AGREEMENT OF

LIMITED PARTNERSHIP


OF


FOSSIL PARTNERS,  L.P.


 


THIS
AGREEMENT OF LIMITED PARTNERSHIP is made and entered into to be as of the 31st
day of August, 1994 (the “Effective Date”), by and between FOSSIL, INC., a
Delaware corporation, as general partner (the “General Partner”) and FOSSIL TRUST
a Delaware business trust, as limited partner (the “Limited Partner”).


 


WITNESSETH:


 


WHEREAS, the parties desire to associate themselves
herein; and


 


WHEREAS.
the parties desire to set forth their understandings with respect to the
foregoing.


 


NOW,
THEREFORE, in consideration of the foregoing premises and the mutual promises herein
contained, the parties agree as follows:


 


ARTICLE I


 


DEFINITIONS


 


As
used herein, the following terms defined in this Article I shall have the following
meanings for purposes of this Agreement, unless the context otherwise specifies
or requires a different meaning.


 


1.1
“Act” means the Texas Uniform Limited Partnership Act, V.A.T.S. art 6132a-1, as
amended from time to time.


 


1.2
“Adjusted Capital Account Deficit” means, with respect to any Partners, the
deficit balance, if any, in such Partner’s Capital Account as of the end of the
relevant fiscal year, after giving effect to the following adjustments:


 


(a)           Credit to such Capital Account any amounts
that such Person is obligated to restore pursuant to any provision of this
Agreement or is deemed to be obligated to restore pursuant to the penultimate
sentences of Sections 1.704-1T(b)(4)(iv)(f) and  1.704-1T(h)(4)(iv)(h)(5) of the Regulations;
and


 





















 


(b)           Debit to such Capital Account the items
described in Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
1.704-1(b)(2)(ii)(d)(6) of the foregoing definition of Adjusted Capital Account
Deficit is intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently therewith.


 


1.3     “Adjusted Capital Contributions” means, as of
any day, a Partner’s Capital Contributions,  adjusted as follows:


 


(a)
Increased by the amount of any Partnership liabilities that, in connection with
distributions pursuant to Sections 5.4 and 13.2 hereof, are assumed by such Partner
or are secured by any Partnership Property distributed to such Partner;


 


(b)           Increased by any amounts actually paid by such
Partner to any Partnership lender, and


 


(c)           Reduced by the amount of cash and the Gross
Asset Value of any Partnership Property distributed to such Partner pursuant to
Sections 5.4, 5.6 and 13.2(c) hereof and the amount of any liabilities of such
Partner assumed by the Partner or that are secured by any property contributed
by such Partner to the Partnership.


 


In
the event any Partner transfers all or any portion of its Interest in
accordance with the terms Agreement, its transferee shall succeed to the
Adjusted Capital Contribution of the to the extent it relates to the
transferred Interest in the Partnership.


 


1.4        “Affiliate” means, with respect to any
Person, any person that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control with, the
specified Person. As used herein, the term “control” means the possession, directly
of indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through ownership of voting securities, by
contract or otherwise.


 


1.5         “Agreement” or “Partnership Agreement” means
this Agreement of Limited Partnership, as amended from time to time. Words such
as “herein,” “hereinafter, “hereto” and “hereunder” refer to this Agreement as
a whole, unless the context otherwise requires.


 


1.6         “Bankruptcy” of a Partner shall mean: (i)
the filing by such Partner of a voluntary petition seeking liquidation,
reorganization, arrangement or readjustment, in any form, of its debts under
Title 11 of the United States Code or any other federal or state insolvency law,
or such Partner filing an answer consenting to or acquiescing in any such
petition; (ii) the making by such


 





















 


Partner of any assignment for the benefit of
its creditors; or (iii) the expiration of 60 days after the filing of an
involuntary petition under Title 11 of the United States Code, an application
for the appointment of a receiver for the assets of such Partner or an
involuntary seeking liquidation, reorganization, arrangement or readjustment of
its debt under any other federal or state insolvency law, provided that the
same shall not have been vacated, set staved within such 60-day period.


 


1.7        “Capital Account” means the capital account
maintained for a Partner :0 Section 4.6.


 


1.8        “Capital Contribution” or “Contribution”
means, with respect to any the amount of money and the initial Gross Asset
Value of any Property (other than money) contributed to the Partnership with
respect to the Interest in the Partnership held by such Person.                The principal amount of a promissory note
that is not readily traded on an established securities market and that is
contributed to the Partnership by the maker of the note shall not be m the
Capital Account of any Person until the Partnership makes a taxable disposition
of the note or until (and to the extent) principal payments are made on the
note, all in accordance with Section 1.704-1(b)(2)(iv)(d)(2) of the
Regulations.


 


1.9        “Code” means the Internal Revenue Code
of 1986, as amended from time to time, any successor thereto and applicable
Regulations thereunder.


 


1.10      “Depreciation” means, for each fiscal year or
other period, an amount equal to the depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year or other
period, except that if the Gross Asset Value of an asset differs from its
adjusted basis for federal income tax purposes at the beginning of such year or
other Depreciation shall be an amount that bears the same ratio to such beginning
Gross Asset Value as the federal income tax depreciation. amortization, or
other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that in the federal income tax
depreciation, amortization. or other cost recovery deduction for such year is
zero. Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the General Partner.


 


1
..11     “Entity” means any corporation, association, partnership, joint
venture, estate or other organization.


 


1.12      “General Partner” means Fossil, Inc., or any
other Person that becomes partner of the Partnership pursuant to the terms of
this Agreement. “General Partners” shall mean all such Persons.


 





















 


1.13      “Gross Asset Value” means. with respect to
any asset, the asset’s adjusted basis for federal income tax purposes. except
as follows:


 


(a)           The initial Gross Asset Value of any assets
contributed by a Partner to the Partnership shall be the gross fair market
value of such asset, as determined by the contributing Partner and the
Partnership;


 


(b)           The Gross Asset Values of all Partnership
assets shall be adjusted to equal their respective gross fair market values, as
determined by the General Partner, as of the following times: (i) the
acquisition of an additional interest in the Partnership in any new or existing
Partner in exchange for more than a de minimis Capital Contribution; (ii) the
distribution by the Partnership to a Partner of more than a de minimis amount
of Property as consideration for an Interest in the Partnership; (iii) the
transfer of an Interest in the Partnership, whether by sale, gift, or
otherwise, to a Person, whether it is a new or existing Partner; (iv) a
distribution by the Partnership pursuant to section 5.4 hereof; and (v) the
liquidation of the Partnership within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Regulations; provided, however, that adjustments pursuant
to clauses (i) through (iv) above shall be made only if the General Partner
reasonably determines that such adjustments are necessary or appropriate to
reflect the relative economic interests of the Partners in the Partnership:


 


(c)           The Gross Asset Value of any Partnership
Property distributed to any Partner shall be the gross fair market value of
such Property on the date of distribution; and


 


(d)           The Gross Asset Values of Partnership assets
shall be increased (or decreased) to reflect any adjustments to the adjusted
basis of such assets pursuant to Section 734(b) or Section 743(b) of the Code,
but only to the extent that such adjustments ire taken into account in
determining Capital Accounts pursuant to Section a 7()4-1(b)(2)(iv)(m) of the
Regulations and Section 5.3(i) hereof; provided, however, that Gross Asset
Values shall not be adjusted pursuant to this Section 1.13 to the extent the
General Partner determines that an adjustment pursuant to Section 1.13(b)
hereof is necessary or appropriate in connection with a transaction that would
otherwise result in .n adjustment pursuant to this Section 1.13.


 


If
the Gross Asset Values of an asset has been determined or adjusted pursuant to
Section 1.13(a), (b) or (d) hereof, such Gross Asset Value shall thereafter be
adjusted by the : 7~pm.mation taken into account with respect to such asset for
purposes of computing Profits and Losses.


 


1.14      “Limited Partner” means Fossil Trust any
person or entity that is or becomes a limited partner of the Partnership
pursuant to the terms of this Agreement. “Limited Partners” shall mean all such
Persons.


 





















 


1.15         “Net Cash From Operations” means the gross
cash proceeds from Partnership operations, less the portion thereof used to pay
or establish reserves for all Partnership expenses, debt payments, capital
improvements, replacements, and contingencies, all as determined by the General
Partner. “Net Cash From Operations” shall not be reduced by depreciation, amortization,
cost recovery deductions, or similar allowances, but shall be increased by any
reductions of reserves previously established.


 


1.16         “Net Cash From Sales or Refinancings” means
the net cash proceeds from all sales and other dispositions (other than in the
ordinary course of business) and all refinancings of Property, less any portion
thereof used to establish reserves, all as determined by General Partner. “Net
Cash From Sales or Refinancings” shall include all principal and interest payments
with respect to any note or other obligation received by the Partnership in
connection with sales and other dispositions (other than in the ordinary course
of business) of Partnership Property.


 


1.17         “Nonrecourse Deductions” has the meaning set
forth in Section 1.704-T(b)(4)(iv)(b) of the Regulations.The amount of
Nonrecourse Deductions for a Partnership fiscal year equals the excess, if any,
of the net increase, if any, in the amount of Partnership Minimum Gain during
that fiscal year over the aggregate amount of any distributions during that
fiscal year of proceeds of a Nonrecourse Liability that are allocable to an
increase in Partnership Minimum Gain, determined according to the provisions of
Section 1.704-1T(b)(4)(iv)(b) of the Regulations.


 


1.18         “Nonrecourse Liability” has the meaning set
forth in Section “ -1 .704-1T(b)(4)(iv)(k)(3) of the Regulations.


 


1.19         “Partner Minimum Gain” means an amount, with
respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain
that would result if such Partner Nonrecourse Debt were treated as a
Nonrecourse Liability, determined in accordance with 1,7 04-1T(b)(4)(iv)(h) of
the Regulations.


 


1.20         “Partner Nonrecourse Debt” has the meaning
set forth in Section T(b)(4)(iv)(k)(4) of the Regulations.


 


1.21         “Partner Nonrecourse Deductions” has the
meaning set forth in Section1.704-1T(b)(4)(iv)(h)(3) of the Regulations. The
amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse
Debt for a Partnership fiscal year equals the excess, if any of the net
increase, if any, in the amount of Partner Minimum Gain attributable to such Partner
Nonrecourse Debt during that fiscal year over the aggregate amount of any
distributions during that fiscal year to the Partner that bears the economic
risk of loss for 


 





















 


such Partner Nonrecourse Debt to the extent
such distributions are from the proceeds of such Partner Nonrecourse Debt and
are allocable to an increase in Partner Minimum Gain attributable to such Partner
Nonrecourse Debt determined in accordance with Section 1.704-1T(b)(4)(iv)(h)(3)
of the Regulations.


 


1.22         “Partners” means all General Partners and all
Limited Partners, where no distinction is required by the context in which the
term is used herein. “Partner” means any one of the Partners. All references in
this Agreement to a majority in interest of the partners shall mean Partners
(or Partners within such classification, as the case may be) who are entitled
to an allocation of more than 50% of any Profits at such point in time pursuant
to Section 5.1 thereof.


 


1.23         “Partnership” means the partnership formed by
this Agreement of Limited Partnership, and the partnership continuing the
business of this Partnership in the event of dissolition as herein provided.


 


1.24         “Partnership Interest” or “Interest” means
the ownership interest of a .r in the Partnership including any and all
benefits to which the holder of such an interest may be entitled as provided in
this Agreement, together with all obligations of such Person to comply with the
terms and provisions of this Agreement.


 


1.25         “Partnership Minimum Gain” has the meaning
set forth in Section 1.704-1T(b)(4)(iv)(a)(2) and 1.704-1T(b)(4)(iv)(c) of the
Regulations.


 


1.26         “Profits” and “Losses” means, for each fiscal
year or other period, an amount equal to the Partnership’s taxable income or
loss for such year or period, determined in accordance with Section 703(a) of
the Code (for this purpose, all items of income, gain, loss or deduction
required to be stated separately pursuant to Section 703(a)(1) of the Code
shall be included in taxable income or loss), with the following adjustments:


 


(a)           Any income of the Partnership that is exempt
from federal income tax and not otherwise taken into account in computing
Profits or Losses pursuant to this Section 1.26 shall be added to such taxable
income or loss;


 


(b)           Any expenditures of the Partnership described
in Section 705(a)(2)(B) of the Code or treated as Section 705(a)(2)(B) of the
Code expenditures pursuant to Section 1.704-1(b)(2)(iv)(1) of the Regulations
and not otherwise taken into amount in computing Profits or Losses pursuant to
this Section 1.26, shall be subtracted from such taxable income or loss:


 





















 


(c)           In the event the Gross Asset Value of any
Partnership Property is adjusted pursuant to Section 1.13(b) or Section 1.13(c)
hereof, the amount of such 4idiustment shall be taken into account as gain or
loss from the disposition of such Property for purposes of computing Profits or
Losses;


 


(d)           Gain or loss resulting from any disposition
of Property with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
Property differs from its Gross Asset Value;


 


(e)           In lieu of depreciation, amortization and
other cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account Depreciation for such fiscal
year or other period, computed in accordance with Section 1.10 hereof; and


 


(f)            Notwithstanding any other provision of this
Section 1.26, any items that are specially allocated pursuant to Section 5.3
hereof shall not be taken into account ,n computing Profits or Losses.


 


1.27         “Property means all real and personal
property, fixtures, equipment, intangible property and other assets, and
interests in all of the foregoing, now or hereafter acquired by the Partnership
and any improvements or additions thereto.


 


1.28         “Regulations” means the Income Tax
Regulations promulgated under the Code, as such Regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).


 


1.29         “Transfer” means, as a noun, any voluntary or
involuntary transfer, sale, hypothecation, gift, or other disposition and, as a
verb, voluntarily or involuntarily to transfer sell. pledge, hypothecate, gift
or otherwise dispose of.


 


ARTICLE II


 


ORGANIZATION


 


2.1           Formation. The Partners hereby form the
Partnership pursuant to the provision of the Act and the terms and conditions
of this Agreement. The General Partner has all he rights and duties of a “general
partner” under the Act and this Agreement, and the Limited Partner has all of
the rights and duties of a “limited partner” under the Act and this Agreement.


 





















 


2.2           Name and Principal Office. The name of the
Partnership shall be “Fossil Partners, L.P.”, or such other name as the
Partners shall hereafter agree upon. All assets of Partnership shall be held in
such name (and not in the name of any Partner), and all business and affairs of
the Partnership shall be conducted under such name, or under any name licensed
for use by the Partnership by the General Partner.    The principal office of the Partnership shall
be at the business mailing address and street address of the General Partner,
to wit: 2280 N. Greenville, Richardson, Texas 75082-4412, or such other place
as the General Partner may from time to time designate. In addition, the
General Partner may establish and maintain such other offices and places of
business within and without the State of as it may from time to time determine.


 


2.3           Registered Agent. The name of the Partnership’s
registered agent for services of process is T.R. Tunnell. Vice President,
Secretary and General Counsel, of Fossil, Inc., or any successor as appointed
by the General Partner. The address of the registered agent and the address of
the registered office is 2280 N. Greenville, Richardson, Texas 75082.


 


2.4           Filings; Certificate of Limited Partnership.


 


(a)           The General Partner shall execute and cause
the Certificate of Limited Partnership described in the Act (the “Certificate”)
to be filed with the Secretary of State of Texas as required by Section 2.5 of
this Agreement and the provisions of the Act and shall execute and cause to be
filed, recorded and/or published such other certificates or documents with the
appropriate authorities of the State of Texas as may be determined by the General
Partner to be reasonable and necessary or appropriate for the formation,
continuation, registration and/or operation of a limited partnership in any
state in which the Limited Partnership has elected or may elect to do business.
Pursuant to Article III hereof, the Partnership has elected to do business in
the State of Texas. The General Partner shall execute such fictitious name
registrations as are required by law with regard to the use of the name of the
Partnership. The General Partner shall take any and all other actions
reasonably necessary to perfect and maintain the status of the Partnership as a
“limited partnership,” its Limited Partner as a “limited partner” and its
General Partner as a “general partner” under the Act and the laws of the State
of Texas or any other state in which the Partnership has elected elect to do
business.


 


(b)           To the extent that the General Partner
determines such action to be reasonable and necessary or appropriate, the
General Partner shall execute and file amendments to the Certificate and do all
the things to maintain the Partnership as a limited partnership under the Act
and other applicable laws of the State of Texas or any other state in which the
Partnership has elected or may elect to do business. Subject to applicable law,
the General Partner may omit from the Certificate tiled with the Secretary of
State of Texas and from any 


 





















 


other certificates or documents filed in any
other state in order to register and/or qualify the to do business therein. and
from all amendments thereto, any information, including, without limitation, the
name and address of the Limited Partner and information relating to the
Contributions and shares of Profits and Losses and compensation of the General
Partner. Subject to the terms of Section 7.3, the General Partner shall not be
required to deliver or mail a copy of the Certificate of Limited Partnership,
any qualification document or any amendment thereto the Limited Partner.


 


(c)        To the extent that the General Partner
determines such action to be and necessary or appropriate, the General Partner
shall cause a certified copy of the Certificate and any amendments thereto to
be recorded in the office of the county recorder in every county in which the
Partnership owns real property.


 


(d)        Upon the dissolution of the Partnership, the
General Partner (or, in the event there is no remaining General Partner, any
Person selected pursuant to Section 13.2 thereof) shall promptly execute and
cause to be filed certificates of dissolution and/or certificates of
cancellation in accordance with the Act and the law of any other states or
jurisdictions in which the Partnership has filed a Certificate or has
registered and/or qualified to do business therein.


 


2.5           Term.  The
existence of the Partnership as a limited partnership shall commence on the
date the Certificate is filed in the office of the Secretary of State of Texas
in accordance with the Act, or such other office as is appropriate under
applicable state law, and shall continue until the winding up and liquidation
of the Partnership and its business and affairs following Liquidating Event, as
provided in Article XIII hereof.


 


2.6           Independent Activities. The General Partner
and the Limited Partner may, notwithstanding this Agreement, engage in whatever
activities they choose, whether. the same or as competitive with the
Partnership or otherwise, without having or incurring any obligation to offer
any interest in such activities to the Partnership or any Partner. Neither this
Agreement nor any activity undertaken pursuant hereto shall prevent any Partner
from engaging in such activities or require any Partner to permit the
Partnership or any Partner to participate in any such activities and as a
material part of the consideration for the execution of this Agreement by each Partner,
each Partner hereby waives, relinquishes, and renounces any such right or claim
of participation.


 





















 


ARTICLE III


 


PURPOSE


 


3.1           Business Purpose.  The purpose of the Partnership shall be to
engage in the business of manufacturing, marketing, developing and distributing
fashion watches and other fashion accessories in the United States and other
international markets, and to do all other things necessary, appropriate or
advisable in connection with such purposes. The Partnership may also conduct
such other business or businesses or activity or activities: (a) in Texas as
are under the Act and other laws of the State of Texas and (b) in any other
state where the Partnership has properly registered and/or qualified to do
business as are lawful under the Act other laws of Texas and such other state.


 


3.2           Powers. The Partnership shall have such
powers as are necessary or appropriate to carry out the purposes of the
Partnership, including, without limitation:


 


(a)           to have and maintain one or more offices
within or without the State of Texas and, in connection therewith, to do such
acts and things and incur such expenses as may be necessary or advisable in
connection with the maintenance of such office or offices and the conduct of
the business and affairs of the Partnership;


 


(b)           to open, maintain and close accounts with one
or more banks or other financial institutions, and to draw checks and other
orders for the payment of money;


 


(c)           to guarantee on a non-recourse basis
borrowings of the Partners used to acquire Property for the Partnership, and,
in connection therewith, to pledge and grant security interests in
Partnership Property;


 


(d)           to borrow money in furtherance of the
purposes set forth in Section 3.1 hereof, and to secure the payment of such
borrowing or other obligations of the Partnership by the pledge of, or the
grant of security interests in, all or part of the Property of the Partnership;


 


(e)           to enter into, make and perform all such
contracts, agreements and other undertakings as may be necessary, advisable or
incident to the carrying out of the purpose set forth in Section 3.1 hereof;
and


 


(f)            to engage in any other lawful act or activity
that may be necessary or appropriate in the pursuance of the foregoing,
including, without limitation, the retention of employees, agents, independent
contractors, attorneys, accountants and investment counselors and the
preparation and filing of all Partnership tax returns.


 


3.3           Limited Purpose. The Partnership shall be a
limited partnership between the Partners solely and exclusively for the
business 


 





















 


purposes specified in Section 3.1, and this Agreement
is not intended and shall not be deemed to create a partnership between the
Partners with respect to any activities whatsoever other than the activities
that are actually undertaken by the Partnership and that are within, or in
pursuance of, the business purposes and powers of the Partnership as specified
in Section 3.1 and Section 3.2.


 


3.4           Separate Business. The Partnership shall keep
its business and affairs and all of its Property and operations separate and
distinct from the business, affairs, assets and operation of the Partners and
of any other Person or Entity in which any of them may be or interested.


 


ARTICLE IV


 


CAPITAL CONTRIBUTIONS


 


4.1           Partners. On the Effective Date hereof,
Fossil, Inc. (“Fossil”) shall to the Partnership on behalf of and in the name
of Fossil, as General Partner, and Fossil Trust, as Limited Partner,
respectively, those assets and property currently owned by Fossil, all as more
fully described in that certain Conveyance Agreement, dated as of even date
herewith, between the Partnership and Fossil (the “Conveyance Agreement”) in
exchange for the issuance (i) to Fossil of a 1 % general partnership interest
in the Partnership (“Fossil Partnership Interest”), and (ii) to Fossil Trust of
a 99 % limited partnership interest in the Partnership (“Trust Interest”). From
time to time thereafter as necessary, the General Partner shall make Capital
Contributions to the Partnership in cash, check or other property, in an amount
necessary to maintain the General Partner’s Capital Account balance at a level
that equals Fossil Partnership Interest. Such cash shall be deposited in the
Partnership’s accounts as soon as practicable after the amount thereof has been
computed.


 


4.2           Additional Capital Contributions. No Partner
shall be required to make additional Capital Contributions to the Partnership;
however, the General Partner may permit any Partner to make one or more
additional Capital Contributions to the Partnership at such times and in such
amounts as the General Partner, in its absolute discretion, may determine.


 


4.3           Record of Contributions. The books and
records of the Partnership shall include true and full information regarding
the Capital Contributions by each Partner to the Partnership.


 





















 


4.4           No Withdrawal of Interest. No Partner shall
be entitled to demand or a return of any part of such Partner’s Capital
Contribution or Capital Account, or to withdraw from the Partnership, without
the consent of all Partners, except as otherwise provided in this Agreement. Under
circumstances requiring a return of any Capital Contributions, no Partner shall
have the right to receive Property other than cash, except as may be
specifically provided herein. No Partner shall be entitled to interest on any
part of such Partner’s Capital Contribution or Capital Account at any time.


 


4.5           Capital Accounts. The Partnership shall
maintain for each Partner a separate Capital Account in accordance with the
rules of Section 1.704-1(b)(2)(iv) of the Regulations. The initial Capital
Account of each Partner is its respective Contribution set forth in Section 4.1
hereof. Such Capital Account shall be maintained in accordance with the following
provisions:


 


(a)           To each Person’s Capital Account there shall
be credited such Person’s Capital Contributions, such Person’s distributive
share of Profits and any items in the nature of income or gain that are specially
allocated pursuant to Section 5.3 hereof, and the amount of any Partnership
liabilities assumed by such Person or that are secured by any Property
distributed to such Person.


 


(b)           To each Person’s Capital Account there shall
be debited the amount of cash and the Gross Asset Value of any Property
distributed to such Person pursuant to any provision of this Agreement, such
Person’s distributive share of Losses and any items in the nature of expenses
or losses that are specially allocated pursuant to Section 5.3 hereof, and the
amount of any liabilities of such Person assumed by the Partnership or that are
secured by any property contributed by such Person to the Partnership.


 


(c)           In the event all or a portion of an Interest
in the Partnership is transferred in accordance with the terms of this
Agreement. the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the transferred Interest.


 


(d)           In determining the amount of any liability
for purposes of Sections 1.3(a), 1.3(c), 4.5(a) and 4.5(b) hereof, there shall
be taken into account Section 752(c) of the Code and any other applicable
provisions of the Code and Regulations.


 


The
foregoing provisions and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Section 1.704-1(b)
of the Regulations, and shall be interpreted and applied in a manner consistent
with such Regulations. In the event the General Partner shall determine that it
is prudent to modify the manner in which the Capital Accounts, or any debits or
credits thereto (including, without limitation, debits or credits relating to
liabilities that are secured by contributed or distributed property or that are
assumed by the Partnership or its Partners), are computed in order to comply
with such Regulations, the General Partner may make such modification, provided
that it is not likely to have a material effect on amounts distributable 


 





















 


to
any Person pursuant to Article XIII hereof upon the dissolution of the Partnership.
The General Partner also shall: (i) make any adjustments that are necessary or appropriate
to maintain equality between the Capital Accounts of the Partners and the
amount of Partnership capital reflected on the Partnership’s balance sheet, as
computed for book purposes in accordance with Section 1.704-1(b)(2)(iv)(q) of
the Regulations; and (ii) make any appropriate modifications in the event
unanticipated events (for example, the acquisition by the Partnership of oil or
gas properties) might otherwise cause this Agreement not to comply with Section
1.704-1(b) of the Regulations.


 


4.6           Loans- Partnership Indebtedness.


 


(a)           Any Partner may make a loan to the
Partnership in such amount, at such time and on such terms and conditions as
may be approved by the General Partner; provided however, that the Partner may
not charge the Partnership interest at a rate greater than the rate (including
points or other financing charges or fees) that would be charged the Partnership
(without reference to the Partner’s financial abilities or guaranties) by
unrelated lenders or comparable leans. No loan by any Partner to the
Partnership shall be considered as a Contribution for any purpose. The
Partnership shall not loan or advance funds to any Partner nor permit its
Property to be pledged or hypothecated to secure the obligation of any Partner,
except as provided in Section 3.2(b).


 


(b)           The Partnership shall from time to time
arrange such loan or loans with such persons, firms or corporations as are
willing to make the same at such rates, for such and upon such other terms and
conditions as the General Partner shall approve, and the Partnership shall have
the power and authority to incur such obligations and to execute such notes,
pledges, security interests, conditional assignments of Partnership Property or
other documents as shall be necessary or advisable in connection with said loan
or loans. In the event guaranties of the General Partner are required in
connection with any loan approved by the Partnership, the General Partner
agrees to execute the same.


 


(c)           Except as otherwise provided by this
Agreement, no Limited Partner shall be liable for the debts, liabilities,
contracts or other obligations of the Partnership. Except as provided by this
Agreement, any other agreements among the Partners, or applicable a Limited
Partner shall be liable only to make its Capital Contribution and shall not be
required to lend any funds to the Partnership or, after its Capital
Contribution has been paid, any additional Contributions to the Partnership or
to guarantee Partnership debts, loans or other obligations.


 





















 


ARTICLE V


 


ALLOCATIONS AND
DISTRIBUTIONS


 


5.1           Allocations of Profits and Losses.    After giving effect to the special allocations
set forth in Sections 5.2 and 5.3 hereof, Profits and Losses for any fiscal
year of the Partnership shall be allocated among the Partners in proportion to
their respective Adjusted Contributions as of the first day of such fiscal
year; provided, however, that if a Partner’s Adjusted Capital Contributions
changes during any fiscal year, Profits and Losses for each month within such
year shall be allocated among the Partners in proportion to the Adjusted Capital
of each Partner as of the first day of such month, and each Partner’s share of
Profits and Losses the fiscal year shall equal the sum of that Partner’s share
of Profits and Losses for each month during such fiscal year.


 


5.2           Other Allocation Rules.


 


(a)           Except as otherwise provided in Section 5.1,
for purposes of the Profits, Losses, or any other items allocable to any
period, Profits, Losses, and any such other items shall be determined on a
daily, monthly, or other basis, as determined by the General Partner using any
permissible method under Section 706 of the Code and the Regulations
thereunder.


 


(b)           All allocations to the Partners pursuant to
this Article V shall, as otherwise provided, be divided among them in
proportion to the Partnership Interests hr each. In the event there is more
than one General Partner, all such allocations to the General Partners shall be
divided among them as they may agree.


 


(c)           Except as otherwise provided in this
Agreement, all items of Partnership income, gain, loss, deduction, or credit,
and any other allocations not otherwise provided for shall be divided among the
General Partners and Limited Partners in the same proportions as they Share
Profits or Losses, as the case may be, for the year.


 


(d)           The Partners are aware of the income tax
consequences of the allocations made by this Article V and hereby agree to be
bound by the provisions of this Article V in reporting their shares of
Partnership income and loss for income tax purposes.


 


5.3           Tax Allocations.


 


The
following special allocations shall be made in the following order, except as
in Section 5.3(h) hereof:


 


(a)           Notwithstanding any other provision of this
Article V, if there is a net decrease in Partnership Minimum Gain during any
Partnership fiscal year, each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in an amount equal 


 





















 


to the greater of: (i) the portion of such
Person’s share of the net decrease in Partnership Minimum Gain, determined in accordance
with Section 1.704-1T(b)(4)(iv)(f) of the Regulations, that is allocable to the
disposition of Partnership Property subject to Nonrecourse Liabilities,
determined in accordance with Section 1.704-1T(b)(4)(iv)(e) of the Regulations;
or (ii) if such Person would otherwise have an Adjusted Capital Account Deficit
at the end of such year, an amount sufficient to eliminate such Adjusted
Capital Account Deficit. Allocations pursuant to the previous sentence shall be
made in proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined in
accordance with Section 1.704-1T(b)(4)(iv)(e) of the Regulations. This Section
5.3(a) is intended to comply with the “minimum gain chargeback” requirement in
such Section of the Regulations and shall be interpreted consistently therewith.
To the extent permitted by such Section of the Regulations and for purposes of
this Section 5.3(a) only, each Partner’s Adjusted Capital Account Deficit shall
be determined prior to any other allocations pursuant to this Article V with
respect to such fiscal year and without regard to any net decrease in Partner
Minimum Gain during such fiscal year.


 


(b)           Notwithstanding any other provision of this
Article V except Section 5.3(a), if there is a net decrease in Partner Minimum
Gain attributable to a Partner Nonrecourse Debt during any Partnership fiscal
year, each Partner who has a share of the Partner Minimum Gain attributable to
such Partner Nonrecourse Debt, determined in accordance with Section 1.704-1T(b)(4)(iv)(h)(5)
of the Regulations, shall be specially allocated items of Partnership income
and gain for such year (and, if necessary, subsequent years) in an amount equal
to the greater of: (i) the portion of such Person’s share of the net decrease
in Partner Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Section 1.704-1T(b)(4)(iv)(h)(5) of ,he
Regulations, that is allocable to the disposition of Partnership Property
subject to such Partner Nonrecourse Debt, determined in accordance with Section
1.704-1T(b)(4)(iv)(h)(4) of the Regulations; or (ii) if such Person would
otherwise have an Adjusted Capital Account Deficit at the end of such year, an
amount sufficient to -1,:iminate such Adjusted Capital Account Deficit.
Allocations pursuant to the previous sentence shall be made in proportion to
the respective amounts required to be allocated ,to each Partner pursuant
thereto. The items to be so allocated shall be determined in accordance with
Section 1.704-1T(b)(4)(iv)(h)(4) of the Regulations. This Section 5.3(b) is
intended to comply with the “partner minimum gain chargeback” requirement in
such Section of the Regulations and shall be interpreted consistently
therewith. Solely for purposes of this Section 5.3(b), each Partner’s Adjusted
Capital Account Deficit shall be determined prior to any other allocations
pursuant to this Article V with respect to such fiscal year, other than
allocations pursuant to Section 5.3(a) hereof.


 


(c)           In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in Sections
1.704-1T(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of Partnership
income and gain shall be specially allocated to such Partner in an amount and
manner 


 





















 


sufficient to eliminate, to the extent
required by the Regulations, the Adjusted Capital Account Deficit of such
Partner as quickly as possible, provided that an allocation pursuant to this
Section 5.3 (c) shall be made only if and to the extent that such Partner would
have an Adjusted Capital Account Deficit after all Other allocations provided
for in this Article V have been tentatively made as if this Section 5.3(c) were
not in the Agreement. This Section 5.3(c) is intended to constitute a “qualified
income offset” within the meaning of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.


 


(d)           In the event any Partner has a deficit
Capital Account at the end of any Partnership fiscal year that is in excess of
the sum of: (i) the amount such Partner is Obligated to restore pursuant to any
provision of this Agreement; and (ii) the amount such Partner is deemed to be
obligated to restore pursuant to the penultimate sentences Of Sections
1.704-1T(b)(4)(iv)(f) and 1.704-1T(b)(4)(iv)(h)(5) of the Regulations, each such
Partner shall be specially allocated items of Partnership income and gain in
the amount of such excess as quickly as possible, provided that a “gross income
allocation” pursuant to this Section 5.3(d) shall be made only if and to the
extent that such Partner would have a deficit Capital Account in excess of such
sum after all other allocations provided for in this Article V have been made
as if Section 5.3 (c) hereof and this Section 3.3(d) were not in the Agreement.


 


(e)           Nonrecourse Deductions for any fiscal year or
other period shall he specially allocated to the Partners in the ratios by
which they would share in the Profits of the Partnership for such year.


 


(f)            Any Partner Nonrecourse Deductions for any
fiscal year or other period shall be specially allocated to the Partner who
bears the economic risk of loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance with
Section 1.704-1T(h)(4)(iv)(h) of the Regulations.


 


(g)           To the extent an adjustment to the adjusted
tax basis of any Partnership asset pursuant to Section 734(b) of the Code or
Section 743(b) of the Code is required, pursuant to Section
1.704-1(b)(2)(iv)(m) of the Regulations, to be taken into account in determining
Capital Accounts, the amount of such adjustment to the Capital Accounts shall
be treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis) and such gain or loss
shall be specially allocated to the Partners in a manner consistent with the
manner m which their Capital Accounts are required to be adjusted pursuant to
such Section of the Regulations.


 


(h)           The allocation set forth in Sections 5.3(a)
through 5.3(g) hereof ,the “Regulatory Allocations”) are intended to comply
with certain requirements of Section 1.704-1(b) of the Regulations.  The Partners understand and acknowledge that
, he Regulatory Allocations may not be consistent with the manner in which the
Partners intend to divide Partnership Profits, Losses and distributions. These
Regulatory Allocations shall be taken into account in allocating times of
income, gain, loss and deduction among the Partners so that, to the extent
possible, the net amount of such allocations of the other items and 


 





















 


these Regulatory Allocations to each Partner
shall be equal to the net amount that would have been allocated to each Partner
if the Regulatory Allocations had not occurred. Accordingly, the General
Partner shall have reasonable discretion. with respect to each fiscal year, to
divide the Regulatory Allocations among he Partners in whatever order is made
in any manner that is likely to minimize the above economic distortions.


 


(i)            In accordance with Section 704(c) of the Code
thereunder, income, gain, loss, and deduction with respect to any Property
contributed to the capital of the Partnership shall, solely for tax purposes,
be allocated among the Partners as to take account of any variation between the
adjusted basis of such Property to the Partnership for federal income tax
purposes and its initial Gross Asset Value (computed in accordance with Section
1.13 of this Agreement).


 


In
the event the Gross Asset Value of any Partnership Property is adjusted pursuant
to Section 1.13(b) of this Agreement, subsequent allocations of income, gain,
loss, and deduction with respect to such Property shall take account of any
variation between the adjusted basis of such Property for federal income tax
purposes and its Gross Asset Value in the same manner as under Section 704(c)
of the Code and the Regulations thereunder.


 


Any
elections or other decisions relating to such allocations shall be made by the
General Partner in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 5.3(i) are
solely for purposes of federal, state, and local taxes and shall not affect, or
in any way be taken into account in computing, any Partner’s Capital Account or
share of Profits, Losses, other items, or distributions pursuant to any
provision of this Agreement.


 


(j)            It is the intention of the Partners that each
Partner’s distributive share of Profits, Losses and other tax items be
determined and allocated in accordance with this Article V to the extent permitted
or required by Section 704(b) of the Code and the Regulations promulgated
thereunder. Therefore, if the General Partner is advised by Counsel or
accountants to the Partnership that the allocation provisions of this Agreement
are unlikely to be respected for federal income tax purposes, the General
Partner is granted the authority in Article XI to amend the allocation
provisions of this Agreement, on advice of counsel or accountants, to the
minimum extent necessary to effect the plan of allocations and distributions
provided in this Agreement. The General Partner shall have the discretion to
adopt such rules, conventions and procedures as it believes appropriate and/or
advantageous with respect to the admission of Limited Partners to reflect the
Partners’ Interests in the Partnership.


 


5.4           Distributions. Except as otherwise provided
in Section 5.5, Section 5.6 and Article XIII hereof. Net Cash From Operations,
if any, and Net Cash From Sales and Refinancings, if any, shall be distributed
as follows:


 





















 


(a)           When and as the General Partner, in its sole
discretion shall decide, some or all of the Net Cash From Operations and/or
some or all of the Net Cash from Sales and Refinancing shall be made to all
Partners in amounts proportionate to their respective positive Capital Account
balances and shall be in cash or in kind, or combination thereof, as the
General Partner shall specify; or


 


(b)           When approved by a majority in interest of
the Partners, some or all of the Net Cash From Operations and/or some or all of
the Net Cash From Sales and Refinancing shall be made to less than all Partners
(to the designated Partner or Partners), or to all Partners but in varying
amounts, and in any case shall be in cash or in kind, or a combination thereof,
as the General Partner shall specify.


 


5.5           Amounts Withheld. All amounts withheld
pursuant to the Code or any provision of any state or local tax law with
respect to any payment or distribution to the Partnership or the Partners shall
be treated as amounts distributed to the Partners pursuant to this Article V
for all purposes under this Agreement. The General Partner may allocate any
such amounts among the Partners in any manner that is in accordance with
applicable law.


 


5.6           Minimum Distribution For Tax Payments. The
General Partner shall distribute each Partner, upon request from such Partner,
for each fiscal year an amount of cash from its Capital Account equal to the
amount of corporate tax due on the Profits of the Partnership, if any,
allocated to the Partner for such year, at a time so as to enable such Partner
to pay its respective federal income taxes with respect to such Profits. Such
distribution shall on the applicable tax rates under the Code; and such amount
shall be automatically as applicable tax rates are increased.


 


ARTICLE VI


 


MANAGEMENT AND OPERATION
OF   BUSINESS


 


6.1
Management.


 


(a)           Except to the extent otherwise provided
herein, the General Partner shall have the sole and exclusive right and
authority to manage the business and affairs of the Partnership. In addition to
the powers that may be possessed by a general partner of a limited Partnership
under the Act or other applicable state laws, or that are granted to the
General Partner under any other provisions of this Agreement, the General
Partner shall have, subject to the other provisions of this Agreement, full
power and authority to do all things and on such terms as it, in its sole and
complete discretion, may deem necessary, 


 





















 


appropriate, convenient or incidental to
managing the affairs of the Partnership or to conducting the business of the Partnership
including, without limitation, and for and by the Partnership: (i) acquire by purchase,
lease, or otherwise any real or personal property that may be necessary,
convenient or incidental to the accomplishment of the purposes of the
Partnership; (ii) operate, finance, maintain, hold, own, grant options with
respect to, sell, convey, assign, mortgage, and lease any real of personal
property necessary. convenient, or incidental to the accomplishment of the of
the purpose of the Partnership; (iii) execute any and all agreements,
contracts, documents, certifications and instruments necessary or convenient in
connection with managing the affairs of the Partnership, including executing
amendments to the Agreement and Certificate in accordance with the terms of the
Agreement, pursuant to any power of attorney granted by the Limited Partner to
the General Partner: (iv) the making of any expenditures, the borrowing of money
and guaranteeing of indebtedness and other liabilities, the issuance of
evidences of indebtedness and the incurring of obligations in connection with
the business of the Partnership; (v) the use of the Property of the Partnership
for any Partnership purpose and on any terms, including, without limitation,
the financing of the conduct of the operations of the Partnership, of funds to
other Persons (other than Partners) and the repayment of obligations of the Partnership;
(vi) the negotiation, execution and performance of any contracts, conveyances
or other instruments; (vii) care for and distribute funds to the Partners by
way of cash, income, in kind distributions, return of capital, or otherwise,
all in accordance with the provisions of this Agreement; (viii) the selection
and dismissal of employees and outside attorneys, accountants. consultants and
contractors and the determination of their compensation and other terms of employment
or hiring; (ix) the maintenance of insurance for the benefit of the Partnership
and the Partner; (x) the formation of or participation in any further limited
or general partnerships, joint ventures or other relationships; (xi) institute,
prosecute, defend, settle, compromise, and lawsuits or other judicial or
administrative proceedings brought on or in behalf of, or the Partnership or
the Partners in connection with activities arising out of, corrected incidental
to this Agreement, and to engage counsel or others in connection therewith; (xii)
the purchase, sale or other acquisition or disposition of Partnership interests;
(xiii) the indemnification of any person against liabilities and contingencies
to the extent permitted by law; (xiv)engage in any hind of activity and perform
and carry out contracts of any kind necessary or incidental to, or in
connection with, the accomplishment of the purposes of the Partnership, he
lawfully carried on or performed by a Partnership under the laws of each state
in the Partnership is then formed or qualified; (xv) take, or refrain from
taking, all actions not expressly proscribed or limited by this Agreement, as
may be necessary or appropriate to accomplish the purposes of the Partnership.


 


In
the event more than one person is a General Partner, the rights and powers of the
General Partner hereunder shall be exercised by them in such manner as they
shall agree. In the absence of an agreement among the General 


 





















 


Partners, no General Partner shall exercise any
of such rights and powers without the unanimous consent of all General
Partners.


 


(b)           Without the prior approval of all of the
Limited Partners, the General Partner shall not have the authority to: (i) do
any act in contravention of this Agreement: (ii) do any act that would make it
impossible to carry on the ordinary business of the Partnership, except as
otherwise provided by this Agreement; (iii) confess a judgment against the
Partnership: (iv) possess Property, or assign rights in specific Property, for
other than a Partnership purpose; (v) knowingly perform any act that would
subject any Limited Partner to liability as a general partner in any
jurisdiction; (vi) sell or exchange all or substantially all of the Property of
the Partnership in a single transaction or a series of related transactions,
except for a liquidating sale of Property after the dissolution of the Partnership,
provided that this provision shall not preclude or limit the mortgage, pledge,
hypothecation or grant of a security interest in ail or substantially all of
the Partnership’s Property; (vii) merge the Partnership with or into other
entity; (viii) make any assignment for the benefit of the Partnership’s
creditors; (ix) provide for compensation or remuneration, whether direct or
indirect, to any Partner for services Performed for the Partnership in excess
of amounts specifically permitted hereunder; or (x) undertake any act or action
by the Partnership that requires the consent of all Partners pursuant to the
terms of this Agreement or the Act.


 


6.2           Compensation and Reimbursement of the General
Partners.


 


(a)  Except as provided in this Section 6.2 or elsewhere
in this Agreement, the General Partner shall not be compensated for its
services as General Partner to the Partnership.


 


(b)
The General Partner shall be reimbursed for all expenses, disbursements and
advances incurred or made in connection with the organization of the Partnership
and the qualification of the Partnership to do business in any state.


 


(c)
The General Partner shall be reimbursed on a monthly basis, or on other basis
as the General Partner may determine in its sole and complete discretion, for
ct expenses it incurs or makes on behalf of the Partnership (including amounts
paid to any person to perform services to the Partnership, other than those
services described in Section 6.2(b) hereof).


 


6.3           Limitations on Liability of the Partners to
the Limited Partners and Partnership. The General Partner shall not be required
to devote all of its time or business efforts to the affairs of the
Partnership, but shall devote so much of its time and attention to the
Partnership as is necessary and advisable to successfully manage the affairs of
the Partnership. The General Partner, its officers, directors, shareholders,
agents and employees, shall not be 


 





















 


liable to the Partnership or the Limited
Partner, and shall be indemnified for any loss or damage resulting from, any
act or omission performed or omitted in good faith, which shall not constitute
fraud, gross negligence or willful misconduct, in pursuance of the authority
granted to promote the interests of the Partnership. Moreover, the General
Partner shall not be liable Partnership or the Limited Partner because any
taxing authorities disallow or adjust any deduction or credits in the
Partnership income tax returns. Subject to Article XIII hereof, the General
Partner shall not be liable for the return of the Capital Contributions of the
Limited or for any portion thereof, it being expressly understood that any
return of capital shall be made solely from the Property of the Partnership;
nor shall a General Partner be required to pay the Partnership or the Limited
Partner any Capital Account deficits of any other Partner (other then its own
or another General Partner’s deficit), upon dissolution or otherwise.


 


6.4           Partnership Funds. The funds of the
Partnership shall be deposited in such account or accounts as are designated by
the General Partner. All withdrawals from or charges against such accounts
shall be made by the General Partner or by its officers, employees or agents.
Funds of the Partnership may be invested as determined by the General Partner,
except in connection with acts otherwise prohibited by this Agreement.


 


6.5           Loans from the General Partner- Other
Agreements.


 


(a)
The General Partner may lend to the Partnership funds needed by Partnership for
such periods of time as the General Partner may determine; provided, however,  that the General Partner may not charge the
Partnership interest at a rate greater than (including points or other
financing charges or fees) that would be charged the Partnership (without
reference to the General Partner’s financial abilities or guaranties) by unrelated
lenders on comparable loans. The Partnership shall reimburse the General
Partner for any cost incurred by it in connection with the borrowing of funds
obtained by the General Partner and loaned to the Partnership.


 


(b)           The General Partner and its Affiliates may,
pursuant to a written agreement or otherwise, render services to (other than
those described in Section 6.2 (b) ) or receive services from the Partnership
and furnish properties to or receive properties from the Partnership, provided
that any such activities shall be on terms that are fair and reasonable to the
Partnership, and provided further that the terms shall be deemed fair and
reasonable if they are no less favorable to the Partnership than those
generally being provided to or available from unrelated third parties.


 


(c)           The Partnership may transfer Property to
other Entities in which it is or hereby becomes a participant, upon such terms
and subject to such conditions consistent with applicable law as the General
Partner deems necessary or appropriate.


 





















 


6.6           Title to Partnership Property. Title to
Partnership Property, whether real, personal or mixed, tangible or intangible,
shall be deemed to be owned by the Partnership as an entity and no Partner,
individually or collectively, shall have any ownership interest in such Partnership
Property or any portion thereof. Title to any or all of the Partnership
Property may be held in the name of the Partnership, the General Partner or one
or more nominees, as the Partner may determine. The General Partner hereby
declares and warrants that any Partnership Property for which legal title is
held in the name of the General Partner shall be held in trust by the General
Partner for the use and benefit of the Partnership in accordance with the or
provisions of this Agreement. All Partnership assets shall be recorded as the
property of the Partnership on its books and records, irrespective of the name
in which legal title to such Partnership assets is held.


 


6.7           General Partner Net Worth. The General
Partner covenants and agrees that so long as it is the general partner of the
Partnership, it will use all reasonable efforts to maintain a net worth
(exclusive of its interests in, or claims against, the Partnership) of an amount
required by the Code and Regulations, provided that neither the General Partner
nor any other Partner shall have any obligation to contribute assets to the
Partnership after the date hereof. The General Partner covenants and agrees that
it will use all reasonable efforts to establish and maintain the classification
of the Partnership as a “partnership” for federal income tax purposes and not
as an “association” taxable as a corporation.


 


ARTICLE VII


 


LIABILITY AND RIGHTS OF LIMITED
PARTNERS


 


7.1           Limitation of Liability. The Limited Partners
shall have no liability under Agreement, except as provided in this Agreement
or in the Act.


 


7.2           Management of Business. Except for the right
to vote on the matters set forth in this Agreement. the Limited Partner shall
not have the right or power to take part in the operation, management or
control of the Partnership’s business or affairs, transact any business in the
Partnership’s name, or have the power to sign documents for or otherwise bind
the Partnership.


 


7.3           Rights of Limited Partners Relating to the
Partnership. In addition to other rights provided by this Agreement or by
applicable law, each Limited Partner, and each Limited Partner’s duly
authorized representatives, 


 





















 


shall have the right upon reasonable notice
and at reasonable times, but only for a purpose reasonably related to such
person’s interest as a Limited Partner  (a)
to have true and full information regarding the status of the business, affairs
and condition of the Partnership; (b) to inspect and copy, promptly after they
become available,  the Partnership’s
federal, state, and local income tax returns for each year; (c) to have true
and full information regarding any Capital Contribution made by any General
Partner and any Limited Partner;  (d) to
have a copy of this Agreement and the Certificate and all Amendments thereto,
together with executed copies of any powers of attorney pursuant to which Agreement
or any such Certificate has been executed; and (e) to have any other information
regarding the affairs of the Partnership as is just and reasonable.


 


ARTICLE VIII


 


TRANSFER OF LIMITED
PARTNER INTERESTS


 


8.1           Restriction on Transfers. Except as otherwise
permitted by this Agreement no Limited Partner shall Transfer all or any portion
of its Interest.


 


8.2           Permitted Transfer. Subject to the conditions
and restrictions set forth in Section 8.3 hereof, a Limited Partner may at any
time Transfer all or any portion of its interest to: (a) any other Partner; (b)
any Affiliate of the transferor; (c) the transferor’s trustee or personal
representative to whom such Interests are transferred involuntarily by
operation of law; or (d) any Purchaser in accordance with Section 8.4 here (any
such Transfer being referred to this Agreement as a “Permitted Transfer”).


 


8.3           Conditions to Permitted Transfers.   A Transfer shall not be treated as a Permitted
Transfer under Section 8.2 hereof unless and until the following conditions are
satisfied:


 


(a)           Except in the case of a Transfer
involuntarily by operation of law, the transferor and transferee shall execute
and deliver to the Partnership such documents and instruments of conveyance as
may be necessary or appropriate in the opinion of counsel to the Partnership to
effect such Transfer and to confirm the agreement of the transferee to be bound
by the provisions of this Article VIII. In any case not described in the
preceding sentence, the Transfer shall be confirmed by presentation to the
Partnership of legal evidence of such Transfer, in form and substance
satisfactory to counsel to the Partnership. In all cases, the Partnership shall
be reimbursed by the transferor and/or transferee for all costs and expenses
that it reasonably incurs in connection with such Transfer.


 





















 


(b)           Except in the case of a Transfer
involuntarily by operation of law, the transferor shall furnish to the
Partnership an opinion of counsel, which counsel and opinion shall be
satisfactory to the Partnership, that the Transfer will not cause the Partnership
to terminate for federal income tax purposes or to be classified other than a
partnership for federal income tax purposes.


 


(c)           The transferor and transferee shall furnish
the Partnership with the transferee’s taxpayer identification number, sufficient
information to determine the transferee’s initial tax basis in the Interests
transferred, and any other information reasonably necessary to permit the
Partnership to file all required federal and state tax returns and other
legally required information statements or returns. Without limiting the generality
of the foregoing, the Partnership shall not be required to make any
distribution otherwise provided for in this Agreement with respect to any
transferred Interests until it has received such information.


 


(d)           Except in the case of a Transfer
involuntarily by operation of law, either: (i) such Interests shall be
registered under the Securities Act of 1933, as amended, and any applicable
state securities laws; or (ii) the transferor shall provide an opinion of counsel,
which opinion of counsel shall be satisfactory to the Partnership, to the
effect that such Transfer is exempt from all applicable registration
requirements and that such Transfer will not violate any applicable laws
regulating the Transfer of securities.


 


(e)           Except in the case of a Transfer
involuntarily by operation of law, the transferor may not Transfer all or any
part of its Partnership interest, or any rights therein, without the consent of
the General Partner and Limited Partners owning more than 50% of the
Partnership Interests of the Limited Partners.


 


8.4           Right of First Refusal. In addition to the other limitations
and restrictions set forth in this Article VIII, except as permitted by Section
8.2 hereof, no Limited Partner shall transfer all or any portion of its
Interest (the “Offered Interest”) unless such selling Limited Partner (the “Seller”)
first offers to sell the Offered Interest pursuant to the terms of this Section
8.4.


 


(a)           Limitation on Transfers.  No
Transfer may be made under this Section 8.4 unless the Seller has received a
bona fide written offer (the “Purchase Offer”) from a Person (the “Purchaser”)
to purchase the Offered Interest for a purchase price (the “Offer Price) denominated
and payable in United States dollars at closing or according to specified
terms, with or without interest, which offer shall be in writing signed by the
Purchaser and shall be irrevocable for a period ending no sooner than the day
following the end of the Offer Period, hereinafter defined.


 





















 


(b)              Offer Notice. Prior to making any Transfer that is
subject to the of this Section 8.4, the Seller shall deliver to the Partnership
and each other Partner written notice (the “Offer Notice”), which shall include
a copy of the Purchase Offer and an offer (the “First Offer”) to sell the
Offered Interests to the other Partners (the “Offerees”) for the Offer Price,
payable according to the same terms as (or more favorable terms than) those contained
in the Purchase Offer, provided that the First Offer shall be made without
regard to the requirement of any earnest money or similar deposit required of
the Purchaser prior to closing, and without regard to any security (other than
the Offered Interest) to be provided by the Purchaser for any deferred portion
of the Offer Price.


 


(c)               Offer Period. The First Offer shall be irrevocable
for a period (the “Offer Period”) ending at 11:59 p.m., local time at the
Partnership’s principal office, on the ninetieth day following the day of the
Offer Notice.


 


(d)              Acceptance of First Offer. At the time during the first sixty days of
the Offer Period, any Offeree who is a Partner may accept the First Offer as to
that portion of the Offered Interest that corresponds to the ratio of Adjusted
Capital Contributions to the total Adjusted Capital Contributions of all
Offerees who are Partners, by giving written notice of such acceptance to the
Seller and the General Partner. At any time after the sixtieth day of the Offer
the General Partner may accept the First Offer as to any portion of the Offered
Interest that has not been previously accepted by giving written notice of such
acceptance to the Seller. In the event that Offerees (“Accepting Offerees”), in
the aggregate, accept the First Offer with respect to all of the Offered Interest,
the First Offer shall be deemed to be accepted. If Offerees do not accept the
First Offer as to all of the Offered Interest during the Offer Period, the
First Offer shall be deemed to be rejected in its entirety.


 


(e)               Closing of Purchase Pursuant to First Offer. In the event that the First Offer is
accepted, the closing of the sale of the Offered Interest shall take place
within thirty days after the First Offer is accepted or, if later, the date of
closing set forth in the Purchase Offer. The Seller and all Accepting Offerees
shall execute such documents and instruments as may be necessary or appropriate
to effect the sale of the Offered Interest pursuant to the terms of the First
Offer and this Article VIII.


 


(f)               Sale Pursuant to Purchase Offer If First
Offer Rejected. If the First
Offer is not accepted in the manner hereinabove provided, the Seller may sell
the Offered Interest to the Purchaser at any time within sixty days after the
last day of the Offer Period, provided that such sale shall be made on terms no
more favorable to the Purchaser than the terms contained in the Purchase Offer
and provided further that such sale complies with other terms, conditions, and
restrictions of this Agreement that are applicable to sales of Interests and 


 





















 


are not expressly made inapplicable to sales
occurring under this Section 8.4. In the event that the Offered Interest is not
sold in accordance with the terms of the preceding sentence, the Offered
Interest shall again become a subject to all of the conditions and restrictions
of this Section 8.4.


 


8.5           Prohibited Transfers. Any purported Transfer of Limited Partner
Interests that is not a Permitted Transfer shall be null and void and of no
effect whatever; provided that, if the Partnership is required to recognize a
Transfer that is not a Permitted Transfer (or if the General Partner, in its
sole discretion, elects to recognize a Transfer that is not a Permitted Transfer),
the Interest transferred shall be strictly limited to the transferor’s rights
to allocations and distributions as provided by this Agreement with respect to
the transferred Interest, which allocations and distributions may be applied
(without limiting any other legal or equitable rights of the Partnership) to
satisfy any debts, obligations, or liabilities for damages that the transferor
to transferee of such interest may have to the Partnership.


 


In
the case of a Transfer or attempted Transfer of interest that is not a
Permitted the parties engaging or attempting to engage in such Transfer shall
be liable to indemnity and hold harmless the Partnership and the other Partners
from all cost, liability, and damage that any of such indemnified Persons may
incur (including, without limitation, incremental tax liability and attorneys’
fees and expenses) as a result of such Transfer or Transfer and efforts to
enforce the indemnity granted hereby.


 


8.6           Rights of Unadmitted Assignees. A Person who acquires one or more Limited Partner
Interests, but who is not admitted as a Substituted Limited Partner pursuant to
Section 8.7 hereof, shall be entitled only to allocations and distributions
with respect to such Interests in accordance with this Agreement, but shall
have no right to any information or accounting of the affairs of the
Partnership, shall not be entitled to inspect the books or records of the
Partnership, and shall not have any of the rights of a General Partner or a
Limited Partner under the Act or the Agreement.


 


8.7           Admission of Substitute Limited Partners. Subject to the other provisions of this Article
VIII, a transferee of Limited Partner Interests may be admitted to the
Partnership as a “Substituted Limited Partner” only upon satisfaction of the
conditions set forth below in this Section 8.7:


 


(a)           Each General Partner and a majority in
interest of the Limited Partners consent to such admission;


 


(b)           The Limited Partner Interests with respect to
which the transferee is being admitted were acquired by means of a Permitted
Transfer;


 


(c)           The transferee becomes a party to this
Agreement as a Limited Partner and executes such documents and instruments as
the General Partner may reasonably request (including, without limitation, a
power-of-


 





















 


attorney in favor of the General Partner as
provided in Article XII hereof) as may be necessary or appropriate to confirm
such transferee as a Limited Partner in the Partnership and such transferee’s
agreement to be bound by the terms and conditions hereof; and


 


(d)           The transferee pays or reimburses the
Partnership for all reasonable legal, filing, and publication costs that the
Partnership incurs in connection with the admission of the transferee as a
Limited Partner with respect to the Transferred Interests.


 


8.8           Representations: Legend.


 


(a)           Each Limited Partner hereby covenants and
agrees with the Partnership for the benefit of the Partnership and all of its
Partners, that: (i) it is not currently making a market in Interests and will
not in the future make a market in Interests; (ii) it will not Transfer its
Interests on an established securities market, a secondary market (or the
substantial equivalent thereof) within the meaning of Section 7704(b) of the
Code (and any Regulations, revenue rulings,  or other official pronouncements of the
Internal Revenue Service or Treasury Department that may be promulgated or
published thereunder); and (iii) in the event such Regulations, revenue
rulings, or other pronouncements treat any of or all arrangements that the
selling of partnership interests and that are commonly referred to as “matching
as being a secondary market or substantial equivalent thereof, it will not
Transfer any Interest through a matching service that is not approved in
advance by the General Partner. Each Limited Partner further agrees that it
will not Transfer any Interest to any Person unless such Person agrees to be
bound by this Section 8.8(a) and to Transfer such Interests only to who agree
to be similarly bound. The Partnership shall, from time to time, at the request
of a Partner consider whether to approve a matching service and shall notify all
Partners matching service that is so approved.


 


(b)           Each Limited Partner hereby represents and
warrants to the Partnership and the General Partner that such Partner’s
acquisition of Interests hereunder is made as principal for such Partner’s own
account and not for resale or distribution of such Interests. Each Limited
Partner further hereby agrees that the following legend may be placed upon any counterpart
of this Agreement, the Certificate, or any other document or instrument
evidencing ownership of Interests:


 


THE
LIMITED PARTNERSHIP INTERESTS REPRESENTED BY THIS DOCUMENT HAVE NOT BEEN
REGISTERED UNDER ANY SECURITIES LAWS AND THE
TRANSFERABILITY OF SUCH INTERESTS IS RESTRICTED. SUCH INTERESTS MAY NOT BE
SOLD, ASSIGNED OR 


 





















 


TRANSFERRED, NOR WILL ANY ASSIGNEE, VENDEE,
TRANSFEREE OR ENDORSEE THEREOF BE RECOGNIZED AS HAVING ACQURED ANY SUCH
INTERESTS BY THE ISSUER FOR ANY PURPOSES, UNLESS: (1) A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, WITH RESPECT TO SUCH INTERESTS
SHALL THEN BE IN EFFECT AND SUCH TRANSFER HAS BEEN QUALIFIED UNDER ALL
APPLICABLE STATE SECURITIES LAWS; OR (2) THE AVAILABILITY OF AN EXEMPTION FROM
SUCH REGISTRATION AND QUALIFICATION SHALL BE ESTABLISHED TO THE SATISFACTION OF
COUNSEL TO THE PARTNERSHIP.


 


THE
INTERESTS REPRESENTED BY THIS DOCUMENT ARE SUBJECT TO FURTHER RESTRICTION AS TO
THEIR SALE, TRANSFER, HYPOTHECATION, OR ASSIGNMENT AS SET FORTH IN THE AGREEMENT
OF LIMITED PARTNERSHIP AND AGREED TO BY EACH LIMITED PARTNER. SAID RESTRICTION
PROVIDES, AMONG OTHER THINGS, THAT NO INTEREST MAY BE TRANSFERRED WITHOUT FIRST
OFFERING SUCH INTEREST TO THE OTHER LIMITED PARTNERS AND THE GENERAL PARTNER,
AND THAT NO VENDEE, TRANSFEREE, ASSIGNEE, OR ENDORSEE SHALL HAVE THE RIGHT TO
BECOME A SUBSTITUTED LIMITED PARTNER WITHOUT THE CONSENT OF THE GENERAL PARTNER
AND A MAJORITY IN INTEREST OF THE LIMITED PARTNERS.


 


8.9           Distributions and Allocations in Respect to
Transferred Interests.


 


(a)           If any Partnership Interest is sold,
assigned, or transferred during any accounting period in compliance with the
provisions of this Article VIII, Profits, Losses, each item thereof, and all
other items attributable to the transferred Interest for such period shall be
divided and allocated between the transferor and the transferee by taking into
account their varying interests during the period in accordance with Section
706(d) of the Code, using any conventions permitted by law and selected by the
General Partner. All distributions on or before the date of such transfer shall
be made to the transferor, and all distributions thereafter shall be made to the
transferee.


 


(b)           Solely for purposes of making such
allocations and distributions section 8.9(a) hereof, the Partnership shall
recognize such transfer not later than the end of the calendar month during
which it is given Notice of such transfer, provided that if the Partnership
does not receive a Notice stating the date such Interest was transferred and
such other information as the General Partner may reasonably require within
thirty days after the end of the accounting period during which the transfer
occurs, then all of such items shall be allocated and all distributions shall
be made, to the Person who, according to the books and records of the
Partnership, on the last day of the accounting period during which the transfer
occurs, was the owner of the Interest. Neither the Partnership nor any General
Partner shall incur any liability far making allocations and distributions in
accordance with the provisions of Section 8.9 


 





















 


hereof, whether or not any General Partner or
the Partnership has knowledge of any transfer of ownership of any Interest.


 


ARTICLE IX


 


GENERAL PARTNERS


 


9.1           Additional General Partners.   Except as provided in this
Article IX and Section 13.1 hereof, no Person shall be admitted to the
Partnership as a General Partner without the unanimous consent of the Partners.


 


9.2           Withdrawal of General Partner: Successor
General Partner. No General Partner
may resign or withdraw from the Partnership, dispose of its General Partner Interest
in a manner other than a Transfer, or dissolve or otherwise cease to serve as a
General Partner (collectively, a “Withdrawal”}, without providing ninety days
prior written Notice of such Withdrawal to the remaining General Partners (if
any) and the Limited Partners. Within such ninety day period after the Notice
has been given, the remaining General Partners (if any), or, if none, the
Limited Partners, may meet to appoint and admit a successor General Partner.
Any appointment and admission, and the terms of such appointment and admission,
of a successor General Partner shall be approved by all of the remaining
General Partners (if any) and a majority in interest of the Limited Partners,
and such approval shall also designate and identify the date upon which such
appointment and admission shall be first effective. For this purpose, an
express approval by a majority in interest of the Limited Partners to such appointment
and admission shall be deemed to be an act of all of the Limited Partners.


 


9.3           Permitted Transfers.


 


(a)           A General Partner may Transfer all or any
portion of its General Partner Interest in the Partnership as a General
Partner: (i) at any time to any other General Partner: (ii) at any time to any
Person who is such General Partner’s Affiliate; (iii) at any time involuntary
by operation of law; or (iv) to any Person who is approved by all of the other
Partners (if any) and a majority in interest of the Limited Partners, provided
that no such Transfer shall be permitted unless and until: (A) all of the
conditions set forth in Section 8.3 hereof are satisfied as if the Partnership
Interest being Transferred were a Limited Partner Interest and (B) the
transferor and transferee provide the Partnership with an opinion of counsel,
which opinion and counsel shall be acceptable to the other General Partners
(or, if none, to a majority in interest of the Limited Partners) to the effect
that such Transfer will not cause the Partnership to terminate for federal
income tax purposes, or to fail to meet any condition precedent, then in effect
pursuant to an official pronouncement of the


 





















 


Internal Revenue Service, to the issuance of
a private letter ruling by the Internal Revenue Service confirming that the Partnership
will be treated as a “partnership” for federal tax purposes, whether or not
such a ruling is being or has been requested.


 


(b)           A transferee of a General Partnership
Interest from a General Partner pursuant to Section 9.3(a) shall be admitted as
a General Partner with respect to such Interest if, but only if: (i) at the
time of such Transfer, such transferee is otherwise a General Partner; or (ii)
the admission of such transferee as a General Partner is approved by all of the
General Partners (if any) and a majority in interest of the Limited Partners.


 


(c)           A transferee who acquires a General
Partnership Interest from a General Partner hereunder by means of a Transfer
that is permitted under Section 9.3 (a), but who is not admitted as a General
Partner pursuant to Section 9.3(b) hereof, shall have no authority to act for
or bind the Partnership, to inspect the Partnership’s books, or otherwise to be
treated as a General Partner, but such transferee shall be treated as a Person
who acquired an Interest in the Partnership in a Permitted Transfer under
Article VIII hereof.


 


9.4           Prohibited Transfers. Any purported Transfer of any Partnership
Interest held by a General Partner that is not permitted by Section 9.3 above
shall be null and void and of no effect whatever; provided that, if the
Partnership is required to recognize a Transfer that is not so permitted (or if
all of the remaining General Partners, if any, and a majority in interest of
the Limited Partners, in their sole discretion, elect to recognize a Transfer
that is not so permitted), the Interest transferred shall be strictly limited
to the transferor’s rights to allocations and distributions as provided by this
Agreement with respect to the transferred Interest, which allocations and
distributions may be applied (without limiting any other legal or equitable
rights Partnership) to satisfy any debts, obligations, or liabilities for
damages that the transferor or transferee of such Interest may have to the
Partnership.


 


In
the case of a Transfer or attempted Transfer of a Partnership interest that is
not permitted by Section 9.3 above, the parties engaging or attempting to
engage in such Transfer nall he liable to indemnify and hold harmless the Partnership
and the other Partners from all cost, liability, and damage that any of such
indemnified Persons may incur (including, without limitation, incremental tax
liability and attorneys’ fees and expenses) as a result of such Transfer or attempted
Transfer and efforts to enforce the indemnity granted hereby.


 


9.5           Termination of Status as General Partner.


 


(a)           A General Partner shall cease to be a General
Partner upon the first of: (i) the Bankruptcy or dissolution of a General
Partner; (ii) the involuntary Transfer operation of law of such General Partner’s
Interest in the Partnership; (iii) the vote of all of the remaining General
Partners, if any, and a 


 





















 


majority in interest of the Limited Partners
to remove such General Partner after such General Partner has attempted to make
a Transfer of its Partnership Interest that is not permitted by Section 9.3
hereof, engaged in intentional misconduct or gross negligence in the discharge
of its duties as General Partner, intentionally failed to meet its material
obligations or covenants under the Act or this Agreement, conducted its own business
or affairs or those of the Partnership in such a manner as would intentionally cause
the termination of the Partnership for federal income tax purposes or would
cause it to be treated as an “association” taxable as a corporation for federal
income tax purposes, committed a material breach of this Agreement or
applicable law, or committed any other act or suffered any other condition that
would justify a decree of dissolution of the Partnership under the laws of the
State of Texas or would cause the General Partner to cease being a general
partner under the Act: or (iv) a Withdrawal, or a Permitted or non-Permitted
Transfer pursuant to Section 9.2 through 9.4 hereof. In the event a Person
ceases to be a General Partner without having Transferred its entire Interest
as a General Partner, such Person shall be treated as an unadmitted transferee
of a Partnership Interest as a result of an unpermitted Transfer (but
recognized) of an Interest pursuant to Section 9.4 hereof.


 


(b)           If a General Partner ceases to be a Partner
for any reason hereunder such Person shall continue to be liable as a Partner
for all debts and obligations of the Partnership that have accrued or that
exist at the time such Person ceases to be a General Partner, regardless of
whether, at such time, such debts or liabilities were known or unknown, actual or
contingent. A Person shall not be liable as a General Partner for Partnership
debts and obligations arising after such Person ceases to be a General Partner.
Any debts, obligations, or liabilities in damages to the Partnership of any
Person who ceases to be a General Partner shall be collectible by any legal
means, and the Partnership is authorized, in addition to any other remedies at
law or in equity, to apply any amounts otherwise distributable or payable by the
Partnership to such Person to satisfy such debts, obligations, or liabilities.


 


(c)           It is the intention of the Partners that the
Partnership not dissolve is a result of the cessation of any General Partner’s
status as a General Partner; provided, however, that if a dissolution
nevertheless occurs under the Act, the Partnership’s property, business and
affairs shall continue to be held and conducted in a new limited partnership
under this Agreement, with any remaining General Partners as general partners,
the Limited Partners as limited partners, and any unadmitted assignees of
Interests as “Interest Holders”. Notwithstanding any provision of the Act to
the contrary, each Partner and Interest Holder (including any successor to the
Partnership Interest of a General Partner) hereby: (i) waives any right that
such Person may have as a result of any such unintended dissolution to demand
or receive an accounting of the Partnership or any distribution in satisfaction
of such Person’s Interest in the Partnership or any security for the return or
distribution thereof; and (ii) agrees to indemnify and hold the Partnership and
each other Partner and Interest Holder wholly and completely harmless from all
costs or damage (including, without


 





















 


limitation, legal fees and expenses of enforcing
this indemnity) that any such indemnified Person may incur as a result of any
action inconsistent with part (i) of this sentence.


 


(d)           Notwithstanding any provision to the contrary
herein, if a Person ceases to be a General Partner, the remaining General
Partner shall refile the Certificate as if the Partnership had dissolved as a
result of such cessation and a new limited partnership were formed to this
Agreement to hold the Property and continue the business and affairs of the
Partnership.


 


(e)           If, at the time a Person ceases to be a
General Partner, such Person is also a Limited Partner or an Interest Holder
with respect to interests other than its Interest as General Partner, such
cessation shall not affect such Person’s rights and obligations with respect to
such Limited Partner Interests.


 


9.6           Election of New General Partner. Provided the Partnership has one or more General
Partners, any Partner may nominate one or more Persons for election as
additional General Partners. The election of an additional General Partner
shall require unanimous vote or the Partners.


 


ARTICLE X


 


BOOKS, RECORDS,
ACCOUNTING AND REPORTS


 


10.1         Records and Accounting. The General Partner shall keep or cause to be
kept complete and accurate books and records with respect to the Partnership’s
business and affairs, which books and records shall at all times be kept at the
principal office of the Partnership. Any records maintained by the Partnership
in the regular course of its business and affairs, including the name and
address of the Limited Partners, books of account and records of Partnership
proceedings, may be kept on or be in the form of punch cards, magnetic tape, photographs,
micrographics or any other information storage device, provided that the
records so kept are convertible into clearly legible written form within a
reasonable period of time. The books of the Partnership shall be maintained,
for financial reporting purposes, on the accrual basis in accordance with
generally accepted accounting principles. The Partnership may keep its books
for federal, state and local tax purposes on the accounting method (e.g., cash,
accrual) selected by the General Partner.


 


10.
2        Fiscal Year. The
fiscal year of the Partnership shall end as of the close of business on the
close of business on December 31 of each calendar year.


 





















 


10.3         Reports. As soon as reasonably practicable after the end of each fiscal year
of the Partnership, and in any event within seventy-five days of each such
fiscal year end, and at such other times as the General Partner may deem
appropriate, the General Partner shall cause to be prepared and delivered to
each Partner financial statements disclosing fully, as of the end of and for
such fiscal year or other period, the results of operations for such period and
the financial condition of the Partnership as of the end of such period.


 


10.4         Preparation of Tax Returns. The General Partner shall arrange for the preparation
and timely filing of all returns relating to Partnership income, gains, losses,
deductions and credits, as necessary for federal, state and local income tax
purposes. The Partner shall use its best efforts to furnish to the Limited
Partners following the close of the taxable year the tax information reasonably
required for federal, state and local income tax reporting purposes. The
classification, realization and recognition of income, gains, losses. credits
and other items shall be on the method of accounting chosen by the General Partner
for federal income tax purposes.


 


10.5         Tax Elections. The General Partner shall have the
authority to make any election or other determination on behalf of the
Partnership provided for under the Code or any provision of state or local tax
law, including, without limitation: (a) to adjust the basis of property of the
Partnership pursuant to Sections 754, 734(b), and 743(b) of the Code, or comparable
provisions of state or local law, in connection with transfers of Partnership
Interests and Partnership distributions; (b) to extend the statute of
limitations for the assessment of tax deficiencies against the Partners with
respect to adjustments to the Partnership’s federal, state, or local tax
returns: (c) to represent the Partnership and its Partners before taxing
authorities or courts of competent jurisdiction in tax matters affecting the
Partnership and its Partners in their capacities as Partners; (d) to execute
any agreements or other documents that bind the Partners with respect to such
tax matters or otherwise affect the rights of the Partnership and its Partners;
and (e) any actions on behalf of the Partnership and its Partners as may be
necessary or appropriate to satisfy applicable conditions so as to enable the
Partnership to file “group” or “composite” state income tax returns on behalf
of nonresident Partners in states where the Partnership conducts business to
the extent applicable state law permits or requires the filing of such returns,
and the General Partner determines that the interests of the Partners as a
whole would thereby be served; provided, however, that the amount of any
Partner’s share of tax paid with such return shall be treated as a distribution
of such amount to such Partner hereunder.


 


10.6         Tax Matters Partner. The initial General Partner is designated
the “Tax Matters Partner” (within the meaning of Section 6231(a)(7) of the
Code) of the Partnership and shall have all the powers and duties assigned to a



 





















 


Tax Matters Partner under the Code and in any
similar capacity under state or local law.


 


ARTICLE XI


 


AMENDMENT OF PARTNERSHIP
AGREEMENT


 


11.1         Amendments to Be Adopted Solely by the
General Partner. The
General Partner (pursuant to its power of attorney granted pursuant to Article
XII without the approval at the time of the Limited Partner may amend any provision
of this Agreement, and execute, swear to, acknowledge, deliver, file and record
whatever documents may be required in connection therewith, to reflect:


 


(a)           a change in the name of the Partnership or
its registered agent, the location of the principal place of business or the
registered office of the Partnership;


 


(b)           the admission, substitution or withdrawal of
Partners in accordance with this Agreement;


 


(c)           a change that is necessary or advisable in
the sole judgment of the General Partner to qualify the Partnership as a “limited
partnership” under the laws of any state or to ensure that the Partnership will
not he treated as a “corporation” or as an “association” taxable as a
corporation for federal income tax purposes;


 


(d)           a change that in the sole judgment of the
General Partner: (i) does not adversely affect the Limited Partner in any
material respect; or (ii) is required toeffect the intent of the provisions of
this Agreement, or is otherwise contemplated by this Agreement: or


 


(e)            any other amendments similar to the foregoing.


 


11.2
Amendment Procedures. Except as provided in Section 11.1, all amendments
to this Agreement shall be effective upon approval by the affirmative vote of a
majority in interest of the Partners.


 


ARTICLE XII


 


POWER OF ATTORNEY


 


12.1            Appointment of General Partners. Each Limited Partner does irrevocably
constitute and appoint the General Partner and each successor General Partner,
with full power of substitution and resubstitution as its true and lawful
attorney-in-fact, and in its name, place and stead, and for its use and
benefit, to execute, acknowledge, swear to, deliver, record and file: (a) this 


 





















 


Agreement and any amendment to this
Agreement; (b) the Certificate and all amendments and restatements required or
permitted by law or the provisions of this Agreement; (c) all certificates and
other instruments deemed necessary or advisable by the General Partner to carry
out the provisions of this Agreement or to register, qualify or continue the
Partnership as a limited partnership or partnership wherein the Limited
Partners have limited liability in the state where the Partnership may be, or
may be intending to be, doing business; (d) all instruments that the General
Partner deems appropriate to reflect a change or modification of this Agreement
or the Partnership in accordance with this Agreement; (e) all conveyances and other
instruments deemed necessary or advisable by the General Partner to effect the
dissolution and termination of the Partnership pursuant to the terms of this
Agreement; (f) all fictitious or assumed name certificates required or
permitted to be filed on behalf of the Partnership; and (g) all other
instruments or documents that may be required or permitted by law to be filed
on behalf of the Partnership.


 


12.2      Duration of Power. The power of attorney granted pursuant to
Section 12.1: (a) is coupled with an interest and shall be irrevocable; (b)
shall be exercised by any attorney-in-fact by listing the Limited Partner
executing any agreement, certificate, instrument, document with the single
signature of any such attorney-in-fact acting as attorney-in-fact for such
Limited Partner: and (c) shall survive the Bankruptcy, insolvency, dissolution,
or cessation of existence of a Limited Partner and shall survive the delivery
of an assignment by a Limited Partner of the whole or a portion of its Interest
in the Partnership, except that where the assignment is of such Limited Partner’s
entire Interest in the Partnership and the assignee, with the consent of the
Partners pursuant to Section 8.7 hereof, is admitted as a Substituted Limited
Partner, the power of attorney shall survive the delivery of such assignment
for the sole purpose of enabling any such attorney-in-fact to effect such
substitution, by signing as attorney-in-fact for the Limited Partner. In the
event of any conflict between this Agreement and any document, instrument,
conveyance or certificate executed or filed by the General Partner pursuant to
such power of attorney, this Agreement shall control.


 


12.3      Further Assurances. Each Limited Partner shall execute and
deliver to the General Partner, within fifteen days after receipt of the
General Partner’s request therefor, such further designation, powers of
attorney and other instruments as the General Partner deems necessary or
appropriate to carry out the provisions of this Agreement.


 





















 


ARTICLE XIII


 


DISSOLUTION AND WINDING
UP


 


13.1            Liquidating Events. The Partnership shall dissolve and commence
winding up and liquidation upon the first to occur of any of the following (“Liquidating
Events”):


 


(a)           August 31, 2044;


 


(b)           The sale of all or substantially all of the
Property;


 


(c)           The vote by a majority in interest of the
Partners to dissolve, wind up, and liquidate the Partnership;


 


(d)           The happening of any other event that makes
it unlawful, impossible, or impractical to carry on the business of the
Partnership; or


 


(e)           Any event that causes there to be no General
Partner.


 


 


The
Partners hereby agree that, notwithstanding any provision of the Act or the
Uniform Partnership Act, the Partnership shall not dissolve prior to the
occurrence of a Liquidating Event. Furthermore. if an event specified in
Section 13.1(e) hereof occurs, the Limited Partners may, within ninety days of
the date such event occurs, by an affirmative vote of a majority in interest of
the Limited Partners, elect a successor General Partner and continue the
Partnership business, in which case the Partnership shall not dissolve. If it
is determined, by a court of competent jurisdiction, that the Partnership has
dissolved: (i) prior to the occurrence of a Liquidating Event: or (ii) upon the
occurrence of an event specified in Section 13.1(e) hereof, following which the
Limited Partners elect a successor General Partner pursuant to the previous
sentence, the Partners hereby agree to continue the business of the Partnership
without a winding up or liquidation.


 


13.2            Winding Up.


 


(a)
Upon the occurrence of a Liquidating Event, the Partnership shall continue
solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and
Partners. No Partner shall take any action that is inconsistent with, or not
necessary to or appropriate for, the winding up of the Partnership’s business
and affairs.


 


(b)
The General Partner (or, in the event there is no remaining General Partner, any
Person elected by a majority in interest of the Limited Partner(s)) shall be
the “Liquidating Trustee” and shall be responsible for overseeing the winding
up and dissolution of the Partnership and shall take full account of their
Partnership’s liabilities and Property. The Liquidating Trustee shall cause to
be prepared a statement setting forth the Property and of the Partnership as of
the date of the Liquidating Event, and such statement shall be furnished to all
of the Partners. The Liquidating Trustee shall liquidate the Property of the
Partnership as promptly as possible, but in an orderly and 


 





















 


businesslike manner so as not to involve
undue sacrifice and to obtain fair market value.


 


(c)  Notwithstanding the foregoing, the
Liquidating Trustee may determine not to sell all or any portion of the
Property of the Partnership, in which event such Property shall be distributed
in kind pursuant to Section 13.3.


 


(d)  All proceeds from liquidation and all other
Property of the Partnership shall be distributed in the following order of
priority:


 


(i)  to the payment of the debts and liabilities
of the Partnership to creditors (other than Partners or their respective
Affiliates), and expenses of liquidation;


 


(ii)
to the payment of the debts and liabilities of the Partnership to Partners and
their respective Affiliates; and


 


(iii)
the balance to the Partners in proportion to their Capital Accounts, after giving
effect to all contributions, distributions and allocations for all periods.


 


13.3            Distribution in Kind. If the Liquidating Trustee shall determine
that a portion of the Partnership’s Property should be distributed in kind to
the Partners, such Person shall obtain an independent appraisal of the fair
market value of each such Property as of a date reasonable close to the date of
distribution. Distribution of any such Property in kind to a Partner shall be
considered a sale of such Property followed by a distribution of an amount
equal to the Property’s appraised fair market value for purposes of Section
13.2.


 


13.4            Cancellation of Certificate. On the completion of the distribution of Partnership
Property as provided in Sections 13.2 and 13.3, the Partnership shall be
terminated, and the Liquidating Trustee shall cause the cancellation of the
Partnership’s Certificate of Limited Partnership and shall take such other
actions as may be appropriate to terminate the Partnership.


 


13.5            Compensation of the Liquidating Trustee.


 


(a)  The Liquidating Trustee, if other than a
General Partner, shall be entitled to receive such compensation for its
services as Liquidating Trustee as may be approved by a majority in interest of
the Limited Partners. The Liquidating Trustee shall agree not to resign at any
time without 60 days prior written notice and, if other than a General Partner,
may be removed at any time, with or without cause, by written notice of removal
approved by a majority in interest of the Limited Partners.


 


(b)  Upon dissolution, removal or resignation of
the Liquidating Trustee, a successor and substitute Liquidating Trustee (who
shall 


 





















 


have and succeed to all rights, powers and
duties of the original Liquidating Trustee) shall be approved within 90 days
thereafter by a majority in interest of the Limited Partners. The right to
appoint a successor or substitute Liquidating Trustee in the manner provided
herein shall be recurring and continuing for so long as the functions and
services of the Liquidating Trustee are authorized to continue under the provisions
hereof, and every reference herein to the Liquidating Trustee will be deemed to
refer also any such successor or substitute Liquidating Trustee appointed in
the manner herein provided.


 


(c)
 Except as expressly provided in this
Article XIII, the Liquidating Trustee appointed in the manner provided herein
shall have and may exercise, without further authorization or approval of any
of the Partners, all of the powers conferred upon the General Partner under the
terms of this Agreement (but subject to all of the applicable limitations, contractual
or otherwise, upon the exercise of such powers) to the extent necessary or
desirable in the good faith judgment of the Liquidating Trustee to carry out
the duties and functions of the Liquidating Trustee hereunder (including the
establishment of reserves for liabilities that are contingent or uncertain in
amount) for and during such period of time as shall be reasonably in the good
faith judgment of the Liquidating Trustee to complete the winding up and liquidation
of the Partnership as provided for herein.


 


(d)  In the event that no Person is selected to be
the Liquidating Trustee within the time period set forth above, any Partner may
make application to an appropriate Court of the State of Texas to wind up the
affairs of the Partnership and, if deemed appropriate, to a Liquidating
Trustee.


 


13.6            Compliance With Timing Requirements of
Regulations.


 


(a)  In the event the Partnership is “liquidated”
within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations: (i)
distributions shall be made pursuant to this Article XIII to the General
Partner and Limited Partners who have positive Capital Accounts in compliance
with Section 1.704-1(b)(2)(ii)(b)(2) of the Regulations; and (ii) if any
General Partner’s Capital Account has a deficit balance (after giving effect to
all contributions, distributions,  and
allocations for all taxable years, including the year during which such liquidation
occurs), such General Partner shall contribute to the capital of the
Partnership the amount necessary to restore such deficit balance to zero in
compliance with Section 1.704-1(b)(2)(ii)(b)(3) of the Regulations. If any
Limited Partner has a deficit balance in its Capital Account (after giving
effect to all contributions, distributions and allocations for all taxable
years, including the year during which such liquidation occurs), such Limited
Partner shall have no obligation to make any contribution to the capital of the
Partnership with respect to such deficit, and such deficit shall not be
considered a debt owed to the Partnership or to any other Person for any
purpose whatsoever.


 





















 


(b)
In the discretion of the General Partner, a pro rata portion of the distributions
that would otherwise be made to the Partners pursuant to this Article XIII may
be:


 


(i)
distributed to a trust established for the benefit of the Partners for the
purposes of liquidating Partnership Property, collecting amounts owed to the
Partnership, and paying any contingent or unforeseen liabilities or obligations
of the Partnership or of the General Partner arising out of or in connection
with the Partnership. The Property and other assets of any such trust shall be
distributed to the Partners from time to time, in the reasonable discretion of
the General Partner, in the same proportions as the amount distributed to such
trust by the Partnership would otherwise have been distributed to the Partners
pursuant to this Agreement; or


 


(ii)
withheld to provide a reasonable reserve for Partnership liabilities
(contingent or otherwise) or to reflect the unrealized portion of any
installment obligations owed to the Partnership, provided that such withheld
amounts shall be distributed to the Partners as soon as practicable.


 


13.7         Deemed Distribution and Recontribution. Notwithstanding any other provision of this
Article XIII, in the event the Partnership is “liquidated” within the meaning of
Section 1.704-1(b)(2)(ii)(g) of the Regulations, but no Liquidating Event has
occurred, the Property shall not be liquidated, the Partnership’s liabilities
shall not be paid or discharged, and the Partnership’s affairs shall not be
wound up. Instead, the Partnership shall be deemed to have distributed the
Property in kind to the Partners, who shall be deemed to have assumed and taken
subject to all Partnership liabilities, all in accordance with their respective
Capital Accounts. Immediately thereafter, the Partners shall be deemed to have
recontributed the Property in kind Partnership, which shall be deemed to have
assumed and taken subject to all such liabilities.


 


13.8         Rights of and Among Limited Partners.  Except
as otherwise provided in this Agreement, each Limited Partner shall look solely
to the Property of the Partnership for the return of its Capital Contribution
and shall have no right or power to demand or receive Property other than cash
from the Partnership. No Limited Partner shall have priority over any other
Limited Partner as to the return of its Capital Contributions, distributions or
allocations.


 


13.9         Notice of Dissolution. In the event a Liquidating Event occurs or
an event occurs that would, but for provisions of Section 13.1, result in a
dissolution of the Partnership, the General Partner shall, within 30 days
thereafter, provide written notice thereof to each of the Partners and to all
other parties with whom the Partnership regularly conducts business (as
determined in the discretion of the General Partner) and shall publish notice
thereof in a newspaper of general circulation in each place in which the
Partnership 


 





















 


regularly conducts business (as determined in
the discretion of the General Partner).


 


ARTICLE XIV


 


MISCELLANEOUS


 


14.1         Notices. Any notice, demand, request, consent communication or report  (collectively a “Notice”) required or
permitted to be given or made to a Person under this Agreement shall be
effective only if in writing and (a) delivered in person, (b) sent by
registered or certified mail, return receipt requested, postage prepaid, (c)
sent by a nationally recognized overnight delivery service, with delivery
confirmed, or (d) telexed or telecopied, with receipt confirmed, addressed as
follows: (i) in the case of the Limited Partners, at the address as shown on
the books and records of the Partnership; and (ii) in the case of the General
Partner, 2280 N. Greenville Avenue, Richardson, Texas 75082-4412. or as
otherwise shown on the books and records of the Partnership.


 


A
Notice shall be deemed to have been given as of the date when (i) personally delivered;
(ii) three days after its deposit with the United States mail properly
addressed; (iii) the next day when delivered to said overnight delivery
service, properly addressed and prior to such delivery service’s cut-off time
for next day delivery; or (iv) when receipt of the telex or telecopy is confirmed,
as the case may be, unless the sending party has actual knowledge that a Notice
was not received by the intended recipient.


 


14.2         Remedies. Except as provided elsewhere herein, each Partner hereby recognize
that a default by it with respect to its obligations under this Agreement will
cause irreparable harm, injury and damage to the Partnership and the other
Partner. Therefore, each Partner hereby agrees that in the event of a default
by any Partner of one or more of its obligation hereunder, the Partnership or
any other Partner may, if it so elects, seek specific performance of such
obligation or obligations by the defaulting Partner, and the defaulting Partnerr
agrees not to oppose any attempt to obtain specific performance on the ground
that there exists adequate legal remedy (in damages or otherwise) for such
default. The remedies referred to in this Section 14.2 shall be non-exclusive,
cumulative of and additional to all other remedies of the parties hereto.


 


14.3         No Breach or Default. The execution, delivery and performance by
such Partner of this Agreement and the transactions contemplated hereby will
not constitute a breach of any term or provision of or constitute a default
under: (a) any outstanding indenture, mortgage, loan agreement or other similar
contract or agreement to which such Partner or any of its Affiliates is a party
or by which it or any of its Affiliates or it or their 


 





















 


property is bound; (b) any law, rule or
regulation; or (c) any order, writ, judgment or decree applicable to it.


 


14.1
No Governmental Consents. No consent, license, approval or authorization
of any governmental body, authority, bureau or agency is required on the part
of such Partner or any of its Affiliates in connection with the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated herein.


 


14.5         Accuracy of Information. Each Partner shall furnish to the
Partnership all information regarding such Partner or its Affiliates required
for inclusion in any documents to be prepared or filed in connection with the
business and affairs of the Partnership, and all such information shall be true
and correct in all material respects and shall not omit to state any material fact
necessary to be stated therein in order that such information not be
misleading.


 


14.6         Section Headings. Headings contained in this Agreement are
inserted only as a matter of convenience and in no way define, limit or extend
the scope or intent of this Agreement or any provisions hereof.


 


14.7         Waiver of Default. No consent or waiver, express or implied,
by the Partnership or a Partner with respect to any breach or default by
another Partner hereunder shall be deemed or construed to be a consent or waiver
with respect to any other breach or default by such Partner of the same
provision or any other provision of this Agreement. Failure on the part of the
Partnership or a Partner to complain of any act or failure to act of another
Partner or to declare such other Partner in default, irrespective of how long
such failure continues, shall not be deemed or constitute a waiver by the
Partnership or the Partners of any rights hereunder.


 


14.8         Creditors. None of the provisions of this Agreement shall be for the benefit of
or enforceable by any creditors of the Partnership.


 


14.9         Meetings. Meetings of the Partners may be called by the General Partner, or by
one of more Limited Partners whose Interests total at least one-third of the
Interests of the Partnership, upon three days Notice to the other Partners. The
Limited Partners shall not vote on matters that would cause the Limited
Partners to be deemed to be participating in the control of the business and
affairs of the Partnership so as to negate the limited liability of the Limited
Partners.


 





















 


14.10
Entire Agreement. This Agreement constitutes the entire agreement among the
parties with respect to the formation, operation and continuation of the
Partnership and the rights and duties of its Partners, and supersedes any prior
agreement or understanding among the parties with respect to the subject matter
hereof.


 


14.11
Amendment; Waiver. Except as provided otherwise herein, this Agreement
may not be changed, altered or amended, nor may any rights hereunder be waived,
by an instrument in writing signed by the party sought to be charged with such
amendment or waiver.


 


14.12
Governing Law. This Agreement and the rights and obligations of the
hereunder shall be subject to, governed by, and construed in accordance with
and governed by the Act and the laws of the State of Texas, without giving
effect to the provisions, polices or principles thereof relating to choice or
conflict of laws.


 


14.13
Binding Effect. Except as provided otherwise herein, every covenant, term
and provision of this Agreement shall be binding upon and shall inure to the
benefit of the Partners and their respective donees, personal representatives,
successors, transferees and assigns.


 


14.14
Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which shall
constitute one and the same agreement.


 


14.15
Separability. The provisions of this Agreement are severable, and if any
provision shall be held illegal, invalid or unenforceable, the parties affected
thereby shall substitute for the affected provision an enforceable provision
that approximates the intent and economic benefit of the affected provision as
closely as possible, but all other provisions shall continue in full force and
effect.


 


14.16
Gender and Number. Whenever required by the context hereof, the singular
shall include the plural and the plural shall include the singular. The
masculine gender shall include the feminine and neuter genders, and the neuter
gender shall include the masculine and feminine genders.


 


14.17
Waiver of Partition. Each Partner hereby irrevocably waives, during the term
of the Partnership, any right that it may have to maintain any action for
partition with to any Partnership Property.


 





















 


14.18
Further Action. Each Partner, upon request of any General Partner,
agrees to perform all further acts and execute, acknowledge and deliver any
documents which may be reasonably necessary, appropriate, or desirable to carry
out the provisions of this Agreement.


 





















 


IN
WITNESS WHFREOF, the undersigned have executed this Agreement of Limited Partnership
of the date first written above.


 


	
   

  	
  GENERAL
  PARTNER:

  
	
   

  	
  FOSSIL.,
  INC.

  
	
   

  	
  By:

  	
  /s/
  Tom Kartsotis

  	
   

  
	
   

  	
   

  	
  Tom
  Kartsotis. Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LIMITED
  PARTNER:

  
	
   

  	
  FOSSIL
  TRUST

  
	
   

  	
  By:

  	
  /s/
  Alan D. Moore

  	
   

  
	
   

  	
   

  	
  Alan
  D. Moore. Trustee

  
						



 





















 


STATE
OF TEXAS


COUNTY
OF DALLAS


 


I,
Suzi A. Rowley, notary public, do hereby certify that on this 3rd day
of August, 1994 personally appeared before me Tom Kartsotis who, being by me
first duly sworn, declared that he is the Chief Executive Officer of Fossil,
Inc., a Delaware corporation, that he signed the foregoing document as the
Chief Executive Officer of the corporation, and that the statements contained
therein are true.


 


	
   

  	
  /s/
  Suzy A. Rowley

  	
   

  
	
   

  	
  Notary
  Public

  
	
   

  	
   

  
	
  (NOTARIAL
  SEAL)

  	
   

  
	
  My
  Commission Expires:

  	
   

  
	
  6-19-97

  	
   

  	
   

  
				



 


 


STATE
OF TEXAS


COUNTY
OF DALLAS


 


 


I,
Suzi A. Rowley, notary public, do hereby certify that on this 3rd
day of August, 1994 personally appeared before me Alan D. Moore who, being by
me first duly sworn, declared that he is the Trustee of Fossil Trust, a
Delaware Business Trust, that he signed the foregoing document as the Trustee
of the Trust, and that the statements contained therein are true.


 


 


	
   

  	
  /s/
  Suzy A. Rowley

  	
   

  
	
   

  	
  Notary
  Public

  
	
   

  	
   

  
	
  (NOTARIAL
  SEAL)

  	
   

  
	
  My
  Commission Expires:

  	
   

  
	
  6-19-97