
1999, whichever event occurs first (the "Offering Termination Date").
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE MANAGING GENERAL PARTNER.
The Managing General Partner represents and warrants to and agrees with you
that:
(a) The Units have been or will be registered with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Act
of 1933, as amended (the "Act").
(b) The Managing General Partner shall provide to you for delivery to all
offerees and purchasers and their representatives such information and
documents as the Managing General Partner deems appropriate to comply
with the Act and applicable state securities ("blue sky") laws.
(c) The Units when issued will be duly authorized and validly issued as
set forth in the Amended and Restated Certificate and Agreement of
Limited Partnership of the Partnership ("Partnership Agreement") set
forth as Exhibit (A) to the offering circular (the "Prospectus") and
subject only to the rights and obligations set forth in the
Partnership Agreement or imposed by the laws of the state of formation
of the Partnership or of any jurisdiction to the laws of which the
Partnership is subject.
(d) The Partnership was duly formed pursuant to the laws of the
Commonwealth of Pennsylvania and is validly existing as a limited
partnership in good standing under the laws of Pennsylvania with full
power and authority to own its properties and conduct its business as
described in the Prospectus. The Partnership will be qualified to do
business as a limited partnership or similar entity offering limited
liability in those jurisdictions where the Managing General Partner
deems such qualification necessary to assure limited liability of the
limited partners.
(e) The Prospectus, as heretofore or hereafter supplemented or amended,
does not contain an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they are made,
not misleading.
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3. GRANT OF AUTHORITY TO THE DEALER-MANAGER. On the basis of the
representations and warranties herein contained, and subject to the terms
and conditions herein set forth, the Managing General Partner hereby
appoints you as the Dealer-Manager for the Partnership and gives you the
exclusive right to solicit subscriptions for the Units in the states of
Minnesota and New Hampshire only, on a "best efforts" basis, subject to the
terms and conditions set forth herein. In the states of Minnesota and New
Hampshire only you agree to use your best efforts to effect such sales and
to form and manage a selling group composed of soliciting broker-dealers
("Selling Agents"), each of which shall be a member of the National
Association of Securities Dealers, Inc. ("NASD"), pursuant to "Selling
Agent Agreements" in substantially the form attached hereto as Exhibit "B."
The Managing General Partner shall have three business days after the
receipt of an executed Selling Agent Agreement to refuse that Selling
Agent's participation.
4. COMPENSATION AND FEES.
(a) As Dealer-Manager you will receive from the Partnership the following
fees based on the amount of the Agreed Subscription on each Unit sold
to investors who are situated and/or residents in the states of
Minnesota and New Hampshire:
(i) a 2.5% Dealer-Manager fee;
(ii) a 7.0% Sales Commission;
(iii) a .5% reimbursement of marketing expenses; and
(iv) a .5% reimbursement of the Selling Agents' bona fide accountable
due diligence expenses.
The 7.0% Sales Commission, the .5% reimbursement of marketing expenses
and the .5% reimbursement of bona fide accountable due diligence
expenses will be reallowed to the Selling Agents. The 2.5%
Dealer-Manager fee will be reallowed to the wholesalers for Agreed
Subscriptions obtained through the wholesalers' effort.
(b) Pending receipt and acceptance by the Managing General Partner of the
minimum Partnership Subscription ($1,000,000 excluding any optional
subscription by the Managing General Partner and its Affiliates), all
proceeds received by you from the sale of Units will be held in a
separate interest bearing escrow account as provided in Section 15.
Unless at least the minimum Partnership Subscription of $1,000,000 is
received on or before December 31, 1999, the offering shall be
terminated, in which event no fee shall be payable to you and all
funds advanced by purchasers shall be returned to them with interest
earned. In addition, you shall deliver a termination letter in the
form provided to you by the Managing General Partner to each such
subscriber and to each of the offerees previously solicited by you and
the Selling Agents in connection with the offering of the Units.
(c) The fees set forth in Section 4(a), which shall be reallowed by you to
the Selling Agents which made the sale and the wholesalers, will be
paid to you within five business days after at least the minimum
Partnership Subscription ($1,000,000) has been received and accepted
by the Managing General Partner and the subscription proceeds have
been released to the Managing General Partner from the escrow account.
Thereafter, such fees will be paid to you and reallowed to the Selling
Agents and wholesalers as described in the previous sentence
approximately every two weeks until the Offering Termination Date and
all your remaining fees shall be paid by the Managing General Partner
no later than 14 business days after the Offering Termination Date.
(d) Notwithstanding the foregoing, Registered Investment Advisors and
their clients may subscribe to Units without paying the Sales
Commissions and reimbursement of marketing expenses and bona fide
accountable due diligence expenses, and their Agreed Subscriptions
will be subject only to the 2.5% Dealer-Manager fee.
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Also, the Managing General Partner, its officers and directors and
Affiliates, and the Selling Agents may subscribe to Units without
paying the Dealer-Manager fee, Sales Commissions and the reimbursement
of marketing expenses and the Selling Agents' bona fide accountable
due diligence expenses.
5. COVENANTS OF THE MANAGING GENERAL PARTNER. The Managing General Partner
covenants and agrees that:
(a) The Managing General Partner will deliver to you ample copies of the
Prospectus and of all amendments or supplements thereto, heretofore or
hereafter made, including all exhibits and other documents included
therein.
(b) If any event affecting the Partnership or the Managing General Partner
shall occur which in the opinion of the Managing General Partner
should be set forth in a supplement to or an amendment of the
Prospectus, the Managing General Partner will forthwith at its own
expense prepare and furnish to you a sufficient number of copies of a
supplement or amendment to the Prospectus so that it, as so
supplemented or amended, will not contain an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they are made, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF DEALER-MANAGER. You, as the
Dealer-Manager, represent and warrant to the Managing General Partner that:
(a) You are a corporation duly organized, validly existing and in good
standing under the laws of the state of your formation or of any
jurisdiction to the laws of which you are subject, with all requisite
power and authority to enter into this Agreement and to carry out your
obligations hereunder.
(b) This Agreement when accepted and approved will be duly authorized,
executed and delivered by you and will be a valid and binding
agreement on your part in accordance with its terms.
(c) The consummation of the transactions contemplated by this Agreement
and the Prospectus will not result in any breach of any of the terms
or conditions of, or constitute a default under your Articles of
Incorporation, Bylaws, any indenture, agreement or other instrument to
which you are a party, or violate any order applicable to you of any
court or any federal or state regulatory body or administrative agency
having jurisdiction over you or over your affiliates.
(d) You are duly registered pursuant to the provisions of the Securities
Exchange Act of 1934 (the "Act of 1934") as a dealer and you are a
member in good standing of the NASD. You are duly registered as a
broker-dealer in the states in which you are required to be registered
in order to carry out your obligations as contemplated by this
Agreement and the Prospectus. You agree to maintain all the foregoing
registrations in good standing throughout the term of the offer and
sale of the Units and you agree to comply with all statutes and other
requirements applicable to you as a broker-dealer pursuant to those
registrations.
(e) Pursuant to your appointment as Dealer-Manager, you shall use your
best efforts to exercise the supervision and control that you deem
necessary and appropriate to the activities of you and the Selling
Agents to comply with all the provisions of the Act, insofar as the
Act applies to your and their activities hereunder. Further, you and
the Selling Agents shall not engage in any activity which would cause
the offer and/or sale of Units not to comply with the Act, the Act of
1934 and the applicable rules and regulations of the Commission, the
applicable state securities laws and regulations, this Agreement and
the NASD Conduct Rules including Rules 2730, 2740, 2420, 2750, and
Rules 2810(b)(2) and (b)(3), which provide as follows:
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<PAGE>
Sec. (b)(2)
SUITABILITY
(A) A member or person associated with a member shall not underwrite
or participate in a public offering of a direct participation
program unless standards of suitability have been established by
the program for participants therein and such standards are fully
disclosed in the prospectus and are consistent with the
provisions of subparagraph (B) of this section.
(B) In recommending to a participant the purchase, sale or exchange
of an interest in a direct participation program, a member or
person associated with a member shall:
(i) have reasonable grounds to believe, on the basis of
information obtained from the participant concerning his
investment objectives, other investments, financial
situation and needs, and any other information known by the
member or associated person, that:
(a) the participant is or will be in a financial position
appropriate to enable him to realize to a significant
extent the benefits described in the prospectus,
including the tax benefits where they are a significant
aspect of the program;
(b) the participant has a fair market net worth sufficient
to sustain the risks inherent in the program, including
loss of investment and lack of liquidity; and
(c) the program is otherwise suitable for the participant;
and
(ii) maintain in the files of the member documents disclosing the
basis upon which the determination of suitability was
reached as to each participant.
(C) Notwithstanding the provisions of subparagraphs (A) and (B)
hereof, no member shall execute any transaction in a direct
participation program in a discretionary account without prior
written approval of the transaction by the customer.
Sec. (b)(3)
DISCLOSURE
(A) Prior to participating in a public offering of a direct
participation program, a member or person associated with a
member shall have reasonable grounds to believe, based on
information made available to him by the sponsor through a
prospectus or other materials, that all material facts are
adequately and accurately disclosed and provide a basis for
evaluating the program.
(B) In determining the adequacy of disclosed facts pursuant to
subparagraph (A) hereof, a member or person associated with a
member shall obtain information on material facts relating at a
minimum to the following, if relevant in view of the nature of
the program:
(i) items of compensation;
(ii) physical properties;
(iii) tax aspects;
(iv) financial stability and experience of the sponsor;
(v) the program's conflicts and risk factors; and
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<PAGE>
(vi) appraisals and other pertinent reports.
(C) For purposes of subparagraphs (A) and (B) hereof, a member or
person associated with a member may rely upon the results of an
inquiry conducted by another member or members, provided that:
(i) the member or person associated with a member has reasonable
grounds to believe that such inquiry was conducted with due
care;
(ii) the results of the inquiry were provided to the member or
person associated with a member with the consent of the
member or members conducting or directing the inquiry; and
(iii) no member that participated in the inquiry is a sponsor of
the program or an affiliate of such sponsor.
(D) Prior to executing a purchase transaction in a direct
participation program, a member or person associated with a
member shall inform the prospective participant of all pertinent
facts relating to the liquidity and marketability of the program
during the term of investment.
(f) You and the Selling Agents have received copies of the Prospectus
relating to the Units and you and the Selling Agents have relied
only on the statements contained in the Prospectus and not on any
other statements whatsoever, either written or oral, with respect
to the details of the offering of Units.
(g) You and the Selling Agents agree that you and the Selling Agents
shall not place any advertisement or other solicitation with
respect to the Units (including without limitation any material
for use in any newspaper, magazine, radio or television
commercial, telephone recording, motion picture, or other public
media) without the prior written approval of the Managing General
Partner, and without the prior written approval of the form and
content thereof by the Commission, the NASD and the securities
authorities of the states where such advertisement or
solicitation is to be circulated. Any such advertisements or
solicitations shall be at your expense.
(h) If a supplement or amendment to the Prospectus is prepared and
delivered to you by the Managing General Partner, you agree and
shall require any Selling Agent to agree to distribute each such
supplement or amendment to the Prospectus to every person who has
previously received a copy of the Prospectus from you and/or the
Selling Agent and you further agree and shall require any Selling
Agent to further agree to include such supplement or amendment in
all future deliveries of any Prospectus.
(i) You agree to advise the Managing General Partner in writing of
each state in which you and the Selling Agents propose to offer
or sell the Units and you shall not nor shall you permit any
Selling Agent to offer or sell Units in any state until such time
as you shall have been advised in writing by the Managing General
Partner, or the Managing General Partner's special counsel, that
such offer or sale has been qualified in such state or is exempt
from the qualification requirements imposed by such state or such
qualification is otherwise not required.
(j) In connection with any offer or sale of the Units, you agree and
shall require any Selling Agent to agree to comply in all
respects with statements set forth in the Prospectus and the
Partnership Agreement and you agree and shall require any Selling
Agent to agree not to make any statement inconsistent with the
statements in the Prospectus or the Partnership Agreement. You
further agree and shall require any Selling Agent to further
agree that you shall not provide and shall require any Selling
Agent not to provide any written information, statements or sales
literature other than the Prospectus, the Managing General
Partner's corporate profile and a brochure entitled "Atlas-Energy
for the Nineties-Public #8 Ltd." (the corporate profile and the
brochure collectively referred
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<PAGE>
to herein as the "Brochure"), and any supplements or amendments
thereto unless approved in writing by the Managing General Partner.
Further, you agree and shall require any Selling Agent to agree not
to make any untrue or misleading statements of a material fact in
connection with the Units.
(k) You agree to use your best efforts in the solicitation and sale
of said Units and to coordinate and supervise the efforts of the
Selling Agents and you shall require any Selling Agent to agree
to use its best efforts in the solicitation and sale of said
Units, including insuring that the prospective purchasers meet
the suitability requirements set forth in the Prospectus and the
Subscription Agreement and properly execute the Subscription
Agreement, which has been provided as Exhibit (I-B) to the
Partnership Agreement, Exhibit (A) of the Prospectus, together
with any additional forms provided in any supplement or amendment
to the Prospectus, or otherwise provided to you by the Managing
General Partner to be completed by prospective purchasers.
Executed Subscription Agreements shall be delivered or mailed
immediately to the Managing General Partner and must be received
by the Managing General Partner at or prior to the Offering
Termination Date.
The Managing General Partner shall have the right to reject any
subscription at any time for any reason without liability to it.
Investor funds shall be transmitted as set forth in Section 16.
(l) Although not anticipated, in the event you assist in any transfers
of the Units, you shall comply, and you shall require any Selling
Agent to comply, with the requirements of Rule 2810(b)(2)(B) and
(b)(3)(D) of the NASD Conduct Rules.
7. STATE SECURITIES REGISTRATION. Incident to the offer and sale of the Units,
the Managing General Partner will either use its best efforts in taking all
necessary action and filing all necessary forms and documents deemed
reasonable by it in order to qualify or register Units for sale under the
securities laws of the states requested by you pursuant to Section 6 (i)
hereof or use its best efforts in taking any necessary action and filing
any necessary forms deemed reasonable by it which are required to obtain an
exemption from qualification or registration in such states.
Notwithstanding, the Managing General Partner may elect not to qualify or
register Units in any state in which it deems such qualification or
registration is not warranted for any reason in its sole discretion. The
Managing General Partner and its counsel will inform you as to the
jurisdictions in which the Partnership Units have been qualified for sale
or are exempt under the respective securities or blue sky laws of such
jurisdictions; but the Managing General Partner has not assumed and will
not assume any obligation or responsibility as to your right or any Selling
Agent's right to act as a broker-dealer with respect to the Units in any
such jurisdiction.
The Managing General Partner will provide to you and the Selling Agents for
delivery to all offerees and purchasers and their representatives, any
additional information, documents and instruments which the Managing
General Partner deems necessary to comply with the rules, regulations and
judicial and administrative interpretations in those states and
jurisdictions for the offer and sale of the Units in such states. The
Managing General Partner will file all post-offering forms, documents or
materials and take all other actions required by the states in which the
offer and sale of Units have been qualified or are exempt or in which the
Units have been registered. However, the Managing General Partner shall not
be required to take any actions, make any filings or prepare any documents
necessary or required in connection with your status or any Selling Agent's
status as a broker-dealer under the laws of such states.
The Managing General Partner shall promptly provide you with copies of all
applications, filings, correspondence, orders or other documents or
instruments relating to any application for qualification, registration or
other approval under applicable state or Federal securities laws for the
offering.
8. EXPENSE OF SALE. The expenses in connection with the offer and sale of the
Units shall be payable as set forth below.
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(a) The Managing General Partner shall pay all expenses incident to the
performance of its obligations hereunder, including the fees and
expenses of the Managing General Partner's attorneys and accountants
and all fees and expenses of registering or qualifying the Units for
offer and sale in the states as set forth in Section 7 hereof, or
obtaining exemptions therefrom, even if this offering is not
successfully completed.
(b) You shall pay all expenses incident to the performance of your
obligations hereunder, including the formation and management of the
selling group and the fees and expenses of your own counsel and
accountants, even if this offering is not successfully completed.
9. CONDITIONS OF YOUR DUTIES. Your obligations provided herein shall be
subject to the accuracy, as of the date hereof and at the applicable
closing date (as if made at the applicable closing date), of the
representations and warranties of the Managing General Partner herein and
to the performance by the Managing General Partner of its obligations
hereunder.
10. CONDITION OF THE MANAGING GENERAL PARTNER'S DUTIES. The Managing General
Partner's obligations provided herein, including the duty to pay
compensation as set forth in Section 4 hereof, shall be subject to the
accuracy, as of the date hereof and at the applicable closing date (as if
made at the applicable closing date) of your representations and warranties
made herein, and to the performance by you of your obligations hereunder,
and to the additional condition that the Managing General Partner shall
have received, at or prior to the applicable closing date, the following
documents:
(a) a fully executed Subscription Agreement for each prospective
purchaser;
(b) certification to the Managing General Partner that you and each
Selling Agent are registered as required by Section 6(d) and that such
registrations were, during the term of the offering and through the
applicable closing date, in full force and effect; and
(c) a certificate from you, dated at the applicable closing date, to the
effect that your representations and warranties made herein are true
and correct as if made at the applicable closing date and that you
have fulfilled all your obligations hereunder.
11. INDEMNIFICATION.
(a) You and the Selling Agents shall indemnify and hold harmless the
Managing General Partner, the Partnership and its attorneys, against
any losses, claims, damages or liabilities, joint or several, to which
such parties may become subject, under the Act, the Act of 1934 or
otherwise insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon your
agreements with the Selling Agents or your breach of any of your
duties and obligations, representations, or warranties under the terms
or provisions of this Agreement and you and the Selling Agents shall
reimburse such parties for any legal or other expenses reasonably
incurred in connection with investigating or defending any such loss,
claim, damage, liability or action.
(b) The Managing General Partner shall indemnify and hold you and the
Selling Agents harmless against any losses, claims, damages or
liabilities, joint or several, to which you and the Selling Agents may
become subject, under the Act, the Act of 1934 or otherwise insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon the Managing General Partner's
breach of any of its duties and obligations, representations, or
warranties under the terms or provisions of this Agreement and the
Managing General Partner shall reimburse you and the Selling Agents
for any legal or other expenses reasonably incurred in connection with
investigating or defending such loss, claim, damage, liability or
action.
(c) The foregoing indemnity agreements shall extend upon the same terms
and conditions to, and shall inure to the benefit of, each person, if
any, who controls each indemnified party within the meaning of the
Act.
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(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim
in respect thereof is to be made against the indemnifying party under
this Section, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party. If any such action shall be brought against such
indemnified party, it shall notify the indemnifying party of the
commencement thereof, and the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified and
indemnifying parties. After the indemnified party shall have received
notice from the agreed upon counsel that the defense under this
paragraph has been so assumed, the indemnifying party shall not be
responsible for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other
than with respect to the agreed upon counsel who assumed the defense
thereof.
12. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations,
warranties and agreements of the Managing General Partner and you herein or
in certificates delivered pursuant hereto, and the indemnity agreements
contained in Section 11 hereof, shall survive the delivery, execution and
closing hereof, and shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of you or any person
who controls you within the meaning of the Act, or by the Managing General
Partner, or any of its officers, directors or any person who controls the
Managing General Partner within the meaning of the Act, or any other
indemnified party, and shall survive delivery of the Units hereunder.
13. TERMINATION. You shall have the right to terminate this agreement other
than the indemnification provisions of Section 11 by giving notice as
hereinafter specified any time at or prior to a closing date:
(a) if the Managing General Partner shall have failed, refused, or been
unable at or prior to the closing date, to perform any of its
obligations hereunder; or
(b) there has occurred an event materially and adversely affecting the
value of the Units.
If you elect to terminate this Agreement other than the indemnification
provisions of Section 11, the Managing General Partner shall be promptly
notified by you by telephone, telecopier or telegram, confirmed by letter.
The Managing General Partner may terminate this Agreement other than the
indemnification provisions of Section 11 for any reason by promptly giving
notice to you by telephone, telecopier or telegram, confirmed by letter as
hereinafter specified at or prior to a closing date.
14. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing, and if sent to you
shall be mailed, delivered or telegraphed and confirmed to you at 393
Vanadium Road, Pittsburgh, Pennsylvania 15243 or if sent to the Managing
General Partner or on behalf of the Partnership, at 311 Rouser Road, Moon
Township, Pennsylvania 15108.
15. FORMAT OF CHECKS/ESCROW AGENT. Pending receipt of the minimum Partnership
Subscription, the Managing General Partner and you and the Selling Agents
agree that all subscribers shall be instructed to make their checks,
drafts, or money orders payable solely to "Atlas Public #8 Ltd., Escrow
Agent, National City Bank of PA" as agent for the Partnership.
If you receive a check, draft, or money order not conforming to the
foregoing instructions you shall return such check, draft, or money order
to the Selling Agent not later than the end of the next business day
following its receipt by you. The Selling Agent shall then return such
check, draft, or money order directly to the subscriber not later than the
end of the next business day following its receipt from you. Checks,
drafts, or money orders received by you or a Selling Agent which conform to
the foregoing instructions shall be transmitted by you pursuant to Section
16 "Transmittal Procedures," below.
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You represent that you have executed the Escrow Agreement and agree that
you are bound by the terms of the Escrow Agreement executed by you, the
Partnership and the Managing General Partner, a copy of which is attached
hereto as Exhibit "A."
16. TRANSMITTAL PROCEDURES. You and each Selling Agent shall transmit received
investor funds in accordance with the following procedures. For purposes of
the following, the term Selling Agent shall also include you as
Dealer-Manager where you receive subscriptions from investors.
(a) Pending receipt of the minimum subscription of $1,000,000, the Selling
Agents shall promptly, upon receipt of any and all checks, drafts, and
money orders received from prospective purchasers of Units, transmit
same together with the original executed Subscription Agreement to
you, as Dealer-Manager by the end of the next business day following
receipt of the check, draft, or money order by the Selling Agent. By
the end of the next business day following receipt of the check,
draft, or money order and Subscription Agreement by you as
Dealer-Manager, you as Dealer-Manager shall transmit the check, draft
or money order and a copy of the executed Subscription Agreement to
the Escrow Agent, and the original Subscription Agreement and a copy
of the check, draft or money order to the Managing General Partner.
(b) Upon receipt by you as Dealer-Manager of notice from the Managing
General Partner that the minimum Partnership Subscription has been
received, the Managing General Partner, you and the Selling Agent
agree that all subscribers thereafter may be instructed, in the
Managing General Partner's sole discretion, to make their checks,
drafts, or money orders payable solely to "Atlas Public #8 Ltd.".
Thereafter, Selling Agents shall promptly, upon receipt of any and all
checks, drafts, and money orders received from prospective purchasers
of Units, transmit same together with the original Subscription
Agreement to you as Dealer-Manager by the end of the next business day
following receipt of the check, draft, or money order by the Selling
Agent. By the end of the next business day following receipt of the
check, draft, or money order and Subscription Agreement by you as
Dealer-Manager, you as Dealer-Manager shall transmit the check, draft
or money order and the original Subscription Agreement to the Managing
General Partner.
17. PARTIES. This Agreement shall inure to the benefit of and be binding upon
you, the Managing General Partner, and any respective successors and
assigns. This Agreement shall also inure to the benefit of the indemnified
parties, their successors and assigns. This Agreement is intended to be and
is for the sole and exclusive benefit of the parties hereto, including the
Partnership, and their respective successors and assigns, and the
indemnified parties and their successors and assigns, and for the benefit
of no other person, and no other person shall have any legal or equitable
right, remedy or claim under or in respect of this Agreement. No purchaser
of any of the Units from you shall be construed a successor or assign
merely by reason of such purchase.
18. RELATIONSHIP. This Agreement shall not constitute you a partner of the
Managing General Partner or the Partnership or any general partner thereof,
nor render the Managing General Partner or the Partnership liable for any
of your obligations except as otherwise provided herein.
19. EFFECTIVE DATE. This Agreement is made effective between the parties as of
the date accepted by you as indicated by your signature hereto.
20. ENTIRE AGREEMENT WAIVER. This Agreement constitutes the entire agreement
between the parties hereto and shall not be amended or modified in any way
except by subsequent agreement executed in writing, and no party shall be
liable or bound to the other by any agreement, except as specifically set
forth herein. Any party hereto may waive, but only in writing, any term,
condition, or requirement under this Agreement which is intended for its
own benefit, and written waiver of any term or condition of this Agreement
shall not operate as a waiver of any other breach of such term or
condition, nor shall any failure to enforce any provision hereof operate as
a waiver of such provision or any other provision hereof.
9
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If the foregoing correctly sets forth our understanding please so indicate in
the space provided below for the purpose whereupon this letter shall constitute
a binding agreement between us.
<TABLE>
<S> <C>
Very truly yours,
ATLAS RESOURCES, INC.,
a Pennsylvania corporation
________________________________, 1999 By:___________________________________________
Date Tony C. Banks, Senior Vice President and
Chief Financial Officer
ATTEST:
______________________________________
(SEAL) Secretary
PARTNERSHIP
-----------
ATLAS-ENERGY FOR THE INETIES-PUBLIC #8 LTD.
By: Atlas Resources, Inc.,
Managing General Partner
________________________________, 1999 By: ________________________________________
Date Tony C. Banks, Senior Vice President and
Chief Financial Officer
ATTEST:
______________________________________
(SEAL) Secretary
DEALER-MANAGER
--------------
BRYAN FUNDING, INC.,
a Pennsylvania corporation
________________________________, 1999 By: _________________________________
Date Richard G. Bryan, Jr., President
ATTEST:
______________________________________
(SEAL) Secretary
</TABLE>
10
<PAGE>
EXHIBIT "A"
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
ESCROW AGREEMENT
THIS AGREEMENT, made to be effective as of the _____ day of _________,
1999, by and between Atlas Resources, Inc., a Pennsylvania corporation (the
"Managing General Partner"), Anthem Securities, Inc., a Pennsylvania corporation
("Anthem"), Bryan Funding, Inc., a Pennsylvania corporation ("Bryan Funding"),
collectively Anthem and Bryan Funding are referred to as the "Dealer-Manager",
Atlas-Energy for the Nineties-Public #8 Ltd., a Pennsylvania limited partnership
(the "Partnership") and National City Bank of Pennsylvania, Pittsburgh,
Pennsylvania, as escrow agent (the "Escrow Agent").
WITNESSETH:
WHEREAS, the Partnership intends to offer publicly for sale to qualified
investors (the "Investors") up to 1,800 limited partnership interests in the
Partnership (the "Units"); and
WHEREAS, each Investor will be required to pay his subscription in full
upon subscribing ($10,000 per Unit, however, the Managing General Partner, in
its discretion, may accept one-half Unit [$5,000] subscriptions, with larger
subscriptions permitted in $1,000 increments), by check, draft or money order
except that the broker-dealers and the Managing General Partner, its officers
and directors and Affiliates, may purchase Units net of the Dealer-Manager fee,
the commissions and reimbursement of marketing expenses and bona fide
accountable due diligence expenses set forth below, and registered investment
advisors and their clients may purchase Units subject to the Dealer-Manager fee
but net of the commissions and reimbursement of marketing expenses and bona fide
accountable due diligence expenses set forth below (the "Subscription
Proceeds"); and
WHEREAS, the Managing General Partner and Anthem have executed an
agreement ("Anthem Dealer-Manager Agreement") pursuant to which Anthem will
solicit subscriptions for Units in all states other than Minnesota and New
Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on a "best
efforts" basis for the remaining Units on behalf of the Managing General Partner
and the Partnership and pursuant to which Anthem has been authorized to select
certain members in good standing of the National Association of Securities
Dealers, Inc. ("NASD") to participate in the offering of the Units ("Selling
Agents"); and
WHEREAS, the Managing General Partner and Bryan Funding have executed an
agreement ("Bryan Funding Dealer-Manager Agreement") pursuant to which Bryan
Funding will solicit subscriptions for Units in the states of Minnesota and New
Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on a "best
efforts" basis for the remaining Units on behalf of the Managing General Partner
and the Partnership and pursuant to which Bryan Funding has been authorized to
select certain members in good standing of the NASD to participate in the
offering of the Units ("Selling Agents"); and
WHEREAS, the Anthem Dealer-Manager Agreement and the Bryan Funding
Dealer-Manager Agreement, collectively referred to as the "Dealer-Manager
Agreement", provide for compensation to the Dealer-Manager which includes, but
is not limited to: (i) a 2.5% Dealer-Manager fee; (ii) a 7.0% sales commission;
(iii) a .5% reimbursement of marketing expenses; and (iv) reimbursement of the
Selling Agents' bona fide accountable due diligence expenses of .5% per Unit to
participate in the offering of the Units, all or a portion of which compensation
will be reallowed to the Selling Agents and wholesalers; and
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WHEREAS, under the terms of the Dealer-Manager Agreement the Subscription
Proceeds are required to be held in escrow subject to the receipt and acceptance
by the Managing General Partner of the minimum Subscription Proceeds of
$1,000,000, excluding any optional subscription by the Managing General Partner,
its officers, directors and Affiliates; and
WHEREAS, no subscriptions to the Partnership will be accepted after
receipt of the maximum Subscription Proceeds of $14,000,000 (which may be
increased to $18,000,000 in the Managing General Partner's discretion) or
December 31, 1999, whichever event occurs first (the "Offering Termination
Date"); and
WHEREAS, to facilitate compliance with the terms of the Dealer-Manager
Agreement, the Managing General Partner and the Dealer-Manager desire to have
the Subscription Proceeds deposited with the Escrow Agent and the Escrow Agent
desires to hold the Subscription Proceeds pursuant to the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. APPOINTMENT OF ESCROW AGENT. The Managing General Partner, the
Partnership and the Dealer-Manager hereby appoint Escrow Agent as the
escrow agent to receive and to hold the Subscription Proceeds deposited
with Escrow Agent by the Dealer-Manager and the Selling Agents pursuant
hereto and Escrow Agent hereby agrees to serve in such capacity during
the term and based upon the provisions hereof.
2. DEPOSIT OF SUBSCRIPTION PROCEEDS. Pending receipt of the minimum
Subscription Proceeds of $1,000,000, the Dealer-Manager shall deposit the
Subscription Proceeds of each Investor with the Escrow Agent and shall
deliver to the Escrow Agent a copy of the Subscription Agreement of such
Investor. Payment for each subscription for Units shall be in the form of
a check made payable to "Atlas Public #8 Ltd., Escrow Agent, National
City Bank of PA". The Escrow Agent shall deliver a receipt to Anthem and
the Managing General Partner for each deposit of Subscription Proceeds
made pursuant hereto by Anthem, and to Bryan Funding and the Managing
General Partner for each deposit of subscription proceeds made pursuant
hereto by Bryan Funding.
3. INVESTMENT OF SUBSCRIPTION PROCEEDS. The Subscription Proceeds shall be
deposited in an interest bearing account maintained by the Escrow Agent
entitled "Armada Government Fund." Subscription Proceeds may be
temporarily invested by the Escrow Agent only in income producing
short-term, highly liquid investments secured by the United States
government where there is appropriate safety of principal, such as U.S.
Treasury Bills. The interest earned shall be added to the Subscription
Proceeds and disbursed in accordance with the provisions of paragraph 4
or 5, as the case may be.
4. DISTRIBUTION OF SUBSCRIPTION PROCEEDS. If the Escrow Agent:
(a) receives written notice from an authorized officer of the
Managing General Partner that at least the minimum aggregate
subscriptions of $1,000,000 have been received and accepted by
the Managing General Partner; and
(b) determines that Subscription Proceeds for at least $1,000,000 as
determined by the Managing General Partner have cleared the
banking system and are good;
2
<PAGE>
the Escrow Agent shall promptly release and distribute to the Managing
General Partner such escrowed Subscription Proceeds which have cleared
the banking system and are good plus any interest paid and investment
income earned on such Subscription Proceeds while held by the Escrow
Agent in an escrow account.
Any remaining Subscription Proceeds, plus any interest paid and
investment income earned on such Subscription Proceeds while held by the
Escrow Agent in an escrow account shall be promptly released and
distributed to the Managing General Partner by the Escrow Agent as such
Subscription Proceeds clear the banking system and become good.
5. SEPARATE PARTNERSHIP ACCOUNT. During the continuation of the offering
after the Partnership is funded with cleared Subscription Proceeds of at
least $1,000,000 and the Escrow Agent receives the notice described in
Paragraph 4 of this Agreement, and prior to the Offering Termination
Date, any additional Subscription Proceeds may be deposited by the
Dealer-Manager directly in a separate Partnership account which shall not
be subject to the terms of this Agreement.
6. DISTRIBUTIONS TO SUBSCRIBERS.
(a) In the event that the Partnership will not be funded as
contemplated because less than the minimum aggregate
subscriptions of $1,000,000 have been received and accepted by
the Managing General Partner by twelve p.m. (noon), local time,
on December 31, 1999, or for any other reason, the Managing
General Partner shall so notify the Escrow Agent, whereupon the
Escrow Agent promptly shall distribute to each Investor a refund
check made payable to such Investor in an amount equal to the
Subscription Proceeds of such Investor, plus any interest paid or
investment income earned thereon while held by the Escrow Agent
in an escrow account as calculated by the Managing General
Partner.
(b) In the event that a subscription for Units submitted by an
Investor is rejected by the Managing General Partner for any
reason after the Subscription Proceeds relating to such
subscription have been deposited with the Escrow Agent, then the
Managing General Partner promptly shall notify the Escrow Agent
of such rejection, and the Escrow Agent shall promptly distribute
to such Investor a refund check made payable to such Investor in
an amount equal to the Subscription Proceeds of such Investor,
plus any interest paid or investment income earned thereon while
held by the Escrow Agent in an escrow account as calculated by
the Managing General Partner.
7. COMPENSATION AND EXPENSES OF ESCROW AGENT. The Managing General Partner
shall be solely responsible for and shall pay the compensation of the
Escrow Agent for its services hereunder, as provided in Appendix 1 to
this Agreement and made a part hereof, and the charges, expenses
(including any reasonable attorneys' fees), and other out-of-pocket
expenses incurred by the Escrow Agent in connection with the
administration of the provisions of this Agreement. The Escrow Agent
shall have no lien on the Subscription Proceeds deposited in an escrow
account unless and until the Partnership is funded with cleared
Subscription Proceeds of at least $1,000,000 and the Escrow Agent
receives the notice described in Paragraph 4 of this Agreement, at which
time the Escrow Agent shall have, and is hereby granted, a prior lien
upon any property, cash, or assets held hereunder, with respect to its
unpaid compensation and nonreimbursed expenses, superior to the interests
of any other persons or entities.
8. DUTIES OF ESCROW AGENT. The Escrow Agent shall not be obligated to accept
any notice, make any delivery, or take any other action under this Escrow
Agreement unless the notice or request or demand for delivery or other
action is in writing and given or made by the party given the right or
charged with
3
<PAGE>
the obligation under this Escrow Agreement to give the notice or to
make the request or demand. In no event shall the Escrow Agent be
obligated to accept any notice, request, or demand from anyone other
than the Managing General Partner or the Dealer-Manager.
9. LIABILITY OF ESCROW AGENT. The Escrow Agent shall not be liable for any
damages, or have any obligations other than the duties prescribed herein
in carrying out or executing the purposes and intent of this Escrow
Agreement; provided, however, that nothing herein contained shall relieve
the Escrow Agent from liability arising out of its own willful misconduct
or gross negligence. Escrow Agent's duties and obligations under this
Agreement shall be entirely administrative and not discretionary. Escrow
Agent shall not be liable to any party hereto or to any third party as a
result of any action or omission taken or made by Escrow Agent in good
faith. The parties to this Agreement will indemnify Escrow Agent, hold
Escrow Agent harmless, and reimburse Escrow Agent from, against and for,
any and all liabilities, costs, fees and expenses (including reasonable
attorney's fees) Escrow Agent may suffer or incur by reason of its
execution and performance of this Agreement. In the event any legal
questions arise concerning Escrow Agent's duties and obligations
hereunder, Escrow Agent may consult with its counsel and rely without
liability upon written opinions given to it by such counsel.
The Escrow Agent shall be protected in acting upon any written notice,
request, waiver, consent, authorization, or other paper or document which
the Escrow Agent, in good faith, believes to be genuine and what it
purports to be.
In the event that there shall be any disagreement between any of the
parties to this Agreement, or between them or any of them and any other
person, resulting in adverse claims or demands being made in connection
with this Agreement, or in the event that Escrow Agent, in good faith,
shall be in doubt as to what action it should take hereunder, Escrow
Agent may, at its option, refuse to comply with any claims or demands on
it or refuse to take any other action hereunder, so long as such
disagreement continues or such doubt exists. In any such event, Escrow
Agent shall not be or become liable in any way or to any person for its
failure or refusal to act and Escrow Agent shall be entitled to continue
to so refrain from acting until the dispute is resolved by the parties
involved.
National City Bank of Pennsylvania is acting solely as Escrow Agent and
is not a party to, nor has it reviewed or approved any agreement or
matter of background related to this Agreement, other than this Agreement
itself, and has assumed, without investigation, the authority of the
individuals executing this Agreement to be so authorized on behalf of the
party or parties involved.
10. RESIGNATION OR REMOVAL OF ESCROW AGENT. The Escrow Agent may resign as
such following the giving of thirty days' prior written notice to the
other parties hereto. Similarly, the Escrow Agent may be removed and
replaced following the giving of thirty days' prior written notice to the
Escrow Agent by the other parties hereto.
In either event, the duties of the Escrow Agent shall terminate thirty
days after the date of such notice (or as of such earlier date as may be
mutually agreeable); and the Escrow Agent shall then deliver the balance
of the Subscription Proceeds (and any interest paid or investment income
earned thereon while held by the Escrow Agent in an escrow account) in
its possession to a successor escrow agent as shall be appointed by the
other parties hereto as evidenced by a written notice filed with the
Escrow Agent. If the other parties hereto are unable to agree upon a
successor or shall have failed to appoint a successor prior to the
expiration of thirty days following the date of the notice of resignation
or removal, the then acting Escrow Agent may petition any court of
competent jurisdiction for the appointment of a successor escrow agent or
other appropriate relief; and any such resulting appointment shall be
binding upon all of the parties hereto.
Upon acknowledgment by any successor escrow agent of the receipt of the
then remaining balance of the Subscription Proceeds (and any interest
paid or investment income earned thereon while held by the Escrow Agent
in an escrow account), the then acting Escrow Agent shall be fully
released and relieved of all duties, responsibilities, and obligations
under this Agreement.
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11. TERMINATION. This Agreement shall terminate and the Escrow Agent shall
have no further obligation with respect hereto upon the occurrence of the
distribution of all Subscription Proceeds (and any interest paid or
investment income earned thereon while held by the Escrow Agent in an
escrow account) as contemplated hereby or upon the written consent of all
the parties hereto.
12. NOTICE. Any notices or instructions, or both, to be given hereunder shall
be validly given if set forth in writing and mailed by certified mail,
return receipt requested, as follows:
IF TO THE ESCROW AGENT:
-----------------------
National City Bank of Pennsylvania
Attention: Mr. Robert Mialki, Vice President
Corporate Trust Department
300 Fourth Avenue
Pittsburgh, Pennsylvania 15278-2331
Phone: (412) 644-8401
Facsimile: (412) 644-7971
IF TO THE MANAGING GENERAL PARTNER:
-----------------------------------
Atlas Resources, Inc.
311 Rouser Road
P.O. Box 611
Moon Township, Pennsylvania 15108
Attention: Tony C. Banks
Phone: (412) 262-2830
Facsimile: (412) 262-2820
IF TO ANTHEM:
-------------
Anthem Securities, Inc.
311 Rouser Road
P.O. Box 926
Coraopolis, Pennsylvania 15108
Attention: Eric D. Koval
Phone: (412) 262-1680
Facsimile: (412) 262-7430
IF TO BRYAN FUNDING:
--------------------
Bryan Funding, Inc.
393 Vanadium Road
Pittsburgh, Pennsylvania 15243
Attention: Richard G. Bryan, Jr.
Phone: (412) 276-9393
Facsimile: (412) 276-9396
5
<PAGE>
Any party may designate any other address to which notices and
instructions shall be sent by notice duly given in accordance herewith.
13. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
(b) This Agreement is binding upon and shall inure to the benefit of
the undersigned and their respective heirs, successors and
assigns.
(c) This Agreement may be executed in multiple copies, each executed
copy to serve as an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the day and year first above written.
<TABLE>
<S> <C>
NATIONAL CITY BANK OF PENNSYLVANIA
ATTEST: As Escrow Agent
By: _____________________________ By: _______________________________________
(Authorized Officer) (Authorized Officer)
ATLAS RESOURCES, INC.
ATTEST: A Pennsylvania corporation
By: _____________________________ By: _______________________________________
Secretary Tony C. Banks, Senior Vice President and
Chief Financial Officer
ANTHEM SECURITIES, INC.
ATTEST: A Pennsylvania corporation
By: _____________________________ By: _______________________________________
Secretary Eric D. Koval, President
BRYAN FUNDING, INC.
ATTEST: A Pennsylvania corporation
By: _____________________________ By: _______________________________________
Secretary Richard G. Bryan, Jr., President
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
By: ATLAS RESOURCES, INC.
ATTEST: Managing General Partner
By: _____________________________ By: ______________________________________
Secretary Tony C. Banks, Senior Vice President
Chief Financial Officer
</TABLE>
6
<PAGE>
APPENDIX I TO ESCROW AGREEMENT
COMPENSATION FOR SERVICES OF ESCROW AGENT
<TABLE>
<S> <C>
Escrow Agent annual fee per year or any part thereof $3,000.00
</TABLE>
7
<PAGE>
EXHIBIT "B"
SELLING AGENT AGREEMENT
WITH BRYAN FUNDING, INC.
TO:__________________________________
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
Gentlemen:
Atlas Resources, Inc. ("Atlas"), is the Managing General Partner in a
Pennsylvania limited partnership named Atlas-Energy for the Nineties-Public #8
Ltd. (the "Partnership"). The Units of Participation (the "Units") and the
offering are described in the enclosed Prospectus dated __________, 1999 (the
"Prospectus"). Prospectuses relating to the Units have been furnished to you
with this Agreement.
Our firm, Bryan Funding, Inc. (the "Dealer-Manager"), has entered into a
Dealer-Manager Agreement for sales in the states of Minnesota and New Hampshire,
a copy of which has been furnished to you and is incorporated herein by
reference, with the Managing General Partner and the Partnership under which the
Dealer-Manager has agreed to form a group of National Association of Securities
Dealers, Inc. (the "NASD") member firms (the "Selling Agents"), who will obtain
subscriptions to the Partnership in the states of Minnesota and New Hampshire on
a "best efforts" basis pursuant to the Securities Act of 1933, as amended (the
"Act"), and the provisions of the Prospectus.
You are invited to become one of the Selling Agents, on a non-exclusive
basis. By your acceptance below you will have agreed to act in that capacity and
to use your best efforts, in accordance with the following terms and conditions,
to solicit such subscriptions in the states of Minnesota and New Hampshire. This
Agreement, however, shall not be construed to prohibit your participation as a
selling agent in other states in addition to Minnesota and New Hampshire
pursuant to a duly executed selling agent agreement entered into by you and any
other authorized "Dealer-Manager" for the Partnership.
1. REPRESENTATIONS AND WARRANTIES OF SELLING AGENT. You, as a Selling
Agent, represent and warrant to the Dealer-Manager that:
(a) You are a corporation duly organized, validly existing and in good
standing under the laws of the state of your formation or of any
jurisdiction to the laws of which you are subject, with all
requisite power and authority to enter into this Agreement and to
carry out your obligations hereunder.
(b) This Agreement when accepted and approved will be duly authorized,
executed and delivered by you and will be a valid and binding
agreement on your part in accordance with its terms.
(c) The consummation of the transactions contemplated by this
Agreement and the Prospectus will not result in any breach of any
of the terms or conditions of, or constitute a default under your
Articles of Incorporation, Bylaws, any indenture, agreement or
other instrument to which you are a party, or violate any order
applicable to you of any court or any federal or state regulatory
body or administrative agency having jurisdiction over you or over
your affiliates.
(d) You are duly registered pursuant to the provisions of the
Securities Exchange Act of 1934 (the "Act of 1934") as a dealer
and you are a member in good standing of the NASD. You are duly
registered as a broker-dealer in the states in which you are
required to be registered in order to
1
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carry out your obligations as contemplated by this Agreement
and the Prospectus. You agree to maintain all the foregoing
registrations in good standing throughout the term of the offer
and sale of the Units and you agree to comply with all statutes
and other requirements applicable to you as a broker-dealer
pursuant to those registrations.
(e) Pursuant to your appointment as a Selling Agent, you shall comply
with all the provisions of the Act, insofar as the Act applies to
your activities hereunder. Further, you shall not engage in any
activity which would cause the offer and/or sale of Units not to
comply with the Act, the Act of 1934 and the applicable rules and
regulations of the Securities and Exchange Commission (the
"Commission"), the applicable state securities laws and
regulations, this Agreement and the NASD Conduct Rules including
Rules 2730, 2740, 2420, 2750, and Rules 2810(b)(2) and (b)(3),
which provide as follows:
Sec. (b)(2)
SUITABILITY
(A) A member or person associated with a member
shall not underwrite or participate in a public
offering of a direct participation program
unless standards of suitability have been
established by the program for participants
therein and such standards are fully disclosed
in the prospectus and are consistent with the
provisions of subparagraph (B) of this section.
(B) In recommending to a participant the purchase,
sale or exchange of an interest in a direct
participation program, a member or person
associated with a member shall:
(i) have reasonable grounds to believe, on
the basis of information obtained from
the participant concerning his
investment objectives, other
investments, financial situation and
needs, and any other information known
by the member or associated person,
that:
(a) the participant is or will be
in a financial position
appropriate to enable him to
realize to a significant
extent the benefits described
in the prospectus, including
the tax benefits where they
are a significant aspect of
the program;
(b) the participant has a fair
market net worth sufficient to
sustain the risks inherent in
the program, including loss of
investment and lack of
liquidity; and
(c) the program is otherwise
suitable for the participant;
and
(ii) maintain in the files of the member
documents disclosing the basis upon
which the determination of suitability
was reached as to each participant.
(C) Notwithstanding the provisions of subparagraphs
(A) and (B) hereof, no member shall execute any
transaction in a direct participation program in
a discretionary account without prior written
approval of the transaction by the customer.
Sec. (b)(3)
DISCLOSURE
(A) Prior to participating in a public offering of a
direct participation program, a member or person
associated with a member shall have reasonable
grounds to believe, based on information made
available to him by the sponsor through a
prospectus or other materials, that all material
facts are adequately and accurately disclosed
and provide a basis for evaluating the program.
2
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(B) In determining the adequacy of disclosed facts
pursuant to subparagraph (A) hereof, a member or
person associated with a member shall obtain
information on material facts relating at a
minimum to the following, if relevant in view of
the nature of the program:
(i) items of compensation;
(ii) physical properties;
(iii) tax aspects;
(iv) financial stability and experience of
the sponsor;
(v) the program's conflicts and risk
factors; and
(vi) appraisals and other pertinent reports.
(C) For purposes of subparagraphs (A) and (B)
hereof, a member or person associated with a
member may rely upon the results of an inquiry
conducted by another member or members, provided
that:
(i) the member or person associated with a
member has reasonable grounds to
believe that such inquiry was conducted
with due care;
(ii) the results of the inquiry were
provided to the member or person
associated with a member with the
consent of the member or members
conducting or directing the inquiry;
and
(iii) no member that participated in the
inquiry is a sponsor of the program or
an affiliate of such sponsor.
(D) Prior to executing a purchase transaction in a
direct participation program, a member or person
associated with a member shall inform the
prospective participant of all pertinent facts
relating to the liquidity and marketability of
the program during the term of investment.
(f) You have received copies of the Prospectus relating to the Units
and you have relied only on the statements contained in the
Prospectus and not on any other statements whatsoever, either
written or oral, with respect to the details of the offering of
Units.
(g) You agree that you shall not place any advertisement or other
solicitation with respect to the Units (including without
limitation any material for use in any newspaper, magazine, radio
or television commercial, telephone recording, motion picture, or
other public media) without the prior written approval of the
Managing General Partner, and without the prior written approval
of the form and content thereof by the Commission, the NASD and
the securities authorities of the states where such advertisement
or solicitation is to be circulated. Any such advertisements or
solicitations shall be at your expense.
(h) If a supplement or amendment to the Prospectus is prepared and
delivered to you by the Managing General Partner or the
Dealer-Manager, you agree to distribute each such supplement or
amendment to the Prospectus to every person who has previously
received a copy of the Prospectus from you and you further agree
to include such supplement or amendment in all future deliveries
of any Prospectus.
(i) In connection with any offer or sale of the Units, you agree to
comply in all respects with statements set forth in the Prospectus
and the Partnership Agreement and you agree not to make any
statement inconsistent with the statements in the Prospectus or
the Partnership Agreement and you further agree that you shall not
provide any written information, statements or sales literature
3
<PAGE>
other than the Prospectus, the Managing General Partner's
corporate profile and a brochure entitled "Atlas-Energy for the
Nineties-Public #8 Ltd." (the corporate profile and the brochure
collectively referred to herein as the "Brochure"), and any
supplements or amendments thereto unless approved in writing by
the Managing General Partner. Further, you agree not to make any
untrue or misleading statements of a material fact in connection
with the Units.
(j) You agree to use your best efforts in the solicitation and sale of
said Units, including insuring that the prospective purchasers
meet the suitability requirements set forth in the Prospectus and
the Subscription Agreement and properly execute the Subscription
Agreement, which has been provided as Exhibit (I-B) to the
Partnership Agreement, Exhibit (A) to the Prospectus, together
with any additional forms provided in any supplement or amendment
to the Prospectus, or otherwise provided to you by the Managing
General Partner or the Dealer-Manager to be completed by
prospective purchasers.
The Managing General Partner shall have the right to reject any
subscription at any time for any reason without liability to it.
Investor funds and executed Subscription Agreements shall be
transmitted as set forth in Section 11.
(k) You shall comply with the requirements of Rules 2810(b)(2)(B) and
(b)(3)(D) of the NASD Conduct Rules.
2. COMMISSIONS.
(a) Subject to the receipt of the minimum required Partnership
Subscription of $1,000,000, the Dealer-Manager is entitled to
receive from the Partnership a 7.0% Sales Commission, a .5%
reimbursement of marketing expenses and a .5% reimbursement of the
Selling Agents' bona fide accountable due diligence expenses based
on the aggregate amount of all Unit subscriptions to the
Partnership secured by the Dealer-Manager or the selling group
formed by the Dealer-Manager and accepted by the Managing General
Partner.
Subject to the terms and conditions herein set forth, including
the Dealer-Manager's receipt from you of the documentation
required of you in Section 1 of this Agreement, the Dealer-Manager
agrees to pay you a 7.0% cash commission, a .5% reimbursement of
marketing expenses and a .5% reimbursement of your bona fide
accountable due diligence expenses, of subscriptions sold by you
and accepted by the Managing General Partner, within seven
business days after the Dealer-Manager has received the
commissions and reimbursements on such subscriptions.
The Dealer-Manager is entitled to receive its commissions and
reimbursements within five business days after at least the
minimum Partnership Subscription ($1,000,000) has been received
and accepted by the Managing General Partner and the subscription
proceeds have been released to the Managing General Partner from
the escrow account, and approximately every two weeks thereafter
until the Offering Termination Date, which is December 31, 1999,
or when the maximum Partnership Subscription of $18,000,000 is
received if earlier. The balance will be paid to the
Dealer-Manager within 14 business days after the Offering
Termination Date.
(b) Notwithstanding anything herein to the contrary, you agree to
waive payment of your commissions and reimbursements as set forth
above in (a) until the Dealer-Manager is in receipt of the related
amounts owed to it pursuant to the Dealer-Manager Agreement, and
the Dealer-Manager's liability for such amounts hereunder is
limited solely to the proceeds of the related amounts owed to it
pursuant to the Dealer-Manager Agreement.
(c) The Partnership will not commence operations unless subscriptions
for at least $1,000,000 have been secured by December 31, 1999. If
this amount is not secured, nothing will be payable to you and all
funds advanced by purchasers will be returned to them with
interest earned, if any.
4
<PAGE>
(d) Notwithstanding the foregoing, Registered Investment Advisors and
their clients may subscribe to Units without paying the Sales
Commissions and reimbursement of marketing expenses and bona fide
accountable due diligence expenses, and their Agreed Subscriptions
will be subject only to the 2.5% Dealer-Manager fee.
Also, the Managing General Partner, its officers and directors and
Affiliates, and the Selling Agents may subscribe to Units without
paying the Dealer-Manager fee, Sales Commissions and the
reimbursement of marketing expenses and the Selling Agents' bona
fide accountable due diligence expenses.
3. STATE SECURITIES REGISTRATION. The Managing General Partner may elect not
to qualify or register Units in any state in which it deems such
qualification or registration is not warranted for any reason in its sole
discretion. Upon application to the Dealer-Manager you will be informed
as to the jurisdictions in which the Units have been qualified for sale
or are exempt under the respective securities or "Blue Sky" laws of such
jurisdictions.
Notwithstanding, the Dealer-Manager, the Partnership and the Managing
General Partner have not assumed and will not assume any obligation or
responsibility as to your right to act as a broker-dealer with respect to
the Units in any such jurisdiction.
4. EXPENSE OF SALE. The expenses in connection with the offer and sale of
the Units shall be payable as set forth below.
(a) The Dealer-Manager shall pay all expenses incident to the
performance of its obligations hereunder, including the fees and
expenses of its attorneys and accountants, even if this offering
is not successfully completed.
(b) You shall pay all expenses incident to the performance of your
obligations hereunder, including the fees and expenses of your own
counsel and accountants, even if this offering is not successfully
completed.
5. CONDITIONS OF YOUR DUTIES. Your obligations provided herein, as of the
date hereof and at the applicable closing date, shall be subject to the
performance by the Dealer-Manager of its obligations hereunder and to the
performance by the Managing General Partner of its obligations under the
Dealer-Manager Agreement.
6. CONDITIONS OF DEALER-MANAGER'S DUTIES. The Dealer-Manager's obligations
provided herein, including the duty to pay compensation as set forth in
Section 2 hereof, shall be subject to the accuracy, as of the date hereof
and at the applicable closing date (as if made at the applicable closing
date) of your representations and warranties made herein, and to the
performance by you of your obligations hereunder, and to the additional
condition that the Dealer-Manager shall have received, at or prior to the
applicable closing date, the following documents:
(a) a fully executed Subscription Agreement for each prospective
purchaser;
(b) certification to the Dealer-Manager that you are registered as
required by Section 1(d) and that such registrations were, during
the term of the offering and through the applicable closing date,
in full force and effect; and
(c) a certificate from you, dated at the applicable closing date, to
the effect that your representations and warranties made herein
are true and correct as if made at the applicable closing date and
that you have fulfilled all your obligations hereunder.
5
<PAGE>
7. INDEMNIFICATION.
(a) You shall indemnify and hold harmless the Dealer-Manager, the
Managing General Partner, the Partnership and its attorneys,
against any losses, claims, damages or liabilities, joint or
several, to which such parties may become subject, under the Act,
the Act of 1934 or otherwise insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out
of or are based upon your breach of any of your duties and
obligations, representations, or warranties under the terms or
provisions of this Agreement and you shall reimburse such parties
for any legal or other expenses reasonably incurred in connection
with investigating or defending any such loss, claim, damage,
liability or action.
(b) The Dealer-Manager shall indemnify and hold you harmless against
any losses, claims, damages or liabilities, joint or several, to
which you may become subject, under the Act, the Act of 1934 or
otherwise insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon the
Dealer-Manager's breach of any of its duties and obligations,
representations, or warranties under the terms or provisions of
this Agreement and the Dealer-Manager shall reimburse you for any
legal or other expenses reasonably incurred in connection with
investigating or defending such loss, claim, damage, liability or
action.
(c) The foregoing indemnity agreements shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls each indemnified party within the
meaning of the Act.
(d) Promptly after receipt by an indemnified party of notice of the
commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying
party under this Section, notify the indemnifying party in writing
of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which
it may have to any indemnified party. If any such action shall be
brought against such indemnified party, it shall notify the
indemnifying party of the commencement thereof, and the
indemnifying party shall be entitled to participate in, and, to
the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified and indemnifying parties.
After the indemnified party shall have received notice from the
agreed upon counsel that the defense under this paragraph has been
so assumed, the indemnifying party shall not be responsible for
any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other
than with respect to the agreed upon counsel who assumed the
defense thereof.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations,
warranties and agreements of the Dealer-Manager and you herein or in
certificates delivered pursuant hereto, and the indemnity agreements
contained in Section 7 hereof, shall survive the delivery, execution and
closing hereof, and shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of you or any person
who controls you within the meaning of the Act, or by the Dealer-Manager,
or any of its officers, directors or any person who controls the
Dealer-Manager within the meaning of the Act, or any other indemnified
party, and shall survive delivery of the Units hereunder.
9. TERMINATION. You shall have the right to terminate this Agreement, other
than the indemnification provisions of Section 7, by giving notice as
hereinafter specified any time at or prior to a closing date:
(a) if the Dealer-Manager shall have failed, refused, or been unable
at or prior to the closing date, to perform any of its obligations
hereunder; or
(b) there has occurred an event materially and adversely affecting the
value of the Units.
6
<PAGE>
If you elect to terminate this Agreement, other than the indemnification
provisions of Section 7, the Dealer-Manager shall be promptly notified by
you by telephone, telecopier, facsimile or telegram, confirmed by letter.
The Dealer-Manager may terminate this Agreement, other than the
indemnification provisions of Section 7, for any reason and at any time
by promptly giving notice to you by telephone, telecopier or telegram,
confirmed by letter.
10. FORMAT OF CHECKS/ESCROW AGENT. Pending receipt of the minimum Partnership
Subscription of $1,000,000 (100 Units), the Dealer-Manager and you agree
that all subscribers shall be instructed to make their checks, drafts, or
money orders payable solely to "Atlas Public #8 Ltd., Escrow Agent,
National City Bank of PA" as agent for the Partnership.
If you receive a check, draft, or money order not conforming to the
foregoing instructions you shall return such check, draft, or money order
directly to the subscriber not later than the end of the next business
day following its receipt from the subscriber. If the Dealer-Manager
receives a check, draft, or money order not conforming to the foregoing
instructions the Dealer-Manager shall return such check, draft, or money
order to you not later than the end of the next business day following
its receipt by the Dealer-Manager and you shall then return such check,
draft, or money order directly to the subscriber not later than the end
of the next business day following its receipt from the Dealer-Manager.
Checks, drafts, or money orders received by you which conform to the
foregoing instructions shall be transmitted by you pursuant to Section 11
"Transmittal Procedures," below.
You agree that you are bound by the terms of the Escrow Agreement, a copy
of which is attached to the Dealer-Manager Agreement as Exhibit "A".
11. TRANSMITTAL PROCEDURES. You shall transmit received investor funds in
accordance with the following procedures.
(a) Pending receipt of the minimum Partnership Subscription of
$1,000,000, you shall promptly, upon receipt of any and all
checks, drafts, and money orders received from prospective
purchasers of Units, transmit same together with the original
executed Subscription Agreement to the Dealer-Manager by the end
of the next business day following receipt of the check, draft, or
money order by you. By the end of the next business day following
receipt of the check, draft, or money order and Subscription
Agreement by the Dealer-Manager, the Dealer-Manager shall transmit
the check, draft, or money order and a copy of the executed
Subscription Agreement to the Escrow Agent, and the original
Subscription Agreement and a copy of the check, draft, or money
order to the Managing General Partner.
(b) Upon receipt by you of notice from the Managing General Partner or
the Dealer-Manager that the minimum Partnership Subscription has
been received, you agree that all subscribers thereafter may be
instructed, in the Managing General Partner's sole discretion, to
make their checks, drafts, or money orders payable solely to
"Atlas Public #8 Ltd.". Thereafter, you shall promptly, upon
receipt of any and all checks, drafts, and money orders received
from prospective purchasers of Units, transmit same together with
the original Subscription Agreement to the Dealer-Manager by the
end of the next business day following receipt of the check,
draft, or money order by you. By the end of the next business day
following receipt of the check, draft, or money order and
subscription documents by the Dealer-Manager, the Dealer-Manager
shall transmit the check, draft, or money order and the original
Subscription Agreement to the Managing General Partner.
12. PARTIES. This Agreement shall inure to the benefit of and be binding upon
you, the Dealer-Manager, and any respective successors and assigns. This
Agreement shall also inure to the benefit of the indemnified parties,
their successors and assigns. This Agreement is intended to be and is for
the sole and exclusive benefit of the parties hereto, and their
respective successors and assigns, and the indemnified parties and their
successors and assigns, and for the benefit of no other person. No other
person shall have any legal
7
<PAGE>
or equitable right, remedy or claim under or in respect of this
Agreement. No purchaser of any of the Units from you shall be
construed a successor or assign merely by reason of such purchase.
13. RELATIONSHIP. You are not authorized to hold yourself out as agent of the
Dealer-Manager, the Managing General Partner, the Partnership or of any
other Selling Agent, nor shall this Agreement constitute you a partner of
the Managing General Partner, the Dealer-Manager, the Partnership or of
any other Selling Agent, or render the Managing General Partner, the
Dealer-Manager, the Partnership or any general partner thereof, or any
other Selling Agent liable for any of your obligations.
14. EFFECTIVE DATE. This Agreement is made effective between the parties as
of the date accepted by you as indicated by your signature hereto.
15. ENTIRE AGREEMENT, WAIVER. This Agreement constitutes the entire agreement
between the parties hereto and shall not be amended or modified in any
way except by subsequent agreement executed in writing, and no party
shall be liable or bound to the other by any agreement, except as
specifically set forth herein. Any party hereto may waive, but only in
writing, any term, condition, or requirement under this Agreement which
is intended for its own benefit, and written waiver of any term or
condition of this Agreement shall not operate as a waiver of any other
breach of such term or condition, nor shall any failure to enforce any
provision hereof operate as a waiver of such provision or any other
provision hereof.
16. NOTICES. Any communications from you shall be in writing addressed to the
Dealer-Manager at 393 Vanadium Road, Pittsburgh, Pennsylvania 15243. Any
notice from the Dealer-Manager to you shall be deemed to have been duly
given if mailed, faxed or telegraphed to you at your address shown below.
17. ACCEPTANCE. Please confirm your agreement to become a Selling Agent under
the terms and conditions set forth above by signing and returning the
enclosed duplicate copy of this Agreement to us at the address set forth
above.
Sincerely,
_______________________________, 1999 BRYAN FUNDING, INC.
ATTEST:
_____________________________________ By:__________________________________
(SEAL) Secretary Richard G. Bryan, Jr., President
ACCEPTANCE:
We accept your invitation to become a Selling Agent under all the terms
and conditions stated in the above Agreement and confirm that all the statements
set forth in the above Agreement are true and correct. We hereby acknowledge
receipt of the Prospectuses and Brochures and a copy of the Dealer-Manager
Agreement referred to above.
_______________________________, 1999 _____________________________________,
a(n)______________________corporation,
ATTEST:
_____________________________________ By:____________________________________
(SEAL) Secretary _________________________, President
_______________________________________
(Address)
_______________________________________
_______________________________________
8
<PAGE>
ARTICLES OF INCORPORATION
OF ATLAS RESOURCES, INC.
<PAGE>
Exhibit 3(a)
688825
Commonwealth of Pennsylvania
Department of State
To All to Whom These Presents Shall Come, Greeting:
Whereas, Under the provisions of the Business Corporation Law,
approved the 5th day of May, Anno Domini one thousand nine hundred
and thirty-three, P. L. 364, as amended, the Department of State is
authorized and required to issue a
CERTIFICATE OF INCORPORATION
evidencing the incorporation of a business corporation organized
under the terms of that law, and
Whereas, The stipulations and conditions of that law have been fully
complied with by the persons desiring to incorporate as
ATLAS RESOURCES, INC
Therefore, Know Ye, That subject to the Constitution of this
Commonwealth and under the authority of the Business Corporation Law, I do by
these presents, which I have caused to be sealed with the Great Seal of the
Commonwealth, create, erect, and incorporate the incorporators of and the
subscribers to the shares of the proposed corporation named above, their
associates and successors, and also those who may thereafter become subscribers
or holders of the shares of such corporation, into a body politic and corporate
in deed and in law by the name chosen hereinbefore specified, which shall exist
perpetually
and shall be invested with and have and enjoy all the powers,
privileges, and franchises incident to a business corporation and be subject to
all the duties, requirements, and restrictions specified and enjoined in and by
the Business Corporation Law and all other applicable laws of this Commonwealth.
Given under my Hand and the Great Seal of
the Commonwealth, at the City of
Harrisburg, this 9th day of July in
the year of our Lord one thousand
nine hundred and seventy-nine and of
the Commonwealth the two hundred and
fourth
/s/ Ethel D. Allen, D.O.
------------------------------------
Secretary of the Commonwealth
<PAGE>
Filed this 9th day of July 1979
Commonwealth of Pennsylvania
Department of State
/s/ Ethel D. Allen, D.O.
Secretary of the Commonwealth
================================================================================
688825
Articles of COMMONWEALTH OF PENNSYLVANIA
Incorporation-- DEPARTMENT OF STATE
Domestic Business Corporation CORPORATION BUREAU
In compliance with the requirements of section 204 of the
Business Corporation Law, act of May 5, 1933 (P.L. 364) (15 P. S.
Section 1204) the undersigned desiring to be incorporated as a business
corporation, hereby certifies (certify) that:
1. The name of the corporation is ATLAS RESOURCES, INC.
2. The location and post office address of the initial registered office of the
corporation in this Commonwealth is: 311 Rouser Road, Coraopolis, Pennsylvania
15108
3. The corporation is incorporated under the Business Corporation Law of the
Commonwealth of Pennsylvania for the following purpose or purposes: To engage in
and do any lawful act concerning any or all lawful business for which
corporations may be incorporated under this act.
4. The term for which the corporation is to exist is perpetual.
5. The aggregate number of shares which the corporation shall have authority to
issue is: Five Hundred (500) shares of capital stock without par value.
<PAGE>
6. The name and post office address of each incorporator and the number and
class of shares subscribed by such incorporator(s) is (are):
<TABLE>
<CAPTION>
Number and
Name Address Class of Shares
<S> <C> <C>
Ira S. Pimm, Jr. 2225 Land Title Building 1
Philadelphia, PA 19110
</TABLE>
IN TESTIMONY WHEREOF, the incorporator(s) has (have) signed and sealed
these Articles of Incorporation this 5th day of July, 1979.
(SEAL) /s/ Ira S. Pimm, Jr. (SEAL)
- ------------------------- -------------------------
(SEAL)
-------------------------
<PAGE>
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
CORPORATION BUREAU
Articles of Incorporation
Domestic Business Corporation
In compliance with the requirements of section 204 of the
Business Corporation Law, act of May 5, 1933 (P. L. 364) (15 P. S.
Section 1204) the undersigned, desiring to be incorporated as a business
corporation, hereby certifies that:
1. The name of the corporation is
ATLAS RESOURCES, INC.
2. The location and post office address of the initial
registered office of the corporation in this Commonwealth is: 311
Rouser Road, Coraopolis, Pennsylvania 15108.
3. The corporation is incorporated under the Business Corporation Law
of the Commonwealth of Pennsylvania for the following purpose or purposes: To
engage in and do any lawful act concerning any or all lawful business for which
corporations may be incorporated under this act.
4. The term for which the corporation is to exist is perpetual.
5. The aggregate number of shares which the corporation shall have
authority to issue is: Five Hundred (500) shares of capital stock without par
value.
6. The name and post office address of each incorporator and the number
and class of shares subscribed by such incorporator is:
<PAGE>
<TABLE>
<CAPTION>
Name Address Number and
Class of Shares
<S> <C> <C>
Ira S. Pimm, Jr. 2225 Land Title Building 1
Philadelphia, PA 19110
</TABLE>
IN TESTIMONY WHEREOF, the incorporator has signed and sealed these
Articles of Incorporation this 5th day of July, 1979.
IRA S. PIMM, JR (SEAL)
----------------
Filed this 9th day of July, 1979.
Commonwealth of Pennsylvania
Department of State
ETHEL D. ALLEN, D.O.
Secretary of the Commonwealth
<PAGE>
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
TO ALL TO WHOM THESE PRESENTS SHALL COME, GREETING:
WHEREAS, Under the provisions of the Business Corporation Law,
approved the 5th day of May, Anno Domini one thousand nine hundred
and thirty-three, P. L. 364, as amended, the Department of State
is authorized and required to issue a
CERTIFICATE OF INCORPORATION
evidencing the incorporation of a business corporation organized
under the terms of that law.
AND WHEREAS, The stipulations and conditions of that law have
been fully complied with by the persons desiring to incorporate as
ATLAS RESOURCES, INC.
THEREFORE, KNOW YE, That subject to the Constitution of this
Commonwealth and under the authority of the Business Corporation Law, I do by
these presents, which I have caused to be sealed with the Great Seal of the
Commonwealth, create, erect, and incorporate the incorporators of and the
subscribers to the shares of the proposed corporation named above, their
associates and successors, and also those who may thereafter become subscribers
or holders of the shares of such corporation, into a body politic and corporate
in deed and in law by the name chosen hereinbefore specified, which shall exist
<PAGE>
perpetually and shall be invested with and have and enjoy all the powers,
privileges, and franchises incident to a business corporation and be subject to
all the duties, requirements and restrictions specified and enjoined in and by
the Business Corporation Law and all other applicable laws of this Commonwealth.
GIVEN under my Hand and the Great Seal
of the Commonwealth, at the City
of Harrisburg, this 9th day of
SEAL OF THE STATE OF July, in the year of our Lord
PENNSYLVANIA one thousand nine hundred and
seventy-nine and of the
Commonwealth the two hundred and
fourth.
ETHEL D. ALLEN, D.O.
Secretary of the Commonwealth
<PAGE>
BYLAWS OF ATLAS RESOURCES, INC.
<PAGE>
Exhibit 3(b)
ATLAS RESOURCES, INC.
BY-LAWS
ARTICLE I - OFFICES
1. REGISTERED OFFICE. The registered office of the Corporation shall be
located within the Commonwealth of Pennsylvania, at such place as the Board of
Directors shall, from time to time, determine.
2. OTHER OFFICES. The Corporation may also have offices at such other
places as the Board of Directors may from time to time, determine.
ARTICLE II - SHAREHOLDERS' MEETINGS
1. PLACE OF SHAREHOLDERS' MEETINGS. Meetings of Shareholders shall be
held at such place within or without the Commonwealth of Pennsylvania as shall
be fixed by the Board of Directors from time to time. If no such place is fixed
by the Board of Directors, meetings of the Shareholders shall be held at the
registered office of the Corporation.
2. ANNUAL MEETING. A meeting of the Shareholders of the Corporation
shall be held in each calendar year, commencing with the year 1980, on the
_________ at ___________ o'clock __ M., if not a legal holiday, and if such
day is a legal holiday, then such meeting shall be held on the next business
day.
At such annual meeting, there shall be held an election for a Board of
Directors to serve for the ensuing year and until their successors shall be duly
elected.
Unless the Board of Directors shall deem it advisable, financial reports
of the Corporation's business need not be sent to the Shareholders and need not
be presented at the annual meeting. If any report is deemed advisable by the
Board of Directors, such report may contain such information as the Board of
Directors shall determine and need not be certified by a Certified Public
Accountant unless the Board of Directors shall so direct.
3. SPECIAL MEETINGS. Special meetings of the Shareholders may be called
at any time.
(a) By the President of the Corporation; or
(b) By a majority of the Board of Directors; or
(c) By the holders of not less than one-fifth of all the shares
outstanding and entitled to vote.
<PAGE>
Upon the written request of any person entitled to call a special
meeting, which request shall set forth the purpose for which the meeting is
desired, it shall be the duty of the Secretary to give notice of such meeting to
be held at such time, not less than ten (10) nor more than sixty (60) days after
the receipt of such request, as the Secretary may fix. If the Secretary shall
neglect or refuse to give such notice within ten (10) days after receipt of such
request, the person or persons making such request may do so
4. NOTICES OF SHAREHOLDERS' MEETINGS. Except as otherwise specifically
provided by law, at least five days' written notice shall be given of the annual
meeting and any special meeting of the Shareholders. Such notices shall be given
in the name of the Secretary or the Assistant Secretary.
5. QUORUM. The presence, in person or by proxy, of the holders or a
majority of the outstanding shares entitled to vote shall constitute a quorum.
The Shareholders present at a duly organized meeting can continue to do business
until adjournment, notwithstanding the withdrawal of enough Shareholders to
leave less than a quorum. If a meeting cannot be organized because of the
absence of a quorum, those present may, except as otherwise provided by law,
adjourn the meeting to such time and place as they may determine. In the case of
any meeting for the election of Directors, those Shareholders who attend the
second of such adjourned meetings, although less than a quorum as fixed in this
section, shall nevertheless constitute a quorum for the purpose of electing
Directors.
6. VOTING. The officer or agent having charge of the transfer books of
the Corporation shall make, at least five days before any meeting of
Shareholders, a complete list of the Shareholders entitled to vote at such
meeting, arranged in alphabetical order, with the address of and the number of
shares held by each, which list shall be kept on file at the registered office
of the Corporation and shall be subject to inspection by any Shareholder at any
time during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any Shareholder during the whole time of the meeting.
At all Shareholders' meetings, Shareholders entitled to vote may attend
and vote either in person or by proxy. All proxies shall be in writing and shall
be filed with the Secretary of the Corporation. No unrevoked proxy shall be
valid after eleven months from the date of execution, unless a longer time is
expressly provided therein; but in no event shall a proxy, unless coupled with
an interest, be valid after three years after the date of its execution.
<PAGE>
Except as otherwise specifically provided by law, all matters coming
before the meeting shall be determined by a vote by shares. Such vote may be
taken by voice unless a Shareholder demands that it be taken by ballot, in
which event the vote shall be taken by written ballot, and the Judge or
Judges of Election or, if none, the Secretary of the meeting shall tabulate
and certify the results of such vote.
7. INFORMAL ACTION BY SHAREHOLDERS. Any action which may be taken at a
meeting of the Shareholders may be taken without a meeting, if a consent in
writing, setting forth the action so taken, shall be signed by all of the
Shareholders who would be entitled to vote at a meeting for such purpose and
shall be filed with the Secretary of the Corporation.
ARTICLE III - BOARD OF DIRECTORS
1. NUMBER. The business and affairs of the Corporation shall be managed
by a Board of two Directors.
2. PLACE OF MEETING. Meetings of the Board of Directors may be held at
such place within the Commonwealth of Pennsylvania, or elsewhere, as a majority
of the Directors may from time to time appoint, or as may be designated in the
notice calling the meeting.
3. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be
held annually, immediately following the annual meeting of Shareholders at the
place where such meeting of the Shareholders is held or at such other place,
date and hour as a majority of the newly elected Directors may designate. At
such meeting the Board of Directors shall elect officers of the Corporation. In
addition to such regular meeting, the Board of Directors shall have the power to
fix by resolution the place, date and hour of other regular meetings of the
Board.
4. SPECIAL MEETINGS. Special meetings of the Board of Directors shall be
held whenever ordered by the President or by a majority of the Directors in
office.
5. NOTICES OF MEETINGS OF BOARD OF DIRECTORS.
(a) REGULAR MEETINGS. No notice shall be required to be given or any
regular meeting, unless the same be held at other than the time or place for
holding such meetings as fixed in accordance with Article III, Paragraph 3 of
these By-Laws, in which event one day's notice shall be given of the time and
place of such meeting.
(b) SPECIAL MEETINGS. At least one day's notice shall be given of
the time when, place where, and purpose for which any special meeting of the
Board of Directors is to be held.
<PAGE>
6. QUORUM. A majority of the Directors in office shall be necessary to
constitute a quorum for the transaction of business, and the acts of a majority
of the Directors present at a meeting at which a quorum is present shall be the
acts of the Board of Directors. If there be less than a quorum present, the
majority of those present may adjourn the meeting from time to time and place to
place and shall cause notice of each such adjourned meeting to be given to all
absent Directors.
7. INFORMAL ACTION BY THE BOARD OF DIRECTORS. If all the Directors shall
severally or collectively consent in writing to any action to be taken by the
Corporation, such action shall be as valid corporate action as though it had
been authorized at a meeting of the Board of Directors.
8. POWERS.
(a) GENERAL POWERS. The Board of Directors shall have all the power
and authority granted by law to the Board, including all powers necessary or
appropriate to the management of the business and affairs of the Corporation.
(b) SPECIFIC POWERS. Without limiting the general powers conferred
by the last preceding clause and the powers conferred by the Articles and
By-Laws of the Corporation, it is hereby expressly declared that the Board of
Directors shall have the following powers:
(1) To confer upon any officer or officers of the Corporation, the
power to choose, remove or suspend assistant officers, agents or servants.
(2) To appoint any person, firm or corporation to accept and hold in
trust for the Corporation any property belonging to the Corporation, or in which
it is interested, and to authorize any such person, firm or corporation to
execute any documents and perform any duties that may be requisite in relation
to any such trust.
(3) To appoint a person or persons to vote shares of another
corporation held and owned by the Corporation.
(4) By resolution adopted by a majority of the whole Board of
Directors, to delegate two or more of its number to constitute an executive
committee which, to the extent provided in such resolution, shall have and
exercise the authority of the Board of Directors in the management of the
business of the Corporation.
(5) To fix the place, time and purpose of meetings of Shareholders.
(6) To determine who shall be authorized on the Corporation's behalf
to sign bills; notes, receipts, acceptances, endorsements, checks, releases,
contracts and documents.
<PAGE>
9. COMPENSATION OF DIRECTORS. Compensation of Directors, if any, shall be
as determined from time to time by resolution of the Board of Directors.
10. REMOVAL OF DIRECTORS BY SHAREHOLDERS. The entire Board of Directors
or any individual Director may be removed from office without assigning any
cause by a majority vote of the holders of the outstanding shares entitled to
vote at an election of Directors. In case the Board of Directors or any one or
more Directors be so removed, new Directors may be elected at the same time.
Unless the entire Board of Directors be removed, no individual Director shall be
removed in case the votes of a sufficient number of shares are cast against the
resolution for his removal which, if voted at an election of the full Board of
Directors, would be sufficient to elect one or more Directors.
11. VACANCIES. Vacancies in the Board of Directors, including vacancies
resulting from an increase in the number of Directors, shall be filled by a
majority of the remaining members of the Board of Directors though less than a
quorum, and each person so elected shall be a Director until his successor is
elected by the Shareholders, who may make such election at the next annual
meeting of the Shareholders or at any special meeting duly called for that
purpose and held prior thereto.
ARTICLE IV - OFFICERS
1. ELECTION AND OFFICE. The Corporation shall have a President, a
Secretary and a Treasurer, who shall be elected by the Board of Directors. The
Board of Directors may elect as additional officers, a Chairman of the Board of
Directors, one or more Vice-Presidents, and one or more assistant officers. Any
two or more offices may be held by the same person.
2. TERM. The President, the Secretary and the Treasurer shall each serve
for a term of one year and until their respective successors are duly elected
and qualified, unless removed from office by the Board of Directors during their
respective tenures. The term of office of any other officer shall be as
specified by the Board of Directors.
3. POWERS AND DUTIES OF THE PRESIDENT. Unless otherwise determined by the
Board of Directors, the President shall have the usual duties of an executive
officer with general supervision over and direction of the affairs of the
Corporation. In the exercise of these duties and subject to the limitations of
the laws of the Commonwealth of Pennsylvania, these By-Laws, and the actions of
the Board of Directors, he may appoint, suspend and discharge employees and
agents, shall
<PAGE>
preside at all meetings of the Shareholders at which he shall be present, and
unless there is a Chairman of the Board of Directors, shall preside at all
meetings of the Board of Directors and shall be a member of all committees.
He shall also do and perform such other duties as from time to time may be
assigned to him by the Board of Directors.
Unless otherwise determined by the Board of Directors, the President
shall have full power and authority on behalf of the Corporation, to attend and
to act and to vote at any meeting of the Shareholders of any corporation in
which the Corporation may hold stock, and, at any such meeting, shall possess
and may exercise any and all the rights and powers incident to the ownership of
such stock and which, as the owner thereof, the Corporation might have possessed
and exercised
4. POWERS AND DUTIES OF THE SECRETARY. Unless otherwise determined by the
Board of Directors, the Secretary shall keep the minutes of all meetings of the
Board of Directors, Shareholders and all committees, in books provided for that
purpose, and shall attend to the giving and serving of all notices for the
Corporation. He shall have charge of the corporate seal, the stock certificate
books, transfer books and stock ledgers, and such other books and papers as the
Board of Directors may direct. He shall perform all other duties ordinarily
incident to the office of Secretary and shall have such other powers and perform
such other duties as may be assigned to him by the Board of Directors.
5. POWERS AND DUTIES OF THE TREASURER. Unless otherwise determined by the
Board of Directors, the Treasurer shall have charge of all the funds and
securities of the Corporation which may come into his hands. When necessary or
proper, unless otherwise ordered by the Board of Directors, he shall endorse for
collection on behalf of the Corporation, checks, notes and other obligations,
and shall deposit the same to the credit of the Corporation in such banks or
depositories as the Board of Directors may designate and shall sign all receipts
and vouchers for payments made to the Corporation. He shall enter regularly, in
books of the Corporation to be kept by him for the purpose, full and accurate
account of all moneys received and paid by him on account of the Corporation.
Whenever required by the Board of Directors, he shall render a statement of the
financial condition of the Corporation. He shall at all reasonable times exhibit
his books and accounts to any Director of the Corporation, upon application at
the office of the Corporation during business hours. He shall have such other
powers and shall perform such other duties as may be assigned to him from time
to time by the Board of Directors. He shall give such bond, if any, for the
faithful performance of his duties as shall be required by the Board of
Directors and any such bond shall remain in the custody of the President.
<PAGE>
6. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD OF DIRECTORS. Unless
otherwise determined by the Board of Directors, the Chairman of the Board of
Directors, if any, shall preside at all meetings of Directors and shall serve ex
officio as a member of every committee of the Board of Directors. He shall have
such other powers and perform such further duties as may be assigned to him by
the Board of Directors.
7. POWERS AND DUTIES OF VICE-PRESIDENTS AND ASSISTANT OFFICERS. Unless
otherwise determined by the Board of Directors, each Vice-President and each
assistant officer shall have the powers and perform the duties of his respective
superior officer. Vice-Presidents and Assistant officers shall have such rank as
shall be designated by the Board of Directors and each, in the order of rank,
shall act for such superior officer in his absence or upon his disability or
when so directed by such superior officer or by the Board of Directors. The
President shall be the superior officer of the Vice-Presidents. The Treasurer
and Secretary shall be the superior officers of the Assistant Treasurers and
Assistant Secretaries, respectively.
8. DELEGATION OF OFFICE. The Board of Directors may delegate the powers
or duties of any officer of the Corporation to any other officer or to any
Director from time to time.
9. VACANCIES. The Board of Directors shall have the power to fill any
vacancies in any office occurring from whatever reason.
ARTICLE V - CAPITAL STOCK
1. SHARE CERTIFICATES. Every share certificate shall be signed by the
President or a Vice-President and by the Treasurer, Assistant Treasurer,
Secretary or Assistant Secretary and sealed with the corporate seal, which may
be a facsimile, engraved or printed, but where such certificate is signed by a
transfer agent or by a transfer clerk and a registrar, the signature of any
corporate officer upon such certificate may be a facsimile, engraved or printed.
2. TRANSFER OF SHARES. Transfers of shares shall be made on the books of
the Corporation only upon surrender of the share certificate, duly endorsed and
otherwise in proper form for transfer, which certificate shall be cancelled at
the time of the transfer.
3. DETERMINATION OF SHAREHOLDERS OF RECORD AND CLOSING TRANSFER BOOKS.
The Board of Directors may fix a time, not more than fifty days prior to the
date of any meeting of Shareholders, or the date fixed for the payment of any
dividend or distribution, or the date for the allotment of rights, or the date
when any change or conversion or exchange of
<PAGE>
shares will be made or go into effect, as a record date for the determination
of the Shareholders entitled to notice of or to vote at any such meeting, or
entitled to receive payment of any such dividend or distribution, or to
receive any such allotment of rights, or to exercise the rights in respect to
any such change, conversion or exchange of shares or otherwise. In such case,
only such Shareholders as shall be Shareholders of record on the date so
fixed shall be entitled to notice of or to vote at such meeting, or to
receive payment of such dividend, or to receive such allotment of rights, or
to exercise such rights, as the case may be, notwithstanding any transfer of
any shares on the books of the Corporation after any record date fixed as
aforesaid. The Board of Directors may close the books of the Corporation
against transfers of shares during the whole or any part of such period, and
in such case written or printed notice thereof shall be mailed at least ten
(10) days before the closing thereof to each Shareholder of record at the
address appearing on the records of the Corporation or supplied by him to the
Corporation for the purpose of notice. While the stock transfer books of the
Corporation are closed, no transfer of shares shall be made thereon. Unless a
record date is fixed by the Board of Directors for the determination of
Shareholders entitled to receive notice of or vote at, a Shareholders'
Meeting, transferees of shares which are transferred on the books of the
Corporation within ten (10) days next preceding the date of such meeting
shall not be entitled to notice of or to vote at such meeting. The
Corporation may treat the registered owner of each share of stock as the
person exclusively entitled to vote, to receive notifications and otherwise,
to exercise all the rights and powers of the owner thereof.
4. LOST SHARE CERTIFICATES. Unless waived in whole or in part by the
Board of Directors from time to time, any person requesting the issuance of a
new certificate in lieu of an alleged lost, destroyed, mislaid or wrongfully
taken certificate, shall (1) make an affidavit or affirmation of the facts and
circumstances surrounding the same; (2) advertise such facts to the extent and
in such manner as the Board of Directors may require; (3) give the Corporation a
bond of indemnity in form, and with one or more sureties satisfactory to the
Board, in an amount to be determined by the Board, whereupon the proper officers
may issue a new certificate.
<PAGE>
ARTICLE VI - NOTICES
1. CONTENTS OF NOTICE. Whenever any notice of a meeting is required to be
given pursuant to these By-Laws or the Articles, or otherwise, the notice shall
specify the place, day and hour of the meeting and, in the case of a special
meeting or where otherwise required by law, the general nature of the business
to be transacted at such meeting.
2. METHOD OF NOTICE. All notices shall be given to each person entitled
thereto, either personally or by sending a copy thereof through the mail or by
telegraph, charges prepaid, to his address appearing on the books of the
Corporation, or supplied by him to the Corporation for the purpose of notice. If
notice is sent by mail or telegraph, it shall be deemed to have been given to
the person entitled thereto when deposited in the United States Mail or with
the telegraph office for transmission. If no address for a Shareholder appears
on the books of the Corporation and such Shareholder has not supplied the
Corporation with an address for the purpose of notice, notice deposited in the
United States Mail addressed to such Shareholder, care of General Delivery in
the City in which the Registered Office of the Corporation is located, shall be
sufficient.
3. WAIVER OF NOTICE. Whenever any written notice is required to be given
by the Articles or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice. Except
in the case of a special meeting, neither the business to be transacted at nor
the purpose of the meeting need be specified in the waiver of notice of such
meeting.
ARTICLE VII - INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS.
1. Each Director and each officer and former Directors or officers, and
any person who may have served, at its request, as a Director or officer of
another corporation in which it owns shares of capital stock or of which it is a
creditor, shall be indemnified by the Corporation against expenses actually and
necessarily incurred by them in connection with the defense of any action, suit
or proceeding in which they, or any of them, are made parties or a party by
reason of being or having been directors or officers or a Director or officer of
the Corporation or of such other corporation, except in relation to matters as
to which any such Director or officer or former Director or officer or person
shall be adjudged, in such action, suit, or proceeding, to be liable for
<PAGE>
negligence or misconduct in the performance of duty. Such indemnification shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any By-Law, Agreement, vote of Shareholders, or otherwise.
ARTICLE VIII - FISCAL YEAR
1. The Board of Directors shall have the power by resolution to fix the
fiscal year of the Corporation. If the Board of Directors shall fail to do so,
the President shall fix the fiscal year.
ARTICLE IX - AMENDMENTS
1. The Shareholders entitled to vote thereon shall have the power to
alter, amend or repeal these By-Laws, by a majority of those voting, at any
regular or special meeting, duly convened after notice to the Shareholders of
such purpose. The Board of Directors, by a majority vote of those voting, shall
have the power to alter, amend and repeal these By-Laws, at any regular or
special meeting duly convened after notice of such purpose, subject always to
the power of the Shareholders to change such action.
<PAGE>
Exhibit 4(a)
CERTIFICATE OF LIMITED PARTNERSHIP
FOR ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
<PAGE>
Microfilm Number Filed with the Department of State on May 10 1999
--------- -------------
Entity Number 2876437 /s/ ILLEGIBLE
---------- ---------------------------------------------
Secretary of the Commonwealth
CERTIFICATE OF LIMITED PARTNERSHIP
DSCB: 15-8511 (Rev 90)
In compliance with the requirements of 15 Pa. C.S. Section 8511 (relating
to certificate of limited partnership), the undersigned desiring to form a
limited Partnership, hereby certifies that:
1. The name of the limited partnership is: ATLAS-ENERGY FOR THE
NINETIES-PUBLIC #8 LTD.
----------------------------------------------------------------------
2. The (a) address of this limited partnership's initial registered office
in this Commonwealth or (b) name of its commercial registered office
provider and the county of venue is:
(a) 311 ROUSER ROAD, MOON TOWNSHIP PA 15103 ALLEGHENY
-------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o N/A
--------------------------------------------------------------
Number of Commercial Registered Office Provider County
For a limited partnership represented by a commercial registered office
provider, the county in (b) shall be deemed the county in which the
limited partnership is located for venue and official publication
purposes.
3. The name and business address of each general partner of the partnership
is:
<TABLE>
<CAPTION>
Name Address
----- -------
<S> <C>
ATLAS RESOURCES, INC. 311 ROUSER ROAD, MOON TOWNSHIP, PENNSYLVANIA 15108
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
4. (Check, and if appropriate complete, one of the following):
X The formation of the limited partnership shall be effective upon filing
- ---- this Certificate of Limited Partnership in the Department of State.
The formation of the limited partnership shall be effective on
- ---- : ______________ at _________________
Date Hour
IN TESTIMONY WHEREOF, the undersigned general partner(s) of the limited
partnership has (have) executed this Certificate of Limited Partnership this 6th
day of MAY, 1999.
/s/ J. R. O'MARA
- ------------------------- ------------------------------
(Signature) (Signature)
J. R. O'MARA, PRESIDENT & CEO
<PAGE>
OPINION OF KUNZMAN & BOLLINGER, INC.
AS TO THE LEGALITY OF THE
UNITS REGISTERED HEREBY
<PAGE>
KUNZMAN & BOLLINGER, INC.
ATTORNEYS-AT-LAW
5100 N. BROOKLINE, SUITE 600
OKLAHOMA CITY, OKLAHOMA 73112
Telephone (405) 942-3501
Fax (405) 942-3527
Exhibit 5
July 7, 1999
Atlas Resources, Inc.
311 Rouser Road
Moon Township, Pennsylvania 15108
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
Gentlemen:
You have requested our opinion on certain issues pertaining to
Atlas-Energy for the Nineties-Public #8 Ltd. (the "Partnership") formed under
the Limited Partnership Laws of Pennsylvania. Atlas Resources, Inc., a
Pennsylvania corporation, is the Managing General Partner of the Partnership.
BASIS OF OPINION
Our opinion is based on our review of a certain Registration Statement
on Form SB-2 and any amendments thereto, including any post-effective
amendments, for the Partnership (the "Registration Statement") as filed with the
Securities and Exchange Commission (the "Commission"), including the Certificate
of Limited Partnership for the Partnership, the Prospectus and the Amended and
Restated Certificate and Agreement of Limited Partnership for the Partnership
(the "Partnership Agreement"), the Subscription Agreement and the Drilling and
Operating Agreement contained therein, and on our review of such other documents
and records as we have deemed necessary to review for purposes of rendering our
opinion. As to various questions of fact material to our opinion which we have
not independently verified, we have relied on certain representations made to us
by officers and directors of the Managing General Partner.
In rendering the opinion herein provided, we have assumed the due
authorization, execution and delivery of all relevant documents by all parties
thereto.
OPINION
Based upon the foregoing, we are of the opinion that:
The Units, when sold in accordance with the Registration
Statement as amended at the time it becomes effective with the
Commission, will be legally issued pursuant to Pennsylvania
partnership law, fully paid and nonassessable except as described
in the Registration Statement with respect to the Investor
General Partner Units.
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm in the Prospectus
included in the Registration Statement.
Yours very truly,
/s/ Kunzman & Bollinger, Inc.
------------------------------
KUNZMAN & BOLLINGER, INC.
<PAGE>
OPINION OF KUNZMAN & BOLLINGER, INC.
AS TO TAX MATTERS
<PAGE>
KUNZMAN & BOLLINGER, INC.
ATTORNEYS-AT-LAW
5100 N. BROOKLINE, SUITE 600
OKLAHOMA CITY, OKLAHOMA 73112
Telephone (405) 942-3501
Fax (405) 942-3527
Exhibit 8
July 7, 1999
Atlas Resources, Inc.
311 Rouser Road
Moon Township, Pennsylvania 15108
RE: ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
Gentlemen:
You have requested our opinions on the material federal income tax issues
pertaining to Atlas-Energy for the Nineties-Public #8 Ltd. (the "Partnership"),
a limited partnership formed under the Revised Uniform Limited Partnership Act
of Pennsylvania. We have acted as Special Counsel to the Partnership with
respect to the offering of interests in the Partnership. Atlas Resources, Inc.
will be the Managing General Partner of the Partnership. Terms used and not
otherwise defined herein have the respective meanings assigned to them in the
Prospectus under the caption "DEFINITIONS."
BASIS OF OPINION
Our opinions are based upon our review of: (1) a certain Registration
Statement on Form SB-2 for Atlas-Energy for the Nineties-Public #8 Ltd., as
originally filed with the United States Securities and Exchange Commission, and
amendments thereto, including the Prospectus, the Drilling and Operating
Agreement and the Amended and Restated Certificate and Agreement of Limited
Partnership for the Partnership (the "Partnership Agreement") included as
exhibits to the Prospectus; and (2) such corporate records, certificates,
agreements, instruments and other documents as we have deemed relevant and
necessary to review as a basis for the opinions herein provided.
Our opinions also are based upon our interpretation of existing statutes,
rulings and regulations, as presently interpreted by judicial and administrative
bodies. Such statutes, rulings, regulations and interpretations are subject to
change; and such changes could result in different tax consequences than those
set forth herein and could render our opinions inapplicable.
In rendering our opinions, we have obtained from you certain
representations with respect to the Partnership. Any material inaccuracy in such
representations may render our opinions inapplicable. Included among such
representations are the following:
(1) The Partnership Agreement will be executed by the Managing
General Partner and the Participants and recorded in all places
required under the Revised Uniform Limited Partnership Act of
Pennsylvania and any other applicable limited partnership act.
Also, the Partnership will be operated in accordance with the
terms of the Partnership Agreement, the Prospectus, and the
Revised Uniform Limited Partnership Act of Pennsylvania and any
other applicable limited partnership act.
(2) No election will be made by the Partnership to be excluded from
the application of the partnership provisions of the Code or
classified as a corporation for tax purposes.
(3) The Partnership will own legal title to the Working Interest in
all of its Prospects.
<PAGE>
Atlas Resources, Inc.
July 7, 1999
Page 2
(4) The respective amounts that will be paid to the Managing General
Partner or its Affiliates pursuant to the Partnership Agreement
and the Drilling and Operating Agreement are amounts that would
ordinarily be paid for similar services in similar transactions
between Persons having no affiliation and dealing with each other
"at arms' length."
(5) The Partnership will elect to deduct currently all intangible
drilling and development costs.
(6) The Partnership will have a calendar year taxable year.
(7) The Drilling and Operating Agreement and any amendments thereto
entered into between the Managing General Partner and the
Partnership will be duly executed and will govern the drilling
and, if warranted, the completion and operation of the wells in
accordance with its terms.
(8) Based upon the Managing General Partner's experience and the
intended operations of the Partnership, the Managing General
Partner reasonably believes that the aggregate deductions,
including depletion deductions, and 350% of the aggregate
credits, if any, which will be claimed by the Managing General
Partner and the Participants, will not during the first five tax
years following the funding of the Partnership exceed twice the
amounts invested by the Managing General Partner and the
Participants, respectively.
(9) The Investor General Partner Units will not be converted to
Limited Partner interests before substantially all of the
Partnership Wells have been drilled and completed.
(10) The Units will not be traded on an established securities market.
In rendering our opinions we have further assumed that: (1) each of the
Participants has an objective to carry on the business of the Partnership for
profit; (2) any amount borrowed by a Participant and contributed to the
Partnership will not be borrowed from a Person who has an interest in the
Partnership (other than as a creditor) or a related person, as defined in
Section 465 of the Code, to a Person (other than the Participant) having such
interest and the Participant will be severally, primarily, and personally
liable for such amount; and (3) no Participant will have protected himself
from loss for amounts contributed to the Partnership through nonrecourse
financing, guarantees, stop loss agreements or other similar arrangements.
We have considered the provisions of the American Bar Association's
Revised Formal Opinion 346 on Tax Law Opinions ("ABA Opinion 346") and 31
CFR, Part 10, Section 10.33 (Treasury Department Circular No. 230) on tax law
opinions and we believe that this opinion letter addresses all material
federal income tax issues associated with an investment in the Units by an
individual Participant who is a resident citizen of the United States. We
consider material those issues which would affect significantly a
Participant's deductions, credits or losses arising from his investment in
the Units and with respect to which, under present law, there is a reasonable
possibility of challenge by the IRS, or those issues which are expected to be
of fundamental importance to a Participant but as to which a challenge by the
IRS is unlikely. The issues which involve a reasonable possibility of
challenge by the IRS have not been definitely resolved by statutes, rulings
or regulations, as interpreted by judicial or administrative bodies.
Subject to the foregoing, however, in our opinion it is more likely than
not that the following tax treatment will be upheld if challenged by the IRS and
litigated:
(1) PARTNERSHIP CLASSIFICATION. The Partnership will be classified as
a partnership for federal income tax purposes, and not as a corporation. The
Partnership, as such, will not pay any federal income taxes, and all items of
income, gain, loss, deduction, and credit of the Partnership will be reportable
by the Partners in the Partnership. (See "- Partnership Classification.")
<PAGE>
Atlas Resources, Inc.
July 7, 1999
Page 3
(2) PASSIVE ACTIVITY CLASSIFICATION. The Partnership's oil and gas
production income, together with gain, if any, from the disposition of its
oil and gas properties, which is allocable to Limited Partners who are
individuals, estates, trusts, closely held corporations or personal service
corporations more likely than not will be characterized as income from a
passive activity which may be offset by passive activity losses (as defined
in Section 469(d) of the Code). Income or gain attributable to investments of
working capital of the Partnership will be characterized as portfolio income,
which cannot be offset by passive activity losses. Also, the passive activity
limitations on losses under Section 469, more likely than not, will not be
applicable to Investor General Partners prior to the conversion of Investor
General Partner Units to Limited Partner interests. (See "- Limitations on
Passive Activities.")
(3) NOT A PUBLICLY TRADED PARTNERSHIP. Assuming that no more than
10% of the Units are transferred in any taxable year of the Partnership
(other than in private transfers described in Treas. Reg. Section
1.7704-1(e)), it is more likely than not that the Partnership will not be
treated as a "publicly traded partnership" under the Code. (See "-
Limitations on Passive Activities.")
(4) AVAILABILITY OF CERTAIN DEDUCTIONS. Business expenses, including
payments for personal services actually rendered in the taxable year in which
accrued, which are reasonable, ordinary and necessary and do not include amounts
for items such as Lease acquisition costs, organization and syndication fees and
other items which are required to be capitalized, are currently deductible. (See
"-1999 Expenditures," "- Availability of Certain Deductions" and "- Partnership
Organization and Syndication Fees.")
(5) INTANGIBLE DRILLING AND DEVELOPMENT COSTS. Intangible drilling and
development costs ("Intangible Drilling Costs") paid by the Partnership under
the terms of bona fide drilling contracts for the Partnership's wells will be
deductible in the taxable year in which the payments are made and the drilling
services are rendered, assuming such amounts are fair and reasonable
consideration and subject to certain restrictions summarized below (including
basis and "at risk" limitations, and the passive activity loss limitation with
respect to the Limited Partners). (See "- Intangible Drilling and Development
Costs" and "- Drilling Contracts.")
(6) PREPAYMENTS OF INTANGIBLE DRILLING AND DEVELOPMENT COSTS.
Depending primarily on when the Partnership Subscription is received, the
Managing General Partner anticipates that the Partnership will prepay in 1999
most, if not all, of the intangible drilling and development costs related to
Partnership Wells the drilling of which will be commenced in 2000. Assuming that
such amounts are fair and reasonable, and based in part on the factual
assumptions set forth below, in our opinion such prepayments of intangible
drilling and development costs will be deductible for the 1999 taxable year even
though all Working Interest owners in the well may not be required to prepay
such amounts, subject to certain restrictions summarized below (including basis
and "at risk" limitations, and the passive activity loss limitation with respect
to the Limited Partners). (See " - Drilling Contracts," below.)
The foregoing opinion is based in part on the assumptions that:
(1) such costs will be required to be prepaid in 1999 for specified wells
pursuant to the Drilling and Operating Agreement; (2) pursuant to the Drilling
and Operating Agreement the wells are required to be, and actually are, Spudded
on or before March 30, 2000, and continuously drilled thereafter until
completed, if warranted, or abandoned; and (3) the required prepayments are not
refundable to the Partnership and any excess prepayments are applied to
intangible drilling and development costs of substitute wells.
(7) DEPLETION ALLOWANCE. The greater of cost depletion or percentage
depletion will be available to qualified Participants as a current deduction
against the Partnership's oil and gas production income, subject to certain
restrictions summarized below. (See "- Depletion Allowance.")
(8) MACRS. The Partnership's reasonable costs for recovery property
(tangible depreciable property used in a trade or business or held for the
production of income) which cannot currently be deducted but must be capitalized
("Tangible Costs") will be eligible for cost recovery deductions under the
Modified Accelerated Cost Recovery
<PAGE>
Atlas Resources, Inc.
July 7, 1999
Page 4
System ("MACRS"), generally over a seven year "cost recovery period," subject
to certain restrictions summarized below (including basis and "at risk"
limitations, and the passive activity loss limitation in the case of Limited
Partners). (See "- Depreciation - Modified Accelerated Cost Recovery System
("MACRS").")
(9) TAX BASIS OF PARTICIPANT'S INTEREST. Each Participant's adjusted
tax basis in his Partnership interest will be increased by his total Agreed
Subscription. (See "- Tax Basis of Participants' Interests.")
(10) AT RISK LIMITATION ON LOSSES. Each Participant initially will be
"at risk" to the full extent of his Agreed Subscription. (See "- `At Risk'
Limitation For Losses.")
(11) ALLOCATIONS. Assuming the effect of the allocations of income,
gain, loss, deduction and credit (or items thereof) set forth in the Partnership
Agreement, including the allocations of basis and amount realized with respect
to oil and gas properties, is substantial in light of a Participant's tax
attributes that are unrelated to the Partnership, it is more likely than not
that such allocations will have "substantial economic effect" and will govern
each Participant's distributive share of such items to the extent such
allocations do not cause or increase deficit balances in the Participants'
Capital Accounts. (See "- Allocations.")
(12) AGREED SUBSCRIPTION. No gain or loss will be recognized by the
Participants on payment of their Agreed Subscriptions.
(13) PROFIT MOTIVE AND NO TAX SHELTER REGISTRATION. Based on the
Managing General Partner's representation that the Partnership will be
conducted as described in the Prospectus, it is more likely than not that the
Partnership will possess the requisite profit motive under Section 183 of the
Code and is not required to register with the IRS as a tax shelter. (See " -
Disallowance of Deductions Under Section 183 of the Code" and " - Lack of
Registration as a Tax Shelter.")
(14) IRS ANTI-ABUSE RULE. Based on the Managing General Partner's
representation that the Partnership will be conducted as described in the
Prospectus, it is more likely than not that the Partnership will not be
subject to the anti-abuse rule set forth in Treas. Reg. Section 1.701-2. (See
"- Penalties and Interest - IRS Anti-Abuse Rule.")
(15) OVERALL EVALUATION OF TAX BENEFITS. Based on our conclusion that
substantially more than half of the material tax benefits of the Partnership, in
terms of their financial impact on a typical Participant, more likely than not
will be realized if challenged by the IRS, it is our opinion that the tax
benefits of the Partnership, in the aggregate, which are a significant feature
of an investment in the Partnership by a typical original Participant more
likely than not will be realized as contemplated by the Prospectus. The
discussion in the Prospectus under the caption "TAX ASPECTS," insofar as it
contains statements of federal income tax law, is correct in all material
respects. (See "Tax Aspects" in the Prospectus.)
* * * * * * * * * * * * *
Our opinion is limited to the opinions expressed above. With respect to
some of the matters discussed in this opinion, existing law provides little
guidance. Although our opinions express what we believe a court would probably
conclude if presented with the applicable issues, there is no assurance that the
IRS will not challenge our interpretations or that such a challenge would not be
sustained in the courts and cause adverse tax consequences to the Participants.
It should be noted that taxpayers bear the burden of proof to support claimed
deductions and opinions of counsel are not binding on the IRS or the courts.
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Atlas Resources, Inc.
July 7, 1999
Page 5
IN GENERAL
The following is a summary of some of the principal features under present
federal income tax law which will apply to the Partnership and typical
Participants. However, there is no assurance that the present laws or
regulations will not be changed and adversely affect a Participant. The IRS may
challenge the deductions claimed by the Partnership or a Participant, or the
taxable year in which such deductions are claimed, and no guaranty can be given
that any such challenge would not be upheld if litigated.
The practical utility of the tax aspects of any investment depends largely
on each Participant's particular income tax position in the year in which items
of income, gain, loss, deduction or credit are properly taken into account in
computing his federal income tax liability. In addition, except as otherwise
noted, different tax considerations may apply to foreign persons, corporations
partnerships, trusts and other prospective Participants which are not treated as
individuals for federal income tax purposes. EACH PROSPECTIVE PARTICIPANT SHOULD
SATISFY HIMSELF AS TO THE TAX CONSEQUENCES OF PARTICIPATING IN THE PARTNERSHIP
BY OBTAINING ADVICE FROM HIS OWN TAX ADVISOR.
PARTNERSHIP CLASSIFICATION
For federal income tax purposes, a partnership is not a taxable entity but
rather a conduit through which all items of income, gain, loss, deduction,
credit and tax preference are passed through to the partners. Thus, the
partners, rather than the partnership, receive any tax deductions and credits,
as well as the income, from the operations engaged in by the partnership.
Under the regulations, a business entity with two or more members is
classified for federal tax purposes as either a corporation or a partnership.
Treas. Reg. Section 301.7701-2(a). The term corporation includes a business
entity organized under a State statute which describes the entity as a
corporation, body corporate, body politic, joint-stock company or joint-stock
association. Treas. Reg. Section 301.7701-2(b). The Partnership was formed
under the Pennsylvania Revised Uniform Limited Partnership Act which
describes the Partnership as a "partnership." Consequently, the Partnership
will automatically be classified as a partnership unless it elects to be
classified as a corporation. In this regard, the Managing General Partner has
represented that no election for the Partnership to be classified as a
corporation will be filed with the IRS.
LIMITATIONS ON PASSIVE ACTIVITIES
Under the passive activity rules, all income of a taxpayer who is subject
to the rules is categorized as: (i) income from passive activities such as
limited partners' interests in a business; (ii) active income (e.g., salary,
bonuses, etc.); or (iii) portfolio income. "Portfolio income" consists of (i)
interest, dividends and royalties (unless earned in the ordinary course of a
trade or business); and (ii) gain or loss not derived in the ordinary course of
a trade or business on the sale of property that generates portfolio income or
is held for investment. Losses generated by "passive activities" can offset only
passive income and cannot be applied against active income or portfolio income.
The passive activity rules apply to individuals, estates, trusts, closely
held C corporations (generally, if five or fewer individuals own directly or
indirectly more than 50% of the stock) and personal service corporations (other
than corporations where the owner-employees together own less than 10% of the
stock). However, a closely held C corporation (other than a personal service
corporation) may use passive losses and credits to offset taxable income of the
company figured without regard to passive income or loss or portfolio income.
Passive activities include any trade or business in which the taxpayer
does not materially participate on a regular, continuous, and substantial basis.
Under the Partnership Agreement, Limited Partners will not have material
participation in the Partnership and generally will be subject to the passive
activity rules.
Investor General Partners also do not materially participate in the
Partnership. However, because Investor General
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Atlas Resources, Inc.
July 7, 1999
Page 6
Partners do not have limited liability under the Revised Uniform Limited
Partnership Act of Pennsylvania ("Act") until they are converted to Limited
Partners, their deductions generally will not be treated as passive deductions
prior to the conversion. (See " - Conversion from Investor General Partner to
Limited Partner", below.) However, if an Investor General Partner invests in the
Partnership through an entity which limits his liability (e.g., a limited
partnership or S corporation), he will be treated the same as a Limited Partner
and generally will be subject to the passive activity limitations. Contractual
limitations on the liability of Investor General Partners under the Partnership
Agreement (e.g., insurance, limited indemnification, etc.) will not cause
Investor General Partners to be subject to the passive activity limitations.
Deductions disallowed by the at-risk limitation on losses under Section
465 of the Code become subject to the passive loss limitation only if the
taxpayer's at-risk amount increases in future years. A taxpayer's at-risk
amount is reduced by losses allowed under Section 465 even if the losses are
suspended by the passive loss limitation. (See "- `At Risk' Limitation For
Losses," below.) Similarly, a taxpayer's basis is reduced by deductions even
if the deductions are disallowed under the passive loss limitation. (See "-
Tax Basis of Participants' Interests," below.)
Suspended losses and credits may be carried forward (but not back) and
used to offset future years' passive activity income. A suspended loss (but not
a credit) is allowed in full when the entire interest is sold to an unrelated
third party in a taxable transaction and in part upon the disposition of
substantially all of the passive activity if the suspended loss as well as
current gross income and deductions can be allocated to the part disposed of
with reasonable certainty. In an installment sale, passive losses become
available in the same ratio that gain recognized each year bears to the total
gain on the sale.
Any suspended losses remaining at a taxpayer's death are allowed as
deductions on his final return, subject to a reduction to the extent the basis
of the property in the hands of the transferee exceeds the property's adjusted
basis immediately prior to the decedent's death. If a taxpayer makes a gift of
his entire interest in a passive activity, the donee's basis is increased by any
suspended losses and no deductions are allowed. If the interest is later sold at
a loss, the donee's basis is limited to the fair market value on the date the
gift was made.
PUBLICLY TRADED PARTNERSHIP RULES. Net losses and credits of a partner
from each publicly traded partnership are suspended and carried forward to be
netted against income from that publicly traded partnership only. In addition,
net losses from other passive activities may not be used to offset net income
from a publicly traded partnership. I.R.C. Sections 469(k)(2) and 7704. However,
in the opinion of Special Counsel it is more likely than not that the
Partnership will not be characterized as a publicly traded partnership under the
Code, so long as no more than 10% of the Units are transferred in any taxable
year of the Partnership (other than in private transactions described in Treas.
Reg. Section 1.7704-1(e)).
CONVERSION FROM INVESTOR GENERAL PARTNER TO LIMITED PARTNER. Investor
General Partner Units will be converted to Limited Partner interests after
substantially all of the Partnership Wells have been drilled and completed,
which the Managing General Partner anticipates will be in the late summer of
2000. Thereafter, each Investor General Partner will be deemed a Limited Partner
in the Partnership and will enjoy the limited liability provided to limited
partners under the Revised Uniform Limited Partnership Act of Pennsylvania with
respect to his interest in the Partnership.
Concurrently, the Investor General Partner will become subject to the
passive activity limitations. However, because an Investor General Partner
will have a non-passive loss in 1999 as a result of the Partnership's
deduction for Intangible Drilling Costs, his net income from Partnership
Wells following the conversion will continue to be characterized as
non-passive income which cannot be offset with passive losses. An Investor
General Partner's conversion of his Partnership interest into a Limited
Partner interest should not have any other adverse tax consequences unless
the Investor General Partner's share of any Partnership liabilities is
reduced as a result of the conversion. Rev. Rul. 84-52, 1984-1 C.B. 157 and
Prop. Reg. Section 1.1254-2. A reduction in a partner's share of liabilities
is treated as a constructive distribution of cash to the partner, which
reduces the basis of the partner's interest in the partnership and is taxable
to the extent it exceeds such basis.
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Atlas Resources, Inc.
July 7, 1999
Page 7
TAXABLE YEAR
The Partnership intends to adopt a calendar year taxable year. I.R.C.
Section 706(b). The taxable year of the Partnership is important to a
prospective Participant because the Partnership's deductions, income and
other items of tax significance must be taken into account in computing the
Participant's taxable income for his taxable year within or with which the
Partnership's taxable year ends. The tax year of a partnership generally must
be the tax year of one or more of its partners who have an aggregate interest
in partnership profits and capital of greater than 50%.
1999 EXPENDITURES
The Managing General Partner anticipates that all of the Partnership's
subscription proceeds will be expended in 1999 and that the income and
deductions generated pursuant thereto will be reflected on the Participants'
federal income tax returns for that period. (See "Capitalization and Source of
Funds and Use of Proceeds" and "Participation in Costs and Revenues" in the
Prospectus.)
Depending primarily on when the Partnership Subscription is received, the
Managing General Partner anticipates that the Partnership will prepay in 1999
most, if not all, of its intangible drilling and development costs for wells the
drilling of which will be commenced in 2000. The deductibility in 1999 of such
advance payments cannot be guaranteed. (See " - Drilling Contracts," below.)
AVAILABILITY OF CERTAIN DEDUCTIONS
Ordinary and necessary business expenses, including reasonable
compensation for personal services actually rendered, are deductible in the
year incurred. Treasury Regulation Section 1.162-7(b)(3) provides that
reasonable compensation is only such amount as would ordinarily be paid for
like services by like enterprises under like circumstances. The Managing
General Partner has represented to Special Counsel that the amounts payable
to the Managing General Partner and its Affiliates, including the amounts
paid to the Managing General Partner or its Affiliates as general drilling
contractor, are the amounts which would ordinarily be paid for similar
services in similar transactions. (See " - Drilling Contracts," below.)
The fees paid to the Managing General Partner and its Affiliates will not
be currently deductible to the extent it is determined that they are in excess
of reasonable compensation, are properly characterized as organization or
syndication fees, other capital costs such as the acquisition cost of the
Leases, or not "ordinary and necessary" business expenses, or the services were
rendered in tax years other than the tax year in which such fees were deducted
by the Partnership. (See " - Partnership Organization and Syndication Fees,"
below.) In the event of an audit, payments to the Managing General Partner and
its Affiliates by the Partnership will be scrutinized by the IRS to a greater
extent than payments to an unrelated party.
INTANGIBLE DRILLING AND DEVELOPMENT COSTS
Assuming a proper election and subject to the passive activity loss
rules in the case of Limited Partners, each Participant will be entitled to
deduct his share of intangible drilling and development costs which include
items which do not have salvage value, such as labor, fuel, repairs, supplies
and hauling necessary to the drilling of a well. Treas. Reg. Section
1.612-4(a). (See "Participation in Costs and Revenues" in the Prospectus and
"- Limitations on Passive Activities," above.) These deductions are subject
to recapture as ordinary income rather than capital gain upon the disposition
of the property or a Participant's interest in the Partnership. (See " - Sale
of the Properties" and " - Disposition of Partnership Interests," below.)
Also, productive-well intangible drilling and development costs may subject a
Participant to an alternative minimum tax in excess of regular tax unless an
election is made to deduct them on a straight-line basis over a 60 month
period. (See "- Minimum Tax - Tax Preferences," below.)
In preparing the Partnership's informational tax returns, the Managing
General Partner will allocate Partnership costs among Intangible Drilling Costs,
Tangible Costs, Direct Costs, Administrative Costs, Organization and Offering
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Atlas Resources, Inc.
July 7, 1999
Page 8
Costs and Operating Costs based upon guidance from advisors to the Managing
General Partner. The Managing General Partner has allocated approximately 76.12%
of the footage price paid by the Partnership for a completed well in the
Appalachian Basin to intangible drilling and development costs ("Intangible
Drilling Costs") which are charged 100% to the Participants under the
Partnership Agreement. The IRS could challenge the characterization of costs
claimed by the Managing General Partner to be deductible intangible drilling and
development costs and recharacterize such costs as some other item which may be
non-deductible however, this would have no effect on the allocation and payment
of such costs under the Partnership Agreement.
In the case of corporations, other than S corporations, which are
"integrated oil companies," the amount allowable as a deduction for
intangible drilling and development costs in any taxable year under Section
263(c) of the Code is reduced by 30%. I.R.C. Section 291(b)(1). Integrated
oil companies are (i) those taxpayers who directly or through a related
person engage in the retail sale of oil or gas and whose gross receipts for
the calendar year from such activities exceed $5,000,000, or (ii) those
taxpayers and related persons who have refinery production in excess of
50,000 barrels on any day during the taxable year. Amounts disallowed as a
current deduction are allowable as a deduction ratably over the 60-month
period beginning with the month in which the costs are paid or incurred.
DRILLING CONTRACTS
The Partnership will enter into the Drilling and Operating Agreement with
the Managing General Partner or its Affiliates, as a third-party general
drilling contractor, to drill and complete the Partnership's Development Wells
on a footage basis of $37.81 per foot for each well that is drilled and
completed in the Appalachian Basin, and at a competitive rate for wells, if any,
drilled in other areas of the United States. Under the footage drilling
contracts for wells situated in the Mercer County area of the Appalachian Basin,
the Managing General Partner anticipates that it will have reimbursement of
general and administrative overhead of $3,600 per well and a profit of
approximately 15% per well assuming the well is drilled to 5,950 feet. However,
the actual cost of the drilling of the wells may be more or less than the
estimated amount, due primarily to the uncertain nature of drilling operations.
The Managing General Partner believes the Drilling and Operating Agreement
is at competitive rates in the proposed areas of operation. Nevertheless, the
amount of the profit realized by the Managing General Partner under the drilling
contract, if any, could be challenged by the IRS as unreasonable and disallowed
as a deductible intangible drilling and development cost. (See " - Intangible
Drilling and Development Costs," above, and "Proposed Activities" and
"Compensation" in the Prospectus.)
Depending primarily on when the Partnership Subscription is received, the
Managing General Partner anticipates that the Partnership will prepay in 1999
most, if not all, of the intangible drilling and development costs for drilling
activities that will be conducted in 2000. In KELLER V. COMMISSIONER, 79 T.C. 7
(1982), aff'd 725 F.2d 1173 (8th Cir. 1984), the Tax Court applied a two-part
test for the current deductibility of prepaid intangible drilling and
development costs: (1) the expenditure must be a payment rather than a
refundable deposit; and (2) the deduction must not result in a material
distortion of income taking into substantial consideration the business purpose
aspects of the transaction. The drilling partnership in KELLER entered into
footage and daywork drilling contracts which permitted it to terminate the
contracts at any time without default by the driller, and receive a return of
the prepaid amounts less amounts earned by the driller. The Tax Court found that
the right to receive, by unilateral action, a refund of the prepayments on such
footage and daywork drilling contracts rendered such prepayments deposits
instead of payments. Therefore, the prepayments were held to be nondeductible in
the year they were paid to the extent they had not been earned by the driller.
The Tax Court further found that the drilling partnership failed to show a
convincing business purpose for prepayments under the footage and daywork
drilling contracts.
The drilling partnership in KELLER also entered into turnkey drilling
contracts which permitted it to stop work under the contract at any time and
apply the unearned balance of the prepaid amounts to another well to be drilled
on a turnkey basis. The Tax Court found that such prepayments constituted
"payments" and not nondeductible deposits, despite the right of substitution.
Further, the Tax Court noted that the turnkey drilling contracts obligated "the
driller to
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Atlas Resources, Inc.
July 7, 1999
Page 9
drill to the contract depth for a stated price regardless of the time,
materials or expenses required to drill the well," thereby locking in prices
and shifting the risks of drilling from the drilling partnership to the
driller. Since the drilling partnership, a cash basis taxpayer, received the
benefit of the turnkey obligation in the year of prepayment, the Tax Court
found that the amounts prepaid on turnkey drilling contracts clearly
reflected income and were deductible in the year of prepayment.
In LEONARD T. RUTH, TC Memo 1983-586, a drilling program entered into nine
separate turnkey contracts with a general contractor (the parent corporation of
the drilling program's corporate general partner), to drill nine program wells.
Each contract identified the prospect to be drilled, stated the turnkey price,
and required the full price to be paid in 1974. The program paid the full
turnkey price to the general contractor on December 31, 1974; the receipt of
which was found by the court to be significant in the general contractor's
financial planning. The program had no right to receive a refund of any of the
payments. The actual drilling of the nine wells was subcontracted by the general
contractor to independent contractors who were paid by the general contractor in
accordance with their individual contracts. The drilling of all wells commenced
in 1975 and all wells were completed that year. The amount paid by the general
contractor to the independent driller for its work on the nine wells was
approximately $365,000 less than the amount prepaid by the program to the
general contractor. The program claimed a deduction for intangible drilling and
development costs in 1974. The IRS challenged the timing of the deduction,
contending that there was no business purpose for the payments in 1974, that the
turnkey arrangements were merely "contracts of convenience" designed to create a
tax deduction in 1974, and that the turnkey contracts constituted assets having
a life beyond the taxable year and that to allow a deduction for their entire
costs in 1974 distorted income. The Tax Court, relying on KELLER, held that the
program could deduct the full amount of the payments in 1974. The court found
that the program entered into turnkey contracts, paid a premium to secure the
turnkey obligations, and thereby locked in the drilling price and shifted the
risks of drilling to the general contractor. Further, the court found that by
signing and paying the turnkey obligation, the program got its bargained-for
benefit in 1974, therefore the deduction of the payments in 1974 clearly
reflected income.
The Partnership will attempt to comply with the guidelines set forth in
KELLER with respect to prepaid intangible drilling and development costs. The
Drilling and Operating Agreement will require the Partnership to prepay in 1999
intangible drilling and development costs for specified wells the drilling of
which will be commenced in 2000. Although the Partnership is not required to
prepay completion costs of a well prior to the time a decision has been made to
complete the well, the Managing General Partner anticipates that all Partnership
Wells will be required to be completed before an evaluation can be made as to
their potential productivity. Prepayments should not result in a loss of current
deductibility where there is a legitimate business purpose for the required
prepayment, the contract is not merely a sham to control the timing of the
deduction and there is an enforceable contract of economic substance. The
Drilling and Operating Agreement will require the Partnership to prepay the
intangible drilling and development costs of the wells in order to enable the
Operator to commence site preparation for the wells, obtain suitable
subcontractors at the then current prices and insure the availability of
equipment and materials. Under the Drilling and Operating Agreement excess
prepaid amounts, if any, will not be refundable to the Partnership but will be
applied to intangible drilling and development costs to be incurred in drilling
substitute wells. Under KELLER, such a provision for substitute wells should not
result in the prepayments being characterized as refundable deposits.
The likelihood that prepayments will be challenged by the IRS on the
grounds that there is no business purpose for the prepayment is increased in the
event prepayments are not required with respect to 100% of the Working Interest.
It is possible that less than 100% of the Working Interest will be acquired by
the Partnership in one or more wells and prepayments may not be required of all
holders of the Working Interest. However, in the view of Special Counsel, a
legitimate business purpose for the required prepayments may exist under the
guidelines set forth in KELLER, even though prepayment is not required, or
actually received, by the drilling contractor with respect to a portion of the
Working Interest.
In addition to the foregoing, a current deduction for prepaid intangible
drilling and development costs is available only if the drilling of the wells is
commenced before the close of the 90th day after the close of the taxable year.
The
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Atlas Resources, Inc.
July 7, 1999
Page 10
Managing General Partner will attempt to cause prepaid Partnership Wells to
be Spudded on or before March 30, 2000. However, the Spudding of any Partnership
Well may be delayed due to circumstances beyond the control of the Partnership
or the drilling contractor. Such circumstances include the unavailability of
drilling rigs, weather conditions, inability to obtain drilling permits or
access right to the drilling site, or title problems. Due to the foregoing
factors no guaranty can be given that all prepaid Partnership Wells required by
the Drilling and Operating Agreement to be Spudded on or before March 30, 2000,
will actually be commenced by such date. In that event, deductions claimed in
1999 for prepaid intangible drilling and development costs would be disallowed
and deferred to the 2000 taxable year.
No assurance can be given that on audit the IRS would not disallow the
current deductibility of a portion or all of any prepayments of intangible
drilling and development costs under the Partnership's drilling contracts,
thereby decreasing the amount of deductions allocable to the Participants for
the current taxable year, or that such a challenge would not ultimately be
sustained. In the event of disallowance, the deduction would be available in the
year the work is actually performed.
DEPLETION ALLOWANCE
Proceeds from the sale of the Partnership's oil and gas production will
constitute ordinary income. A certain portion of such income will not be taxable
by virtue of the depletion allowance which permits the deduction from gross
income for federal income tax purposes of either the percentage depletion
allowance or the cost depletion allowance, whichever is greater. These
deductions are subject to recapture as ordinary income rather than capital gain
upon the disposition of the property or a Participant's interest in the
Partnership. (See " - Sale of the Properties" and " - Disposition of Partnership
Interests," below.)
Cost depletion for any year is determined by dividing the adjusted tax
basis for the property by the total units of gas or oil expected to be
recoverable therefrom and then multiplying the resultant quotient by the number
of units actually sold during the year. Cost depletion cannot exceed the
adjusted tax basis of the property to which it relates.
Percentage depletion generally is available to taxpayers other than
integrated oil companies. (See "- Intangible Drilling and Development Costs.")
Percentage depletion is based on the Participant's share of the Partnership's
gross income from its oil and gas properties. Generally, percentage depletion is
available with respect to 6 million cubic feet of average daily production of
natural gas or 1,000 barrels of average daily production of domestic crude oil.
Taxpayers who have both oil and gas production may allocate the production
limitation between such production. The rate of percentage depletion is 15%.
However, percentage depletion for marginal production increases 1% (up to a
maximum increase of 10%) for each whole dollar that the domestic wellhead price
of crude oil for the immediately preceding year is less than $20 per barrel
(without adjustment for inflation). The term "marginal production" includes oil
and gas produced from a domestic stripper well property, which is defined as any
property which produces a daily average of 15 or less equivalent barrels of oil
(90 MCF of natural gas) per producing well on the property in the calendar year.
The rate of percentage depletion for marginal production in 1999 is 24%. (See
the model decline curve included in the United Energy Development Consultants,
Inc. Geological Report in "Proposed Activities - Information Regarding Currently
Proposed Prospects" in the Prospectus.)
Also, percentage depletion may not exceed 100% of the net income from each
oil and gas property before the deduction for depletion and is limited to 65% of
the taxpayer's taxable income for a year computed without regard to percentage
depletion, net operating loss carry-backs and capital loss carry-backs. With
respect to marginal properties, however, the 100% of net income property
limitation is suspended for 1999.
AVAILABILITY OF THE PERCENTAGE DEPLETION ALLOWANCE AND LIMITATIONS THEREON
MUST BE COMPUTED SEPARATELY FOR EACH PARTICIPANT AND NOT BY THE PARTNERSHIP, OR
FOR PARTICIPANTS AS A WHOLE. POTENTIAL PARTICIPANTS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE AVAILABILITY OF THE PERCENTAGE DEPLETION
ALLOWANCE TO THEM.
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Atlas Resources, Inc.
July 7, 1999
Page 11
DEPRECIATION - MODIFIED ACCELERATED COST RECOVERY SYSTEM ("MACRS")
Tangible Costs and the related depreciation deductions are allocated and
charged under the Partnership Agreement 43.75% to the Managing General Partner
and 56.25% to the Participants. These deductions are subject to recapture as
ordinary income rather than capital gain upon the disposition of the property or
a Participant's interest in the Partnership. (See " - Sale of the Properties"
and " - Disposition of Partnership Interests," below.) The cost of most
equipment placed in service by the Partnership will be recovered through
depreciation deductions over a seven year cost recovery period using the 200%
declining balance method, with a switch to straight-line to maximize the
deduction. I.R.C. Section 168(c). An alternative depreciation system is used to
compute the depreciation preference subject to the alternative minimum tax
(using the 150% declining balance method, switching to straight-line, for most
personal property). (See "- Minimum Tax - Tax Preferences," below.) All property
assigned to the 7-year class is treated as placed in service (or disposed of) in
the middle of the year and in the case of a short tax year the MACRS deduction
is prorated on a 12-month basis. The half-year convention effectively adds
another year onto the cost recovery period. No distinction is made between new
and used property and salvage value is disregarded.
LEASEHOLD COSTS AND ABANDONMENT
The costs of acquiring oil and gas Lease interests, together with the
related cost depletion deduction and any abandonment loss, are allocated under
the Partnership Agreement 100% to the Managing General Partner, which will
contribute the Leases to the Partnership as a part of its Capital Contribution.
TAX BASIS OF PARTICIPANTS' INTERESTS
A Participant's distributive share of Partnership loss is allowable only
to the extent of the adjusted basis of the Participant's interest in the
Partnership at the end of the Partnership's taxable year. The adjusted basis for
federal income tax purposes of a Participant's interest in the Partnership will
be adjusted (but not below zero) for any gain or loss to the Participant from a
disposition by the Partnership of an oil or gas property, and will be increased
by: (i) his cash subscription payment; (ii) his share, if any, of Partnership
debt; and (iii) his share of Partnership income. (See " - Partnership
Borrowings," below.) The adjusted basis of a Participant's interest in the
Partnership will be reduced by: (i) his share of Partnership losses; (ii) his
share of Partnership expenditures that are not deductible in computing its
taxable income and are not properly chargeable to capital account; (iii) his
deduction for depletion for any partnership oil and gas property (but not below
zero); and (iv) cash distributions from the Partnership to him.
The reduction in a Participant's share of Partnership liabilities, if any,
is considered a cash distribution. Participants will not be personally liable on
any Partnership loans; however, Investor General Partners will be liable for
other obligations of the Partnership. (See "Risk Factors - Special Risks of the
Partnership - Risk of Loss Because of Unlimited Liability of Investor General
Partners" in the Prospectus.) Should cash distributions exceed the tax basis of
the Participant's interest in the Partnership, taxable gain would result to the
extent of the excess. (See "- Distributions From a Partnership," below.)
"AT RISK" LIMITATION FOR LOSSES
Subject to the limitations on "passive losses" generated by the
Partnership in the case of Limited Partners and a Participant's basis in the
Partnership, each Participant may use his share of the Partnership's losses to
offset income from other sources. (See "- Limitations on Passive Activities" and
"- Tax Basis of Participants' Interests," above.) However, any taxpayer (other
than a corporation which is neither an S corporation nor a corporation in which
five or fewer individuals own more than 50% of the stock) who sustains a loss in
connection with his oil and gas activities may deduct the loss only to the
extent of the amount he has "at risk" in such activities at the end of a taxable
year. The "at risk" limitation applies to each activity engaged in and not on an
aggregate basis for all activities.
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The amount "at risk" is limited to the amount of money and the adjusted
basis of other property the taxpayer has contributed to the activity, and any
amount he has borrowed with respect thereto for which he is personally liable
or with respect to which he has pledged property other than property used in
the activity; limited, however, to the net fair market value of his interest
in the pledged property. I.R.C. Section 465(b)(1) and (2). However, amounts
borrowed will not be considered "at risk" if the amounts are borrowed from
any person who has an interest (other than as a creditor) in the activity or
from a related person to a person (other than the taxpayer) having such an
interest.
"Loss" is defined as being the excess of allowable deductions for a
taxable year from an activity over the amount of income actually received or
accrued by the taxpayer during the year from the activity. The amount the
taxpayer has "at risk" may not include the amount of any loss that the taxpayer
is protected against through nonrecourse loans, guarantees, stop loss
agreements, or other similar arrangements. The amount of any loss that is
disallowed in any taxable year will be carried over to the first succeeding
taxable year, to the extent a Participant is "at risk." Further, a taxpayer's
"at risk" amount in subsequent taxable years with respect to the activity
involved will be reduced by that portion of the loss which is allowable as a
deduction.
Participants' Agreed Subscriptions are funded by a payment of cash
(usually "at risk"). Since income, gains, losses, and distributions of the
Partnership affect the amount considered to be "at risk," the extent to which a
Participant is "at risk" must be determined annually. Previously allowed losses
must be recaptured (included in gross income) if the "at risk" amount is reduced
below zero. The amount included in income under this recapture provision may be
deducted in the first succeeding taxable year to the extent of any increase in
the amount which the Participant has "at risk."
DISTRIBUTIONS FROM A PARTNERSHIP
Generally, a cash distribution from a partnership to a partner in
excess of the adjusted basis of the partner's interest in the partnership
immediately before the distribution is treated as gain from the sale or
exchange of his interest in the partnership to the extent of the excess.
I.R.C. Section 731(a)(1). No loss is recognized by the partners on these
types of distributions. I.R.C. Section 731(a)(2). No gain or loss is
recognized by the Partnership on these types of distributions. I.R.C. Section
731(b). If property is distributed by the Partnership to the Managing General
Partner and the Participants, certain basis adjustments may be made by the
Partnership, the Managing General Partner and the Participants.
[Partnership Agreement, Section 5.04(d).] I.R.C. Sections 732, 733, 734, and
754. Other distributions of cash, disproportionate distributions of property,
and liquidating distributions may result in taxable gain or loss. (See " -
Disposition of Partnership Interests" and " - Termination of a Partnership,"
below.)
SALE OF THE PROPERTIES
Generally, net long-term capital gains of a noncorporate taxpayer on the
sale of assets held more than a year are taxed at a maximum rate of 20% (10% if
they would be subject to tax at a rate of 15% if they were not eligible for
long-term capital gains treatment). These rates also apply for purposes of the
alternative minimum tax. (See " - Minimum Tax - Tax Preferences," below.) The
annual capital loss limitation for noncorporate taxpayers is the amount of
capital gains plus the lesser of $3,000 ($1,500 for married persons filing
separate returns) or the excess of capital losses over capital gains.
Gains and losses from sales of oil and gas properties held for more than
twelve months generally will be treated as a long-term capital gain, while a net
loss will be an ordinary deduction, except to the extent of depreciation
recapture on equipment and recapture of any intangible drilling and development
costs, depletion deductions and certain losses on previous sales, if any, of the
Partnership's assets as discussed below. Other gains and losses on sales of oil
and gas properties will generally result in ordinary gains or losses.
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Intangible drilling and development costs that are incurred in connection
with an oil and gas property may be recaptured as ordinary income when the
property is disposed of by the Partnership. Generally, the amount recaptured is
the lesser of:
(1) the aggregate amount of expenditures which have been deducted as
intangible drilling and development costs with respect to the
property and which (but for being deducted) would be reflected in
the adjusted basis of the property; or
(2) the excess of (i) the amount realized (in the case of a sale,
exchange or involuntary conversion); or (ii) the fair market
value of the interest (in the case of any other disposition) over
the adjusted basis of the property. I.R.C. Section 1254(a).
(See " - Intangible Drilling and Development Costs," above.)
In addition, the deductions for depletion which reduced the adjusted basis
of the property are subject to recapture as ordinary income, and all gain on
disposition of tangible personal property is treated as ordinary income to the
extent of MACRS deductions claimed by the Partnership. (See " - Depletion
Allowance" and " - Depreciation - Modified Accelerated Cost Recovery System
("MACRS")," above.)
DISPOSITION OF PARTNERSHIP INTERESTS
The sale or exchange, including a repurchase by the Managing General
Partner, of all or part of a Participant's interest in the Partnership held
by him for more than twelve months will generally result in a recognition of
long-term capital gain or loss. However, previous deductions for
depreciation, depletion and intangible drilling and development costs may be
recaptured as ordinary income rather than capital gain. (See " - Sale of the
Properties," above.) In the event the interest is held for twelve months or
less, such gain or loss will generally be short-term gain or loss. Also, a
Participant's pro rata share of the Partnership's liabilities, if any, as of
the date of the sale or exchange must be included in the amount realized.
Therefore, the gain recognized may result in a tax liability greater than the
cash proceeds, if any, from such disposition. In addition to gain from a
passive activity, a portion of any gain recognized by a Limited Partner on
the sale or other disposition of his interest in the Partnership will be
characterized as portfolio income under Section 469 to the extent the gain is
itself attributable to portfolio income (e.g. interest on investment of
working capital). Treas. Reg. Section 1.469-2T(e)(3). (See " - Limitations on
Passive Activities," above.)
A gift of an interest in the Partnership may result in federal and/or
state income tax and gift tax liability of the Participant, and interests in
different partnerships do not qualify for tax-free like-kind exchanges.
I.R.C. Section 1031(a)(2)(D). Other dispositions of a Participant's interest,
including a repurchase of the interest by the Managing General Partner, may
or may not result in recognition of taxable gain. However, no gain should be
recognized by an Investor General Partner whose interest in the Partnership
is converted to a Limited Partner interest so long as there is no change in
his share of the Partnership's liabilities or certain Partnership assets as a
result of the conversion. Rev. Rul. 84-52, 1984-1 C.B. 157.
A Participant who sells or exchanges all or part of his interest in the
Partnership is required by the Code to notify the Partnership within 30 days or
by January 15 of the following year, if earlier. I.R.C. Section 6050K. After
receiving the notice, the Partnership is required to make a return with the IRS
stating the name and address of the transferor and the transferee and such other
information as may be required by the IRS. The Partnership must also provide
each person whose name is set forth in the return a written statement showing
the information set forth on the return.
If a partner sells or exchanges his entire interest in a partnership, the
taxable year of the partnership will close with respect to that partner (but not
the remaining partners) on the date of sale or exchange, with a proration of
partnership items for the partnership's taxable year. If a partner sells less
than his entire interest in a partnership, the partnership year will not
terminate with respect to the selling partner, but his proportionate share of
items of income, gain, loss,
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deduction and credit will be determined by taking into account his varying
interests in the partnership during the taxable year. Deductions or credits
generally may not be allocated to a partner acquiring an interest from a
selling partner for a period prior to the purchaser's admission to the
partnership. I.R.C. Section 706(d).
NO DISPOSITION OF AN INTEREST IN THE PARTNERSHIP (INCLUDING REPURCHASE OF
THE INTEREST BY THE MANAGING GENERAL PARTNER) SHOULD BE MADE BY ANY PARTICIPANT
PRIOR TO CONSULTATION WITH HIS TAX ADVISOR.
MINIMUM TAX - TAX PREFERENCES
With limited exceptions, all taxpayers are subject to the alternative
minimum tax. If the alternative minimum tax exceeds the regular tax, the excess
is payable in addition to the regular tax. The alternative minimum tax is
intended to insure that no one with substantial income can avoid tax liability
by using deductions and credits. The alternative minimum tax accomplishes this
objective by not treating favorably certain items that are treated favorably for
purposes of the regular tax, including the deductions for intangible drilling
and development costs and accelerated depreciation.
Generally, the alternative minimum tax rate for individuals is 26% on
alternative minimum taxable income up to $175,000 ($87,500 for married
individuals filing separate returns) and 28% thereafter. See " - Sale of the
Properties," above, for the tax rates on capital gains. Individual tax
preferences may include, but are not limited to: accelerated depreciation,
intangible drilling and development costs, incentive stock options and passive
activity losses. The exemption amount is $45,000 for married couples filing
jointly and surviving spouses, $33,750 for single filers, and $22,500 for
married persons filing separately, estates and trusts. These exemption amounts
are reduced by 25% of the alternative minimum taxable income in excess of (1)
$150,000 for joint returns and surviving spouses; (2) $75,000 for estates,
trusts and married persons filing separately, and (3) $112,500 for single
taxpayers. Married individuals filing separately must increase alternative
minimum taxable income by the lesser of: (i) 25% of the excess of alternative
minimum taxable income over $165,000; or (ii) $22,500. Regular tax personal
exemptions are not available for purposes of the alternative minimum tax.
The only itemized deductions allowed for minimum tax purposes are those
for casualty and theft losses, gambling losses to the extent of gambling
gains, charitable deductions, medical deductions (to the extent in excess of
10% of adjusted gross income), interest expenses (restricted to qualified
housing interest as defined in Section 56(e) of the Code and investment
interest expense not exceeding net investment income), and certain estate
taxes. The net operating loss for alternative minimum tax purposes generally
is the same as for regular tax purposes, except: (i) current year tax
preference items are added back to taxable income, and (ii) individuals may
use only those itemized deductions (as modified under Section 172(d))
allowable in computing alternative minimum taxable income. Code sections
suspending losses, such as Sections 465 and 704(d), are recomputed for
minimum tax purposes and the amount of the deductions suspended or recaptured
may differ for regular and minimum tax purposes.
For taxpayers other than integrated oil companies (see "- Intangible
Drilling and Development Costs"), the 1992 National Energy Bill repealed: (1)
the preference for excess intangible drilling and development costs; and (2) the
excess percentage depletion preference for oil and gas. The repeal of the excess
intangible drilling and development costs preference, however, may not result in
more than a 40% reduction in the amount of the taxpayer's alternative minimum
taxable income computed as if the excess intangible drilling and development
costs preference had not been repealed. Under the prior rules, the amount of
intangible drilling and development costs which is not deductible for
alternative minimum tax purposes is the excess of the "excess intangible
drilling costs" over 65% of net income from oil and gas properties. Net oil and
gas income is determined for this purpose without subtracting excess intangible
drilling and development costs. Excess intangible drilling and development costs
is the regular intangible drilling and development costs deduction minus the
amount that would have been deducted under 120-month straight-line amortization,
or (at the taxpayer's election) under the cost depletion method. There is no
preference for costs of nonproductive wells.
THE LIKELIHOOD OF A PARTICIPANT INCURRING, OR INCREASING, ANY MINIMUM TAX
LIABILITY BY VIRTUE OF AN INVESTMENT IN THE
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PARTNERSHIP, AND THE IMPACT OF SUCH LIABILITY ON HIS PERSONAL TAX SITUATION,
MUST BE DETERMINED ON AN INDIVIDUAL BASIS, AND REQUIRES CONSULTATION BY A
PROSPECTIVE PARTICIPANT WITH HIS PERSONAL TAX ADVISOR.
LIMITATIONS ON DEDUCTION OF INVESTMENT INTEREST
Investment interest is deductible by a noncorporate taxpayer only to
the extent of net investment income each year (with an indefinite
carryforward of disallowed investment interest). I.R.C. Section 163. Interest
subject to the limitation generally includes all interest (except consumer
interest and qualified residence interest) on debt not incurred in a person's
active trade or business, provided the activity is not a "passive activity"
under the passive loss rule. Accordingly, an Investor General Partner's share
of any interest expense incurred by the Partnership will be subject to the
investment interest limitation. In addition, an Investor General Partner's
income and losses (including intangible drilling and development costs) from
the Partnership will be considered investment income and losses for purposes
of this limitation. Losses allocable to an Investor General Partner will
reduce his net investment income and may affect the deductibility of his
investment interest expense, if any.
Net investment income is the excess of investment income over
investment expenses. Investment income includes: gross income from interest,
dividends, rents, and royalties; portfolio income under the passive activity
rules (which includes working capital investment income); and income from a
trade or business in which the taxpayer does not materially participate if
the activity is not a "passive activity." In the case of Investor General
Partners, this includes the Partnership prior to the conversion of Investor
General Partner Units to Limited Partner interests. Investment expenses
include deductions (other than interest) that are directly connected with the
production of net investment income (including actual depreciation or
depletion deductions allowable). No item of income or expense subject to the
passive activity loss rules of Section 469 of the Code is treated as
investment income or investment expense.
In determining deductible investment expenses, investment expenses are
subject to a rule limiting deductions for miscellaneous expenses to those
exceeding 2% of adjusted gross income, however, expenses that are not investment
expenses are intended to be disallowed before any investment expenses are
disallowed.
ALLOCATIONS
The Partnership Agreement allocates to each Partner his share of the
Partnership's income, gains, credits and deductions (including the deductions
for intangible drilling and development costs and depreciation). Allocations of
certain items are made in ratios that are different than allocations of other
items. (See "Participation in Costs and Revenues" in the Prospectus.) The
Capital Accounts of the Partners are adjusted to reflect these allocations and
the Capital Accounts, as adjusted, will be given effect in distributions made to
the Partners upon liquidation of the Partnership or any Partner's interest in
the Partnership. Generally, the basis of oil and gas properties owned by the
Partnership for computation of cost depletion and gain or loss on disposition
will be allocated and reallocated when necessary in the ratio in which the
expenditure giving rise to the tax basis of each property was charged as of the
end of the year. [Partnership Agreement, Section 5.03(b).]
Special allocations (those made in a manner that is disproportionate to
the respective interests of the partners in a partnership), among partners of
any item of partnership income, gain, loss, deduction or credit will not be
given effect unless the special allocation has "substantial economic effect."
I.R.C. Section 704(b). An allocation generally will have economic effect if
throughout the term of the partnership:
(1) the partners' capital accounts are maintained in accordance with
rules set forth in the regulations (generally, tax accounting
principles);
(2) liquidation proceeds are distributed in accordance with the
partners' capital accounts; and
(3) any partner with a deficit balance in his capital account
following the liquidation of his interest in the partnership is
required to restore the amount of the deficit to the partnership.
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Generally, a Participant's Capital Account is increased by the amount of money
he contributes to the Partnership and allocations to him of income and gain, and
decreased by the value of property or cash distributed to him and allocations to
him of loss and deductions. The regulations also require that there must be a
reasonable possibility that the allocation will affect substantially the dollar
amounts to be received by the partners from the partnership, independent of tax
consequences.
Although Participants are not required to restore deficit balances in
their Capital Accounts beyond the amount of their agreed Capital
Contributions, an allocation which is not attributable to nonrecourse debt
will be considered to have economic effect to the extent it does not cause or
increase a deficit balance in a Participant's Capital Account, if
requirements (1) and (2) described above are met and the partnership
agreement provides that a partner who unexpectedly incurs a deficit balance
in his Capital Account because of certain adjustments, allocations, or
distributions will be allocated income and gain sufficient to eliminate such
deficit balance as quickly as possible. Treas. Reg. Section
1.704-l(b)(2)(ii)(d). (See Section 5.03(h) of the Partnership Agreement.)
Special provisions apply to deductions related to nonrecourse debt. If
the Managing General Partner or an Affiliate makes a nonrecourse loan to the
Partnership ("partner nonrecourse liability"), Partnership losses,
deductions, or Section 705(a)(2)(B) expenditures attributable to the loan
must be allocated to the Managing General Partner, and if there is a net
decrease in partner nonrecourse liability minimum gain with respect to the
loan, the Managing General Partner must be allocated income and gain equal to
the net decrease. (See Section 5.03(i) of the Partnership Agreement.)
In the event of a sale or transfer of a Partnership Unit or the admission
of an additional Participant, Partnership income, gain, loss, deductions and
credits generally will be allocated among the Partners on a daily basis
according to their varying interests in the Partnership during the taxable year.
In addition, in the discretion of the Managing General Partner Partnership
property may be revalued upon the admission of additional Participants, or if
certain distributions are made to the Partners, to reflect unrealized income,
gain, loss or deduction inherent in the Partnership's property for purposes of
adjusting the Partners' Capital Accounts.
It should also be noted that each Partner's share of Partnership items of
income, gain, loss, deduction and credit must be taken into account whether or
not there is any distributable cash. A Participant's share of Partnership
revenues applied to the repayment of loans or the reserve for plugging wells,
for example, will be included in his gross income in a manner analogous to an
actual distribution of the income to him. Thus, a Participant may have tax
liability on taxable income from the Partnership for a particular year in excess
of any cash distributions from the Partnership to him with respect to that year.
To the extent the Partnership has cash available for distribution, however, it
is the Managing General Partner's policy that Partnership distributions will not
be less than the Managing General Partner's estimate of the Participants' income
tax liability with respect to Partnership income.
If any allocation under the Partnership Agreement is not recognized for
federal income tax purposes, each Participant's distributive share of the items
subject to such allocation generally will be determined in accordance with his
interest in the Partnership, determined by considering relevant facts and
circumstances. To the extent such deductions as allocated by the Partnership
Agreement, exceed deductions which would be allowed pursuant to such a
reallocation, Participants may incur a greater tax burden. However, assuming the
effect of the special allocations set forth in the Partnership Agreement is
substantial in light of a Participant's tax attributes that are unrelated to the
Partnership, in the opinion of Special Counsel it is more likely than not that
such allocations will have "substantial economic effect" and will govern each
Participant's distributive share of such items to the extent such allocations do
not cause or increase deficit balances in the Participants' Capital Accounts.
PARTNERSHIP BORROWINGS
Under the Partnership Agreement, the Managing General Partner and its
Affiliates may make loans to the Partnership. The use of Partnership revenues
taxable to Participants to repay Partnership borrowings could create income tax
liability for the Participants in excess of cash distributions to them, since
repayments of principal are not deductible for federal income tax purposes. In
addition, interest on the loans will not be deductible unless the loans are
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Page 17
bona fide loans that will not be treated as Capital Contributions. In Revenue
Ruling 72-135, 1972-1 C.B. 200, the IRS ruled that a nonrecourse loan from a
general partner to a partnership engaged in oil and gas exploration
represented a capital contribution by the general partner rather than a loan.
Whether a "loan" to the Partnership represents in substance, debt or equity
is a question of fact to be determined from all the surrounding facts and
circumstances.
PARTNERSHIP ORGANIZATION AND SYNDICATION FEES
Expenses connected with the issuance and sale of interests in a
partnership (I.E., promotional expense, selling expense, commissions,
professional fees and printing costs) are not deductible. However, expenses
incident to the creation of a partnership may be amortized over a period of not
less than 60 months. Such amortizable organization expenses will be paid by the
Managing General Partner as part of the Partnership's Organization and Offering
Costs and any related deductions, which the Managing General Partner does not
anticipate will be material in amount, will be allocated to the Managing General
Partner. I.R.C. Section 709; Treas. Reg. Sections 1.709-1 and 2.
TAX ELECTIONS
The Partnership may elect to adjust the basis of Partnership property
on the transfer of an interest in the Partnership by sale or exchange or on
the death of a Partner, and on the distribution of property by the
Partnership to a Partner (the Section 754 election). The general effect of
such an election is that transferees of the Partnership interests are
treated, for purposes of depreciation and gain, as though they had acquired a
direct interest in the Partnership assets and the Partnership is treated for
such purposes, upon certain distributions to Partners, as though it had newly
acquired an interest in the Partnership assets and therefore acquired a new
cost basis for such assets. Any such election, once made, may not be revoked
without the consent of the IRS. The Partnership may also make various
elections for federal tax reporting purposes which could result in various
items of income, gain, loss, deduction and credit being treated differently
for tax purposes than for accounting purposes.
Code Section 195 permits taxpayers to elect to capitalize and amortize
"start-up expenditures" over a 60-month period. Such items include amounts:
(1) paid or incurred in connection with: (i) investigating the creation or
acquisition of an active trade or business, (ii) creating an active trade or
business, or (iii) any activity engaged in for profit and for the production
of income before the day on which the active trade or business begins, in
anticipation of such activity becoming an active trade or business; and (2)
which would be allowed as a deduction if paid or incurred in connection with
the expansion of an existing business. Start-up expenditures do not include
amounts paid or incurred in connection with the sale of partnership
interests. If it is ultimately determined that any of the Partnership's
expenses constituted start-up expenditures and not deductible expenses under
Section 162 of the Code, the Partnership's deductions would be reduced.
DISALLOWANCE OF DEDUCTIONS UNDER SECTION 183 OF THE CODE
Under Section 183 of the Code, a Participant's ability to deduct his
share of the Partnership's losses on his federal income tax return could be
lost if the Partnership lacks the appropriate profit motive as determined
from an examination of all facts and circumstances at the time. Section 183
creates a presumption that an activity is engaged in for profit, if, in any
three of five consecutive taxable years, the gross income derived from the
activity exceeds the deductions attributable to the activity. Thus, if the
Partnership fails to show a profit in at least three out of five consecutive
years, this presumption will not be available and the possibility that the
IRS could successfully challenge the Partnership deductions claimed by a
Participant would be substantially increased.
The fact that the possibility of ultimately obtaining profits is
uncertain, standing alone, does not appear to be sufficient grounds for the
denial of losses under Section 183. (See Treas. Reg. Section 1.183-2(c),
Example (5).) Based on the Managing General Partner's representation that the
Partnership will be conducted as described in the Prospectus, in the opinion
of Special Counsel it is more likely than not that the Partnership will
possess the requisite profit motive.
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TERMINATION OF A PARTNERSHIP
Pursuant to Section 708(b) of the Code, the Partnership will be
considered as terminated for federal income tax purposes if within a twelve
month period there is a sale or exchange of 50% or more of the total interest
in Partnership capital and profits. The closing of the Partnership year may
result in more than twelve months' income or loss of the Partnership being
allocated to certain Partners for the year of termination (i.e., in the case
of Partners using fiscal years other than the calendar year). Under Section
731 of the Code, a Partner will realize taxable gain on a termination of the
Partnership to the extent that money regarded as distributed to him exceeds
the adjusted basis of his Partnership interest. The conversion of Investor
General Partner Units to Limited Partner interests, however, will not result
in a termination of the Partnership. Rev. Rul. 84-52, 1984-1 C.B. 157.
LACK OF REGISTRATION AS A TAX SHELTER
Section 6111 of the Code generally requires an organizer of a "tax
shelter" to register the tax shelter with the Secretary of the Treasury, and
to obtain an identification number which must be included on the tax returns
of investors in the tax shelter. For purposes of these provisions, a "tax
shelter" is generally defined to include investments with respect to which
any person could reasonably infer that the ratio that:
(1) the aggregate amount of the potentially allowable deductions
and 350% of the potentially allowable credits with respect to
the investment during the first five years of the investment
bears to;
(2) the amount of money and the adjusted basis of property
contributed to the investment;
exceeds 2 to 1. Temporary Regulations promulgated by the IRS provide that the
aggregate amount of gross deductions must be determined without reduction for
gross income to be derived from the investment.
The Managing General Partner does not believe that the Partnership will
have a tax shelter ratio greater than 2 to 1. Also, because the purpose of the
Partnership is to locate, produce and market natural gas on an economic basis,
the Managing General Partner does not believe that the Partnership will be a
"potentially abusive tax shelter." Accordingly, the Managing General Partner
does not intend to cause the Partnership to register with the IRS as a tax
shelter.
If it is subsequently determined that the Partnership was required to be
registered with the IRS as a tax shelter, the Managing General Partner would be
subject to certain penalties, including a penalty of 1% of the aggregate amount
invested in the Units of the Partnership for failing to register and $100 for
each failure to furnish a Participant a tax shelter registration number, and
each Participant would be liable for a $250 penalty for failure to include the
tax shelter registration number on his tax return, unless such failure was due
to reasonable cause. A Participant also would be liable for a penalty of $100
for failing to furnish the tax shelter registration number to any transferee of
his interest in the Partnership. However, based on the representations of the
Managing General Partner, Special Counsel has expressed the opinion that the
Partnership, more likely than not, is not required to register with the IRS as a
tax shelter.
Issuance of a registration number does not indicate that an investment or
the claimed tax benefits have been reviewed, examined, or approved by the IRS.
INVESTOR LISTS
Section 6112 of the Code requires that any person who organizes a tax
shelter required to be registered with the IRS or who sells any interest in
such a shelter must maintain a list identifying each person who was sold an
interest in the shelter and setting forth other required information. For the
reasons described above, the Managing General Partner does not believe the
Partnership is subject to the requirements of Section 6112. If this
determination is wrong, Section 6708 of the Code provides for a penalty of
$50 for each person with respect to whom there is a failure to meet any
requirements of Section 6112, unless the failure is due to reasonable cause.
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TAX RETURNS AND AUDITS
IN GENERAL. The tax treatment of all partnership items is generally
determined at the partnership, rather than the partner, level; and the
partners are generally required to treat partnership items on their
individual returns in a manner which is consistent with the treatment of the
partnership items on the partnership return. I.R.C. Sections 6221 and 6222.
Regulations define "partnership items" for this purpose as including
distributive share items that must be allocated among the partners, such as
partnership liabilities, data pertaining to the computation of the depletion
allowance, and guaranteed payments. Treas. Reg. Section 301.6231(a)(3)-1.
Generally, the IRS must conduct an administrative determination as to
partnership items at the partnership level before conducting deficiency
proceedings against a partner, and the partners must file a request for an
administrative determination before filing suit for any credit or refund. The
period for assessing tax against a Partner attributable to a partnership item
may be extended as to all partners by agreement between the IRS and the Managing
General Partner, which will serve as the Partnership's representative ("Tax
Matters Partner") in all administrative and judicial proceedings conducted at
the partnership level. The Tax Matters Partner generally may enter into a
settlement on behalf of, and binding upon, partners owning less than a 1%
profits interest in partnerships having more than 100 partners. In addition, a
partnership with at least 100 partners may elect to be governed under simplified
tax reporting and audit rules as an "electing large partnership." These rules
also facilitate the matching of partnership items with individual partner tax
returns by the IRS. The Managing General Partner does not anticipate that the
Partnership will make this election. By executing the Partnership Agreement,
each Participant agrees that he will not form or exercise any right as a member
of a notice group and will not file a statement notifying the IRS that the Tax
Matters Partner does not have binding settlement authority.
In the event of an audit of the return of the Partnership, the Tax Matters
Partner, pursuant to advice of counsel, will take all actions necessary, in its
discretion, to preserve the rights of the Participants. All expenses of any
proceedings undertaken by the Tax Matters Partner, which might be substantial,
will be paid for by the Partnership. The Tax Matters Partner is not obligated to
contest adjustments made by the IRS.
TAX RETURNS. A Participant's income tax returns are the responsibility of
the Participant. The Partnership will provide each Participant with the tax
information applicable to his investment in the Partnership necessary to prepare
such returns. However, the treatment of the tax attributes of the Partnership
may vary among Participants. Consequently, the Managing General Partner, its
Affiliates and Special Counsel assume no responsibility for the tax consequences
of this transaction to a Participant, nor for the disallowance of any proposed
deductions.
EACH PARTICIPANT IS URGED TO SEEK QUALIFIED, PROFESSIONAL ASSISTANCE IN
THE PREPARATION OF HIS FEDERAL, STATE AND LOCAL TAX RETURNS.
PENALTIES AND INTEREST
IN GENERAL. Interest is charged on underpayments of tax and various civil
and criminal penalties are included in the Code.
PENALTY FOR NEGLIGENCE OR DISREGARD OF RULES OR REGULATIONS. If any
portion of an underpayment of tax is attributable to negligence or disregard of
rules or regulations, 20% of such portion is added to the tax. Negligence is
strongly indicated if a partner fails to treat partnership items on his tax
return in a manner that is consistent with the treatment of those items on the
partnership's return or to notify the IRS of the inconsistency. The term
"disregard" includes any careless, reckless or intentional disregard of rules or
regulations. There is no penalty, however, if the position is adequately
disclosed, or the position is taken with reasonable cause and in good faith, or
the position has a realistic possibility of being sustained on its merits.
Treas. Reg. Section 1.6662-3.
VALUATION MISSTATEMENT PENALTY. There is an addition to tax of 20% of the
amount of any underpayment of tax of $5,000 or more ($10,000 in the case of
corporations other than S corporations or personal holding companies) which is
attributable to a substantial valuation misstatement. There is a substantial
valuation misstatement if the value or
<PAGE>
Atlas Resources, Inc.
July 7, 1999
Page 20
adjusted basis of any property claimed on a return is 200% or more of the
correct amount; or if the price for any property or services (or for the use
of property) claimed on a return is 200% or more (or 50% or less) of the
correct price. If there is a gross valuation misstatement (400% or more of
the correct value or adjusted basis or the undervaluation is 25% or less of
the correct amount) the penalty is 40%. I.R.C. Section 6662(e) and (h).
SUBSTANTIAL UNDERSTATEMENT PENALTY. There is also an addition to tax of
20% of any underpayment if the difference between the tax required to be
shown on the return over the tax actually shown on the return, exceeds the
greater of 10% of the tax required to be shown on the return, or $5,000
($10,000 in the case of corporations other than S corporations or personal
holding companies). I.R.C. Section 6662(d). The amount of any understatement
generally will be reduced to the extent it is attributable to the tax
treatment of an item supported by substantial authority, or adequately
disclosed on the taxpayer's return. However, in the case of "tax shelters,"
the understatement may be reduced only if the tax treatment of an item
attributable to a tax shelter was supported by substantial authority and the
taxpayer establishes that he reasonably believed that the tax treatment
claimed was more likely than not the proper treatment. Disclosure of
partnership items should be made on the Partnership's return; however, a
taxpayer partner also may make adequate disclosure on his individual return
with respect to pass-through items. Section 6662(d)(2)(C) provides that a
"tax shelter" is any entity which has as a significant purpose the avoidance
or evasion of federal income tax.
IRS ANTI-ABUSE RULE. Under Treas. Reg. Section 1.701-2, if a principal
purpose of a partnership is to reduce substantially the partners' federal
income tax liability in a manner that is inconsistent with the intent of the
partnership rules of the Code, based on all the facts and circumstances, the
IRS is authorized to remedy the abuse. For illustration purposes, the following
factors may indicate that a partnership is being used in a prohibited manner:
(i) the partners' aggregate federal income tax liability is substantially less
than had the partners owned the partnership's assets and conducted its
activities directly; (ii) the partners' aggregate federal income tax liability
is substantially less than if purportedly separate transactions are treated as
steps in a single transaction; (iii) one or more partners are needed to achieve
the claimed tax results and have a nominal interest in the partnership or are
substantially protected against risk; (iv) substantially all of the partners
are related to each other; (v) income or gain are allocated to partners who
are not expected to have any federal income tax liability; (vi) the benefits
and burdens of ownership of property nominally contributed to the partnership
are retained in substantial part by the contributing party; and (vii) the
benefits and burdens of ownership of partnership property are in substantial
part shifted to the distributee partners before or after the property is
actually distributed to the distributee partners. Based on the Managing General
Partner's representation that the Partnership will be conducted as described
in the Prospectus, in the opinion of Special Counsel it is more likely than not
that the Partnership will not be subject to the anti-abuse rule set forth in
Treas. Reg. Section 1.701-2.
STATE AND LOCAL TAXES
Under Pennsylvania law, the Partnership is required to withhold state
income tax at the rate of 2.8% of Partnership income allocable to Participants
who are not residents of Pennsylvania. This requirement does not obviate
Pennsylvania tax return filing requirements for Participants who are not
residents of Pennsylvania. In the event of overwithholding, a Pennsylvania
income tax return must be filed by Participants who are not residents of
Pennsylvania in order to obtain a refund.
The Partnership will operate in states and localities which impose a tax
on its assets or its income, or on each Participant. Deductions which are
available to Participants for federal income tax purposes may not be available
for state or local income tax purposes. A Participant's distributive share of
the net income or net loss of the Partnership generally will be required to be
included in determining his reportable income for state or local tax purposes in
the jurisdiction in which he is a resident. To the extent that a non-resident
Participant pays tax to a state by virtue of Partnership operations within that
state, he may be entitled to a deduction or credit against tax owed to his state
of residence with respect to the same income. To the extent that the Partnership
operates in certain jurisdictions, state or local estate or inheritance taxes
may be payable upon the death of a Participant in addition to taxes imposed by
his own domicile.
<PAGE>
Atlas Resources, Inc.
July 7, 1999
Page 21
PROSPECTIVE PARTICIPANTS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS
CONCERNING THE POSSIBLE EFFECT OF VARIOUS STATE AND LOCAL TAXES ON THEIR
PERSONAL TAX SITUATIONS.
SEVERANCE, FRANCHISE, AND AD VALOREM (REAL ESTATE) TAXES
The Partnership may incur various ad valorem or severance taxes imposed by
state or local taxing authorities. Currently, there is no such tax liability in
Mercer County, Pennsylvania.
SOCIAL SECURITY BENEFITS AND SELF-EMPLOYMENT TAX
A Limited Partner's share of income or loss from the Partnership is
excluded from the definition of "net earnings from self-employment." No
increased benefits under the Social Security Act will be earned by Limited
Partners and if any Limited Partners are currently receiving Social Security
benefits, their shares of Partnership taxable income will not be taken into
account in determining any reduction in benefits because of "excess
earnings." An Investor General Partner's share of income or loss from the
Partnership will constitute "net earnings from self-employment" for these
purposes. I.R.C. Section 1402(a). For 1999 the ceiling for social security
tax of 12.4% is $72,600 and there is no ceiling for medicare tax of 2.9%.
Self-employed individuals can deduct one-half of their self-employment tax.
FOREIGN PARTNERS
The Partnership will be required to withhold and pay to the IRS tax at the
highest rate under the Code applicable to Partnership income allocable to
foreign partners, even if no cash distributions are made to such partners. A
purchaser of a foreign Partner's Units may be required to withhold a portion of
the purchase price and the Managing General Partner may be required to withhold
with respect to taxable distributions of real property to a foreign Partner. The
withholding requirements described above do not obviate United States tax return
filing requirements for foreign Partners. In the event of overwithholding, a
foreign Partner must file a United States tax return to obtain a refund.
ESTATE AND GIFT TAXATION
There is no federal tax on lifetime or testamentary transfers of property
between spouses. The gift tax annual exclusion is $10,000 per donee, which will
be adjusted for inflation. The maximum estate and gift tax rate is 55% (subject
to a 5% surtax on amounts in excess of $10,000,000); and estates of $650,000
(which increases in stages to $1,000,000 by 2006) or less generally are not
subject to federal estate tax. In the event of the death of a Participant, the
fair market value of his interest as of the date of death (or as of the
alternate valuation date) will be included in his estate for federal estate tax
purposes. The decedent's heirs will, for federal income tax purposes, take as
their basis for the interest the value as so determined for federal estate tax
purposes.
IT IS NOT POSSIBLE FOR US TO PREDICT THE EFFECT OF THE TAX LAWS ON
INDIVIDUAL PARTICIPANTS. EACH PARTICIPANT IS URGED TO SEEK, AND SHOULD DEPEND
UPON, THE ADVICE OF HIS OWN TAX ADVISORS WITH RESPECT TO HIS INVESTMENT IN THE
PARTNERSHIP WITH SPECIFIC REFERENCE TO HIS OWN TAX SITUATION AND POTENTIAL
CHANGES IN THE APPLICABLE LAW.
We consent to the use of this opinion letter as an exhibit to the
Registration Statement, and all amendments thereto, and to all references to
this firm in the Prospectus.
Very truly yours,
/s/ Kunzman & Bollinger, Inc.
-----------------------------
KUNZMAN & BOLLINGER, INC.
<PAGE>
PROPOSED FORM OF ESCROW AGREEMENT
<PAGE>
Exhibit 10(a)
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
ESCROW AGREEMENT
THIS AGREEMENT, made to be effective as of the _____ day of _________,
1999, by and between Atlas Resources, Inc., a Pennsylvania corporation (the
"Managing General Partner"), Anthem Securities, Inc., a Pennsylvania corporation
("Anthem"), Bryan Funding, Inc., a Pennsylvania corporation ("Bryan Funding"),
collectively Anthem and Bryan Funding are referred to as the "Dealer-Manager",
Atlas-Energy for the Nineties-Public #8 Ltd., a Pennsylvania limited partnership
(the "Partnership") and National City Bank of Pennsylvania, Pittsburgh,
Pennsylvania, as escrow agent (the "Escrow Agent").
WITNESSETH:
WHEREAS, the Partnership intends to offer publicly for sale to qualified
investors (the "Investors") up to 1,800 limited partnership interests in the
Partnership (the "Units"); and
WHEREAS, each Investor will be required to pay his subscription in full
upon subscribing ($10,000 per Unit, however, the Managing General Partner, in
its discretion, may accept one-half Unit [$5,000] subscriptions, with larger
subscriptions permitted in $1,000 increments), by check, draft or money order
except that the broker-dealers and the Managing General Partner, its officers
and directors and Affiliates, may purchase Units net of the Dealer-Manager fee,
the commissions and reimbursement of marketing expenses and bona fide
accountable due diligence expenses set forth below, and registered investment
advisors and their clients may purchase Units subject to the Dealer-Manager fee
but net of the commissions and reimbursement of marketing expenses and bona fide
accountable due diligence expenses set forth below (the "Subscription
Proceeds"); and
WHEREAS, the Managing General Partner and Anthem have executed an
agreement ("Anthem Dealer-Manager Agreement") pursuant to which Anthem will
solicit subscriptions for Units in all states other than Minnesota and New
Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on a "best
efforts" basis for the remaining Units on behalf of the Managing General Partner
and the Partnership and pursuant to which Anthem has been authorized to select
certain members in good standing of the National Association of Securities
Dealers, Inc. ("NASD") to participate in the offering of the Units ("Selling
Agents"); and
WHEREAS, the Managing General Partner and Bryan Funding have executed an
agreement ("Bryan Funding Dealer-Manager Agreement") pursuant to which Bryan
Funding will solicit subscriptions for Units in the states of Minnesota and New
Hampshire on a "best efforts" "all or none" basis for $1,000,000 and on a "best
efforts" basis for the remaining Units on behalf of the Managing General Partner
and the Partnership and pursuant to which Bryan Funding has been authorized to
select certain members in good standing of the NASD to participate in the
offering of the Units ("Selling Agents"); and
WHEREAS, the Anthem Dealer-Manager Agreement and the Bryan Funding
Dealer-Manager Agreement, collectively referred to as the "Dealer-Manager
Agreement", provide for compensation to the Dealer-Manager which includes, but
is not limited to: (i) a 2.5% Dealer-Manager fee; (ii) a 7.0% sales commission;
(iii) a .5% reimbursement of marketing expenses; and (iv) reimbursement of the
Selling Agents' bona fide accountable due diligence expenses of .5% per Unit to
participate in the offering of the Units, all or a portion of which compensation
will be reallowed to the Selling Agents and wholesalers; and
1
<PAGE>
WHEREAS, under the terms of the Dealer-Manager Agreement the Subscription
Proceeds are required to be held in escrow subject to the receipt and acceptance
by the Managing General Partner of the minimum Subscription Proceeds of
$1,000,000, excluding any optional subscription by the Managing General Partner,
its officers, directors and Affiliates; and
WHEREAS, no subscriptions to the Partnership will be accepted after
receipt of the maximum Subscription Proceeds of $14,000,000 (which may be
increased to $18,000,000 in the Managing General Partner's discretion) or
December 31, 1999, whichever event occurs first (the "Offering Termination
Date"); and
WHEREAS, to facilitate compliance with the terms of the Dealer-Manager
Agreement, the Managing General Partner and the Dealer-Manager desire to have
the Subscription Proceeds deposited with the Escrow Agent and the Escrow Agent
desires to hold the Subscription Proceeds pursuant to the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. APPOINTMENT OF ESCROW AGENT. The Managing General Partner, the
Partnership and the Dealer-Manager hereby appoint Escrow Agent as the
escrow agent to receive and to hold the Subscription Proceeds deposited
with Escrow Agent by the Dealer-Manager and the Selling Agents pursuant
hereto and Escrow Agent hereby agrees to serve in such capacity during
the term and based upon the provisions hereof.
2. DEPOSIT OF SUBSCRIPTION PROCEEDS. Pending receipt of the minimum
Subscription Proceeds of $1,000,000, the Dealer-Manager shall deposit the
Subscription Proceeds of each Investor with the Escrow Agent and shall
deliver to the Escrow Agent a copy of the Subscription Agreement of such
Investor. Payment for each subscription for Units shall be in the form of
a check made payable to "Atlas Public #8 Ltd., Escrow Agent, National
City Bank of PA". The Escrow Agent shall deliver a receipt to Anthem and
the Managing General Partner for each deposit of Subscription Proceeds
made pursuant hereto by Anthem, and to Bryan Funding and the Managing
General Partner for each deposit of subscription proceeds made pursuant
hereto by Bryan Funding.
3. INVESTMENT OF SUBSCRIPTION PROCEEDS. The Subscription Proceeds shall be
deposited in an interest bearing account maintained by the Escrow Agent
entitled "Armada Government Fund." Subscription Proceeds may be
temporarily invested by the Escrow Agent only in income producing
short-term, highly liquid investments secured by the United States
government where there is appropriate safety of principal, such as U.S.
Treasury Bills. The interest earned shall be added to the Subscription
Proceeds and disbursed in accordance with the provisions of paragraph 4
or 5, as the case may be.
4. DISTRIBUTION OF SUBSCRIPTION PROCEEDS. If the Escrow Agent:
(a) receives written notice from an authorized officer of the
Managing General Partner that at least the minimum aggregate
subscriptions of $1,000,000 have been received and accepted by
the Managing General Partner; and
(b) determines that Subscription Proceeds for at least $1,000,000 as
determined by the Managing General Partner have cleared the
banking system and are good;
2
<PAGE>
the Escrow Agent shall promptly release and distribute to the Managing
General Partner such escrowed Subscription Proceeds which have cleared
the banking system and are good plus any interest paid and investment
income earned on such Subscription Proceeds while held by the Escrow
Agent in an escrow account.
Any remaining Subscription Proceeds, plus any interest paid and
investment income earned on such Subscription Proceeds while held by the
Escrow Agent in an escrow account shall be promptly released and
distributed to the Managing General Partner by the Escrow Agent as such
Subscription Proceeds clear the banking system and become good.
5. SEPARATE PARTNERSHIP ACCOUNT. During the continuation of the offering
after the Partnership is funded with cleared Subscription Proceeds of at
least $1,000,000 and the Escrow Agent receives the notice described in
Paragraph 4 of this Agreement, and prior to the Offering Termination
Date, any additional Subscription Proceeds may be deposited by the
Dealer-Manager directly in a separate Partnership account which shall not
be subject to the terms of this Agreement.
6. DISTRIBUTIONS TO SUBSCRIBERS.
(a) In the event that the Partnership will not be funded as
contemplated because less than the minimum aggregate
subscriptions of $1,000,000 have been received and accepted by
the Managing General Partner by twelve p.m. (noon), local time,
on December 31, 1999, or for any other reason, the Managing
General Partner shall so notify the Escrow Agent, whereupon the
Escrow Agent promptly shall distribute to each Investor a refund
check made payable to such Investor in an amount equal to the
Subscription Proceeds of such Investor, plus any interest paid or
investment income earned thereon while held by the Escrow Agent
in an escrow account as calculated by the Managing General
Partner.
(b) In the event that a subscription for Units submitted by an
Investor is rejected by the Managing General Partner for any
reason after the Subscription Proceeds relating to such
subscription have been deposited with the Escrow Agent, then the
Managing General Partner promptly shall notify the Escrow Agent
of such rejection, and the Escrow Agent shall promptly distribute
to such Investor a refund check made payable to such Investor in
an amount equal to the Subscription Proceeds of such Investor,
plus any interest paid or investment income earned thereon while
held by the Escrow Agent in an escrow account as calculated by
the Managing General Partner.
7. COMPENSATION AND EXPENSES OF ESCROW AGENT. The Managing General Partner
shall be solely responsible for and shall pay the compensation of the
Escrow Agent for its services hereunder, as provided in Appendix 1 to
this Agreement and made a part hereof, and the charges, expenses
(including any reasonable attorneys' fees), and other out-of-pocket
expenses incurred by the Escrow Agent in connection with the
administration of the provisions of this Agreement. The Escrow Agent
shall have no lien on the Subscription Proceeds deposited in an escrow
account unless and until the Partnership is funded with cleared
Subscription Proceeds of at least $1,000,000 and the Escrow Agent
receives the notice described in Paragraph 4 of this Agreement, at which
time the Escrow Agent shall have, and is hereby granted, a prior lien
upon any property, cash, or assets held hereunder, with respect to its
unpaid compensation and nonreimbursed expenses, superior to the interests
of any other persons or entities.
8. DUTIES OF ESCROW AGENT. The Escrow Agent shall not be obligated to accept
any notice, make any delivery, or take any other action under this Escrow
Agreement unless the notice or request or demand for delivery or other
action is in writing and given or made by the party given the right or
charged with
3
<PAGE>
the obligation under this Escrow Agreement to give the notice or to make
the request or demand. In no event shall the Escrow Agent be obligated
to accept any notice, request, or demand from anyone other than the
Managing General Partner or the Dealer-Manager.
9. LIABILITY OF ESCROW AGENT. The Escrow Agent shall not be liable for any
damages, or have any obligations other than the duties prescribed herein
in carrying out or executing the purposes and intent of this Escrow
Agreement; provided, however, that nothing herein contained shall relieve
the Escrow Agent from liability arising out of its own willful misconduct
or gross negligence. Escrow Agent's duties and obligations under this
Agreement shall be entirely administrative and not discretionary. Escrow
Agent shall not be liable to any party hereto or to any third party as a
result of any action or omission taken or made by Escrow Agent in good
faith. The parties to this Agreement will indemnify Escrow Agent, hold
Escrow Agent harmless, and reimburse Escrow Agent from, against and for,
any and all liabilities, costs, fees and expenses (including reasonable
attorney's fees) Escrow Agent may suffer or incur by reason of its
execution and performance of this Agreement. In the event any legal
questions arise concerning Escrow Agent's duties and obligations
hereunder, Escrow Agent may consult with its counsel and rely without
liability upon written opinions given to it by such counsel.
The Escrow Agent shall be protected in acting upon any written notice,
request, waiver, consent, authorization, or other paper or document which
the Escrow Agent, in good faith, believes to be genuine and what it
purports to be.
In the event that there shall be any disagreement between any of the
parties to this Agreement, or between them or any of them and any other
person, resulting in adverse claims or demands being made in connection
with this Agreement, or in the event that Escrow Agent, in good faith,
shall be in doubt as to what action it should take hereunder, Escrow
Agent may, at its option, refuse to comply with any claims or demands on
it or refuse to take any other action hereunder, so long as such
disagreement continues or such doubt exists. In any such event, Escrow
Agent shall not be or become liable in any way or to any person for its
failure or refusal to act and Escrow Agent shall be entitled to continue
to so refrain from acting until the dispute is resolved by the parties
involved.
National City Bank of Pennsylvania is acting solely as Escrow Agent and
is not a party to, nor has it reviewed or approved any agreement or
matter of background related to this Agreement, other than this Agreement
itself, and has assumed, without investigation, the authority of the
individuals executing this Agreement to be so authorized on behalf of the
party or parties involved.
10. RESIGNATION OR REMOVAL OF ESCROW AGENT. The Escrow Agent may resign as
such following the giving of thirty days' prior written notice to the
other parties hereto. Similarly, the Escrow Agent may be removed and
replaced following the giving of thirty days' prior written notice to the
Escrow Agent by the other parties hereto.
In either event, the duties of the Escrow Agent shall terminate thirty
days after the date of such notice (or as of such earlier date as may be
mutually agreeable); and the Escrow Agent shall then deliver the balance
of the Subscription Proceeds (and any interest paid or investment income
earned thereon while held by the Escrow Agent in an escrow account) in
its possession to a successor escrow agent as shall be appointed by the
other parties hereto as evidenced by a written notice filed with the
Escrow Agent. If the other parties hereto are unable to agree upon a
successor or shall have failed to appoint a successor prior to the
expiration of thirty days following the date of the notice of resignation
or removal, the then acting Escrow Agent may petition any court of
competent jurisdiction for the appointment of a successor escrow agent or
other appropriate relief; and any such resulting appointment shall be
binding upon all of the parties hereto.
Upon acknowledgment by any successor escrow agent of the receipt of the
then remaining balance of the Subscription Proceeds (and any interest
paid or investment income earned thereon while held by the Escrow Agent
in an escrow account), the then acting Escrow Agent shall be fully
released and relieved of all duties, responsibilities, and obligations
under this Agreement.
4
<PAGE>
11. TERMINATION. This Agreement shall terminate and the Escrow Agent shall
have no further obligation with respect hereto upon the occurrence of the
distribution of all Subscription Proceeds (and any interest paid or
investment income earned thereon while held by the Escrow Agent in an
escrow account) as contemplated hereby or upon the written consent of all
the parties hereto.
12. NOTICE. Any notices or instructions, or both, to be given hereunder shall
be validly given if set forth in writing and mailed by certified mail,
return receipt requested, as follows:
IF TO THE ESCROW AGENT:
National City Bank of Pennsylvania
Attention: Mr. Robert Mialki, Vice President
Corporate Trust Department
300 Fourth Avenue
Pittsburgh, Pennsylvania 15278-2331
Phone: (412) 644-8401
Facsimile: (412) 644-7971
IF TO THE MANAGING GENERAL PARTNER:
Atlas Resources, Inc.
311 Rouser Road
P.O. Box 611
Moon Township, Pennsylvania 15108
Attention: Tony C. Banks
Phone: (412) 262-2830
Facsimile: (412) 262-2820
IF TO ANTHEM:
Anthem Securities, Inc.
311 Rouser Road
P.O. Box 926
Coraopolis, Pennsylvania 15108
Attention: Eric D. Koval
Phone: (412) 262-1680
Facsimile: (412) 262-7430
IF TO BRYAN FUNDING:
Bryan Funding, Inc.
393 Vanadium Road
Pittsburgh, Pennsylvania 15243
Attention: Richard G. Bryan, Jr.
Phone: (412) 276-9393
Facsimile: (412) 276-9396
5
<PAGE>
Any party may designate any other address to which notices and
instructions shall be sent by notice duly given in accordance herewith.
13. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
(b) This Agreement is binding upon and shall inure to the benefit of
the undersigned and their respective heirs, successors and assigns.
(c) This Agreement may be executed in multiple copies, each executed
copy to serve as an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the day and year first above written.
NATIONAL CITY BANK OF PENNSYLVANIA
ATTEST: As Escrow Agent
By: By:
------------------------------ -------------------------------
(Authorized Officer) (Authorized Officer)
ATLAS RESOURCES, INC.
ATTEST: A Pennsylvania corporation
By: By:
------------------------------ -------------------------------
Secretary Tony C. Banks, Senior Vice
President and Chief Financial
Officer
ANTHEM SECURITIES, INC.
ATTEST: A Pennsylvania corporation
By: By:
------------------------------ -------------------------------
Secretary Eric D. Koval, President
BRYAN FUNDING, INC.
ATTEST: A Pennsylvania corporation
By: By:
------------------------------ ---------------------------------
Secretary Richard G. Bryan, Jr., President
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
By: ATLAS RESOURCES, INC.
ATTEST: Managing General Partner
By: By:
------------------------------ ------------------------------------
Secretary Tony C. Banks, Senior Vice President
Chief Financial Officer
6
<PAGE>
APPENDIX I TO ESCROW AGREEMENT
COMPENSATION FOR SERVICES OF ESCROW AGENT
<TABLE>
<S> <C>
Escrow Agent annual fee per year or any part thereof $3,000.00
</TABLE>
7
<PAGE>
CONSENT OF GRANT THORNTON, L.L.P.
<PAGE>
Exhibit 24(a)
CONSENT OF GRANT THORNTON LLP
We have issued our report dated June 30, 1999 on the balance sheet of
Atlas-Energy for the Nineties-Public #8 Ltd. as of June 11, 1999 and our
report dated March 22, 1999 on the consolidated balance sheet of Atlas
Resources, Inc. as of September 30, 1998 contained in the Registration
Statement and Prospectus for Atlas-Energy for the Nineties-Public #8 Ltd. We
consent to the use of the aforementioned reports in the Registration Statement
and Prospectus, and to the use of our name as it appears under the caption
"Experts."
/s/ Grant Thornton LLP
Cleveland, Ohio
July 2, 1999
<PAGE>
CONSENT OF UNITED ENERGY DEVELOPMENT CONSULTANTS, INC.
<PAGE>
Exhibit 24(b)
CONSENT OF UNITED ENERGY DEVELOPMENT CONSULTANTS, INC.
INDEPENDENT PETROLEUM ENGINEERING & GEOLOGICAL CONSULTING FIRM
UEDC, as an independent petroleum engineering and geological consulting firm,
hereby consents to the use of its Geologic Evaluation, dated May 27, 1999 in
the Registration Statement and any supplements thereto, including
post-effective amendments, for Atlas-Energy for the Nineties-Public #8, Ltd,
and to all references to UEDC as having prepared such report and as an expert
concerning such report.
UEDC, INC.
/s/ Isaias Ortiz 5/27/1999
- --------------------------------------------------
Isaias Ortiz May 27, 1999
President Pittsburgh, PA
<PAGE>
POWER OF ATTORNEY
<PAGE>
Exhibit 25
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #8 LTD.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and/or
directors of Atlas Resources, Inc., a Pennsylvania corporation which is about to
file with the Securities and Exchange Commission, under the provisions of the
Securities Act of 1933, as amended, a Registration Statement on Form SB-2
relating to certain securities of Atlas-Energy for the Nineties-Public #8 Ltd.,
constitutes and appoints James R. O'Mara and Tony C. Banks, his/her true and
lawful attorney-in-fact, with full power of substitution and resubstitution and
with full power to act without another, for him/her and in his/her name, place
and stead, in any and all capacities, to sign such Registration Statement, and
any and all amendments, including post-effective amendments thereto, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission and all states and other
jurisdictions wherein such Registration Statement and amendments thereto may be
filed for securities compliance measures, granting unto said attorneys-in-fact
and agents, and each of them full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or his/her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Dated: July 6, 1999 /s/ Charles T. Koval
--------------------------------------------
Charles T. Koval, Chairman of the Board and a
Director
Dated: July 6, 1999 /s/ James R. O'Mara
---------------------------------------------
James R. O'Mara, President, Chief Executive
Officer and a Director
Dated: July 6, 1999 /s/ Tony C. Banks
--------------------------------------------
Tony C. Banks, Senior Vice President of
Finance, Chief Financial Officer, and a
Director
Dated: July 6, 1999 /s/ Frank P. Carolas
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Frank P. Carolas, Vice President of Land and
Geology
Dated: July 6, 1999 /s/ Jeffrey C. Simmons
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Jeffrey C. Simmons, Vice President -
Operations
